FORUM FUNDS INC, 497, 1996-01-11

FORUM FUNDS INC
497, 1996-01-11

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DAILY ASSETS TREASURY FUND

Prospectus dated January 5, 1996

This Prospectus offers shares of Daily Assets Treasury Fund (the "Fund")
and consists of these cover pages and the attached Prospectus relating to shares
of the Fund dated August 1, 1995 (the "August Prospectus"), which is
incorporated herein.

The information in the August Prospectus is amended as follows:

1. CORE AND GATEWAY-Registered Trademark- STRUCTURE

At a meeting held on December 6, 1995, shareholders of the Fund approved
certain investment policies designed to enable the Fund to convert to a Core and
Gateway structure. Under this structure, which is expected to be implemented in
January 1996, the Fund will seek to achieve its investment objective by
investing its assets in the Treasury Portfolio (the "Portfolio"), a series of
Core Trust (Delaware) ("Core Trust"), an open-end management investment company,
rather than through direct investments in securities. Accordingly, the Fund's
investment experience will correspond directly with that of the Portfolio.. The
Portfolio has the same investment objective and policies as the Fund. Thus,
references in the Prospectus to the Fund's investment objective and policies
will also apply to the Portfolio. See "Investment Objective and Policies," in
the Prospectus for a complete description of the investment objective, policies,
and restrictions of the Fund and Portfolio.

Forum Advisors, Inc. ("Forum Advisors"), the Fund's investment adviser,
will serve as investment adviser to the Portfolio, for which its fee will be
0.05% of the Portfolio's average daily net assets. Linden Asset Management,
Inc. ("Linden") will also provide investment advisory services to the Portfolio.
Linden's advisory fee will be paid by Forum Advisors. Payments to Linden will
not increase the amount paid by Core Trust to Forum Advisors (or indirectly by
the Fund, as a shareholder of the Portfolio). Other entities that perform
services for the Fund will perform substantially similar services for the
Portfolio. Linden is controlled by Anthony R. Fischer, Jr., who is its sole
stockholder, director and officer. As of the date of this Prospectus, Linden
provided investment advisory services with respect to assets totaling
approximately $700 million.

Upon the conversion, shareholders will continue to hold shares of the Fund,
which will in turn hold a beneficial interest in the Portfolio. Changing to
this operating structure will not alter the rights and privileges of
shareholders of the Fund nor have any impact on the underlying assets of the
Fund, which will be transferred to the Portfolio.

2. EXPENSES - ANNUAL OPERATING EXPENSES.

The following table replaces the "Annual Fund Operating Expenses" table
found on page 2 of the Prospectus. The purpose of the following table is to
assist investors in understanding the various expenses that an investor in the
Fund will bear directly or indirectly. The table reflects the combined expenses
of the Fund and the Portfolio. There are no transaction expenses associated
with purchases, redemptions or exchanges of Fund shares.

ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average net assets,
after fee waivers and expense reimbursements)
Management Fees(2) 0.25%
12b-1 Fees None
Other Expenses 0.25%
TOTAL FUND OPERATING EXPENSES 0.50%
(1) The amounts of expenses reflect the operating expenses of the Fund prior to
its investment in the Portfolio and are based on amounts incurred for the
Fund's most recent fiscal year ended March 31, 1995, after an

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adjustment to reflect the Fund's and the Portfolio's advisory and
administrative fees ("Management Fees"). and the elimination of certain
voluntary fee waivers of the Fund. Absent expense reimbursements and fee
waivers for such fiscal year, the expenses of the Fund would have been:
Management Fees, 0.35%; Other Expenses, 0.60%; and Total Fund Operating
Expenses, 0.95%. Incident to the Fund's investment in the Portfolio, it is
expected that the combined expenses of the Fund and the Portfolio will be:
Management Fees, 0.25%; Other Expenses, 0.25% and Total Expenses 0.50%.
For a further description of the various expenses incurred in the operation
of the Fund, see "Management."

(2) Includes the Adviser's investment advisory fee and Forum's management fee.
The Fund's expenses will include the Fund's pro rata portion of all
operating expenses of the Portfolio, which will be borne indirectly by Fund
shareholders. The Trust's board of trustees believes that the aggregate
per share expenses of the Fund and the Portfolio will be approximately
equal to the expenses the Fund would incur if its assets were invested
directly in money market securities. As long as its assets are invested in
a Portfolio, a Fund pays no investment advisory fees directly.

EXAMPLE. Following is a hypothetical example that indicates the dollar amount
of expenses that an investor in the Fund would pay assuming (i) the investment
of all of the Fund's assets in the Portfolio, (ii) a $1,000 investment in the
Fund, (iii) a 5% annual return, (iv) the reinvestment of all dividends and (v)
distributions and redemption at the end of each period:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Portfolio Investment $ 5 $16 $28 $63

The example is based on the expenses listed in the Annual Operating Expense
table, which assumes the continued waiver and reimbursement of certain fees and
expenses. The five percent annual return is not predictive of and does not
represent the Fund's projected returns; rather, it is required by government
regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN INDICATED.

3. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of the Fund. The information with respect to the Fund's fiscal
years ended March 31st has been audited in connection with an audit of the
Fund's financial statements by Deloitte & Touche LLP, independent auditors. The
information with respect to the period ended September 30, 1995 is unadited.
The financial statements and independent auditors' report thereon for the fiscal
years ended March 31st are incorporated by reference into the SAI. The Fund's
annual report to shareholders may be obtained from the Trust without charge.
<TABLE>
<CAPTION>

DAILY ASSETS TREASURY FUND

Six Months
Ended Year Ended
September 30, March 31,
-------------------------------------
1995 1995 1994 1993(1)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning Net Asset Value per Share $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Net Investment Income 0.03 0.04 0.03 0.02
Net Realized and Unrealized Gain --- --- --- ---
(Loss) on Securities
Dividends from Net Investment Income (0.03) (0.04) (0.03) (0.02)
Distributions from Net Realized Gains --- --- --- ---
Ending Net Asset Value per Share $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
----- ----- ----- -----
Ratios to Average Net Assets:
Expenses (2) 0.50%(3) 0.37% 0.33% 0.22%(3)
Net Investment Income 5.21%(3) 4.45% 2.82% 2.92%(3)
Total Return 2.66% 4.45% 2.83% 3.13%(3)
Portfolio Turnover Rate N/A N/A N/A N/A

- 2 -

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Net Assets at the End of Period (000's Omitted) $38,001 $36,329 $26,505 $4,687

(1) The Fund commenced operations on July 1, 1992.

(2) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements not
occurred, the ratio of expenses to average net assets would
have been 1.01%(3) 1.10% 1.17% 2.43%(3).

(3) Annualized.
</TABLE>

4. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized
from a Maryland corporation into a Delaware business trust under the name
Forum Funds (the "Trust"). As a Delaware business trust, the Trust's operatins
will be governed by its Trust Instrument, By-laws and applicable Delaware law
rather than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

5. OTHER CONSIDERATIONS

Core Trust is a Delaware business trust organized under the laws of the
state of Delaware in September 1994. . Accordingly, the Portfolio directly
acquires its own securities and the Fund acquires an indirect interest in those
securities. The assets of the Portfolio belong only to, and the liabilities of
the Portfolio are borne solely by, the Portfolio and no other portfolio of Core
Trust. Upon liquidation of a Portfolio, investors in the Portfolio would be
entitled to share pro rata in the net assets of the Portfolio available for
distribution to investors.

Although other institutional investors (including other mutual funds) may
invest in the Portfolio, as of the date hereof the Fund is the only
institutional investor that has contemplated investing all of its assets in the
Portfolio. Any other fund may have different expenses and, consequently,
different returns than the Fund. Information regarding any such funds in the
future will be available from Forum Financial Services, Inc., the Portfolio's
placement agent, at (207) 879-1900.

The investment objective and all fundamental investment policies of the
Fund and the Portfolio may not be changed without shareholder approval. On most
issues subject to a vote of investors in the Portfolio, the Fund will solicit
proxies from shareholders of the Fund and will vote its interest in the
Portfolio in proportion to the votes cast by its shareholders. If there are
other investors in the Portfolio, there can be no assurance that any issue that
receives a majority of the votes cast by Fund shareholders will receive a
majority of votes cast by all investors in the Portfolio.

The Fund may withdraw its entire investment from the Portfolio at any time
if the Board determines that it is in the best interests of the Fund and its
shareholders to do so. The Fund might withdraw, for example, if the Portfolio
changed its investment objective and shareholders of the Fund did not approve a
parallel change in the Fund's objective. That withdrawal could result in a less
diversified portfolio of investments for the Fund and could affect adversely the
liquidity of the Fund's portfolio. If the Fund decided to convert those
securities to cash, it usually would incur transaction costs. If the Fund
withdrew its investment in the Portfolio, the inability of the Fund to find a
suitable replacement investment, in the event the Board decided not to permit
Forum Advisers to manage the Fund's assets, could have a significant impact on
shareholders of the Fund. In addition, the Fund's investment in the Portfolio
may be affected if another investor in the Portfolio, if any, were to make a
large-scale redemption. In that event, the Portfolio's remaining investors
(including the Fund) might, as a result, experience higher pro rata operating
expenses, thereby producing lower returns. A large-scale distribution in kind
of portfolio securities either to the Fund or to another investor could result
in a less diversified or less liquid portfolio of investments for the Fund or
could result in decreased economies of scale. Forum has only one year of
experience in managing funds that utilize its "Core and Gateway" structure.

The Portfolio is not required to pay income taxes on its net investment
income and capital gains, as it is treated as a partnership for Federal income
tax purposes. All interest, dividends and gains and losses of the

- 3 -

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Portfolio are deemed to have been "passed through" to the Fund in proportion to
the Fund's holdings in the Portfolio, regardless of whether such interest,
dividends or gains have been distributed by the Portfolio or losses have been
realized by the Portfolio.

- 4-

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FORUM FUNDS, INC.

DAILY ASSETS TREASURY FUND

ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:
Forum Financial Corp.
P.O. Box 446
Portland, Maine 04112
(207) 879-0001

PROSPECTUS
August 1, 1995

This Prospectus offers shares of Daily Assets Treasury Fund (the "Fund"), a
diversified portfolio of Forum Funds, Inc. (the "Company"), an open-end,
management investment company.

DAILY ASSETS TREASURY FUND seeks high current income to the
extent consistent with the preservation of capital and the
maintenance of liquidity. The Fund invests primarily in
obligations issued or guaranteed by the United States
Treasury or by certain agencies and instrumentalities of the
United States Government with a view toward providing income
that is generally considered exempt from state and local
income taxes. Under normal market conditions, the Fund will
invest at least 65% of its total assets in U.S. Treasury
obligations. See "Investment Objective and Policies."

Shares of the Fund are offered to investors at a price equal to the next
determined net asset value without any sales charge.

This Prospectus sets forth concisely the information concerning the Company and
the Fund that a prospective investor should know before investing. The Company
has filed with the Securities and Exchange Commission ("SEC") a Statement of
Additional Information dated August 1, 1995, as may be amended from time to time
(the "SAI"), which contains more detailed information about the Company and the
Fund and which is incorporated into this Prospectus by reference. The SAI is
available without charge by contacting the Company at the address listed above.

Investors should read this Prospectus and retain it for future reference.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1. PROSPECTUS SUMMARY

HIGHLIGHTS OF THE FUND

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FUND MANAGEMENT

The executive offices of the Fund's investment adviser, Forum Advisors,
Inc. (the "Adviser"), are located at Two Portland Square, Portland, Maine 04101.
The manager of the Company and distributor of its shares is Forum Financial
Services, Inc. ("Forum"). Forum Financial Corp. (the "Transfer Agent"), Two
Portland Square, Portland, Maine 04101, serves as the Company's transfer agent,
dividend disbursing agent and shareholder servicing agent. See "Management."

PURCHASES AND REDEMPTIONS

Shares of the Fund are offered without a sales charge at the next
determined net asset value. The minimum initial investment is $10,000 ($2,000
for IRAs, $2,500 for exchanges) and the minimum subsequent investment is $500.
Shares may be redeemed without charge. See "Purchases and Redemptions of
Shares."

EXCHANGE PROGRAM

Shareholders of the Fund may exchange their shares without charge for the
shares of certain other funds. See "Purchases and Redemptions of Shares -
Exchanges."

DIVIDENDS

Dividends of net investment income are declared daily and paid monthly by
the Fund and are reinvested in Fund shares unless a shareholder elects to have
them paid in cash. See "Dividends and Tax Matters."

EXPENSES OF INVESTING IN THE FUND

The purpose of the following table is to assist investors in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly.

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases....None
Exchange Fee................................ None

ANNUAL FUND OPERATING EXPENSES (1)

(as a percentage of average net assets
after expense reimbursements)
Management Fees..............................0.15%
12b-1 Fees...................................None
Other Expenses...............................0.22%

Total Fund Operating Expenses................0.37%

(1) The amounts of expenses are based on amounts incurred for the Fund's most
recent fiscal year ended March 31, 1995. Absent expense reimbursements and fee
waivers, the expenses of the Fund would have been: Management Fees, 0.50%;
Other Expenses, 0.60%; and Total Fund Operating Expenses, 1.10%. For a further
description of the various expenses incurred in the operation of the Fund, see
"Management."
(2) Includes the Adviser's investment advisory fee and Forum's management fee.

EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in the Fund would pay assuming a $1,000 investment in
the Fund, a 5% annual return, the reinvestment of all dividends and
distributions and redemption at the end of each period:

1 Year 3 Years 5 Years 10 Years
$ 4 $12 $21 $47

The example is based on the expenses listed in the table. The five percent
annual return is not predictive of and does not represent the Fund's projected
returns; rather, it is required by government regulation. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.

2. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of the Fund. This information has been audited in connection with
an audit of the Fund's financial statements by Deloitte & Touche LLP,
independent auditors. The financial statements and independent auditors' report
thereon are incorporated by reference into the SAI. The Fund's annual report to
shareholders may be obtained from the Company without charge.

<PAGE>

Year Ended March 31

1995 1994 1993(1)

Beginning Net Asset Value per Share $1.00 $1.00 $1.00

Net Investment Income 0.04 0.03 0.02

Net Realized and Unrealized Investment
Gain on Securities

Dividends from Net Investment Income (0.04) (0.03) (0.02)

Distributions from Net Realized Gains

Ending Net Asset Value per Share $1.00 $1.00 $1.00

Ratios to Average Net Assets:
Expenses (2) 0.37% 0.33% 0.22%(3)
Net Investment Income 4.45% 2.82% 2.92%(3)

Total Return 4.45% 2.83%
3.13%(3)

Net Assets at the End of
Period (000's Omitted) $36,329 $26,505 $4,687

(1) The Fund commenced operations on July 1, 1992.

(2) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would
have been:
Expenses 1.10% 1.17% 2.43%(3)

(3) Annualized.

3. INVESTMENT OBJECTIVE AND POLICIES

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide high current income to
the extent consistent with the preservation of capital and the maintenance of
liquidity. There can be no assurance that the Fund will achieve its investment
objective or maintain a stable net asset value.

INVESTMENT POLICIES

U.S. Government Securities. The Fund seeks to attain its investment
objective by investing primarily in obligations issued or guaranteed as to
principal and interest by the United States Treasury or by certain agencies and
instrumentalities of the United States Government ("U.S. Government
Securities"). The Fund invests with a view toward providing income that is
generally considered exempt from state and local income taxes. The Fund will
purchase a U.S. Government Security that is not backed by the full faith and
credit of the U.S. Government only if that security has a remaining maturity of
one year or less. The Fund's policies may result in a lower yield than could
result from a policy of investing in other types of money market instruments.

Under normal market conditions, the Fund will invest at least 65% of its
total assets in U.S. Treasury obligations, such as Treasury bills and notes.
Among the other securities in which the Fund may invest are obligations of the
Farm Credit System, Farm Credit System Financial Assistance Corporation, Federal
Financing Bank, Federal Home Loan Banks, General Services Administration,
Student Loan Marketing Association, and Tennessee Valley Authority. Income on
these obligations and the obligations of certain other agencies and
instrumentalities is generally not subject to state and local income taxes by
Federal law. In addition, the income

<PAGE>

received by Fund shareholders that is attributable to these investments will
also be exempt in most states from state and local income taxes. Shareholders
should determine through consultation with their own tax advisors whether and to
what extent dividends payable by the Fund from interest received with respect to
its investments will be considered to be exempt from state and local income
taxes in the shareholder's state. Shareholders similarly should determine
whether the capital gain and other income, if any, payable by the Fund will be
subject to state and local income taxes in the shareholder's state. See
"Dividend and Tax Matters."

The U.S. Government Securities in which the Fund may invest include direct
obligations of the U.S. Treasury (such as Treasury bills and notes) and other
securities backed by the full faith and credit of the U.S. Government. Certain
U.S. Government Securities have lesser degrees of government backing. For
instance, certain obligations are supported by the right of the issuer to borrow
from the Treasury under certain circumstances and other obligations, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the agency or instrumentality. There is no guarantee that the U.S.
Government will support securities not backed by its full faith and credit and,
accordingly, these securities may involve more risk than other U.S. Government
Securities.

U.S. GOVERNMENT ZERO COUPON SECURITIES. The Fund may invest in separately
traded principal and interest components of securities issued or guaranteed by
the U.S. Treasury under the Treasury's Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Zero coupon securities are sold
at original issue discount and pay no interest to holders prior to maturity.
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. See
"Dividends and Tax Matters - Taxes."

GENERAL INFORMATION. The Fund will only invest in high quality, short-term
money market instruments that are determined by the Adviser, pursuant to
procedures approved by the Board of Directors of the Company (the "Board"), to
be eligible for purchase and to present minimal credit risks. The Fund's
investments are subject to the restrictions imposed by Rule 2a-7 under the
Investment Company Act of 1940. In accordance with that rule, the Fund will
only invest in U.S. dollar denominated instruments that have a maximum remaining
maturity of 397 days and will maintain a dollar-weighted average portfolio
maturity of 90 days or less. Generally, high quality instruments include those
that (i) are rated (or, if unrated, are issued by an issuer with comparable
outstanding short-term debt that is rated) in one of the two highest rating
categories by two nationally recognized statistical rating organizations
("NRSROs") or, if only one NRSRO has issued a rating, by that NRSRO, or (ii) are
otherwise unrated and determined by the Adviser to be of comparable quality. A
description of the rating categories of various rating agencies, such as
Standard & Poor's Corporation and Moody's Investors Service, Inc. is contained
in the SAI. The Fund may invest in instruments with fixed, variable or floating
interest rates. To ensure adequate liquidity the Fund may not invest more than
10% of its net assets in illiquid securities. The Adviser's determinations of
the comparable quality of all unrated securities is made pursuant to guidelines
adopted by the Board.

The Fund's yields will tend to fluctuate inversely with prevailing market
interest rates. For instance, in periods of falling market interest rates, the
Fund's yields will tend to be somewhat higher than those rates. Although the
Fund invests in high quality money market instruments, an investment in the Fund
is subject to risk even if all securities in the Fund's portfolio are paid in
full at maturity. All money market instruments, including U.S. Government
Securities, can change in value when interest rates, the issuer's actual or
perceived creditworthiness or the issuer's ability to meet its obligations
change.

FORWARD COMMITMENT SECURITIES. The Fund may purchase securities on a when-
issued or delayed delivery basis (forward commitments). When these transactions
are negotiated, the price or yield is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
Securities so purchased are subject to market price fluctuation from the time of
purchase, but no interest on the securities accrues to the Fund until delivery
and payment take place. Accordingly, the value of the securities on the
delivery date may be more or less than the purchase price. Forward commitments
will be entered into only when the Fund has the intention of actually acquiring
the securities, but the Fund may sell the securities before the settlement date
if deemed advisable. Forward commitments will not be entered into if the
aggregate of the commitments exceeds 15% of the value of the Fund's total
assets.

OTHER INVESTMENT POLICIES. All investment policies of the Fund that are
designated as fundamental, and the Fund's investment objective, may not be
changed without approval of the holders of a majority of the Fund's outstanding
voting securities. A majority of the Fund's outstanding voting securities means
the lesser of 67% of the shares of the Fund present or represented at a
shareholders meeting at which the holders of more than 50% of the shares are
present or represented, or more than 50% of the outstanding shares of the Fund.
All other investment policies of the Fund may be changed by the Board without
shareholder approval. A further description of the Fund's investment policies
is contained in the SAI. The Fund may borrow money for temporary or emergency
purposes (including the meeting of redemption requests) but not in excess of 33
1/3% of the value of the Fund's

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total assets. Borrowing for purposes other than meeting redemption requests
will not exceed 5% of the value of the Fund's total assets. The Fund is
permitted to invest up to 10% of the value of its total assets in other
investment companies which intend to comply with Rule 2a-7 and have
substantially similar investment objectives and policies. The Fund may also
from time to time lend securities from its portfolio to brokers, dealers and
other financial institutions.

4. MANAGEMENT

The business of the Company is managed under the direction of the Board of
Directors. The Board formulates the general policies of the Fund and meets
periodically to review the results of the Fund, monitor investment activities
and practices and discuss other matters affecting the Fund and the Company.

MANAGER AND DISTRIBUTOR

Subject to the supervision of the Board, Forum supervises the overall
management of the Fund and acts as distributor of the Fund's shares. Forum, the
Adviser and the Transfer Agent are members of the Forum Financial Group of
companies and together provide a full range of services to the investment
company and financial services industry. As of the date hereof, Forum acted as
manager and distributor of registered investment companies and collective trust
funds with assets of approximately $9.2 billion. Forum, whose address is 61
Broadway, New York, New York 10006, is a registered broker-dealer and investment
adviser and is a member of the National Association of Securities Dealers, Inc.
As of the date of this Prospectus, Forum, the Adviser and the Transfer Agent
were controlled by John Y. Keffer, President and Chairman of the Company.

Under its management and distribution agreement with the Company, Forum
supervises all aspects of the Fund's operations, including the receipt of
services for which the Company is obligated to pay, provides the Company with
general office facilities and provides, at the Company's expense, the services
of persons necessary to perform such supervisory, administrative and clerical
functions as are needed to effectively operate the Company. Those officers, as
well as certain employees and Directors of the Company, may be directors,
officers or employees of (and persons providing services to the Company may
include) Forum and its affiliates. In addition, under its agreement Forum acts
as distributor of the Fund's shares. Forum acts as the agent of the Company in
connection with the offering of shares of the Fund. For these services and
facilities, Forum receives with respect to the Fund a management fee at an
annual rate of 0.30% of the Fund's average daily net assets.

ADVISER

Forum Advisors, Inc. serves as the investment adviser of the Fund. Subject
to the general supervision of the Board, the Adviser makes investment decisions
for the Fund. For its services, the Adviser receives an advisory fee at an
annual rate of 0.20% of the Fund's average daily net assets. The Adviser was
incorporated under the laws of Delaware in 1987 and is registered under the
Investment Advisers Act of 1940.

SHAREHOLDER SERVICING

Shareholder inquiries and communications concerning the Fund may be
directed to the Transfer Agent. The Transfer Agent acts as the Fund's transfer
agent and dividend disbursing agent. The Transfer Agent maintains an account
for each shareholder of the Fund (unless such accounts are maintained by sub-
transfer agents or processing agents) and performs other transfer agency and
shareholder related functions. For its services, the Transfer Agent receives a
fee at an annual rate of 0.25% of the Fund's average daily net assets.

The Transfer Agent is authorized to subcontract any or all of its functions
to one or more qualified sub-transfer agents or processing agents, which may be
processing organizations (as described under "Purchases and Redemptions of
Shares - Purchase and Redemption Procedures") Forum, or affiliates of Forum, who
agree to comply with the terms of the Transfer Agency Agreement. The Transfer
Agent may pay those agents for their services, but no such payment will increase
the Transfer Agent's compensation from the Company. In addition, the Transfer
Agent performs portfolio accounting services for the Fund, including
determination of the Fund's net asset value per share, pursuant to a separate
agreement with the Company.

EXPENSES OF THE COMPANY

The Fund's expenses comprise Company expenses attributable to the Fund,
which are charged to the Fund, and expenses not attributable to a particular
fund of the Company, which are allocated among the Fund and all other funds of
the Company in proportion to their average net assets. Subject to the
obligations of the Adviser to reimburse the Company for excess expenses, the
Company pays for all of its expenses. The Adviser, Forum and the Transfer
Agent, in their sole discretion, may waive all or any portion of their
respective fees, which are accrued daily and paid monthly. Any such waiver,
which could be discontinued at any time, would have the effect of

<PAGE>

increasing the Fund's performance for the period during which the waiver was in
effect and would not be recouped at a later date.

5. PURCHASES AND REDEMPTIONS OF SHARES

GENERAL INFORMATION

All transactions in Fund shares are effected through the Transfer Agent,
which accepts orders for purchases and redemptions from shareholders of record
and new investors. Shareholders of record will receive from the Company
periodic statements listing all account activity during the statement period.
The Company reserves the right in the future to modify, limit or terminate any
shareholder privilege in the future upon appropriate notice to shareholders and
may charge a fee for certain shareholder services, although no such fees are
currently contemplated.

PURCHASES. Fund shares are sold at a price equal to their net asset value
on all weekdays except customary national business holidays and Good Friday
("Fund Business Day"). Fund shares are issued immediately following the next
determination of net asset value made after an order for the shares in proper
form, accompanied by funds on deposit at a Federal Reserve Bank ("Federal
Funds"), is accepted by the Transfer Agent. An investor's funds will not be
accepted or invested by the Fund during the period before the Fund's receipt of
Federal Funds. The Fund's net asset value is calculated at 12:00 p.m., Eastern
time on each Fund Business Day. Fund shares become entitled to receive
dividends on the day the shares are issued.

The Fund reserves the right to reject any subscription for the purchase of
Fund shares. Stock certificates are issued only to shareholders of record upon
their written request and no certificates are issued for fractional shares.

REDEMPTIONS. Fund shares may be redeemed without charge at their net asset
value on any Fund Business Day. There is no minimum period of investment and no
restriction on the frequency of redemptions. Fund shares are redeemed as of the
next determination of the Fund's net asset value following acceptance by the
Transfer Agent of the redemption order in proper form (and any supporting
documentation which the Transfer Agent may require). Shares redeemed are not
entitled to receive dividends declared on or after the day on which the
redemption becomes effective.

Normally, redemption proceeds are paid immediately following, but in no
event later than seven days following, acceptance of a redemption order.
Proceeds of redemption requests (and exchanges), however, will not be paid
unless any check used for investment has been cleared by the shareholder's bank,
which may take up to 15 calendar days. This delay may be avoided by investing
through wire transfers. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to the shareholder's record address. The
right of redemption may not be suspended nor the payment dates postponed except
when the New York Stock Exchange is closed (or when trading thereon is
restricted) for any reason other than its customary weekend or holiday closings
or under any emergency or other circumstance as determined by the SEC.

Proceeds of redemptions normally are paid in cash. However, payments may
be made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of the Fund. The
Company will 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.

The Company employs reasonable procedures to ensure that telephone orders
are genuine (which include recording certain transactions and the use of
shareholder security codes) and, if it does not, may be liable for any losses
due to unauthorized or fraudulent telephone instructions. Shareholders should
verify the accuracy of telephone instructions immediately upon receipt of
confirmation statements. During times of drastic economic or market changes,
telephone redemption and exchange privileges may be difficult to implement. In
the event that a shareholder is unable to reach the Transfer Agent by telephone,
requests may be mailed or hand-delivered to the Transfer Agent.

PURCHASE AND REDEMPTION PROCEDURES

Investors may obtain the account application necessary to open an account
by writing the Transfer Agent at the address on the cover page of this
prospectus. For those shareholder services not referenced on the account
application and to change information on a shareholder's account (such as
addresses), investors or existing shareholders should request an optional
services form from the Transfer Agent.

<PAGE>

INITIAL PURCHASE OF SHARES

There is a $10,000 minimum for initial investments in the Fund ($2,000 for
individual retirement accounts, $2,500 for exchanges).

BY MAIL. Investors may send a check made payable to the Company along with
a completed account application to the address on the cover page of this
Prospectus. Checks are accepted at full value subject to collection. Payment
by a check drawn on any member of the Federal Reserve System can normally be
converted into Federal Funds within three business days after receipt of the
check. Checks drawn on some non-member banks may take longer.

BY BANK WIRE. To make an initial investment in the Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Company at (207) 879-0001 to obtain an account number. The investor should
then instruct a member commercial bank to wire the investor's money immediately
to:
First National Bank of Boston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Financial Corp.
Account #: 541-54171
Re: Daily Assets Treasury Fund
Account #:
Account Name:

The investor should then promptly complete and mail the account
application. Any investor planning to wire funds should instruct a bank early
in the day so the wire transfer can be accomplished the same day.

THROUGH FINANCIAL INSTITUTIONS. Shares may be purchased and redeemed
through certain brokers, banks or other financial institutions ("Processing
Organizations"), including affiliates of the Transfer Agent. Processing
Organizations may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Fund. The Company is not responsible for the failure of any institution to
promptly forward these requests.

Investors who purchase or redeem shares in this manner will be subject to
the procedures of their Processing Organization, which may include charges,
limitations, investment minimums, cutoff times and restrictions in addition to,
or different from, those applicable to shareholders who invest in the Fund
directly. These investors should acquaint themselves with their institution's
procedures and should read this Prospectus in conjunction with any materials and
information provided by their institution. Customers who purchase Fund shares
through a Processing Organization may or may not be the shareholder of record
and, subject to their institution's and the Fund's procedures, may have Fund
shares transferred into their name. Certain Processing Organizations may enter
purchase orders with payment to follow.

Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Company may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers.

SUBSEQUENT PURCHASES OF SHARES

There is a $500 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check, by sending a bank wire or through a financial
institution as indicated above. Shareholders using the wire system for purchase
should first telephone the Company at (207) 879-0001 to notify it of the wire
transfer. All payments should clearly indicate the shareholder's name and
account number.

Shareholders may purchase Fund shares at regular, preselected intervals by
authorizing the automatic transfer of funds from a designated bank account
maintained with a United States banking institution which is an Automated
Clearing House member. Under the program, existing shareholders may authorize
amounts of $250 or more to be debited from their bank account and invested in
the Fund monthly or quarterly. Shareholders may terminate their automatic
investments or change the amount to be invested at any time by written
notification to the Transfer Agent.

REDEMPTION OF SHARES

Shareholders that wish to redeem shares by telephone or by check or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application. These privileges may not
be available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone
or check.

<PAGE>

BY MAIL. Shareholders may make a redemption in any amount by sending a
written request to the Transfer Agent accompanied by any stock certificate that
may have been issued to the shareholder. All written requests for redemption
must be signed by the shareholder with signature guaranteed and all certificates
submitted for redemption must be endorsed by the shareholder with signature
guaranteed.

BY TELEPHONE. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at (207) 879-0001 and providing the shareholder's account number, the exact name
in which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Fund will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds.

BY BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal Funds wire to a bank account designated on the
shareholder's account application. To request bank wire redemptions by
telephone, the shareholder also must have elected the telephone redemption
privilege. Redemption proceeds are transmitted by wire on the day the
redemption request in proper form is received by the Transfer Agent.

AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds will be sent either by check or by
automatic transfer to a designated bank account maintained with a United States
banking institution which is an Automated Clearing House member. Under this
program, shareholders may authorize the redemption of shares in amounts of $250
or more from their account monthly or quarterly. Shareholders may terminate
their automatic redemptions or change the amount to be redeemed at any time by
written notification to the Transfer Agent.

SIGNATURE GUARANTEES. A signature guarantee is required for any written
redemption request and for any endorsement on a stock certificate. In addition,
a signature guarantee is required for instructions to change a shareholder's
record name or address, designated bank account for wire redemptions or
automatic investment or redemption, dividend election, telephone redemption or
exchange option election or any other option election in connection with the
shareholder's account. Signature guarantees may be provided by any eligible
institution acceptable to the Transfer Agent, including a bank, a broker, a
dealer, a national securities exchange, a credit union, or a savings association
that is authorized to guarantee signatures. Whenever a signature guarantee is
required, the signature of each person required to sign for the account must be
guaranteed.

EXCHANGES

Shareholders may exchange their shares for shares of any other fund of the
Company or any other mutual fund managed by Forum that participates with the
Fund in the exchange program (currently, Sound Shore Fund, Inc.). Exchanges are
subject to the fees charged by, and the restrictions listed in the prospectus
for, and the fund into which a shareholder is exchanging, including minimum
investment requirements. The minimum amount required to open an account in the
Fund through an exchange from another fund is $2,500. The Fund does not charge
for exchanges, and there is currently no limit on the number of exchanges a
shareholder may make, but the Fund reserves the right to limit excessive
exchanges by any shareholder. See "Additional Purchase And Redemption
Information" in the SAI.

Exchanges may only be made between accounts registered in the same name. A
completed account application must be submitted to open a new account in the
Fund through an exchange if the shareholder requests any shareholder privilege
not associated with the new account. Shareholders may only exchange into a fund
if that fund's shares may legally be sold in the shareholder's state of
residence.

The Company (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Accordingly, a shareholder may realize a capital gain or loss with respect to
the shares redeemed. Redemptions and purchases are effected at the respective
net asset values of the two funds as next determined following receipt of proper
instructions and all necessary supporting documents by the fund whose shares are
being exchanged.

If a shareholder exchanges into a fund that imposes a sales charge, that
shareholder is required to pay the difference between that fund's sales charge
and any sales charge the shareholder has previously paid in connection with the
shares being exchanged. For example, if a shareholder paid a 2% sales charge in
connection with the purchase of the shares of a fund and then exchanged those
shares into another fund with a 3% sales charge, that shareholder would pay an
additional 1% sales charge on the exchange. Shares acquired through the
reinvestment of dividends and distributions are deemed to have been acquired
with a sales charge rate equal to that paid on the shares on which the dividend
or distribution was paid. The exchange privilege may be modified materially or
terminated by the Company at any time upon 60 days' notice to shareholders.

<PAGE>

BY MAIL. Exchanges may be accomplished by written instructions to the
Transfer Agent accompanied by any stock certificate that may have been issued to
the shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guaranteed is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.

BY TELEPHONE. Exchanges may be accomplished by telephone by any
shareholder that has elected telephone exchange privileges by calling the
Transfer Agent at (207) 879-0001 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number.

INDIVIDUAL RETIREMENT ACCOUNTS

The Fund may be a suitable investment vehicle for part or all of the assets
held in individual retirement accounts ("IRAs"). The minimum initial investment
for IRAs is $2,000, and the minimum subsequent investment is $500. Individuals
may make tax-deductible IRA contributions of up to a maximum of $2,000 annually.
However, this deduction will be reduced if the individual or, in the case of a
married individual filing jointly either the individual or the individual's
spouse, is an active participant in an employer-sponsored retirement plan and
has adjusted gross income above certain levels.

6. DIVIDENDS AND TAX MATTERS

DIVIDENDS

Dividends of the Fund's net investment income are declared daily and paid
monthly, following the close of the last Fund Business Day of the month.
Dividends of net capital gain, if any, realized by the Fund are distributed
annually.

Shareholders may choose to have all dividends reinvested in additional
shares of the Fund or received in cash. In addition, shareholders may have
dividends of net capital gain reinvested in additional shares of the Fund and
dividends of net investment income paid in cash. All dividends are treated in
the same manner for Federal income tax purposes whether received in cash or
reinvested in shares of the Fund.

All dividends will be reinvested at the Fund's net asset value as of the
payment date of the dividend. All dividends are reinvested unless another
option is selected. All dividends not reinvested will be paid to the
shareholder in cash and may be paid more than seven days following the date on
which dividends would otherwise be reinvested.

TAXES

FEDERAL. The Fund intends to continue to qualify for each fiscal year to
be taxed as a "regulated investment company" under the Internal Revenue Code of
1986. As such, the Fund will not be liable for Federal income taxes on the net
investment income and net capital gain distributed to its shareholders. Because
the Fund intends to distribute all of its net investment income and net capital
gain each year, the Fund should avoid all Federal income and excise taxes.

Dividends paid by the Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income. Distributions by the Fund of realized net long-term capital gain are
taxable to shareholders as long-term capital gain, regardless of the length of
time the shareholder may have held shares in the Fund.

STATE AND LOCAL. The Fund's investment policies are structured to provide
shareholders, to the extent permissible by Federal and state law, with income
that is exempt or excluded from income taxation at the state and local level.
Many states (by statute, judicial decision or administrative action) do not tax
dividends from a regulated investment company that are attributable to interest
on obligations of the U.S. Treasury and certain U.S. Government agencies and
instrumentalities if the interest on those obligations would not be taxable to a
shareholder that held the obligation directly. As a result, substantially all
dividends paid by the Fund to shareholders residing in certain states will be
exempt or excluded from state income taxes.

Shortly after the close of each year, a statement is sent to each
shareholder of the Fund advising the shareholder of the portions of total
dividends paid into the shareholder's account that is derived from each type of
obligation in which the Fund has invested. These portions are determined for
the entire year and on a monthly basis and, thus, are an annual or monthly
average, rather than a day-by-day determination for each shareholder.

GENERAL. The Fund may be required by Federal law to withhold 31% of
reportable payments (which may include taxable dividends, capital gain
distributions and redemption proceeds) paid to individuals and certain other
non-corporate shareholders. Withholding is not required if a shareholder
certifies that the shareholder's social

<PAGE>

security or tax identification number provided to the Fund is correct and that
the shareholder is not subject to backup withholding.

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 the Fund
distributes all of its net investment income, the Fund may have to sell
portfolio securities to distribute imputed income, which may occur at a time
when the Adviser would not have chosen to sell such securities and which may
result in a taxable gain or loss.

The foregoing is only a summary of some of the important Federal and state
tax considerations generally affecting the Fund and its shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisors.

7. OTHER INFORMATION

PERFORMANCE INFORMATION

The Fund's performance may be quoted in advertising in terms of yield,
which is based on historical results and is not intended to indicate future
performance. The Fund's yield is a way of showing the rate of income earned by
the Fund as a percentage of the Fund's share price. Yield is calculated by
dividing the net investment income of the Fund for a seven day period by the
average number of shares entitled to receive dividends and expressing the result
as an annualized percentage rate based on the Fund's share price at the
beginning of the seven day period.

The Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Fund may be
compared to recognized indices of market performance. The comparative material
found in the Fund's advertisements, sales literature, or reports to shareholders
may contain performance ratings. These materials are not to be considered
representative or indicative of future performance.

BANKING LAW MATTERS

Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of Forum would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Company and its shareholders. If a bank or bank affiliate were
prohibited from performing all or a part of the foregoing services, its
shareholder customers would be permitted to remain shareholders of the Company
and alternative means for continuing to service them would be sought. It is not
expected that shareholders would suffer adverse financial consequences as a
result of any changes in bank or bank affiliate service arrangements.

DETERMINATION OF NET ASSET VALUE

The Company determines the net asset value per share of the Fund as of
12:00 p.m., eastern time, on each Fund Business Day by dividing the value of the
Fund's net assets (I.E., the value of its portfolio securities and other assets
less its liabilities) by the number of the Fund's shares outstanding at the time
the determination is made.

In order to more easily maintain a stable net asset value per share, the
Fund's portfolio securities are valued at their amortized cost, which is their
acquisition cost adjusted for amortization of premium or accretion of discount.
The Fund values its portfolio securities at amortized cost in accordance with
Rule 2a-7 under the Investment Company Act of 1940. The Fund will only value
its portfolio securities using this method if the Board believes that this
method fairly reflects the market-based net asset value per share.

THE COMPANY AND ITS SHARES

The Company was incorporated in Maryland on March 24, 1980 and assumed the
name of Forum Funds, Inc. on March 16, 1987. The authorized capital stock of
the Company consists of 20 billion shares of stock having a par value of one-
tenth of one cent ($.001) per share. The Board may, without shareholder
approval, divide the authorized stock into an unlimited number of separate
portfolios or series with different investment objectives, policies and fee
structures and may in the future divide existing series or portfolios into two
or more classes of stock. Currently all authorized common stock of the Company
is divided into 13 separate series.

<PAGE>

and, with respect to matters not affecting all funds of the Company, generally
only shareholders of the affected series may vote. Maryland law does not
require a registered investment company to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only when
specifically required by Federal or state law. Shareholders have available
certain procedures for the removal of Directors. All shares when issued in
accordance with the terms of this Prospectus will be fully paid and
nonassessable. As of July 17, 1995, H.M. Payson & Co., Portland, Maine owned of
record more than 25% of the outstanding shares of the Fund and, as of that date,
this shareholder may be deemed to be a controlling entity of the Fund. From
time to time this or other shareholders may own a large percentage of shares of
the Fund. Accordingly, these shareholders may be able to greatly effect (if not
determine) the outcome of any shareholder vote.

<PAGE>

MAINE MUNICIPAL BOND FUND

Prospectus dated January 5, 1996

This Prospectus offers shares of Maine Municipal Bond Fund (the "Fund") and
consists of this cover page and the attached Prospectus relating to shares of
the Fund dated August 1, 1995 (the "August Prospectus"), which is incorporated
herein.

The information in the August Prospectus is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized from
a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations
will be governed by its Trust Instrument, By-laws and applicable Delaware law
rather than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

2. CORE AND GATEWAY-REGISTERED TRADEMARK-AUTHORIZATION

Shareholders of the Fund have approved a new investment policy that permits the
Fund to seek to achieve its investment objective by converting to a Core and
Gateway structure. The Fund, upon future action by the Board of Trustees and
notice to shareholders, may convert to this structure, in which the Fund would
hold as its only investment securities the shares of another investment company
having substantially the same investment objective and policies as the Fund.
The Board of Trustees will not authorize conversion to a Core and Gateway
structure if it would materially increase costs to a Fund's shareholders.

3. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of the Fund. The information with respect to the Fund's fiscal
years ended March 31st has been audited in connection with an audit of the
Fund's financial statements by Deloitte & Touche LLP, independent auditors. The
information with respect to the period ended September 30, 1995 is unaudited.
The financial statements and independent auditors' report thereon for the fiscal
years ended March 31st are incorporated by reference into the SAI. The Fund's
annual report to shareholders may be obtained from the Trust without charge.

MAINE MUNICIPAL BOND FUND

Six Months
Ended
September 30, Year Ended
March 31,
-----------------------------------------------------
1995 1995 1994 1993 1992(1)
---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $10.47 $10.37 $10.55 $9.98 $10.00
------ ------ ------ ----- ------
Net Investment Income 0.25 0.52 0.52 0.58 0.19
Net Realized and Unrealized Gain
(Loss) on Securities 0.27 0.11 (0.16) 0.57 (0.02)
Dividends from Net Investment Income (0.25) (0.52) (0.52) (0.58) (0.19)
Distributions from Net Realized Gains --- (0.01) (0.02) --- ---
------ ------ ------ ----- -----
Ending Net Asset Value per Share $10.74 $10.47 $10.37 $10.55 $9.98
------ ------ ------ ----- -----
------ ------ ------ ----- -----
Ratios to Average Net Assets:

Expenses (2) 0.60%(3) 0.50% 0.50% 0.40% 0.46%(3)

<PAGE>

Net Investment Income 4.75%(3) 5.08% 4.81% 5.25% 5.65%(3)
Total Return 5.05% 6.31% 3.42% 11.80% 5.27%
Portfolio Turnover Rate 30.09% 31.55% 13.47% 7.82% 15.24%
Net Assets at the End of
Period (000's Omitted) $25,781 $25,525 $26,310 $16,518 $1,968

(1) The Fund commenced operations on December 5, 1991.

(2) During the periods, various fees and expenses were
waived and reimbursed, respectively. Had these waivers
and reimbursements not occurred, the ratio of expenses to
average net assets would have been:
1.38%(3) 1.40% 1.44% 1.98% 6.83%(3)
(3) Annualized.
</TABLE>

<PAGE>

FORUM FUNDS, INC.

MAINE MUNICIPAL BOND FUND

ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:
Forum Financial Corp.
P.O. Box 446
Portland, Maine 04112
(207) 879-0001

PROSPECTUS
August 1, 1995

This Prospectus offers shares of Maine Municipal Bond Fund (the "Fund"), a non-
diversified series of Forum Funds, Inc. (the "Company"), an open-end, management
investment company.

MAINE MUNICIPAL BOND FUND seeks to provide shareholders with
a high level of current income exempt from both Federal and
Maine state income taxes (other than the alternative minimum
tax), without assuming undue risk. The Fund invests
principally in investment grade Maine municipal securities.

Shares of the Fund are offered to investors at a price equal to the next
determined net asset value plus a maximum sales charge of 3.75% of the total
public offering price (3.90% of the net amount invested).

This Prospectus sets forth concisely the information concerning the Company and
the Fund that a prospective investor should know before investing. The Company
has filed with the Securities and Exchange Commission a Statement of Additional
Information dated August 1, 1995, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Company and the Fund
and which is incorporated into this Prospectus by reference. The SAI is
available without charge by contacting the Company at the address listed above.

Investors should read this Prospectus and retain it for future reference.

Shares of the Fund are offered only to
residents of the State of Maine.

HIGHLIGHTS OF THE FUND

Investment Objective and Policies

The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from both Federal and Maine state income taxes
(other than the alternative minimum tax), without assuming undue

<PAGE>

risk. The Fund invests principally in investment grade Maine municipal
securities. It is anticipated that the average weighted maturity of all
municipal securities in the Fund will normally range between five and 15 years.
See "Investment Objectives and Policies."

Fund Management

Purchases and Redemptions

Shares of the Fund are offered at the next-determined net asset value per
share plus any applicable sales charge. The minimum initial investment is
$5,000 and the minimum subsequent investment is $500. Shares may be redeemed
without charge. See "Purchases and Redemptions of Shares."

Exchange Program

Shareholders of the Fund may exchange their shares without charge for the
shares of certain other funds of the Company. See "Purchases and Redemptions of
Shares - Exchanges."

Dividends

Dividends of net investment income are declared daily and paid monthly by
the Fund and are reinvested in Fund shares unless a shareholder elects to have
them paid in cash. It is anticipated that substantially all of the dividends
paid by the Fund will be exempt from Federal income tax and from Maine personal
income tax. See "Dividends and Tax Matters."

Certain Risk Factors

There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value will fluctuate as the value of the Fund's
portfolio securities changes and will tend to vary inversely with movements in
interest rates. The Fund is non-diversified and, therefore, has greater freedom
to concentrate its investments than if it were a diversified fund. The Fund
invests principally in the securities of Maine municipal issuers, which entails
more risk than if the Fund were to invest in issuers with greater geographic
diversity. See "Investment Objective and Policies - Certain Risk Factors."

EXPENSES OF INVESTING IN THE FUND

The purpose of the following table is to assist investors in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly.

Shareholder Transaction Expenses

Maximum sales charge imposed on purchases
(as a percentage of public offering price)........3.75%
Exchange Fee..........................................None

Annual Fund Operating Expenses(1)
(as a percentage of average net assets after estimated expense reimbursements)
Management Fees (2)..................................0.40%
12b-1 Fees............................................None
Other Expenses.......................................0.20%
Total Fund Operating Expenses........................0.60%

(1) The amounts of expenses are based on estimated amounts for the Fund's
current fiscal year ending March 31, 1996; actual expenses for the Fund's fiscal
year ended March 31, 1995 were 0.50%. Absent estimated expense reimbursements
and fee waivers, the expenses of the Fund are estimated to be: Management Fees,
0.70%; Other Expenses, 0.70%; and Total Fund Operating Expenses, 1.40%. For a
further description of the various expenses incurred in the operation of the
Fund, see "Management."
(2) Includes the Adviser's investment advisory fee and Forum's management fee.

EXAMPLE

<PAGE>

Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in the Fund would pay assuming a $1,000 investment in
the Fund, a 5% annual return, the reinvestment of all dividends and
distributions and redemption at the end of each period:

1 Year 3 Years 5 Years 10 Years
$42 $53 $64 $98

2. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of the Fund. This information has been audited in connection with
an audit of the Fund's financial statements by Deloitte & Touche LLP,
independent auditors. The financial statements and independent auditors' report
thereon are incorporated by reference into the SAI. Further information about
the Fund's performance is contained in the Fund's annual report to shareholders,
which may be obtained from the Company without charge.

Year Ended March 31
1995 1994 1993 1992(1)

Beginning Net Asset Value per Share $10.37 $10.55 $9.98 $10.00

Net Investment Income 0.52 0.52 0.58 0.19

Net Realized and Unrealized
Investment Gain (Loss) on
Securities 0.11 (0.16) 0.57 (0.02)

Dividends from Net Investment
Income (0.52) (0.52) (0.58) (0.19)

Distributions from Net Realized
Gains (0.01) (0.02) -- --
Ending Net Asset Value per Share $10.47 $10.37 $10.55 $9.98

Ratios to Average Net Assets:
Expenses (2) 0.50% 0.50% 0.40% 0.46%(3)
Net Investment Income 5.08% 4.81% 5.25% 5.65%(3)

Total Return 6.31% 3.42% 11.80% 5.27%(3)

Portfolio Turnover Rate 31.55% 13.47% 7.82% 15.24%

Net Assets at the End of
Period (000's Omitted) $25,525 $26,310 $16,518 $1,968

(1) The Fund commenced operations on December 5, 1991.

(2) During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the ratio of
expenses to average net assets would have been:
Expenses 1.40% 1.44% 1.98% 6.83%(3)

(3) Annualized.
3. INVESTMENT OBJECTIVE AND
POLICIES

INVESTMENT OBJECTIVE

<PAGE>

risk. Except during periods when the Fund assumes a temporary defensive
position, the Fund will invest at least 80% of its total assets in securities
the interest on which is exempt from Federal and Maine income tax. There can be
no assurance that the Fund will achieve its investment objective.

INVESTMENT POLICIES

The Fund pursues its objective by investing principally in investment grade
debt obligations issued by the state of Maine and its political subdivisions,
duly constituted authorities and corporations. These securities are generally
known as "municipal securities" and include municipal bonds, notes and leases.
It is anticipated that under normal circumstances substantially all of the
Fund's assets will be invested in municipal securities the interest income from
which is exempt from Federal income taxes and Maine state personal income taxes
(except when received by a shareholder in a taxable year for which the
shareholder will be subject, for Federal or Maine income tax purposes, to the
alternative minimum tax ("AMT")).

GENERAL. The market value of the municipal securities held by the Fund
will be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, a decline
in interest rates produces an increase in market value, while an increase in
interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. Obligations of issuers of municipal securities are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors. The possibility exists, therefore, that, as a
result of litigation or other conditions, the ability of any issuer to pay, when
due, the principal of and interest on its debt securities may be materially
impaired.

The yields of municipal securities depend on, among other things,
conditions in the municipal securities market and fixed income markets
generally, the size of a particular offering, the maturity of the obligation,
and the rating of the issue. Maine municipal securities may have yields
slightly less than the municipal obligations of issuers located in other states
because of the Maine state tax exemption on Maine issues.

In general, the longer the maturity of a municipal security, the higher the rate
of interest it pays. However, a longer average maturity is generally associated
with a higher level of volatility in the market value of a municipal security.
The average maturity of the Fund's portfolio will vary depending on anticipated
market conditions. It is anticipated, however, that the average weighted
maturity of all municipal securities in the Fund will normally range between
five and 15 years.

Municipal securities also include securities issued by Puerto Rico, other
United States territories or possessions and their subdivisions, authorities and
corporations the income from which is not subject to Federal or Maine State
income tax. No more than 25% of the Fund's total assets may be invested in
issuers located in any territory or possession of the United States.

Under current Federal tax law, a distinction is drawn between municipal
securities issued after August 7, 1986 to finance certain "private activities"
and other municipal securities. Private activity securities include securities
issued to finance such projects as certain solid waste disposal facilities,
student loan programs, and water and sewage projects. Interest income from
certain of these securities is subject to the Federal AMT and similar treatment
may apply for Maine AMT purposes. See "Dividends and Tax Matters." Because
interest income on securities subject to the Federal AMT is taxable to certain
investors, it is expected, although there can be no guarantee, that these
municipal securities generally will provide somewhat higher yields than other
municipal securities of comparable quality and maturity that are not subject to
the AMT.

CREDIT MATTERS. Normally, at least 80% of the Fund's total assets will be
invested in municipal bonds rated at the time of purchase within the four
highest rating categories assigned by a nationally recognized statistical rating
organization ("NRSRO") such as Moody's Investors Service, Inc. ("Moody's") (Aaa,
Aa, A and Baa), Standard & Poor's Corporation ("S&P") (AAA, AA, A and BBB) or
Fitch Investors Services, Inc. ("Fitch") (AAA, AA, A and BBB) or which are
unrated and determined by the Adviser to be of comparable quality. Securities
in these ratings are generally considered to be investment grade securities,
although Moody's indicates that municipal securities rated Baa have speculative
characteristics. Unrated securities may not be as actively traded as rated
securities. A further description of the ratings used by Moody's, S&P and Fitch
is included in the SAI. The Fund may invest up to 20% of its total assets in
municipal bonds rated in the fifth or sixth highest rating category by an NRSRO
or which are unrated and determined by the Adviser to be of comparable quality.
These securities are not considered to be investment grade and have speculative
or predominantly speculative characteristics. The Fund only invests in
municipal notes and other short-term municipal obligations in the two highest
rating categories assigned by an

<PAGE>

NRSRO or which are unrated and determined by the Adviser to be of comparable
quality. The Fund may retain securities whose rating has been lowered below the
lowest permissible rating category (or that are unrated and determined by the
Advisor to be of comparable quality) only if the Adviser determines that
retaining the security is in the best interests of the Fund.

A non-rated municipal security will be considered for investment by the
Fund when the Adviser believes that the financial condition of the issuer of the
obligation and the protection afforded by the terms of the obligation limit the
risk to the Fund to a degree comparable to that of rated securities in which the
Fund may invest. During its last fiscal year, the Fund had 96% of its average
annual assets in municipal securities rated by Moody's or S&P and 4% of its
average annual assets in unrated investments, including cash and short-term cash
equivalents which are often unrated. During that year ended March 31, 1995, the
Fund had the following percentages of its average annual net assets invested in
rated securities: Aaa/AAA-32.9%, Aa/AA-35.2%, A/A-21.8%, Baa/BBB-5.6%. For this
purpose, securities with different ratings from Moody's and S&P were assigned
the higher rating. This information reflects the average month end composition
of the Fund's assets for the Fund's last fiscal year and is not necessarily
representative of the Fund as of the end of last year, the current fiscal year
or any other time.

MUNICIPAL BONDS. Municipal bonds, which are intended to meet longer term
capital needs, can be classified as either "general obligation" or "revenue"
bonds. General obligation bonds are secured by a municipality's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are generally payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other tax, but not from general tax revenues. Municipal
bonds also include private activity bonds ("PABs"), which are bonds issued by or
on behalf of public authorities to finance various privately operated
facilities. PABs are in most cases revenue bonds. The payment of the principal
and interest on these bonds is dependent solely on the ability of an initial or
subsequent user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property financed by
the bond as security for payment. The Fund will acquire only PABs whose
interest payments, in the opinion of the issuer's counsel, are exempt from
Federal and Maine state income taxation (other than the AMT).

MUNICIPAL NOTES AND LEASES. Municipal notes, which may be either "general
obligation" or "revenue" securities, are intended to fulfill short-term capital
needs and generally have original maturities of 397 days or less. They include
tax anticipation notes, revenue anticipation notes, bond anticipation notes,
construction loan notes and tax-exempt commercial paper. Municipal leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) are a
means for governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of long-term
debt. Municipal leases frequently have special risks not normally associated
with general obligation or revenue bonds or notes as described in the SAI.

VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Fund
invests may have variable or floating rates of interest. These securities 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"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of the Fund to maintain a
stable net asset value. Similar to fixed rate debt instruments, 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. The rate of
interest on securities purchased by the Fund may be tied to various rates of
interest or index.

There may not be an active secondary market for certain floating or
variable rate instruments, which could make it difficult for the Fund to dispose
of an instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. The Fund could, for this or other reasons, suffer a
loss with respect to an instrument. The Adviser monitors the liquidity of the
Fund's investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.

PARTICIPATION INTERESTS. The Fund may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests carry a demand feature backed by a letter of credit or
guarantee of the bank or institution permitting the holder to tender them back
to the bank or other institution. The Fund will only purchase participation
interests from Federal Deposit Insurance Corporation insured banks having total
assets of more than one billion dollars or from other financial institutions
whose long-term debt securities are rated within the four highest rating
categories of an NRSRO or which are unrated and determined by the Adviser to be
of comparable quality. Prior to purchasing any participation interest, the Fund
will obtain appropriate assurances from counsel retained by the Company that the
interest earned by the Fund from the obligations in which it holds participation
interests is exempt from Federal income tax.

<PAGE>

STAND-BY COMMITMENTS. The Fund may purchase municipal securities together
with the right to resell them to the seller at an agreed upon price or yield
within specified periods prior to their maturity dates. These rights to resell
are commonly known as "stand-by commitments." The aggregate price which the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to
permit the Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. The Fund will enter into stand-by commitments only with banks or
municipal securities dealers that in the opinion of the Adviser present minimal
credit risks. The value of a stand-by commitment is dependent on the ability of
the writer to meet its repurchase obligation.

CERTAIN RISK FACTORS

GEOGRAPHIC CONCENTRATION. Because the Fund invests principally in Maine
municipal securities, the Fund is more susceptible to factors adversely
affecting issuers of those municipal securities than would be a comparable
municipal securities portfolio having a lesser degree of geographic
concentration. These risks arise from the financial condition of the state of
Maine and its political subdivisions. To the extent state or local governmental
entities are unable to meet their financial obligations, the income derived by
the Fund, its ability to preserve or realize appreciation of its portfolio
assets or its liquidity could be impaired.

To the extent the Fund's investments are primarily concentrated in issuers
located in Maine, the value of the Fund's shares may be especially affected by
factors pertaining to Maine's economy and other factors specifically affecting
the ability of issuers in Maine to meet their obligations. As a result, the
value of the Fund's assets may fluctuate more widely than the value of shares of
a portfolio investing in securities relating to a number of different states.
The ability of state, county or local governments and quasi-governmental
agencies to meet their obligations will depend primarily on the availability of
tax and other revenues to those governments and on their fiscal conditions
generally. The amounts of tax and other revenues available to governmental
issuers may be affected from time to time by economic, political and demographic
conditions within the state. In addition, constitutional or statutory
restrictions may limit a government's power to raise revenues or increase taxes.
The availability of Federal, state and local aid to governmental issuers may
also affect their ability to meet obligations. Payments of principal of and
interest on private activity securities will depend on the economic condition of
the facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political or demographic
conditions in the state.

DIVERSIFICATION MATTERS. The Fund is non-diversified, which means that it
has greater latitude than a diversified fund with respect to the investment of
its assets in the securities of a relatively few municipal issuers. As a non-
diversified portfolio, the Fund may present greater risks than a diversified
fund. The Fund's diversification requirements provide that, as of the last day
of each fiscal quarter, with respect to 50% of its assets, the Fund may not own
the securities of a single issuer, other than a U.S. Government security, with a
value of more than 5% of the Fund's total assets. Except for U.S. Government
securities, no more than 25% of the total assets of the Fund may be invested in
securities of any one issuer. These limitations do not apply to securities of
an issuer payable solely from the proceeds of escrowed U.S. Government
securities. The Fund will be subject to a greater risk of loss if an issuer in
which the Fund invests a substantial amount of its assets is unable to make
interest or principal payments or if the market value of securities declines.

INFORMATION CONCERNING THE STATE OF MAINE. In 1991, citing declines in key
financial indicators and continued softness in the Maine economy, S&P lowered
its credit rating for Maine general obligations from AAA to AA+, and at the same
time lowered its credit rating on bonds issued by the Maine Municipal Bond Bank
and the Maine Court Facilities Authority, and on State of Maine Certificates of
Participation for highway equipment from AA to A+. In August 1993, citing the
"effects of protracted economic slowdown and the expectation that Maine's
economy will not soon return to the pattern of robust growth evident in the mid-
1980s," Moody's lowered its credit rating for Maine general obligations from Aa1
to Aa. At the same time, Moody's lowered from Aa1 to Aa the ratings assigned to
state-guaranteed bonds of the Maine School Building Authority and the Finance
Authority of Maine, and confirmed at A1 the ratings assigned to the bonds of the
Maine Court Facilities Authority and State of Maine Certificates of
Participation. There can be no assurance that Maine general obligations or the
securities of any Maine political subdivision, authority or corporation owned by
the Fund will be rated in any category or will not be downgraded by an NRSRO.
Further information concerning the State of Maine is contained in the SAI.

ADDITIONAL INVESTMENT POLICIES

All investment policies of the Fund that are designated as fundamental, and
the Fund's investment objective, may not be changed without approval of the
holders of a majority of the Fund's outstanding voting securities. A

<PAGE>

majority of the Fund's outstanding voting securities means the lesser of 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the shares are present or represented, or more
than 50% of the outstanding shares of the Fund. Except as otherwise indicated,
investment policies of the Fund are not fundamental and may be changed by the
Board of Directors of the Company (the "Board") without shareholder approval. A
further description of the Fund's investment policies is contained in the SAI.

The Fund may borrow money for temporary or emergency purposes (including
the meeting of redemption requests), but not in excess of 33 1/3% of the value
of the Fund's total assets. Borrowing for purposes other than meeting
redemption requests may not exceed 5% of the value of the Fund's total assets.
The Fund may not invest more than 15% of its net assets in illiquid securities,
including repurchase agreements not entitling the Fund to the payment of
principal within seven days. The Fund may hold cash pending investment and may
invest up to 10% of its total assets in money market mutual funds that invest in
municipal securities exempt from Federal income taxes. In the future, the Fund
may enter repurchase agreements, which are transactions in which the Fund
purchases a security and simultaneously commits to resell that security to the
seller at an agreed-upon price on an agreed-upon future date, normally one to
seven days later, and may lend its securities to other persons.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When these 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 three months after the
transaction. The Fund enters into when-issued and forward commitments only with
the intention of actually receiving or delivering the securities, as the case
may be. 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, such as approval of a proposed financing by
appropriate municipal authorities.

During the period between a commitment and settlement, no payment is made
for the securities purchased and, thus, no interest accrues to the purchaser
from the transaction. However, at the time the Fund makes a commitment to
purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver
or pay for a security purchased or sold by the Fund may result in a loss or a
missed opportunity to make an alternative investment. Any significant
commitment of the Fund's assets committed to the purchase of securities on a
when-issued or forward commitment basis may increase the volatility of its net
asset value.

The use of when-issued transactions and forward commitments may enable the
Fund to hedge against anticipated changes in interest rates and prices. If the
Adviser were to forecast incorrectly the direction of interest rate movements,
however, the Fund might be required to complete these transactions at prices
inferior to the current market values. No when-issued or forward commitments
will be made by the Fund if, as a result, more than 15% of the value of the
Fund's total assets would be committed to such transactions.

The Fund's use of when-issued securities and forward commitments entails
certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty in these transactions or a counterparty defaulted on its
obligations, the Fund might suffer a loss. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when it believes the counterparties present minimal
credit risks and the income to be earned from the transaction justifies the
attendant risks.

TEMPORARY DEFENSIVE POSITION. The Fund may invest up to 20% of its net
assets in cash or cash equivalents. In addition, when business or financial
conditions warrant, for example, when issues of sufficient quality and liquidity
are not available, the Fund may assume a temporary defensive position and invest
all or part of its assets in cash or prime quality cash equivalents, including
(i) short-term U.S. Government securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States, (iii) commercial paper, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) to the extent permitted by the Investment Company Act of 1940, money
market mutual funds. During periods when and to the extent that the Fund has
assumed a temporary defensive position, it will not be pursuing its investment
objective.

PORTFOLIO TURNOVER. The frequency of portfolio transactions of the Fund
(the portfolio turnover rate) will vary from year to year depending on market
conditions. From time to time the Fund may engage in active short-term trading
to benefit from yield disparities among different issues of debt securities, to
seek short-term profits during periods of fluctuating interest rates, or for
other reasons. This type of trading will increase the Fund's portfolio turnover
rate and transaction costs and may increase the Fund's capital gains, which are
not tax-exempt

<PAGE>

when distributed to shareholders. The Adviser weighs the anticipated benefits
of short-term investments against these consequences. The Fund's portfolio
turnover rate is reported under "Financial Highlights."

4. MANAGEMENT

MANAGER AND DISTRIBUTOR

Subject to the Supervision of the Board, Forum supervises the overall
management of the Fund. Forum, the Adviser and the Transfer Agent are members
of the Forum Financial Group of companies and together provide a full range of
services to the investment company and financial services industry. As of the
date hereof Forum acted as manager and distributor of registered investment
companies and collective trust funds with assets of approximately $9.2 billion.
Forum, whose address is 61 Broadway, New York, New York 10006, is a registered
broker-dealer and investment adviser and is a member of the National Association
of Securities Dealers, Inc. As of the date of this Prospectus, Forum, the
Adviser and the Transfer Agent were controlled by John Y. Keffer, President and
Chairman of the Company.

Under its management agreement with the Company, Forum supervises all
aspects of the Fund's operations, including the receipt of services for which
the Company is obligated to pay, provides the Company with general office
facilities and provides, at the Company's expense, the services of persons
necessary to perform such supervisory, administrative and clerical functions as
are needed to effectively operate the Company. Those officers, as well as
certain other employees and Directors of the Company, may be directors, officers
or employees of (and persons providing services to the Company may include)
Forum and its affiliates. For these services and facilities, Forum receives
with respect to the Fund a management fee at an annual rate of 0.30% of the
Fund's average daily net assets.

Forum also acts as the distributor of shares of the Fund and pursuant to a
distribution agreement with the Company Forum receives, and may reallow to
certain financial institutions, the sales charge paid by the purchasers of the
Fund's shares. See "Purchases and Redemptions of Shares - Sales Charges."

ADVISER

Forum Advisors, Inc. serves as the investment adviser of the Fund. Subject
to the general supervision of the Board, the Adviser makes investment decisions
for the Fund. For its services, the Adviser receives an advisory fee at an
annual rate of 0.40% of the Fund's average daily net assets. The Adviser was
incorporated under the laws of Delaware in 1987 and is registered under the
Investment Advisers Act of 1940.

Leslie C. Berthy, Managing Director of the Adviser since 1989, is primarily
responsible for the day-to-day management of the Fund's portfolios and has been
since the Fund's inception. Prior to his association with the Adviser, Mr.
Berthy was Managing Director and Co-Chief Executive Officer of Irwin Union
Capital Corp., an affiliate of Irwin Union Bank & Trust Co.

SHAREHOLDER SERVICING

The Transfer Agent is authorized to subcontract any or all of its functions
to one or more qualified sub-transfer agents or processing agents, which may be
processing organizations (as described under "Purchases and Redemptions of
Shares - Purchases and Redemptions Through Financial Institutions"), Forum or
affiliates of Forum, who agree to comply with the terms of the Transfer Agency
Agreement. The Transfer Agent may pay those agents for their services, but no
such payment will increase the Transfer Agent's compensation from the Company.
In addition, the Transfer Agent performs portfolio accounting services for the
Fund, including determination of the Fund's net asset value per share, pursuant
to a separate agreement with the Company.

EXPENSES OF THE COMPANY

<PAGE>

reimburse the Company for certain excess expenses of the Fund, the Company pays
for all of its expenses. The Adviser, Forum and the Transfer Agent, in their
sole discretion, may waive all or any portion of their respective fees, which
are accrued daily and paid monthly. Any such waiver, which could be
discontinued at any time, would have the effect of increasing the Fund's
performance for the period during which the waiver was in effect and would not
be recouped at a later date.

5. PURCHASES AND REDEMPTIONS
OF SHARES

GENERAL INFORMATION

Investments in the Fund may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through the Transfer
Agent, which accepts orders for purchases and redemptions from shareholders of
record and new investors. Shareholders of record will receive from the Company
periodic statements listing all account activity during the statement period.
The Company reserves the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders and to charge a
fee for certain shareholder services, although no such fees are currently
contemplated.

PURCHASES. Fund shares are sold at a price equal to their net asset value
plus any applicable sales charge on all weekdays except customary national
business holidays and Good Friday ("Fund Business Day"). Fund shares are issued
immediately following the next determination of net asset value made after an
order for the shares in proper form is accepted by the Transfer Agent. The
Fund's net asset value is calculated at 4:00 p.m., Eastern time on each Fund
Business Day. Fund shares become entitled to receive dividends on the next Fund
Business Day after the investor's funds are converted to funds on deposit at a
Federal Reserve Bank ("Federal Funds"), which for purchase orders by check is
the second Fund Business Day after receipt of the check and acceptance of the
order. Payment in the form of a bank wire will be treated as a Federal Funds
payment received at the time the wire is received.

The Fund reserves the right to reject any subscription for the purchase of
its shares. Stock certificates are issued only to shareholders of record upon
their written request and no certificates are issued for fractional shares.

REDEMPTIONS. Fund shares may be redeemed without charge at their net asset
value on any Fund Business Day. There is no minimum period of investment and no
restriction on the frequency of redemptions. Fund shares are redeemed as of the
next determination of the Fund's net asset value following acceptance by the
Transfer Agent of the redemption order in proper form (and any supporting
documentation which the Transfer Agent may require). Shares redeemed are not
entitled to receive dividends declared after the day on which the redemption
becomes effective.

The Company employs reasonable procedures to insure that telephone orders
are genuine (which include recording certain transactions and the use of
shareholder security codes) and, if it does not, may be liable for any losses
due to unauthorized or fraudulent telephone instructions. Shareholders should
verify the accuracy of telephone instructions immediately upon receipt of
confirmation statements. During times of drastic economic or market changes,
telephone redemption and exchange privileges may be difficult to implement. In
the event that a shareholder is unable to reach the Transfer Agent by telephone,
requests may be mailed or hand-delivered to the Transfer Agent.

<PAGE>

than $1,000. The Company will not redeem accounts that fall below that amount
solely as a result of a reduction in net asset value.

PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Fund directly. These investors may obtain
the account application necessary to open an account by writing the Transfer
Agent at the address on the cover page of this prospectus. For those
shareholder services not referenced on the account application and to change
information on a shareholder's account (such as addresses), investors or
existing shareholders should request an optional services form from the Transfer
Agent.

INITIAL PURCHASE OF SHARES

There is a $5,000 minimum for initial investments in the Fund.

BY MAIL. Investors may send a check made payable to the Company along with
a completed account application to the Fund at the address on the cover page of
this Prospectus. Checks are accepted at full value subject to collection. If a
check does not clear, the purchase order will be cancelled and the investor will
be liable for any losses or fees incurred by the Company, the Transfer Agent or
Forum.

Subsequent Purchases of Shares

There is a $500 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check or by sending a bank wire as indicated above.
Shareholders using the wire system for purchase should first telephone the
Company at (207) 879-0001 to notify it of the wire transfer. All payments
should clearly indicate the shareholder's name and account number.

Redemption of Shares

Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by bank wire must elect these options by properly completing the
appropriate sections of their account application. These privileges may not be
available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone.

<PAGE>

BY BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal Funds wire to a bank account designated on the
shareholder's account application. To request bank wire redemptions by
telephone, the shareholder also must have elected the telephone redemption
privilege. Redemption proceeds are transmitted by wire on the day after the
redemption request in proper form is received by the Transfer Agent.

SIGNATURE GUARANTEES. A signature guarantee is required for any written
redemption request and for any endorsement on a stock certificate. In addition,
a signature guarantee also is required for instructions to change a
shareholder's record name or address, designated bank account for wire
redemptions or automatic investment or redemption, dividend election, telephone
redemption or exchange option election or any other option election in
connection with the shareholder's account. Signature guarantees may be provided
by any eligible institution, including a bank, a broker, a dealer, a national
securities exchange, a credit union, or a savings association that is authorized
to guarantee signatures, acceptable to the Transfer Agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed.

EXCHANGES

Fund shareholders are entitled to exchange their shares for shares of any
other fund of the Company or any other fund that participates in the exchange
program and whose shares are eligible for sale in the shareholder's state of
residence. Exchanges may only be made between accounts registered in the same
name. A completed account application must be submitted to open a new account
in the Fund through an exchange if the shareholder requests any shareholder
privilege not associated with the existing account. Exchanges are subject to
the fees charged by, and the restrictions listed in the prospectus for, the fund
into which a shareholder is exchanging, including minimum investment
requirements. The Fund does not charge for exchanges and there is currently no
limit on the number of exchanges a shareholder may make.

The Company (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined following receipt of proper instructions and all
necessary supporting documents by the fund whose shares are being exchanged.

BY MAIL. Exchanges may be accomplished by written instructions to the
Transfer Agent accompanied by any stock certificate that may have been issued to
the shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.

PURCHASES AND REDEMPTIONS THROUGH
FINANCIAL INSTITUTIONS

<PAGE>

dealer's reallowance a portion of the sales charge paid by their customers
who purchase Fund shares. In addition, Processing Organizations may charge
their customers a fee for their services and are responsible for promptly
transmitting purchase, redemption and other requests to the Fund. The
Company is not responsible for the failure of any institution to promptly
forward these requests.

Investors who purchase shares will be subject to the procedures of their
Processing Organization, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable to shareholders who invest in the Fund directly. These investors
should acquaint themselves with their institution's procedures and should read
this Prospectus in conjunction with any materials and information provided by
their institution. Customers who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
institution's and the Fund's procedures, may have Fund shares transferred into
their name. There is typically a three day settlement period for purchases and
redemptions through broker-dealers. Certain other Processing Organizations may
enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Company may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers.

SALES CHARGES

The public offering price for shares of the Fund is the sum of the net
asset value of the shares being purchased plus any applicable sales charge. No
sales charge is assessed on the reinvestment of dividends or other
distributions. The sales charge is assessed as follows (net asset value
percentages are rounded to the nearest one-hundredth percent):

SALES CHARGE
AS % OF
------------------
PUBLIC NET
OFFERING ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- ------------------ ---------- ------- -----------
less than $100,000 3.75% 3.90% 3.25%
$100,000 but less
than $200,000 3.25 3.36 2.85
$200,000 but less
than $400,000 2.50 2.56 2.20
$400,000 but less
than $600,000 2.00 2.04 1.75
$600,000 but less
than $800,000 1.50 1.52 1.25
$800,000 but less
than $1,000,000 1.00 1.01 0.75
$1,000,000
and up 0.50 0.50 0.40

*Rounded to the nearest one-hundredth percent.

Forum's commission is the sales charge shown above less any applicable
discount reallowed to selected brokers and dealers (including banks and bank
affiliates purchasing shares as principal or agent). Normally, Forum will
reallow discounts to selected brokers and dealers in the amounts indicated in
the table above. From time to time, however, Forum may elect to reallow the
entire sales charge to selected brokers or dealers for all sales with respect to
which orders are placed with Forum during a particular period. The dealers'
reallowance may be changed from time to time.

<PAGE>

"relatives") of any such person; any trust for the benefit of any such person or
relative; or the estate of any such person or relative; and (d) any person who
has, within the preceding 90 days, redeemed Fund shares (but only on purchases
in amounts not exceeding the redeemed amounts) and completes a reinstatement
form upon investment. Any shares so purchased may not be resold except to the
Fund.

REDUCED SALES CHARGES

For an investor to qualify for one of the following types of reduced sales
charges, the investor must notify the Transfer Agent at the time of purchase.
Reduced sales charges may be modified or terminated at any time and are subject
to confirmation of an investor's holdings.

RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of the
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Fund Business Day) of all Fund shares
held by the investor. For example, if an investor owned shares of the Fund
worth $400,000 at the then current net asset value and purchased shares of the
Fund worth an additional $50,000, the sales charge for the $50,000 purchase
would be at the 2% rate applicable to a single $450,000 purchase, rather than at
the 3.75% rate. To qualify for ROA on a purchase, the investor must inform the
Transfer Agent and supply sufficient information to verify that each purchase
qualifies for the privilege or discount.

LETTER OF INTENT. Investors may also obtain reduced sales charges based on
cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of the Fund. Each purchase of shares under a LOI will be
made at the public offering price applicable at the time of the purchase to a
single transaction of the dollar amount indicated in the LOI.

An LOI is not a binding obligation upon the investor to purchase the full
amount indicated. Shares purchased with the first 5% of the amount indicated in
the LOI will be held subject to a registered pledge (while remaining registered
in the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased within 13 months. Pledged shares will be involuntarily redeemed to
pay the additional sales charge, if necessary. When the full amount indicated
has been purchased, the shares will be released from pledge. Share certificates
are not issued for shares purchased under an LOI. Investors wishing to enter
into an LOI can obtain a form of LOI from their broker or financial institution
or by contacting the Transfer Agent.

6. DIVIDENDS AND TAX MATTERS

DIVIDENDS

Dividends of the Fund's net investment income are declared daily and paid
monthly. Dividends of net capital gain, if any, realized by the Fund are
distributed annually.

Shareholders may have all dividends reinvested in additional shares of the
Fund or received in cash. In addition, shareholders may have dividends of net
capital gain reinvested in additional shares of the Fund and dividends of net
investment income paid in cash. All dividends are treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in shares
of the Fund.

TAXES

The Fund intends to continue to qualify for each fiscal year to be taxed as
a "regulated investment company" under the Internal Revenue Code of 1986. As
such, the Fund will not be liable for Federal income taxes on the net investment
income and net capital gain distributed to its shareholders. Because the Fund
intends to distribute all of its net investment income and net capital gain each
year, the Fund should avoid all Federal income and excise taxes.

DIVIDENDS OF TAX-EXEMPT INTEREST AND RELATED MATTERS. Shareholders
generally will not be subject to Federal income tax on dividends paid by the
Fund out of tax-exempt interest income earned by the Fund ("exempt-interest
dividends"), assuming certain requirements are met by the Fund. Substantially
all of the dividends paid by the Fund are anticipated to be exempt from Federal
income taxes and from Maine personal income tax. However, exempt-interest
dividends paid by the Fund to shareholders that are financial institutions are
subject to the Maine franchise tax.

<PAGE>

Persons who are "substantial users" or "related persons" thereof of
facilities financed by private activity bonds held by the Fund may be subject to
Federal income tax on their pro rata share of the interest income from these
bonds and should consult their tax advisors before purchasing shares of the
Fund. Under current Federal tax law, interest on certain private activity bonds
is treated as an item of tax preference for purposes of the Federal AMT imposed
on individuals and corporations. In addition, interest on all tax-exempt
obligations is included in the "adjusted current earnings" of corporations for
Federal AMT purposes. The Maine AMT is based in part on Federal AMT income.

OTHER DIVIDENDS AND DISTRIBUTIONS. Dividends paid by the Fund out of its
taxable net investment income (including any realized net short-term capital
gain) are taxable to shareholders as ordinary income. Distributions by the Fund
of realized net long-term capital gain, if any, are taxable to shareholders as
long-term capital gain, regardless of the length of time the shareholder may
have held shares in the Fund. If Fund shares are sold at a loss after being
held for six months or less, the loss will be disallowed to the extent of any
exempt-interest dividends received on those shares and will be treated as long-
term capital loss to the extent of any long-term capital gain distribution
received on those shares.

Any capital gain distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the distribution. To
the extent that capital gain was accrued by the Fund before the shareholder
purchased the shares, the distribution would be in effect a return of capital to
the shareholder. Capital gain distributions, including those that operate as a
return of capital, however, are taxable to the shareholder receiving them.

OTHER TAX MATTERS. Interest on indebtedness incurred by shareholders to
purchase or carry shares of the Fund generally is not deductible for Federal
income tax purposes.

The Fund may be required by Federal law to withhold 31% of reportable
payments (which may include taxable dividends, capital gain distributions and
redemption proceeds) paid to individuals and certain other non-corporate
shareholders. Withholding is not required if a shareholder certifies that the
shareholder's social security or tax identification number provided to the Fund
is correct and that the shareholder is not subject to backup withholding.

Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year. This
includes a statement advising each shareholder of the portion of total dividends
paid into the shareholder's account that is exempt from Federal income tax and
that is derived from Maine municipal securities and from other sources. These
portions are determined for the entire year and on a monthly basis and, thus,
are an annual or monthly average, rather than a day-by-day determination for
each shareholder.

TAX-FREE INCOME VS. TAXABLE INCOME

The table below shows approximate equivalent taxable and tax-free yields at
various approximate combined marginal Federal and Maine tax bracket rates. For
example, an investor in the 33% combined tax bracket for 1995 whose investments
earn a 5% tax-free yield would have to earn a 7.97% taxable yield to receive the
same benefit from a non-tax-exempt investment.

1995 COMBINED FEDERAL AND MAINE
TAXABLE VS. TAX-FREE YIELDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined
Marginal
Federal and A Tax-Free Yield of
Maine 4.0% 4.5% 5.0% 5.5% 6.0%
Tax Bracket equals a taxable yield of approximately

45% 7.24% 8.14% 9.05% 9.95% 10.86%
37% 6.34% 7.13% 7.92% 8.71% 9.50% 33% 5.97% 6.72% 7.47% 8.21%
8.96% 19% 4.93% 5.54% 6.16% 6.78% 7.39%
</TABLE>

The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. Although the Fund primarily invests in
securities the interest from which is exempt from both Federal and Maine state
income taxes, some of the Fund's investments may generate taxable income. An
investor's tax bracket will depend upon the investor's taxable income. The
figures set forth above do not reflect the Federal or Maine alternative minimum
taxes or any state or local income taxes other than Maine state personal income
taxes.

<PAGE>

The foregoing is only a summary of some of the important Federal and Maine
tax considerations generally affecting the Fund and its shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisors.

7. OTHER INFORMATION

PERFORMANCE INFORMATION

The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended
to indicate future performance. The Fund's yield is a way of showing the rate
of income earned by the Fund as a percentage of the Fund's share price. Yield
is calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. The Fund may also quote tax equivalent yields,
which show the taxable yields a shareholder would have to earn to equal the
Fund's tax-free yields after taxes. A tax equivalent yield is calculated by
dividing the Fund's tax-free yield by one minus a stated Federal, state or
combined Federal and state tax rate. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period.
The Fund also may advertise its total return over different periods of time on a
before-tax or after-tax basis or by means of aggregate, average, year by year,
or other types of total return figures. 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.

The Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Fund may be
compared to recognized indices of market performance. The comparative material
found in the Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.

BANKING LAW MATTERS

DETERMINATION OF NET ASSET VALUE

The Company determines the net asset value per share of the Fund as of 4:00
p.m., Eastern time, on each Fund Business Day by dividing the value of the
Fund's net assets (I.E., the value of its portfolio securities and other assets
less its liabilities) by the number of the Fund's shares outstanding at the time
the determination is made. Securities owned by the Fund for which market
quotations are readily available are valued at current market value, or, in
their absence, at fair value as determined by the Board.

THE COMPANY AND ITS SHARES

<PAGE>

meetings will be held only when specifically required by Federal or state law.
Shareholders have available certain procedures for the removal of Directors.
All shares when issued in accordance with the terms of this Prospectus will be
fully paid and nonassessable. From time to time certain shareholders may own a
large percentage of shares of the Fund. Accordingly, these shareholders may be
able to greatly effect (if not determine) the outcome of any shareholder vote.

<PAGE>

NEW HAMPSHIRE BOND FUND

Prospectus dated January 5, 1996

This Prospectus offers shares of New Hampshire Bond Fund (the "Fund") and
consists of this cover page and the attached Prospectus relating to shares of
the Fund dated August 1, 1995 (the "August Prospectus"), which is incorporated
herein.

The information in the August Prospectus is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized from
a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

2. CORE AND GATEWAY-REGISTERED TRADEMARK-AUTHORIZATION

3. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of the Fund. The information with respect to the Fund's fiscal
years ended March 31st has been audited in connection with an audit of the
Fund's financial statements by Deloitte & Touche LLP, independent auditors. The
information with respect to the period ended September 30, 1995 is unaudited.
The financial statements and independent auditors' report thereon for the fiscal
years ended March 31st are incorporated by reference into the SAI. The Fund's
annual report to shareholders may be obtained from the Trust without charge.

Six
Months
Ended Year Ended
September 30, March 31,
-------------------------
1995 1995 1994 1993(1)
---- ---- ---- ----
Beginning Net Asset
Value per Share $10.08 $9.96 $10.01 $10.00
Net Investment Income 0.24 0.49 0.51 0.12
Net Realized and
Unrealized Gain 0.28 0.12 (0.03) 0.01
Dividends from Net
Investment Income (0.24) (0.49) (0.51) (0.12)
Distributions from
Net Realized Gains -- -- (0.02) --
------ ------ ----- ------
Ending Net Asset Value
per Share $10.36 $10.08 $9.96 $10.01
------ ------ ----- ------
------ ------ ----- ------

Ratios to Average Net
Assets:
Expenses (2) 0.60%(3) 0.46 0.34% 0.50%(3)

<PAGE>

Net Investment
Income 4.73%(3) 4.95% 4.68% 4.96%(3)
Total Return 5.24% 6.32% 4.75% 5.55%
Portfolio Turnover
Rate 15.36% 37.59% 9.60% --
Net Assets at the End
of Period (000's
Omitted) $5,742 $5,276 $3,555 $442

(1) The Fund commenced operations on December 31, 1992.

(2) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would
have been:
2.25%(3) 2.19% 4.33% 30.85%(3)
(3) Annualized.

<PAGE>

FORUM FUNDS, INC.

NEW HAMPSHIRE BOND FUND

ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:

Forum Financial Corp.
P.O. Box 446
Portland, Maine 04112
(207) 879-0001

PROSPECTUS
August 1, 1995

This Prospectus offers shares of New Hampshire Bond Fund (the "Fund"), a non-
diversified series of Forum Funds, Inc. (the "Company"), an open-end, management
investment company.

NEW HAMPSHIRE BOND FUND seeks to provide shareholders with a
high level of current income exempt from both Federal income
taxes (other than the alternative minimum tax) and New
Hampshire state interest and dividends taxes. The Fund
invests principally in investment grade New Hampshire
municipal securities.

Shares of the Fund are offered to investors at a price equal to the next-
determined net asset value plus a maximum sales charge of 3.75% of the total
public offering price (3.90% of the net amount invested).

This Prospectus sets forth concisely the information concerning the Company and
the Fund that a prospective investor should know before investing. The Company
has filed with the Securities and Exchange Commission a Statement of Additional
Information dated August 1, 1995, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Company and the Fund
and which is incorporated into this Prospectus by reference. The SAI is
available without charge by contacting the Company at the address listed above.

Investors should read this Prospectus and retain it for future reference.

Shares of the Fund are offered only to
residents of the State of New Hampshire.

HIGHLIGHTS OF THE FUND

FUND OBJECTIVE AND POLICIES

<PAGE>

The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from both Federal income taxes (other than the
alternative minimum tax) and New Hampshire state interest and dividends taxes.
The Fund invests principally in investment grade New Hampshire municipal
securities. It is anticipated that the average weighted maturity of all
municipal securities in the Fund will normally range between five and 15 years.
See "Investment Objectives and Policies."

FUND MANAGEMENT

PURCHASES AND REDEMPTIONS

EXCHANGE PROGRAM

Shareholders of the Fund may exchange their shares without charge for the
shares of certain other funds of the Company. See "Purchases and Redemptions of
Shares - Exchanges."

DIVIDENDS

Dividends of net investment income are declared daily and paid monthly by
the Fund and are reinvested in Fund shares unless a shareholder elects to have
them paid in cash. It is anticipated that all of the dividends paid by the Fund
will be exempt from Federal income tax and from New Hampshire state interest and
dividends taxes. See "Dividends and Tax Matters."

CERTAIN RISK FACTORS

There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value will fluctuate as the value of the Fund's
portfolio securities changes and will tend to vary inversely with movements in
interest rates. The Fund is non-diversified and, therefore, has greater freedom
to concentrate its investments than if it were diversified. The Fund invests
principally in the securities of New Hampshire municipal issuers, which entails
more risk than if the Fund were to invest in issuers with greater geographic
diversity. See "Investment Objective and Policies - Certain Risk Factors."

EXPENSES OF INVESTING IN THE FUND

The purpose of the following table is to assist investors in understanding the
various expenses that an investor in the Fund will bear directly or indirectly.

SHAREHOLDER TRANSACTION EXPENSES

Maximum sales charge imposed on purchases
(as a percentage of public offering price). . . . .3.75%
Exchange Fee . . . . . . . . . . . . . . . . . . . . . None
ANNUAL FUND OPERATING EXPENSES (1)
(as a percentage of average net assets after estimated expense reimbursements)
Management Fees (2). . . . . . . . . . . . . . . . . .0.40%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses . . . . . . . . . . . . . . . . . . . .0.20%
Total Fund Operating Expenses. . . . . . . . . . . . .0.60%

(1) The amounts of expenses are based on estimated amounts for the Fund's
current fiscal year ending March 31, 1996; actual expenses for the Fund's fiscal
year ended March 31, 1995 were 0.46%. Absent estimated expense reimbursements
and fee waivers, the expenses of the Fund are estimated to be: Management Fees,
0.70%; Other Expenses, 1.49%; and Total Fund Operating Expenses, 2.19%. For a
further description of the various expenses incurred in the operation of the
Fund, see "Management."

(2) Includes the Adviser's investment advisory fee and Forum's management fee.

EXAMPLE

<PAGE>

1 Year 3 Years 5 Years 10 Years
$42 $52 $62 $93

2. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of the Fund. This information has been audited in connection with
an audit of the Fund's financial statements by Deloitte & Touche LLP,
independent auditors. The financial statements and independent auditors' report
thereon are incorporated by reference into the SAI. Further information about
the Fund's performance is contained in the Fund's annual report to shareholders,
which may be obtained from the Company without charge.

Year Ended March 31
1995 1994 1993(1)

Beginning Net Asset Value per Share $9.96 $10.01 $10.00

Net Investment Income 0.49 0.51 0.12

Net Realized and Unrealized Investment
Gain (Loss) on Securities 0.12 (0.03) 0.01

Dividends from Net Investment Income (0.49) (0.51) (0.12)

Distributions from Net Realized Gains --- (0.02) ---

Ending Net Asset Value per Share $10.08 $9.96 $10.01

Ratios to Average Net Assets:
Expenses (2) 0.46% 0.34% 0.50%(3)
Net Investment Income 4.95% 4.68% 4.96%(3)

Total Return 6.32% 4.75% 5.55%(3)

Portfolio Turnover Rate 37.59% 9.60% ---

Net Assets at the End of
Period (000's Omitted) $5,276 $3,555 $442

(1) The Fund commenced operations on December 31, 1992.
(2) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements not
occurred, the ratio of expenses to average net assets would have been:
Expenses 2.19% 4.33% 30.85%(3)
(3) Annualized.

3. INVESTMENT OBJECTIVE AND
POLICIES

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from both Federal income taxes (other than the
alternative minimum tax) and New Hampshire state interest and dividends taxes.
The Fund anticipates that all of its income will be exempt from New Hampshire
state interest and dividends taxes and that a substantial portion of its income
will be exempt from New Hampshire state business profits taxes. There can be no
assurance that the Fund will achieve its investment objective.

<PAGE>

INVESTMENT POLICIES

The Fund pursues its objective by investing principally in investment grade
debt obligations issued by the state of New Hampshire and its political
subdivisions, duly constituted authorities and corporations. These securities
are generally known as "municipal securities" and include municipal bonds, notes
and leases. It is anticipated that under normal circumstances substantially all
of the Fund's assets will be invested in municipal securities the interest on
which is exempt from New Hampshire state interest and dividends taxes and
Federal income taxes except when received by a shareholder in a taxable year for
which he will be subject to the Federal alternative minimum tax ("AMT"). The
Fund may also invest in United States government instruments the interest on
which is exempt from New Hampshire state interest and dividends taxes.

The yields of municipal securities depend on, among other things,
conditions in the municipal securities markets and fixed income markets
generally, the size of a particular offering, the maturity of the obligation,
and the rating of the issue. New Hampshire municipal securities may have yields
slightly less than the municipal obligations of issuers located in other states
because of the New Hampshire state interest and dividends tax exemption.

In general, the longer the maturity of a municipal security, the higher the
rate of interest it pays. However, a longer average maturity is generally
associated with a higher level of volatility in the market value of a municipal
security. The average maturity of the Fund's portfolio will vary depending on
anticipated market conditions. It is anticipated, however, that the average
weighted maturity of all municipal securities in the Fund will normally range
between five and 15 years.

Municipal securities also include securities issued by Puerto Rico, other
United States territories or possessions and their subdivisions, authorities and
corporations the income from which is not subject to Federal income tax or New
Hampshire state interest and dividends taxes. The Fund may invest up to 25% of
its total assets in these securities.

Under current Federal tax law, a distinction is drawn between municipal
securities issued after August 7, 1986 to finance certain "private activities"
and other municipal securities. Private activity securities include securities
issued to finance such projects as certain solid waste disposal facilities,
student loan programs, and water and sewage projects. Interest income from
certain of these securities is subject to the AMT. See "Dividends and Tax
Matters." Because interest income on securities subject to the AMT is taxable
to certain investors, it is expected, although there can be no guarantee, that
these municipal securities generally will provide somewhat higher yields than
other municipal securities of comparable quality and maturity that are not
subject to the AMT.

CREDIT MATTERS. Normally, at least 80% of the Fund's total assets will be
invested in municipal bonds rated at the time of purchase within the four
highest rating categories assigned by a nationally recognized statistical rating
organization ("NRSRO") such as Moody's Investors Service, Inc. ("Moody's") (Aaa,
Aa, A and Baa), Standard & Poor's Corporation ("S&P") (AAA, AA, A and BBB) or
Fitch Investors Service, Inc. ("Fitch") (AAA, AA, A and BBB) or which are
unrated and determined by the Adviser to be of comparable quality. Securities
in these ratings are generally considered to be investment grade securities,
although Moody's indicates that municipal securities rated Baa have speculative
characteristics. Unrated securities may not be as actively traded as rated
securities. A further description of the ratings used by Moody's, S&P and Fitch
is included in the SAI. The Fund may invest up to 20% of its total assets in
municipal bonds rated in the fifth or sixth highest rating category by an NRSRO
or which are unrated and determined by the Adviser to be of comparable quality.
These securities are not considered to be investment grade and have speculative
or predominantly speculative characteristics. The Fund only invests in
municipal notes and other short-term municipal obligations in the two highest
rating categories assigned by an NRSRO or which are unrated and determined by
the Adviser to be of comparable quality. The Fund may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and

<PAGE>

determined by the Advisor to be of comparable quality) only if the Adviser
determines that retaining the security is in the best interests of the Fund.

A non-rated municipal security will be considered for investment by the
Fund when the Adviser believes that the financial condition of the issuer of the
obligation and the protection afforded by the terms of the obligation itself
limit the risk to the Fund to a degree comparable to that of rated securities in
which the Fund may invest. During its last fiscal year, the Fund had 99% of its
average annual assets in securities rated by Moody's or S&P and 1% of its
average annual assets in unrated investments, including cash and cash
equivalents. For that year the Fund had the following percentages of its
average annual net assets invested in rated securities: Aaa/AAA-35.3%, Aa/AA-
30.7%, A/A-21.7%, Baa/BBB-10.8%. For this purpose, securities with different
ratings from Moody's and S&P were assigned the higher rating. This information
reflects the average month end composition of the Fund's assets for the Fund's
last fiscal year and is not necessarily representative of the Fund as of the end
of last year, the current fiscal year or any other time.

MUNICIPAL BONDS. Municipal bonds, which are intended to meet longer term
capital needs, can be classified as either "general obligation" or "revenue"
bonds. General obligation bonds are secured by a municipality's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are generally payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other tax, but not from general tax revenues. Municipal
bonds also include private activity bonds ("PABs"), which are bonds issued by or
on behalf of public authorities to finance various privately operated
facilities. PABs are in most cases revenue bonds. The payment of the principal
and interest on these bonds is dependent solely on the ability of an initial or
subsequent user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property financed by
the bond as security for payment. The Fund will acquire only PABs whose
interest payments, in the opinion of the issuer's counsel, are exempt from
Federal income tax (other than the AMT) and New Hampshire state interest and
dividends taxation.

MUNICIPAL NOTES AND LEASES. Municipal notes, which may be either "general
obligation" or "revenue" securities, are intended to fulfill short-term capital
needs and generally have original maturities of 397 days or less. They include
tax anticipation notes, revenue anticipation notes, bond anticipation notes,
construction loan notes and tax-exempt commercial paper. Municipal leases and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government lessee) are a
means for governmental issuers to acquire property and equipment without meeting
constitutional or statutory requirements for issuance of long-term debt.
Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds or notes as described in the SAI.

VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Fund
invests may have variable or floating rates of interest. These securities 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"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of the Fund to maintain a
stable net asset value. Similar to fixed rate debt instruments, 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. The rate of
interest on securities purchased by a Fund may be tied to various rates of
interest or index.

PARTICIPATION INTERESTS. The Fund may purchase participation interests in
municipal securities that are owned by banks or other financial institutions.
Participation interests carry a demand feature backed by a letter of credit or
guarantee of the bank or other institution permitting the holder to tender them
back to the bank or institution. The Fund will only purchase participation
interests from Federal Deposit Insurance Corporation ("FDIC") insured banks
having total assets of more than one billion dollars or from other financial
institutions whose long-term debt securities are rated within the two highest
rating categories of an NRSRO (or are unrated and determined by the Adviser to
be of comparable quality). Prior to purchasing any participation interest, the
Fund will obtain appropriate assurances from counsel retained by the Company
that the interest earned by the Fund from the obligations in which it holds
participation interests is exempt from Federal income and New Hampshire state
interest and dividends taxes.

<PAGE>

STAND-BY COMMITMENTS. The Fund may purchase municipal securities together
with the right to resell them to the seller at an agreed-upon price or yield
within specified periods prior to their maturity dates. These rights to resell
are commonly known as "stand-by commitments." The aggregate price which the
Fund pays for securities with a stand-by commitment may be higher than the price
which otherwise would be paid. The primary purpose of this practice is to
permit the Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. The Fund will enter into stand-by commitments only with banks or
municipal securities dealers that in the opinion of the Adviser present minimal
credit risks. The value of a stand-by commitment is dependent on the ability of
the writer to meet its repurchase obligation.

CERTAIN RISK FACTORS

Geographic Concentration. Because the Fund invests principally in New
Hampshire municipal securities, the Fund is more susceptible to factors
adversely affecting issuers of those municipal securities than would be a
comparable municipal securities portfolio having a lesser degree of geographic
concentration. These risks arise from the financial condition of the state of
New Hampshire and its political subdivisions. To the extent state or local
governmental entities are unable to meet their financial obligations, the income
derived by the Fund, its ability to preserve or realize appreciation of its
portfolio assets or its liquidity could be impaired.

To the extent the Fund's investments are primarily concentrated in issuers
located in New Hampshire, the value of the Fund's shares may be especially
affected by factors pertaining to New Hampshire's economy and other factors
specifically affecting the ability of issuers in New Hampshire to meet their
obligations. As a result, the value of the Fund's assets may fluctuate more
widely than the value of shares of a portfolio investing in securities relating
to a number of different states. The ability of state, county or local
governments and quasi-governmental agencies to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amounts of tax and
other revenues available to governmental issuers may be affected from time to
time by economic, political and demographic conditions within their state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of Federal, state
and local aid to governmental issuers may also affect their ability to meet
obligations. Payments of principal of and interest on private activity
securities will depend on the economic condition of the facility or specific
revenue source from whose revenues the payments will be made, which in turn
could be affected by economic, political or demographic conditions in the state.

INFORMATION CONCERNING THE STATE OF NEW HAMPSHIRE. The major NRSROs have rated
recent New Hampshire general obligation or State-guaranteed bond issues as
follows: Moody's - Aa (revised from Aa1 in November 1991); S&P - AA (stable);
Fitch - AA (revised from AA+ in November 1991). Moody's rating revision cited
economic weakness translating into financial difficulties exacerbated by
economic sensitivity of State government revenues, offset by expenditure and
debt policies which remain conservative. Fitch noted similar issues regarding
State government revenues, but noted that the State had acted consistently to
combat adverse trends and the State's debt position continues to be excellent.
A recent bond issue by the New Hampshire Municipal Bond Bank without State
guarantee has been separately rated A1 by Moody's (stable) and A by S&P
(stable). Bond ratings of individual municipalities in New Hampshire vary in
accordance with rating agencies' estimates of the issuer's relative financial
strength and ability to support debt service. There can be no assurance that
New Hampshire general obligations or the securities of any New Hampshire
political subdivision, authority or corporation owned by the Fund will be rated
in any category or will not be downgraded by an NRSRO. Further information
concerning the State of New Hampshire is contained in the SAI.

ADDITIONAL INVESTMENT POLICIES

The Fund's investment objective and certain investment limitations
described in the SAI may not be changed without approval of the holders of a
majority of the Fund's outstanding voting securities. A majority of the Fund's

<PAGE>

outstanding voting securities means the lesser of 67% of the shares of the Fund
present or represented at a shareholders meeting at which the holders of more
than 50% of the shares are present or represented, or more than 50% of the total
outstanding shares of the Fund. Except as otherwise indicated, investment
policies of the Fund are not fundamental and may be changed by the Board of
Directors of the Company (the "Board") without shareholder approval. A further
description of the Fund's investment policies is contained in the SAI.

TEMPORARY DEFENSIVE POSITION. When business or financial conditions
warrant, for example, when issues of sufficient quality and liquidity are not
available, the Fund may assume a temporary defensive position and invest without
limit in cash and short-term U.S. Government securities. During periods when
and to the extent that the Fund has assumed a temporary defensive position, it
will not be pursuing its investment objective and shareholders may be subject to
Federal and New Hampshire tax on a portion of their income dividends received
from the Fund.

PORTFOLIO TURNOVER. The frequency of portfolio transactions of the Fund
(the portfolio turnover rate) will vary from year to year depending on market
conditions. From time to time the Fund may engage in active short-term
trading to benefit from yield disparities among different issues of debt
securities, to seek short-term profits during periods of fluctuating interest
rates, or for other reasons. This type of trading will increase the Fund's
portfolio turnover rate and transaction costs and may increase the Fund's
capital gains, which are not Federally tax-exempt when distributed to
shareholders.The Adviser weighs the anticipated benefits of short-term
investments against these consequences. The Fund's portfolio turnover rate
is reported under "Financial Highlights."

4. MANAGEMENT

<PAGE>

MANAGER AND DISTRIBUTOR

ADVISER

Forum Advisors, Inc. serves as the investment adviser of the Fund. Subject
to the general supervision of the Board, the Adviser makes investment decisions
for the Fund. For its services, the Adviser receives an advisory fee at an
annual rate of 0.40% of the Fund's average daily net assets. The Adviser was
incorporated under the laws of Delaware in 1987 and is registered under the
Investment Advisers Act of 1940.

SHAREHOLDER SERVICING

Shareholder inquiries and communications concerning the Fund may be
directed to the Transfer Agent. The Transfer Agent acts as the Fund's transfer
agent and dividend disbursing agent. The Transfer Agent maintains an account
for each shareholder of the Fund (unless such accounts are maintained by sub-
transfer agents or processing agents) and performs other transfer agency and
shareholder related functions. For these services, the Transfer Agent receives
a fee computed and paid monthly at an annual rate of 0.25% of the Fund's average
daily net assets.

The Transfer Agent is authorized to subcontract any or all of its functions
to one or more qualified sub-transfer agents or processing agents, which may be
processing organizations (as described under "Purchases and Redemptions of
Shares - Purchases and Redemptions Through Financial Institutions") Forum or
affiliates of Forum, who agree to comply with the terms of the Transfer Agency
Agreement. The Transfer Agent may pay those agents for their services, but no
such payment will increase the Transfer Agent's compensation from the Company.
In addition, the Transfer Agent performs portfolio accounting services for the
Fund, including determination of the Fund's net asset value per share, pursuant
to a separate agreement with the Company.

EXPENSES OF THE COMPANY

The Fund's expenses comprise Company expenses attributable to the Fund
which are charged to the Fund, and expenses not attributable to a particular
fund of the Company which are allocated among the Fund and all other funds of
the Company in proportion to their average net assets. Subject to the
obligation of the Adviser to reimburse the Company for the excess expenses of
the Fund, the Company pays for all of its expenses. The Adviser, Forum and the
Transfer Agent, in their sole discretion, may waive all or any portion of their
respective fees, which are accrued daily and paid monthly. Any such waiver,
which could be discontinued at any time, would have the effect of increasing the
Fund's performance for the period during which the waiver was in effect and
would not be recouped at a later date.

<PAGE>

5. PURCHASES AND REDEMPTIONS
OF SHARES

GENERAL INFORMATION

REDEMPTIONS. Fund shares may be redeemed without charge at their net asset
value on any Fund Business Day. There is no minimum period of investment and no
restriction on the frequency of redemptions. Fund shares are redeemed as of the
next determination of the Fund's net asset value following acceptance by the
Transfer Agent of the redemption order in proper form (and any supporting
documentation which the Transfer Agent may require). Shares redeemed are not
entitled to receive dividends declared after the day on which the redemption
becomes effective.

Due to the cost to the Company of maintaining smaller accounts, the Company
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Company will not redeem accounts that fall below that amount solely
as a result of a reduction in net asset value.

PURCHASE AND REDEMPTION PROCEDURES

The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Fund directly. These investors may obtain
the account application necessary to open an account by writing the Transfer
Agent at the address on the cover page of this prospectus. For those
shareholder services not referenced on the account application and to change
information on a shareholder's account (such as addresses), investors or
existing shareholders should request an optional services form from the Transfer
Agent.

<PAGE>

INITIAL PURCHASE OF SHARES

There is a $5,000 minimum for initial investments in the Fund.

SUBSEQUENT PURCHASES OF SHARES

REDEMPTION OF SHARES

BY BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal Funds wire to a bank account designated on the
shareholder's account application. To request bank wire redemptions by
telephone, the shareholder also must have elected the telephone redemption
privilege. Redemption proceeds are transmitted by wire on the day after the
redemption request in proper form is received by the Transfer Agent.

<PAGE>

automatic redemptions or change the amount to be redeemed at any time by written
notification to the Transfer Agent.

EXCHANGES

BY MAIL. Exchanges may be accomplished by written instructions to the
Transfer Agent accompanied by any stock certificate that may have been issued to
the shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.

PURCHASES AND REDEMPTIONS THROUGH

FINANCIAL INSTITUTIONS

Shares may be purchased and redeemed through certain brokers, banks and
other financial institutions ("Processing Organizations"), including affiliates
of the Transfer Agent. Processing Organizations may receive as a dealer's
reallowance a portion of the sales charge paid by their customers who purchase
Fund shares. In addition, Processing Organizations may charge their customers a
fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund. The Company is not responsible for
the failure of any institution to promptly forward these requests.

<PAGE>

transferred into their name. There is typically a three day settlement period
for purchases and redemptions through broker-dealers. Certain other Processing
Organizations may enter purchase orders with payment to follow.

SALES CHARGES

SALES CHARGE
AS % OF
----------------
PUBLIC NET
OFFERING ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- ------------------ -------- ------ -----------
less than $100,000 3.75% 3.90% 3.25%
$100,000 but less
than $200,000 3.25 3.36 2.85
$200,000 but less
than $400,000 2.50 2.56 2.20
$400,000 but less
than $600,000 2.00 2.04 1.75
$600,000 but less
than $800,000 1.50 1.52 1.25
$800,000 but less
than $1,000,000 1.00 1.01 0.75
$1,000,000
and up 0.50 0.50 0.40

*Rounded to the nearest one-hundredth percent.

REDUCED SALES CHARGES

<PAGE>

6. DIVIDENDS AND TAX MATTERS

DIVIDENDS

Dividends of the Fund's net investment income are declared daily and paid
monthly. Dividends of net capital gain, if any, realized by the Fund are
distributed annually.

TAXES

Federal Taxes. The Fund intends to continue to qualify for each fiscal
year to be taxed as a "regulated investment company" under the Internal Revenue
Code of 1986. As such, the Fund will not be liable for Federal income taxes on
the net investment income and net capital gain distributed to its shareholders.
Because the Fund intends to distribute all of its net investment income and net
capital gain each year, the Fund should avoid all Federal income and excise
taxes.

Shareholders generally will not be subject to Federal income tax on dividends
paid by the Fund out of tax-exempt interest income earned by the Fund ("exempt-
interest dividends"), assuming certain requirements are met by the Fund.
Substantially all of the dividends paid by the Fund are anticipated to be exempt
from Federal income taxes.

Dividends paid by the Fund out of its taxable net investment income
(including any realized net short-term capital gain) are taxable to shareholders
as ordinary income for Federal tax purposes. Distributions by the Fund of
realized net long-term capital gain, if any, are taxable to shareholders as
long-term capital gain, regardless of the length of time the shareholder may
have held shares in the Fund. If Fund shares are sold at a loss after being
held for six months or less, the loss will be disallowed to the extent of any
exempt-interest dividends received on those

<PAGE>

shares and will be treated as long-term capital loss to the extent of any long-
term capital gain distribution received on those shares.

Any capital gain distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the distribution. To
the extent that capital gain was accrued by the Fund before the shareholder
purchased shares, the distribution would be in effect a return of capital to the
shareholder. For Federal income tax purposes, however, capital gain
distributions, including those that operate as a return of capital, are taxable
to the shareholder receiving them.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund generally is not deductible for Federal income tax purposes.

NEW HAMPSHIRE TAXES. Substantially all of the dividends paid by the Fund
are anticipated to be exempt from New Hampshire interest and dividends taxes.
The New Hampshire interest and dividends tax applies to that portion of a
dividend paid out of the Fund's taxable ordinary income (but not short-term
capital gain). In addition, it is anticipated that a substantial amount of the
dividends paid by the Fund will be exempt from New Hampshire business profits
taxes.

Shareholders who are individuals, resident in New Hampshire, will not be
subject to the New Hampshire interest and dividends or business profits tax on
dividends paid by the Fund, provided the Fund invests solely in New Hampshire
tax-exempt municipal securities or United States government obligations. If the
Fund invests in any other form of investment, then the entire amount of all of
the Fund's dividends (other than capital gain distributions) will be subject to
the interest and dividends tax.

Shareholders who are partnerships, associations or trusts, the beneficial
interest in which is not represented by transferable shares, and fiduciaries
deriving their appointment from a New Hampshire court, will generally be subject
to the same interest and dividends tax rules as shareholders who are individuals
resident in New Hampshire. Special interest and dividends tax rules will apply
to dividends received by trusts, estates, partnerships, and "S" corporations and
their beneficiaries or owners, if the entity or some of its beneficiaries or
owners are not resident in the state of New Hampshire. Shareholders to whom
these rules might apply should consult a tax advisor knowledgeable in the field
of New Hampshire state taxation.

Shareholders who are partnerships, associations or trusts the beneficial
interest in which is represented by transferable shares, are not subject to the
New Hampshire interest and dividends tax. If, however, such an organization is
engaged in business activity within the state, then it will be subject to the
New Hampshire business profits tax on all income earned by it in New Hampshire.
Taxable business profits for this purpose will include all dividends paid by the
Fund to the business organization, except that portion of a dividend that is
attributable to interest on Fund investments in notes, bonds, or other
securities of the United States. Thus, dividends representing income earned by
the Fund on its investment in New Hampshire municipal securities, and short- and
long-term capital gains, will be fully taxable under the New Hampshire business
profits tax.

OTHER TAX MATTERS. The Fund may be required by Federal law to withhold 31%
of reportable payments (which may include taxable dividends, capital gain
distributions and redemption proceeds) paid to individuals and certain other
non-corporate shareholders. Withholding is not required if a shareholder
certifies that the shareholder's social security or tax identification number
provided to the Fund is correct and that the shareholder is not subject to
backup withholding.

Reports containing appropriate information with respect to the Federal and
New Hampshire tax status of dividends and distributions paid during the year by
the Fund will be mailed to shareholders shortly after the close of each year.
This includes a statement advising each shareholder of the portion of total
dividends paid into the shareholder's account that is exempt from Federal income
tax and that is derived from New Hampshire municipal securities and from other
sources. These portions are determined for the entire year and on a monthly
basis and, thus, are an annual or monthly average, rather than a day-by-day
determination for each shareholder.

TAX-FREE INCOME VS. TAXABLE INCOME

The table below shows approximate equivalent taxable and tax-free yields at
various approximate combined marginal Federal income tax and New Hampshire
interest and dividends tax bracket rates. For example, an individual investor
in the 32% combined tax bracket for 1995 whose investments earn a 5% tax-free
yield would have to earn a 7.31% taxable yield to receive the same benefit.

<PAGE>
1995 COMBINED FEDERAL AND NEW HAMPSHIRE
TAXABLE VS. TAX-FREE YIELDS
Combined

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marginal
Federal and
New A Tax-Free Yield of
Hampshire 4.0% 4.5% 5.0% 5.5% 6.0%
Tax Bracket equals a taxable yield of approximately

40% 6.58% 7.40% 8.22% 9.05% 9.87%
34% 6.10% 6.86% 7.63% 8.39% 9.15% 32% 5.85% 6.58% 7.31% 8.04%
8.77% 19% 4.95% 5.57% 6.19% 6.81% 7.43%
</TABLE>

The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. Although the Fund primarily invests in
securities the interest from which is exempt from both Federal and New Hampshire
state taxes, some of the Fund's investments may generate Federal taxable income
or capital gain. An investor's tax bracket will depend upon the investor's
taxable income. The figures set forth above do not reflect the Federal
alternative minimum taxes or any state or local income taxes other than New
Hampshire interest and dividends taxes.

The foregoing is only a summary of some of the important Federal and New
Hampshire tax considerations generally affecting the Fund and its shareholders.
There may be other Federal, state or local tax considerations applicable to a
particular investor. Prospective investors are urged to consult their tax
advisors.

7. OTHER INFORMATION

PERFORMANCE INFORMATION

The Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Fund may be
compared to recognized indices of market performance. The comparative material
found in the Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.

BANKING LAW MATTERS

DETERMINATION OF NET ASSET VALUE

<PAGE>

owned by the Fund for which market quotations are readily available are valued
at current market value, or, in their absence, at fair value as determined by
the Board.

THE COMPANY AND ITS SHARES

Shares issued by the Company have no conversion, subscription or preemptive
rights. Shareholders of the Fund have equal and exclusive rights to dividends
and distributions declared by the Fund and to the net assets of the Fund upon
liquidation or dissolution. Voting rights are not cumulative and, with respect
to matters not affecting all funds of the Company, generally only shareholders
of the affected series may vote. Maryland law does not require a registered
investment company to hold annual meetings of shareholders, and it is
anticipated that shareholder meetings will be held only when specifically
required by Federal or state law. Shareholders have available certain
procedures for the removal of Directors. All shares when issued in accordance
with the terms of this Prospectus will be fully paid and nonassessable. From
time to time certain shareholders may own a large percentage of shares of the
Fund. Accordingly, these shareholders may be able to greatly effect (if not
determine) the outcome of any shareholder vote.

<PAGE>

INVESTORS BOND FUND
TAXSAVER BOND FUND

Prospectus dated January 5, 1996

This Prospectus offers Shares of Investors Bond Fund and Taxsaver Bond Fund
(the "Funds") and consists of these cover pages and the attached Prospectus
relating to shares of the Funds dated August 1, 1995 (the "August Prospectus"),
which is incorporated herein.

The information in the August Prospectus is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized from
a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the rust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By-Laws and Maryland law, which presently
govern the Company's operations. The Trust initially will have seven active
series corresponding to the current series of the Company.

2. CORE AND GATEWAY-REGISTERED TRADEMARK- AUTHORIZATION

Shareholders of each Fund have approved a new investment policy that
permits the Fund to seek to achieve its investment objective by converting to a
Core and Gateway structure. The Fund, upon future action by the Board of
Trustees and notice to shareholders, may convert to this structure, in which the
Fund would hold as its only investment securities the shares of another
investment company having substantially the same investment objective and
policies as the Fund. The Board of Trustees will not authorize conversion to a
Core and Gateway structure if it would materially increase costs to a Fund's
shareholders.

3. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of Investors Bond Fund. The information with respect to the Fund's
fiscal years ended March 31st has been audited in connection with an audit of
the Fund's financial statements by Deloitte & Touche LLP, independent auditors.
The information with respect to the period ended September 30, 1995 is
unaudited. The financial statements and independent auditors' report thereon
for the fiscal years ended March 31st are incorporated by reference into the
SAI. The Fund's annual report to shareholders may be obtained from the Trust
without charge.
<TABLE>
<CAPTION>

INVESTORS BOND FUND

Six Months
Ended Year Ended
September 30, March 31,
------------------------------------------------------
1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $10.00 $10.38 $10.71 $10.43 $10.09 $9.82
------ ------ ------ ------ ------ -----
Net Investment Income 0.38 0.82 0.81 0.82 0.83 0.84
Net Realized and Unrealized Gain
(Loss) on Securities 0.13 (0.38) (0.30) 0.53 0.44 0.27
Dividends from Net Investment Income (0.38) (0.82) (0.81) (0.82) (0.93) (0.84)
Distributions from Net Realized Gains --- --- (0.03) (0.25) (0.10) ---
------ ------ ------ ------ ------ ------
Ending Net Asset Value per Share $10.13 $10.00 $10.38 $10.71 $10.43 $10.09
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------

<PAGE>

Ratios to Average Net Assets:
Expenses (1) 0.75%(2) 0.75% 0.75% 0.75% 0.70% 0.64%
Net Investment Income 7.41%(2) 8.19% 7.49% 7.71% 7.93% 8.44%
Total Return 5.12% 4.55% 4.70% 13.53% 12.91% 11.76%
Portfolio Turnover Rate 27.35% 48.17% 41.41% 193.21% 221.39% 73.32%
Net Assets at the End of Period (000's
Omitted) $27,155 $25,890 $26,083 $26,832 $24,336 $19,132

(1) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements
not occurred, the ratio of expenses to average net assets would
have been:
1.28%(2) 1.33% 1.31% 1.40% 1.51% 1.68%
(2) Annualized.
</TABLE>

The following information represents selected data for a single share
outstanding of TaxSaver Bond Fund. The information with respect to the Fund's
fiscal years ended March 31st has been audited in connection with an audit of
the Fund's financial statements by Deloitte & Touche LLP, independent auditors.
The information with respect to the period ended September 30, 1995 is
unaudited. The financial statements and independent auditors' report thereon
for the fiscal years ended March 31st are incorporated by reference into the
SAI. The Fund's annual report to shareholders may be obtained from the Trust
without charge.

TAXSAVER BOND FUND

Six Months
Ended Year Ended
September 30, March 31,
-------------------------------------------------------------
1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $10.39 $10.35 $10.63 $10.26 $10.10 $ 9.97
Net Investment Income 0.28 0.57 0.57 0.63 0.68 0.67
Net Realized and Unrealized Gain
(Loss) on Securities 0.17 0.04 (0.01) 0.49 0.20 0.13
Dividends from Net Investment Income (0.28) (0.57) (0.57) (0.63) (0.68) (0.67)
Distributions from Net Realized Gains --- --- (0.27) (0.12) (0.04) ---
------ ------ ------ ------ ------ ------
Ending Net Asset Value per Share $10.56 $10.39 $10.35 $10.63 $10.26 $10.10
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Ratios to Average Net Assets:
Expenses (2) 0.60%(3) 0.60% 0.60% 0.60% 0.55% 0.49%
Net Investment Income 5.39%(3) 5.62% 5.27% 5.98% 6.64% 6.69%
Total Return 4.41% 6.18% 5.24% 11.28% 8.95% 8.29%
Portfolio Turnover Rate 36.38% 63.85% 141.80% 240.36% 104.29% 54.62%
Net Assets at the End of Period (000's
Omitted) $17,537 $16,018 $16,518 $16,580 $11,207 $9,998

(1) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements not
occurred, the ratio of expenses to average net assets would have
been:
1.40%(2) 1.45% 1.50% 1.56% 1.66% 1.86%
(2) Annualized.
</TABLE>

<PAGE>

FORUM FUNDS, INC.

INVESTORS BOND FUND
TAXSAVER BOND FUND

ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:

Forum Financial Corp.
P.O. Box 446
Portland, Maine 04112
(207) 879-0001

PROSPECTUS
August 1, 1995

This Prospectus offers shares of Investors Bond Fund and TaxSaver Bond Fund (the
"Funds"), each a non-diversified series of Forum Funds, Inc. (the "Company"), an
open-end, management investment company.

INVESTORS BOND FUND seeks to provide as high a level of
current income as is consistent with capital preservation
and prudent investment risk. The Fund invests primarily in
a portfolio of investment grade debt securities.

TAXSAVER BOND FUND seeks to provide shareholders with a high
level of current income exempt from Federal income tax. The
Fund invests principally in investment grade debt
obligations issued by the states, territories and
possessions of the United States and their political
subdivisions, agencies and instrumentalities.

Shares of the Funds are offered to investors at a price equal to the next
determined net asset value plus a maximum sales charge of 3.75% of the total
public offering price (3.90% of the net amount invested).

This Prospectus sets forth concisely the information concerning the Company and
the Funds that a prospective investor should know before investing. The Company
has filed with the Securities and Exchange Commission ("SEC") a Statement of
Additional Information dated August 1, 1995, as may be amended from time to time
(the "SAI"), which contains more detailed information about the Company and the
Funds and which is incorporated into this Prospectus by reference. The SAI is
available without charge by contacting the Company at the address listed above.

Investors should read this Prospectus and retain it for future reference.

1. PROSPECTUS SUMMARY

HIGHLIGHTS OF THE FUND

Investment Objectives

<PAGE>

The investment objective of INVESTORS BOND FUND is to provide as high a
level of current income as is consistent with capital preservation and prudent
investment risk. The Fund invests primarily in a portfolio of investment grade
debt securities. The investment objective of TAXSAVER BOND FUND is to provide
shareholders with a high level of current income exempt from Federal income tax.
The Fund invests principally in investment grade debt obligations issued by the
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities. See the "Investment Objectives
and Policies" sections.

Fund Management

The executive offices of the Funds' investment adviser, Forum Advisors,
Inc. (the "Adviser"), are located at Two Portland Square, Portland, Maine 04101.
The manager of the Company and distributor of its shares is Forum Financial
Services, Inc. ("Forum"). Forum Financial Corp. (the "Transfer Agent"), Two
Portland Square, Portland, Maine 04101, serves as the Company's transfer agent,
dividend disbursing agent and shareholder servicing agent. See "Management."

Purchases and Redemptions

Shares of the Funds are offered at the next-determined net asset value per share
plus any applicable sales charge. The minimum initial investment is $5,000
($2,000 for IRAs; $2,500 for exchanges) and the minimum subsequent investment is
$500. Shares may be redeemed without charge. See "Purchases and Redemptions of
Shares."

Exchange Program

Shareholders of the Funds may exchange their shares without charge for the
shares of certain other funds. See "Purchases and Redemptions of Shares -
Exchanges."

Dividends

Dividends of net investment income are declared daily and paid monthly by
each Fund and are reinvested in Fund shares unless a shareholder elects to have
them paid in cash. It is anticipated that substantially all of the dividends
paid by TaxSaver Bond Fund will be exempt from Federal income taxes, including
the Federal alternative minimum tax. See "Dividends and Tax Matters."

Certain Risk Factors

There can be no assurance that either Fund will achieve its investment
objective. The Funds' net asset value will fluctuate as the value of the Fund's
portfolio securities change and will tend to vary inversely with movements in
interest rates. The Funds' investments in non- investment grade debt securities
entail certain risks. The Funds are non-diversified and, therefore, have
greater freedom to concentrate their investments than if they were diversified
funds. See "Investment Objectives and Policies" and "Certain Risk Factors."

EXPENSES OF INVESTING IN THE FUND

The purpose of the following table is to assist investors in understanding
the various expenses that an investor in a Fund will bear directly or
indirectly.

Investors TaxSaver
Bond Bond
Fund Fund
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage
of public offering price) 3.75% 3.75%
Exchange Fee None None

Annual Fund Operating Expenses (1)
(as a percentage of average net
assets after expense reimbursements)
Management Fees (2) 0.36% 0.04%
12b-1 Fees None None
Other Expenses 0.39% 0.56%
Total Fund Operating Expenses 0.75% 0.60%

(1) The amounts of expenses are based on amounts incurred by each Fund during
the Fund's most recent fiscal year ending March 31, 1995. Absent expense
reimbursements and fee waivers, the expenses of Investors Bond Fund and TaxSaver
Bond Fund, respectively, would have been: Management Fees, 0.70% and 0.70%;
Other Expenses, 0.63% and 0.75%; and Total Fund Operating Expenses, 1.33% and
1.45%. For a further description of the various expenses incurred in the
operation of the Fund, see "Management."

<PAGE>

(2) Includes the Adviser's investment advisory fee and Forum's management fee.

EXAMPLE

1 Year 3 Years 5 Years 10 Years
Investors Bond Fund $45 $61 $78 $127
TaxSaver Bond Fund $43 $56 $70 $109

The example is based on the expenses listed in the table. The five percent
annual return is not predictive of and does not represent the Funds' projected
returns; rather, it is required by government regulation. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL
EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.

2. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of Investors Bond Fund. This information has been audited in
connection with an audit of the Fund's financial statements by Deloitte & Touche
LLP, independent auditors. The financial statements and independent auditors'
report thereon are incorporated by reference into the SAI. Further information
about the Fund's performance is contained in the Fund's annual report to
shareholders, which may be obtained from the Company without charge.
<TABLE>
<CAPTION>

INVESTORS BOND FUND
Year Ended March 31
1995 1994 1993 1992 1991 1990(1)
<S> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value per Share $10.38 $10.71 $10.43 $10.09 $ 9.82 $10.00
Net Investment Income 0.82 0.81 0.82 0.83 0.84 0.42
Net Realized and Unrealized Investment
Gain (Loss) on Securities (0.38) (0.30) 0.53 0.44 0.27 (0.14)
Dividends from Net Investment Income (0.82) (0.81) (0.82) (0.83) (0.84) (0.42)
Distributions from Net Realized Gains (0.03) (0.25) (0.10) --- (0.04)
Ending Net Asset Value per Share $10.00 $10.38 $10.71 $10.43 $10.09 $9.82
Ratios to Average Net Assets:
Expenses (2) 0.75% 0.75% 0.75% 0.70% 0.64% 0.41%(3)
Net Investment Income 8.19% 7.49% 7.71% 7.93% 8.44% 8.51%(3)
Total Return 4.55% 4.70% 13.53% 12.91% 11.76% 5.79%(3)
Portfolio Turnover Rate 48.17% 41.41% 193.21% 221.39% 73.32% 93.08%
Net Assets at the End of
Period (000's Omitted) $25,890 $26,083 $26,832 $24,336 $19,132 $19,400

(1) The Fund commenced operations on October 2, 1989.
(2) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements not
occurred, the ratio of expenses to average net assets would
have been:
Expenses 1.33% 1.31% 1.40% 1.51% 1.68% 1.52%(3)

(3) Annualized
The following information represents selected data for a single share
outstanding of TaxSaver Bond Fund. This information has been audited in
connection with an audit of the Fund's financial statements by Deloitte &
Touche LLP, independent auditors. The financial statements and
independent auditors' report thereon are incorporated by reference into
the SAI. Further information about the Fund's performance is contained
in the Fund's annual report to shareholders, which may be obtained from
the Company without charge.
</TABLE>
<TABLE>
TAXSAVER BOND FUND
Year Ended March 31
1995 1994 1993 1992 1991 1990(1)
<S> <C> <C> <C> <C> <C> <C>
Beginning Net Asset Value per
Share $10.35 $10.63 $10.26 $10.10 $ 9.97 $10.00
Net Investment Income 0.57 0.57 0.63 0.68 0.67 0.33
Net Realized and Unrealized Investment
Gain (Loss) on Securities 0.04 (0.01) 0.49 0.20 0.13 (0.03)
Dividends from Net Investment Income (0.57) (0.57) (0.63) (0.68) (0.67) (0.33)

<PAGE>

Distributions from Net Realized Gains --- (0.27) (0.12) (0.04) --- --
Ending Net Asset Value per Share $10.39 $10.35 $10.63 $10.26 $10.10 $ 9.97
Ratios to Average Net Assets:
Expenses (2) 0.60% 0.60% 0.60% 0.55% 0.49% 0.22%(3)
Net Investment Income 5.62% 5.27% 5.98% 6.64% 6.69% 6.54%(3)
Total Return 6.18% 5.24% 11.28% 8.95% 8.29% 6.16%(3)
Portfolio Turnover Rate 63.85% 141.80% 240.36% 104.29% 54.62% 13.25%
Net Assets at the End of
Period (000's Omitted) $16,018 $16,518 $16,580 $11,207 $9,998 $9,546

(1) The Fund commenced operations on October 2, 1989.
(2) During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the ratio of expenses to average net assets would have been:

Expenses 1.45% 1.50% 1.56% 1.66% 1.86% 1.66%(3)
(3) Annualized.
</TABLE>

3. INVESTORS BOND FUND
INVESTMENT OBJECTIVE
AND POLICIES

INVESTMENT OBJECTIVE

The investment objective of Investors Bond Fund is to provide as high a
level of current income as is consistent with capital preservation and prudent
investment risk. Capital preservation means seeking to control the risk of
default and the risk of capital losses in a period of falling prices for debt
securities. There can be no assurance that the Fund will achieve its investment
objective.

INVESTMENT POLICIES

The Fund seeks to attain its investment objective by investing in a
portfolio consisting primarily of investment grade debt securities. The Fund
may invest in the following types of bonds and other debt securities:

(1) Debt securities which are rated in one of the four highest rating
categories by a nationally recognized statistical rating organization ("NRSRO")
such as Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P");

(2) Obligations issued or guaranteed as to principal and interest by the
United States Government or by any of its agencies or instrumentalities ("U.S.
Government Securities");

(3) Mortgage-backed and asset backed securities rated in one of the two
highest rating categories by a NRSRO;

(4) Commercial paper and other money market instruments rated in one of
the two highest rating categories by a NRSRO; and

(5) Banker's acceptances or negotiable certificates of deposit issued by
the commercial banks doing business in the United States that have, at the time
of investment, total assets in excess of one billion dollars and that are
insured by the Federal Deposit Insurance Corporation.

As a matter of fundamental policy the Fund will invest at least 90% of the
value of its total assets at the time of investment in the above types of
securities or in repurchase agreements covering those securities. In addition,
except during periods when the Fund assumes a temporary defensive position, the
Fund will invest at least 65% of the value of its total assets in the bonds
included in the first three categories listed above.

The Fund may invest up to 10% of the value of its total assets at the time
of investment in: (1) debt securities which are rated in the fifth highest
rating category by an NRSRO (for example, Ba by Moody's or BB by S&P); (2)
preferred stock which is rated in one of the five highest rating categories by a
NRSRO (for example, ba or above by Moody's or BB or above by S&P); and (3)
options and futures contracts.

Securities in the four highest rating categories are generally considered
to be investment grade, although Moody's indicates that securities rated Baa
have speculative characteristics. Debt securities and preferred stock rated in
the fifth highest rating category by Moody's and by S&P are not considered to be
investment grade, are high risk and have predominantly speculative
characteristics. See "Certain Risk Factors.O The Fund may purchase unrated
securities which the Adviser believes to be of comparable quality to the rated
securities in which the Fund may invest. Unrated securities may not be as
actively traded as rated securities. An unrated security will be considered for
investment by the Fund when the Adviser believes that the financial condition of
the issuer of the

<PAGE>

obligation and the protection afforded by the terms of the obligation itself
limit the risk to the Fund to a degree comparable to that of rated securities
in which the Fund may invest.

During its last fiscal year, the Fund had 61% of its average annual assets
in securities rated by Moody's or S&P and 39% of its average annual assets in
unrated investments, including cash and cash equivalents. For that year the
Fund had the following percentages of its average annual net assets invested in
rated securities: Aaa/AAA-2.7%, Aa/AA-7.8%, A/A-12.9%, Baa/BBB-21.5%, Ba/BB-
14.3% and B/B-1.5%. Securities with different ratings from Moody's and S&P were
assigned the higher rating. This information reflects the average month end
composition of the assets for the Fund's last fiscal year and is not necessarily
representative of the Fund as of the end of last year, the current fiscal year
or any other time.

In general, the longer the maturity of a security, the higher the rate of
interest it pays. However, a longer average maturity is generally associated
with a higher level of volatility in the market value of a security. The
average maturity of the Fund's portfolio will vary depending on anticipated
market conditions. It is anticipated that the Fund will invest in debt
obligations with maturities ranging from short-term (including overnight) to 30
years, and that the Fund's portfolio of securities will have an average weighted
maturity of between five and 20 years.

CORPORATE DEBT SECURITIES. In selecting corporate debt securities for the
Fund, the Adviser reviews and monitors the creditworthiness of each issuer and
issue. Interest rate trends and specific developments which may affect
individual issuers will also be analyzed. In addition to the debt securities of
domestic corporations, the Fund may invest in debt securities registered and
sold in the United States by foreign issuers (Yankee Bonds) and those sold
outside the United States by foreign or U.S. issuers (Eurobonds). The Fund
restricts its purchases of these securities to issues denominated and payable in
United States dollars. All obligations of non-U.S. issuers purchased by the
Fund will be issued or guaranteed by a sovereign government, by a supranational
agency whose members are sovereign governments, or by a U.S. issuer in whose
debt securities the Fund could invest.

U.S. GOVERNMENT SECURITIES. The U.S. Government Securities in which the
Fund may invest include direct obligations of the U.S. Treasury (such as
Treasury bills and notes) and other securities backed by the full faith and
credit of the U.S. Government, such as those issued by the Government National
Mortgage Association ("GNMA"). The Fund may also invest in U.S. Government
Securities that have lesser degrees of government backing. For instance, the
Fund may purchase obligations of the of the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")
(which are supported by the right of the issuer to borrow from the Treasury
under certain circumstances) and obligations of the Student Loan Marketing
Association and the Federal Home Loan Banks (which are supported only by the
credit of the agency or instrumentality). There is no guarantee that the U.S.
Government will support securities not backed by its full faith and credit and,
accordingly, these securities may involve more risk than other U.S. Government
Securities.

MORTGAGE-BACKED SECURITIES. The Adviser anticipates that up to 50% of the
value of the Fund's total assets may be invested in mortgage-backed securities.
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.

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 Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.

<PAGE>

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-sponsored corporation owned entirely by private stockholders that is
subject to general regulation by the Secretary of Housing and Urban Development,
and FHLMC, a corporate instrumentality of the United States Government. While
FNMA and FHLMC each guarantee the payment of principal and interest on the
securities they issue, unlike GNMA securities, their securities are not backed
by the full faith and credit of the United States Government.

PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities
offered by private issuers 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"). 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 may also be supported by various forms
of insurance, including individual loan, title, pool and hazard policies.

ARMs may have less risk of a decline in value during periods of rapidly
rising rates, but they may also 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 the 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.

<PAGE>

("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.
CMOs may have complicated structures and generally involve more risks than
simpler forms of mortgage-backed securities. The Adviser's analyses of
particular CMO issues and estimates of future economic indicators (such as
interest rates) become more important to the performance of the Fund as the
securities become more complicated.

ASSET-BACKED SECURITIES. The Adviser anticipates that up to 15% of the
value of the Fund's total assets may be invested in asset-backed securities.
Asset-backed securities represent direct or indirect participations in, or are
secured by and payable from, assets other than mortgage-backed 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. Asset-backed securities, including adjustable
rate asset-backed securities, have yield characteristics similar to those of
mortgage-backed 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-backed
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-backed 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.

4. TAXSAVER BOND FUND
INVESTMENT OBJECTIVE
AND POLICIES

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from Federal income tax. Although the Fund will
attempt to invest 100% of its assets in municipal securities the interest on
which is exempt from all Federal income tax, including the Federal alternative
minimum tax ("AMT"), the Fund reserves the right to invest up to 20% of the
value of its net assets in securities on which the interest income is subject to
Federal income taxation. In addition, the Fund may assume a temporary defensive
position and invest without limit in cash and cash equivalents that may be
taxable. There can be no assurance that the Fund will achieve its investment
objective.

INVESTMENT POLICIES

The Fund pursues its objective by investing principally in investment grade
debt obligations issued by the states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities. These
securities are generally known as "municipal securities" and include municipal
bonds, notes and leases. It is anticipated that under normal circumstances
substantially all of the Fund's total assets will be invested in municipal
securities the interest income from which is exempt from Federal income taxes,
including the Federal AMT.

In general, the longer the maturity of a municipal security, the higher the
rate of interest it pays. However, a longer average maturity is generally
associated with a higher level of volatility in the market value of a municipal
security. The average maturity of the Fund's portfolio will vary depending on
anticipated market conditions. It is anticipated, however, that the average
weighted maturity of all municipal securities in the Fund's portfolio will
normally range between five and 15 years.

Some municipal securities are related in such a way that an economic,
business or political development affecting one municipal security would have a
similar effect on another municipal security. For example, the repayment of
different obligations may depend on similar types of projects. While the Fund
may invest more than 25% of its total assets in private activity bonds, ("PABs")
under normal circumstances no single type of revenue bond (for example, electric
revenue bonds or housing revenue bonds) will constitute more than 25% of the
Fund's total assets. In addition, under normal circumstances no more than 25%
of the Fund's total assets may be invested in issuer's located in any one state,
territory or possession.

Under current Federal tax law, interest on certain municipal securities
issued after August 7, 1986 to finance "private activities" will be a "tax
preference item" for purposes of the Federal AMT applicable to certain
individuals

<PAGE>

and corporations. The interest on these securities generally is fully
tax-exempt for regular Federal income tax purposes. The Fund may from time
to time purchase certain municipal securities the interest on which
constitutes a "tax preference item" for purposes of the Federal AMT.

CREDIT MATTERS. Normally, at least 65% of the Fund's total assets will be
invested in municipal bonds rated at the time of purchase within the four
highest grades assigned by a nationally recognized statistical rating
organization ("NRSRO") such as Moody's Investors Service, Inc. ("Moody's") (Aaa,
Aa, A and Baa) or Standard & Poor's Corporation ("S&P") (AAA, AA, A and BBB) or
which are unrated and determined by the Adviser to be of comparable quality.
Securities in these ratings generally are considered to be investment grade
securities, although Moody's indicates that municipal securities rated Baa have
speculative characteristics. Unrated securities may not be as actively traded
as rated securities. A further description of the ratings used by Moody's, S&P
and other NRSROs is included in the SAI.

The tax-free yields sought by the Fund are generally obtainable from
securities rated within the four highest rating categories by NRSROs. The Fund
may, however, invest up to 25% of its total assets in municipal bonds rated in
the fifth highest rating category by any NRSRO or which are unrated and
determined by the Adviser to be of comparable quality. These securities are not
considered to be investment grade and have speculative or predominantly
speculative characteristics. See "Certain Risk Factors." The Fund only will
invest in municipal notes and other short-term municipal obligations in the two
highest rating categories assigned by an NRSRO or which are unrated and
determined by the Adviser to be of comparable quality. The Fund may retain
securities whose rating has been lowered below the lowest permissible rating
category (or that are unrated and determined by the Advisor to be of comparable
quality) only if the Adviser determines that retaining the security is in the
best interests of the Fund.

A non-rated municipal security will be considered for investment by the
Fund when the Adviser believes that the financial condition of the issuer of
such obligation and the protection afforded by the terms of the obligation limit
the risk to the Fund to a degree comparable to that of rated securities in which
the Fund may invest. During its last fiscal year, the Fund had 73% of its
average annual assets in municipal securities rated by Moody's or S&P and 27% of
its average annual assets in unrated investments, including cash and cash
equivalents. For that year the Fund had the following percentages of its
average annual net assets invested in rated securities: Aaa/AAA-20.2%, Aa/AA-
6.3%, A/A-12.3% and Baa/BBB-34.1%. Securities with different ratings from
Moody's and S&P were assigned the higher rating. This information reflects the
average composition of the Fund's assets for the Fund's last fiscal year and is
not necessarily representative of the Fund as of the end of last year, the
current fiscal year or any other time.

MUNICIPAL BONDS. Municipal bonds, which are intended to meet longer term
capital needs, can be classified as either "general obligation" or "revenue"
bonds. General obligation bonds are secured by a municipality's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are generally payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other tax, but not from general tax revenues. Municipal
bonds also include PABs, which are bonds issued by or on behalf of public
authorities to finance various privately operated facilities. PABs are in most
cases revenue bonds and generally do not have the pledge of the full faith,
credit and taxing power of the municipality issuer. The payment of the
principal and interest on these bonds is dependent solely on the ability of an
initial or subsequent user of the facilities financed by the bonds to meet its
financial obligations and the pledge, if any, of real and personal property
financed by the bond as security for payment. The Fund will acquire only PABs
whose interest payments, in the opinion of the issuer's counsel, are exempt from
Federal income taxation (other than the AMT).

PARTICIPATION INTERESTS. The Fund may purchase participation interests in
municipal securities (which may be fixed, floating or variable rate securities)
that are owned by banks or other financial institutions. Participation
interests carry a demand feature backed by a letter of credit or guarantee of
the bank or institution permitting the holder to tender them back to the bank or
other institution. The Fund will only purchase participation interests from
Federal Deposit Insurance Corporation insured banks having total assets of more
than one billion dollars or from

<PAGE>

other financial institutions whose long-term debt securities are rated within
the four highest rating categories by an NRSRO or which are unrated and
determined by the Adviser to be of comparable quality. Prior to purchasing
any participation interest, the Fund will obtain appropriate assurances from
counsel retained by the Company that the interest earned by the Fund from the
obligations in which it holds participation interests is exempt from Federal
income tax.

5. CERTAIN RISK FACTORS
DIVERSIFICATION MATTERS. The Funds are non-diversified, which means that
they have greater latitude than a diversified fund with respect to the
investment of its assets in the securities of a relatively few municipal
issuers. As non-diversified portfolios, the Funds may present greater risks
than a diversified fund. The Funds' diversification requirements provide that,
as of the last day of each fiscal quarter, with respect to 50% of its assets, a
Fund may not own the securities of a single issuer, other than a U.S. Government
security, with a value of more than 5% of the Fund's total assets. Except for
U.S. Government securities, no more than 25% of the total assets of a Fund may
be invested in securities of any one issuer. These limitations do not apply to
securities of an issuer payable solely from the proceeds of escrowed U.S.
Government securities. A Fund will be subject to a greater risk of loss if an
issuer in which the Fund invests a substantial amount of its assets is unable to
make interest or principal payments or if the market value of securities
declines.

NON-INVESTMENT GRADE DEBT SECURITIES. The Funds may invest in non-
investment grade, high risk securities (securities rated lower than the fourth
highest rating category by an NRSRO), which provide poor protection for payment
of principal and interest. These lower rated securities (often referred to as
"junk bonds") involve greater risk of default or price changes due to changes in
the issuer's creditworthiness than do higher quality securities. The market for
these securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. These risks may be magnified in the case of unrated junk bonds. In
addition, the market prices of lower rated securities may fluctuate more than
the market prices of higher quality securities and may decline significantly in
periods of general economic difficulty or rising interest rates. Further
information concerning these investments is contained in the SAI.

6. ADDITIONAL INVESTMENT
POLICIES

All investment policies of a Fund that are designated as fundamental, and each
Fund's investment objective, may not be changed without approval of the holders
of a majority of that Fund's outstanding voting securities. A majority of a
Fund's outstanding voting securities means the lesser of 67% of the shares of
that Fund present or represented at a shareholders meeting at which the holders
of more than 50% of the shares are present or represented, or more than 50% of
the outstanding shares of the Fund. Except as otherwise indicated, investment
policies of the Funds are not fundamental and may be changed by the Board of
Directors of the Company (the "Board") without shareholder approval. A further
description of the Funds' investment policies is contained in the SAI.

The Funds may borrow money for temporary or emergency purposes (including
the meeting of redemption requests), but not in excess of 33 1/3% of the value
of a Fund's total assets. Borrowing for purposes other than meeting redemption
requests will not exceed 5% of the value of a Fund's total assets. The Funds
may not invest more than 15% of their net assets in illiquid securities,
including repurchase agreements not entitling the Fund to the payment of
principal within seven days. Although they have no current intention, each Fund
may in the future seek to hedge against a decline in the value of securities
they own or an increase in the price of securities which it plans to purchase
through the writing and purchase of exchange-traded and over-the-counter options
and the purchase and sale of futures contracts and options on those futures
contracts. In order to avoid maintaining idle cash, the Funds may invest up to
10% of their total assets in money market mutual funds that, in the case of
TaxSaver Bond Fund, invest in municipal securities exempt from Federal income
taxes.

<PAGE>

REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may
seek additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss. The
Adviser monitors the creditworthiness of counterparties to these transactions
and intends to enter into these transactions only when it believes the
counterparties present minimal credit risks and the income to be earned from the
transaction justifies the attendant risks.

Repurchase agreements are transactions in which a Fund purchases a security
and simultaneously commits to resell that security to the seller at an agreed-
upon price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. When a Fund lends a security
it receives interest from the borrower or from investing cash collateral. The
Company maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans.

DEBT SECURITIES. The market value of debt securities (including municipal
securities) depends on, among other things, conditions in the market for the
security and the fixed income markets generally, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
market value of the interest-bearing debt securities held by the Funds will be
affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, a decline
in interest rates produces an increase in market value, while an increase in
interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. Obligations of issuers of debt securities are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors. The possibility exists, therefore, that, as a
result of litigation or other conditions, the ability of any issuer to pay, when
due, the principal of and interest on its debt securities may be materially
impaired.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When these 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. The Funds enter into when-issued and forward commitments only with
the intention of actually receiving or delivering the securities, as the case
may be. When-issued securities may include bonds purchased on a "when, as and
if issuedO basis under which the issuance of the securities depends upon the
occurrence of a subsequent event, such as approval of a proposed financing by
appropriate municipal authorities.

During the period between a commitment and settlement, no payment is made
for the securities purchased and, thus, no interest accrues to the purchaser
from the transaction. However, at the time a Fund makes a commitment to
purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver
or pay for a security purchased or sold by the Fund may result in a loss or a
missed opportunity to make an alternative investment. Any significant
commitment of a Fund's assets committed to the purchase of securities on a when-
issued or forward commitment basis may increase the volatility of its net asset
value.

The use of when-issued transactions and forward commitments may enable a
Fund to hedge against anticipated changes in interest rates and prices. If the
Adviser were to forecast incorrectly the direction of interest rate movements,
however, the Fund might be required to complete these transactions at prices
inferior to the current market values. No when-issued or forward commitments
will be made by a Fund if, as a result, more than 15% of the value of the Fund's
total assets would be committed to such transactions.

VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Funds
invest may have variable or floating rates of interest. These securities 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"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of a Fund to maintain a
stable net asset value. Similar to fixed rate debt instruments, variable and
floating rate instruments are subject to changes in value based on changes in
market interest rates or changes in

<PAGE>

the issuer's creditworthiness. The rate of interest on securities purchased
by a Fund may be tied to various rates of interest or index.

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 an instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. The Fund could, for this or other reasons, suffer a
loss with respect to an instrument. The Adviser monitors the liquidity of the
Funds' investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.

TEMPORARY DEFENSIVE POSITION. When business or financial conditions
warrant, for example, when issues of sufficient quality and liquidity are not
available, a Fund may assume a temporary defensive position and invest all or
part of its assets in cash or prime quality cash equivalents, including (i)
short-term U.S. Government securities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States, (iii) commercial paper, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) to the extent permitted by the Investment Company Act of 1940, money
market mutual funds. During periods when and to the extent that a Fund has
assumed a temporary defensive position, it will not be pursuing its investment
objective.

PORTFOLIO TURNOVER. The frequency of portfolio transactions of each Fund
(the portfolio turnover rate) will vary from year to year depending on market
conditions. From time to time the Funds may engage in active short-term trading
to benefit from yield disparities among different issues of debt securities, to
seek short-term profits during periods of fluctuating interest rates, or for
other reasons. This type of trading will increase the Funds' portfolio turnover
rate and transaction costs and may increase the Funds' short-term capital gain,
which is taxable as ordinary income. The Adviser weighs the anticipated
benefits of short-term investments against these consequences. The Funds'
portfolio turnover rate is reported under "Financial Highlights."

7. MANAGEMENT

The business of the Company is managed under the direction of the Board of
Directors. The Board formulates the general policies of the Funds and meets
periodically to review the results of the Funds, monitor investment activities
and practices and discuss other matters affecting the Fund and the Company.

MANAGER AND DISTRIBUTOR

Subject to the supervision of the Board, Forum supervises the overall
management of the Funds. Forum, the Adviser and the Transfer Agent are members
of the Forum Financial Group of companies and together provide a full range of
services to the investment company and financial services industry. As of the
date hereof Forum acted as manager and distributor of registered investment
companies and collective trust funds with assets of approximately $9.2 billion.
Forum, whose address is 61 Broadway, New York, New York 10006, is a registered
broker-dealer and investment adviser and is a member of the National Association
of Securities Dealers, Inc. As of the date of this Prospectus, Forum, the
Adviser and the Transfer Agent were controlled by John Y. Keffer, President and
Chairman of the Company.

Under its management agreement with the Company, Forum supervises all
aspects of the Funds' operations, including the receipt of services for which
the Company is obligated to pay, provides the Company with general office
facilities and provides, at the Company's expense, the services of persons
necessary to perform such supervisory, administrative and clerical functions as
are needed to effectively operate the Company. Those officers, as well as
certain other employees and Directors of the Company, may be directors, officers
or employees of (and persons providing services to the Company may include)
Forum and its affiliates. For these services and facilities, Forum receives
with respect to each Fund a management fee at an annual rate of 0.30% of each
Fund's average daily net assets.

Forum also acts as the distributor of shares of the Funds and pursuant to a
distribution agreement with the Company Forum receives, and may reallow to
certain financial institutions, the sales charge paid by the purchasers of the
Funds' shares. See "Purchases and Redemptions of Shares - Sales Charges."

ADVISER

Forum Advisors, Inc. serves as the investment adviser of each Fund.
Subject to the general supervision of the Board, the Adviser makes investment
decisions for the Funds. For its services, the Adviser receives an advisory fee
at an annual rate of 0.40% of each Fund's average daily net assets. The Adviser
was incorporated under the laws of Delaware in 1987 and is registered under the
Investment Advisers Act of 1940.

Leslie C. Berthy, Managing Director of the Adviser since 1989, is primarily
responsible for the day-to-day management of the Funds' portfolios and has been
since the Funds' inception. Prior to his association with the

<PAGE>

Adviser, Mr. Berthy was Managing Director and Co-Chief Executive Officer
of Irwin Union Capital Corp., an affiliate of Irwin Union Bank & Trust Co.

SHAREHOLDER SERVICING

Shareholder inquiries and communications concerning the Fund may be
directed to the Transfer Agent. The Transfer Agent acts as the Funds' transfer
agent and dividend disbursing agent. The Transfer Agent maintains an account
for each shareholder of the Funds (unless such accounts are maintained by sub-
transfer agents or processing agents) and performs other transfer agency and
shareholder related functions. For its services, the Transfer Agent receives a
fee at an annual rate of 0.25% of each Fund's average daily net assets.

The Transfer Agent is authorized to subcontract any or all of its functions
to one or more qualified sub-transfer agents or processing agents, which may be
processing organizations (as described under "Purchases and Redemptions of
Shares - Purchases and Redemptions through Financial Institutions"), Forum or
affiliates of Forum, who agree to comply with the terms of the Transfer Agency
Agreement. The Transfer Agent may pay those agents for their services, but no
such payment will increase the Transfer Agent's compensation from the Company.
In addition, the Transfer Agent performs portfolio accounting services for the
Funds, including determination of the Funds' net asset value per share, pursuant
to a separate agreement with the Company.

EXPENSES OF THE COMPANY

Each Fund's expenses comprise Company expenses attributable to a Fund,
which are charged to the Fund, and expenses not attributable to a particular
fund of the Company, which are allocated among the Fund and all other funds of
the Company in proportion to their average net assets. Subject to the
obligations of the Adviser to reimburse the Company for excess expenses of the
Funds, the Company pays for all of its expenses. The Adviser, Forum and the
Transfer Agent, in their sole discretion, may waive all or any portion of their
respective fees, which are accrued daily and paid monthly. Any such waiver,
which could be discontinued at any time, would have the effect of increasing a
Fund's performance for the period during which the waiver was in effect and
would not be recouped at a later date.

8. PURCHASES AND REDEMPTIONS
OF SHARES

GENERAL INFORMATION

Investments in a Fund may be made either by an investor directly or through
certain brokers or financial institutions of which the investor is a customer.
All transactions in Fund shares are effected through the Transfer Agent, which
accepts orders for purchases and redemptions from shareholders of record and new
investors. Shareholders of record will receive from the Company periodic
statements listing all account activity during the statement period. The
Company reserves the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders and may charge a
fee for certain shareholder services, although no such fees are currently
contemplated.

PURCHASES. Fund Shares are sold at a price equal to their net asset value
plus any applicable sales charge on all weekdays except customary national
business holidays and Good Friday ("Fund Business Day"). Fund shares are issued
immediately following the next determination of net asset value made after an
order for the shares in proper form is accepted by the Transfer Agent. Each
Fund's net asset value is calculated at 4:00 p.m., Eastern time on each Fund
Business Day. Fund shares become entitled to receive dividends on the next Fund
Business Day after the investor's funds are converted to funds on deposit at a
Federal Reserve Bank ("Federal Funds"), which for purchase orders by check is
the second Fund Business Day after receipt of the check and acceptance of the
order. Payment in the form of a bank wire will be treated as a Federal Funds
payment received at the time the wire is received.

The Funds reserve the right to reject any subscription for the purchase of
their shares. Stock certificates are issued only to shareholders of record upon
their written request and no certificates are issued for fractional shares.

REDEMPTIONS. Fund shares may be redeemed without charge at their net asset
value on any Fund Business Day. There is no minimum period of investment and no
restriction on the frequency of redemptions. Fund shares are redeemed as of the
next determination of the Fund's net asset value following acceptance by the
Transfer Agent of the redemption order in proper form (and any supporting
documentation which the Transfer Agent may require). Shares redeemed are not
entitled to receive dividends declared after the day on which the redemption
becomes effective.

<PAGE>

PURCHASE AND REDEMPTION PROCEDURES

The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Funds directly. These investors may obtain
the account application necessary to open an account by writing the Transfer
Agent at the address on the cover page of this prospectus. For those
shareholder services not referenced on the account application and to change
information on a shareholder's account (such as addresses), investors or
existing shareholders should request an optional services form from the Transfer
Agent.

Initial Purchase of Shares

There is a $5,000 minimum for initial investments in either Fund ($2,000
for individual retirement accounts).

BY BANK WIRE. To make an initial investment in either Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Company at (207) 879-0001 to obtain an account number. The investor should
then instruct a member commercial bank to wire the investor's money immediately
to:
First National Bank of Boston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Financial Corp.
Account #: 541-54171
Re: [Name of Fund]
Account #:
Account Name:

Subsequent Purchases of Shares

<PAGE>

Shareholders may purchase Fund shares at regular, preselected intervals by
authorizing the automatic transfer of funds from a designated bank account
maintained with a United States banking institution which is an Automated
Clearing House member. Under the program, existing shareholders may authorize
amounts of $250 or more to be debited from their bank account and invested in a
Fund monthly or quarterly. Shareholders may terminate their automatic
investments or change the amount to be invested at any time by written
notification to the Transfer Agent.

Redemption of Shares

BY BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal Funds wire to a bank account designated on the shareholder's
account application. To request bank wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege.
Redemption proceeds are transmitted by wire on the day after the redemption
request in proper form is received by the Transfer Agent.

AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds will be sent either by check or by
automatic transfer to a designated bank account maintained with a United States
banking institution which is an Automated Clearing House member. Under this
program, shareholders may authorize the redemption of shares in amounts of $250
or more from their account monthly, twice a month or quarterly. Shareholders
may terminate their automatic redemptions or change the amount to be redeemed at
any time by written notification to the Transfer Agent.

EXCHANGES

Fund shareholders are entitled to exchange their shares for shares of the
other Fund, any other fund of the Company or any other fund that participates in
the exchange program (currently, Sound Shore Fund, Inc.) and whose shares are
eligible for sale in the shareholder's state of residence. Exchanges may only
be made between accounts registered in the same name. The minimum amount to
open an account in a Fund through an exchange from another fund is $2,500. A
completed account application must be submitted to open a new account in a Fund
through an exchange if the shareholder requests any shareholder privilege not
associated with the existing account. Exchanges are subject to the fees charged
by, and the restrictions listed in the prospectus for, the fund into which a
shareholder is exchanging, including minimum investment requirements. The Funds
do not charge for the exchange privilege and there is currently no limit on the
number of exchanges a shareholder may make.

<PAGE>

BY MAIL. Exchanges may be accomplished by written instructions to the
Transfer Agent accompanied by any stock certificate that may have been issued to
the shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.

INDIVIDUAL RETIREMENT ACCOUNTS

Investors Bond Fund may be a suitable investment vehicle for part or all of
the assets held in individual retirement accounts ("IRAs"). The minimum initial
investment for an IRA is $2,000 and the minimum subsequent investment is $500.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, this deduction will be reduced if the individual or,
in the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.

PURCHASES AND REDEMPTIONS THROUGH
FINANCIAL INSTITUTIONS

SALES CHARGES

The public offering price for shares of a Fund is the sum of the net asset
value of the shares being purchased plus any applicable sales charge. No sales
charge is assessed on the reinvestment of dividends or other distributions. The
sales charge is assessed as follows (net asset value percentages are rounded to
the nearest one-hundredth percent):

<PAGE>
SALES CHARGE
AS % OF
----------------
PUBLIC NET
OFFERING ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- ------------------ -------- ------ ------------

less than $100,000 3.75% 3.90% 3.25%
$100,000 but less
than $200,000 3.25 3.36 2.85
$200,000 but less
than $400,000 2.50 2.56 2.20
$400,000 but less
than $600,000 2.00 2.04 1.75
$600,000 but less
than $800,000 1.50 1.52 1.25
$800,000 but less
than $1,000,000 1.00 1.01 0.75
$1,000,000
and up 0.50 0.50 0.40
*Rounded to the nearest one-hundredth percent.

No sales charge will be assessed on purchases made for investment purposes
by: (a) any bank, trust company, savings association or similar institution
with whom Forum has entered into a share purchase agreement acting on behalf of
the institution's fiduciary customer accounts or any account maintained by its
trust department (including a pension, profit sharing or other employee benefit
trust created pursuant to a qualified retirement plan); (b) any registered
investment adviser with whom Forum has entered into a share purchase agreement
and which is acting on behalf of its fiduciary customer accounts; (c) directors
and officers of the Company; directors, officers and full-time employees of the
Adviser, Forum, any of their affiliates or any organization with which Forum has
entered into a selected dealer or processing agent agreement; the spouse,
sibling, direct ancestor or direct descendent (collectively, "relatives") of any
such person; any trust or individual retirement account or self-employed
retirement plan for the benefit of any such person or relative; or the estate of
any such person or relative; (d) any person who has, within the preceding 90
days, redeemed Fund shares (but only on purchases in amounts not exceeding the
redeemed amounts) and completes a reinstatement form upon investment; (e)
persons who exchange into a Fund from a mutual fund other than a fund of the
Company that participates in the Company's exchange program, see "Purchases and
Redemptions of Shares - Exchange Program;" and (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of 1986. The Company
may require appropriate documentation from an investor concerning that
investor's eligibility to purchase Fund shares without a sales charge. Any
shares so purchased may not be resold except to the Fund.

REDUCED SALES CHARGES

RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of a
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Fund Business Day) of shares of that
Fund held by the investor. For example, if an investor owned shares of a Fund
worth $400,000 at the then current net asset value and purchased shares of the
Fund worth an additional $50,000, the sales charge for the $50,000 purchase
would be at the 2% rate applicable to a single $450,000 purchase, rather than at
the 3.75% rate. To qualify for ROA on a purchase, the investor must inform the
Transfer Agent and supply sufficient information to verify that each purchase
qualifies for the privilege or discount.

LETTER OF INTENT. Investors may also obtain reduced sales charges based on
cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of a Fund. Each purchase of shares under a LOI will be made
at the public offering price applicable at the time of the purchase to a single
transaction of the dollar amount indicated in the LOI.

<PAGE>

9. DIVIDENDS AND TAX MATTERS

DIVIDENDS

Dividends of each Fund's net investment income are declared daily and paid
monthly. Dividends of net capital gain, if any, realized by a Fund are
distributed annually.

Shareholders may choose either to have all dividends reinvested in
additional shares of the Fund that paid the dividend or received in cash. In
addition, shareholders may have dividends of net capital gain reinvested in
shares of each of the Funds and dividends of net investment income paid in cash.
All dividends are treated in the same manner for Federal income tax purposes
whether received in cash or reinvested in shares of the Funds.

All dividends will be reinvested at the Fund's net asset value as of the payment
date of the dividend. All dividends are reinvested unless another option is
selected. All dividends not reinvested will be paid to the shareholder in cash.
Cash payments may be paid more than seven days following the date on which
dividends would otherwise be reinvested.

TAXES

Each Fund intends to continue to qualify for each fiscal year to be taxed
as a "regulated investment company" under the Internal Revenue Code of 1986. As
such, the Funds will not be liable for Federal income taxes on the net
investment income and net capital gain distributed to their shareholders.
Because the Funds intend to distribute all of their net investment income and
net capital gain each year, the Funds should avoid all Federal income and excise
taxes.

INVESTORS BOND FUND. Dividends paid by the Fund out of its net investment
income (including any realized net short-term capital gain) are taxable to
shareholders as ordinary income.

TAXSAVER BOND FUND. Shareholders of the Fund generally will not be subject
to Federal income tax on dividends paid by the Fund out of tax-exempt interest
income earned by the Fund ("exempt-interest dividends"), assuming certain
requirements are met. Substantially all of the dividends paid by the Fund are
anticipated to be exempt-interest dividends. Any dividends paid by the Fund out
of its taxable net investment income (including any realized net short-term
capital gain) are taxable to shareholders as ordinary income.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund generally is not deductible for Federal income tax purposes.

The exemption for Federal income tax purposes of dividends derived from
interest on municipal securities does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
Shareholders of the Fund may be exempt from state and local taxes on exempt
interest dividends derived from obligations of the state and/or municipalities
of the state in which they reside. Shareholders may, however, be subject to tax
on income derived from the municipal securities of jurisdictions other than
those in which they reside. Shareholders are advised to consult with their tax
advisors concerning the application of state and local taxes to investments in
the Fund which may differ from the Federal income tax consequences described
above.

If Fund shares are sold at a loss after being held for six months or less,
the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares.

Shortly after the close of each year, a statement is sent to each
shareholder of the Fund advising the shareholder of the portion of total
dividends paid into the shareholder's account that is exempt from Federal income
tax and that is derived from the municipal securities of each state and from
other sources. These portions are

<PAGE>

determined for the entire year and on a monthly basis and, thus, are an
annual or monthly average, rather than a day-by-day determination for each
shareholder.

GENERAL. Distributions by the Funds of realized net long-term capital
gain, if any, are taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder may have held shares in the Fund. If Fund
shares are sold at a loss after being held for six months or less, the loss will
be treated as long-term capital loss to the extent of any long-term capital gain
distribution received on those shares.

Any capital gain distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the distribution. To
the extent that capital gain was accrued by a Fund before the shareholder
purchased the shares, the distribution would be in effect a return of capital to
the shareholder. Capital gain distributions, including those that operate as a
return of capital, however, are taxable to the shareholder receiving them.

The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include taxable dividends, capital gain distributions and
redemption proceeds) paid to individuals and certain other non-corporate
shareholders. Withholding is not required if a shareholder certifies that the
shareholder's social security or tax identification number provided to the Funds
is correct and that the shareholder is not subject to backup withholding.

Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Funds will be mailed to shareholders shortly after the close of each year.

TAX-EXEMPT INCOME VS. TAXABLE INCOME

The table below shows approximate equivalent taxable and tax-free yields at
various approximate marginal Federal tax bracket rates. For example, an
investor in the 31% tax bracket for 1995 whose investments earn a 5% tax-free
yield would have to earn a 7.25% taxable yield to receive the same benefit.

1995 FEDERAL TAXABLE VS. TAX-FREE YIELDS
A Tax-Free Yield of Federal 5.0% 5.5%
6.0% 6.5% 7.0% 7.5%

Tax Bracket equals a taxable yield of approximately

39.6% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42%
36.0% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72%
31.07% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87%
28.0% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42%
15.0% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82%

The yields listed are for illustration only and are not necessarily
representative of TaxSaver Bond Fund's yield. Although the Fund primarily
invests in securities the interest from which is exempt from Federal income
taxes, some of the Fund's investments may generate taxable income. An
investor's tax bracket will depend upon the investor's taxable income. The
figures set forth above do not reflect the Federal alternative minimum taxes or
any state or local income taxes.

The foregoing is only a summary of some of the important Federal and state
tax considerations generally affecting the Funds and their shareholders. There
may be other Federal, state or local tax considerations applicable to a
particular investor. Prospective investors are urged to consult their tax
advisors.

10. OTHER INFORMATION

PERFORMANCE INFORMATION

Each Funds' performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended
to indicate future performance. A Fund's yield is a way of showing the rate of
income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. TaxSaver Bond Fund may also quote tax
equivalent yields, which show the taxable yields a shareholder would have to
earn to equal the Fund's tax-free yields after taxes. A tax equivalent yield is
calculated by dividing the Fund's tax-free yield by one minus a stated Federal,
state or combined Federal and state tax rate. Total return refers to the
average annual compounded rates of return over some representative period that
would equate an initial amount

<PAGE>

invested at the beginning of a stated period to the ending redeemable value
of the investment, after giving effect to the reinvestment of all dividends
and distributions and deductions of expenses during the period. Each of the
Funds also may advertise its total return over different periods of time on a
before-tax, after-tax or taxable-equivalent basis or by means of aggregate,
average, year by year, or other types of total return figures. 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.

The Funds' advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Funds may be
compared to recognized indices of market performance. The comparative material
found in a Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.

BANKING LAW MATTERS

DETERMINATION OF NET ASSET VALUE

The Company determines the net asset value per share of the each Fund as of
4:00 p.m., Eastern time, on each Fund Business Day by dividing the value of the
Fund's net assets (i.e., the value of its portfolio securities and other assets
less its liabilities) by the number of that Fund's shares outstanding at the
time the determination is made. Securities owned by a Fund for which market
quotations are readily available are valued at current market value, or, in
their absence, at fair value as determined by the Board.

THE COMPANY AND ITS SHARES

Shares issued by the Company have no conversion, subscription or preemptive
rights. Shareholders of a Fund have equal and exclusive rights to dividends and
distributions declared by that Fund and to the net assets of that Fund upon
liquidation or dissolution. Voting rights are not cumulative and, with respect
to matters not affecting all funds of the Company, generally only shareholders
of the affected series may vote. Maryland law does not require a registered
investment company to hold annual meetings of shareholders, and it is
anticipated that shareholder meetings will be held only when specifically
required by Federal or state law. Shareholders have available certain
procedures for the removal of Directors. All shares when issued in accordance
with the terms of this Prospectus will be fully paid and nonassessable. As of
July 17, 1995, Irwin Union Bank and Trust, Co., Columbus, Ohio owned of record
more than 25% of the outstanding shares of each Fund and, as of that date this
shareholder may be deemed to be a controlling entity of each Fund. From time to
time this or other shareholders may own a large percentage of shares of each
Fund. Accordingly, these shareholders may be able to greatly effect (if not
determine) the outcome of any shareholder vote.

<PAGE>

PAYSON VALUE FUND
PAYSON BALANCED FUND

Prospectus dated January 5, 1996

This Prospectus offers Shares of Payson Value Fund and Payson Balanced Fund
(the "Funds") and consists of these cover pages and the attached Prospectus
relating to shares of the Funds dated August 1, 1995 (the "August Prospectus"),
which is incorporated herein.

The information in the August Prospectus is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized from
a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

2. CORE AND GATEWAY-REGISTERED TRADEMARK- AUTHORIZATION
Shareholders of each Fund have approved a new investment policy that permits
the Fund to seek to achieve its investment objective by converting to a Core and
Gateway structure. The Fund, upon future action by the Board of Trustees and
notice to shareholders, may convert to this structure, in which the Fund would
hold as its only investment securities the shares of another investment company
having substantially the same investment objective and policies as the Fund.
The Board of Trustees will not authorize conversion to a Core and Gateway
structure if it would materially increase costs to a Fund's shareholders.

3. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of the Payson Balanced Fund. The information with respect to the
Fund's fiscal years ended March 31st has been audited in connection with an
audit of the Fund's financial statements by Deloitte & Touche LLP, independent
auditors. The information with respect to the period ended September 30, 1995
is unaudited. The financial statements and independent auditors' report thereon
for the fiscal years ended March 31st are incorporated by reference into the
SAI. The Fund's annual report to shareholders may be obtained from the Trust
without charge.

PAYSON BALANCED FUND

Six Months Year Ended
Ended March 31,
September 30, ----------------------------------
1995 1995 1994 1993 1992(1)
------------ ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Beginning Net Asset Value
per Share $11.90 $11.71 $11.40 $10.21 $10.00
------ ------ ------ ------ ------
Net Investment Income 0.22 0.44 0.34 0.31 0.10
Net Realized and Unrealized
Gain (Loss) on Securities 1.20 0.24 0.46 1.20 0.21
Dividends from Net Investment
Income (0.22) (0.44) (0.35) (0.31) (0.10)
Distributions from Net
Realized Gains -- (0.05) (0.14) (0.01) --
------ ------ ------ ------ ------
Ending Net Asset Value per
Share $13.10 $11.90 $11.71 $11.40 $10.21
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratios to Average Net
Assets:

<PAGE>

Expenses (2) 1.15%(3) 1.15% 1.15% 1.15% 1.13%(3)
Net Investment Income 3.48%(3) 3.91% 4.37% 3.27% 3.46%(3)
Total Return 11.99% 6.00% 6.99% 15.12% 9.15%(3)
Portfolio Turnover Rate 20.85% 50.06% 80.13% 30.77% 1.53%
Net Assets at the End
of Period (000's Omitted) $15,919 $13,872 $11,355 $5,396 $2,667

(1)The Fund commenced operations on November 25, 1991.

(2)During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the
ratio of expenses to average net assets would have been:
1.60%(3) 1.72% 1.95% 2.60% 4.88%(3)
(3) Annualized.
</TABLE>

The following information represents selected data for a single share
outstanding of the Payson Value Fund. The information with respect to the
Fund's fiscal years ended March 31st has been audited in connection with an
audit of the Fund's financial statements by Deloitte & Touche LLP, independent
auditors. The information with respect to the period ended September 30, 1995
is unaudited. The financial statements and independent auditors, report thereon
for the fiscal years ended March 31st are incorporated by reference into the
SAI. The Fund's annual report to shareholders may be obtained from the Trust
without charge.

PAYSON VALUE FUND

<TABLE>
Six Months Year Ended
Ended March 31,
September 30, ----------------------
1995 1995 1994 1993
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Beginning Net Asset
Value per Share $12.71 $12.11 $11.01 $10.00
Net Investment Income 0.11 0.18 0.13 0.08
Net Realized and
Unrealized Gain
(Loss) on Securities 1.50 0.60 1.12 1.02
Dividends from Net
Investment Income (0.11) (0.18) (0.15) (0.09)
Distributions from Net
Realized Gains -- -- -- --
------ ------ ------ ------
Ending Net Asset Value
per Share $14.21 $12.71 $12.11 $11.01
------ ------ ------ ------
------ ------ ------ ------
Ratios to Average Net
Assets:

Expenses (2) 1.45%(3) 1.46% 1.45% 1.44%(3)
Net Investment Income 15.23%(3) 1.59% 1.38% 1.63%(3)
Total Return 12.70% 6.52% 11.38% 17.05%(3)
Portfolio Turnover Rate 16.92% 27.20% 32.15% 23.95%
Net Assets at the End
of Period (000's Omitted) $8,741 $7,960 $5,060 $2,145

(1)The Fund commenced operations on July 31, 1992.

(2)During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the
ratio of expenses to average net assets would have been:
2.08%(3) 2.25% 3.04% 5.35%(3)
(3) Annualized.

</TABLE>

<PAGE>

INVESTMENT ADVISOR: ACCOUNT INFORMATION AND
H.M. Payson & Co. SHAREHOLDER SERVICING:
One Portland Square Forum Financial Corp.
P.O. Box 31 P.O. Box 446
Portland, Maine 04112 Portland, Maine 04112
(207) 772-3761 (207) 879-0009
(800) 456-6710

PROSPECTUS
AUGUST 1, 1995

This Prospectus offers shares of Payson Value Fund and Payson Balanced Fund
(the "Funds"). The Funds are diversified portfolios of Forum Funds, Inc. (the
"Company") which is an open-end, management investment company.

PAYSON VALUE FUND. The investment objective of Payson Value Fund is to seek
high total returns (capital appreciation and current income) by investing in a
diversified portfolio of common stock and securities convertible into common
stock which appear to be undervalued in the marketplace.

PAYSON BALANCED FUND. The investment objective of Payson Balanced Fund is to
seek a combination of high current income and capital appreciation by investing
in common stock and securities convertible into common stock, which appear to be
undervalued, and in high grade senior debt securities, including U.S.
Government, government agency and corporate obligations.

Shares of the Funds are offered to investors at a price equal to the next
determined net asset value without any sales charge.

This Prospectus sets forth concisely the information concerning the Company
and the Funds that a prospective investor should know before investing. The
Company has filed with the Securities and Exchange Commission ("SEC") a
Statement of Additional Information dated August 1, 1995, as may from time to
time be amended (the "SAI"), which contains more detailed information about the
Company and the Funds and which is incorporated into this Prospectus by
reference. The SAI is available without charge by contacting the Company at the
address listed above.

INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

1. PROSPECTUS SUMMARY

HIGHLIGHTS OF THE FUNDS

Investment Advisor
H.M. Payson & Co. (the "Advisor"), founded in 1854, serves as each Fund's
investment advisor. See "Management - Investment Advisor."

Fund Management

The manager of the Company and distributor of its shares is Forum Financial
Services, Inc. ("Forum"). Forum supervises the overall administrative
activities of the Company. Forum Financial Corp. (the "Transfer Agent"), Two
Portland Square, Portland, Maine 04101, serves as the Company's transfer agent,
dividend disbursing agent and shareholder servicing agent. See "Management."

Purchases and Redemptions

Shares of the Funds are offered without a sales charge and may be redeemed
without charge at the next determined net asset value. The minimum initial
investment is $5,000 ($2,000 for IRAs) and the minimum subsequent investment is
$500. See "Purchases and Redemptions of Shares."

Exchange Program

Shareholders of the Funds may exchange their shares without charge for the
shares of certain other funds of the Company. See "Purchases and Redemptions of
Shares - Exchanges."

<PAGE>

Dividends

Dividends of net investment income are declared and paid quarterly by each
Fund and are reinvested in Fund shares unless a shareholder elects to have them
paid in cash. Net capital gain, if any, is distributed annually. See
"Dividends and Tax Matters."

Certain Risk Factors

There can be no assurance that either Fund will achieve its investment
objective and the net asset value of each Fund will fluctuate based upon changes
in the value of its portfolio securities. Investments in equity securities may
change in value rapidly and to a great degree. Accordingly, the Funds' net
asset values may change similarly. The foreign securities in which the Funds
may invest entail certain risks not associated with domestic investments.
Investments in lower rated debt securities (including convertible securities)
may entail certain risks. See the "Investment Objective and Policies" sections
and "Additional Investment Policies."

EXPENSES OF INVESTING IN THE FUNDS

The purpose of the following table is to assist investors in understanding
the various expenses that an investor in a Fund will bear directly or
indirectly.
Payson Payson
Value Balanced
Fund Fund
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of public offering price) None None
Exchange Fee None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Advisory Fees 0.80% 0.60%
12b-1 Fees None None
Other Expenses
(after expense reimbursements) 0.66% 0.55%
Total Fund Operating Expenses 1.46% 1.15%

The amounts of expenses are based on amounts incurred by each Fund during
the Fund's most recent fiscal year ending March 31, 1995. Absent expense
reimbursements, including fee waivers, the expenses of Payson Value Fund and
Payson Balanced Fund, respectively, would have been: Advisory Fees, 0.80% and
0.60%; Other Expenses, 1.45% and 1.12%; and Total Fund Operating Expenses, 2.25%
and 1.72%. For a further description of the various expenses incurred in the
operation of the Fund, see "Management."
Example

2. FINANCIAL HIGHLIGHTS

The following information represents selected data for a single share
outstanding of each Fund. This information has been audited in connection with
an audit of the Funds' financial statements by Deloitte & Touche LLP,
independent auditors. The financial statements and independent auditors' report
thereon are incorporated by reference into the SAI. Further information about a
Fund's performance is contained in the Fund's annual report to shareholders,
which may be obtained from the Company without charge.

<PAGE>

<TABLE>
<CAPTION>
Payson Value Fund Payson Balanced Fund
Year Ended March 31 Year Ended March 31
1995 1994 1993(1) 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Net Asset
Value per Share $12.11 $11.01 $10.00 $11.71 $11.40 $10.21 $10.00
Net Investment Income 0.18 0.13 0.08 0.44 0.34 0.31 0.10
Net Realized and Unrealized
Investment Gain on Securities 0.60 1.12 1.02 0.24 0.46 1.20 0.21
Dividends from Net
Investment Income (0.18) (0.15) (0.09) (0.44) (0.35) (0.31) (0.10)
Distributions from Net
Realized Gains -- -- -- (0.05) (0.14) (0.01) --
Ending Net Asset Value
per Share $12.71 $12.11 $11.01 $11.90 $11.71 $11.40 $10.21
Ratios to Average Net Assets:
Expenses (2) 1.46% 1.45% 1.44%(3) 1.15% 1.15% 1.15% 1.13%(3)
Net Investment Income 1.59% 1.38% 1.63%(3) 3.91% 4.37% 3.27% 3.46%(3)
Total Return 6.52% 11.38% 17.05%(3) 6.00% 6.99% 15.12% 9.15%(3)
Portfolio Turnover Rate 27.20% 32.15% 23.95% 50.06% 80.13% 30.77% 1.53%
Net Assets at the End of
Period (000's Omitted) $7,960 $5,060 $2,145 $13,872 $11,355 $5,396 $2,667
(1) Payson Value Fund commenced operations on July 31, 1992 and Payson
Balanced Fund commenced operations on November 25, 1991.
(2) During the periods, various fees and expenses were waived and
reimbursed, respectively. Had these waivers and reimbursements not
occurred, the ratio of expenses to average net assets would have been:
Expenses 2.25% 3.04% 5.53%(3) 1.72% 1.95% 2.60% 4.88%(3)
(3) Annualized.
</TABLE>

3. PAYSON VALUE FUND
INVESTMENT OBJECTIVE
AND POLICIES

INVESTMENT OBJECTIVE

The investment objective of Payson Value Fund is to seek high total return
(capital appreciation and current income) by investing in a diversified
portfolio of common stock and securities convertible into common stock which
appear to be undervalued in the marketplace. Except to the degree that is
necessary to provide liquidity, and during periods when the Fund assumes a
temporary defensive position, the Fund will have all of its assets invested in
common stock and securities convertible into common stock. There can be no
assurance that the Fund will achieve its investment objective.

INVESTMENT POLICIES

The Fund intends to invest principally in securities which, in the
Advisor's opinion, are undervalued relative to the stock market as a whole.
This opinion will be based upon a number of valuation measures, including but
not limited to an analysis of price/earnings ratios, price/book ratios, dividend
yields and measures of current profitability. The Advisor will also consider
both the near-term and long-term fundamental prospects of the companies
identified. The Fund invests primarily in large and medium capitalization
stocks that are widely held by the public.

The Fund will invest in common stock and convertible securities, including
convertible debt and convertible preferred stock, that are rated in one of the
four highest rating categories by a nationally recognized statistical rating
organization ("NRSRO") or which are unrated by any NRSRO and are judged by the
Advisor to be of comparable quality. Unrated securities may not be as actively
traded as rated securities. A further description of Moody's Investors Service,
Inc., Standard & Poor's Corporation and other NRSRO ratings is included in the
SAI.

CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible securities
have characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stable stream of income with generally

<PAGE>

higher yields than those of common stocks of the same or similar issuers.
Convertible securities rank senior to common stock in a corporation's capital
structure but are usually subordinated to comparable nonconvertible
securities.

CERTAIN RISK FACTORS. The value of the equity securities in which the Fund
invests may change rapidly and to a great degree depending upon many factors,
including the market's perception of the value of the securities. Accordingly,
the net asset value of the Fund may change similarly. Investors in the Fund
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of their overall investment portfolio.

4. PAYSON BALANCED FUND

INVESTMENT OBJECTIVE
AND POLICIES

INVESTMENT OBJECTIVE
The investment objective of Payson Balanced Fund is to seek a combination
of high current income and capital appreciation by investing in common stock and
securities convertible into common stock, which appear to be undervalued, and in
high grade senior debt securities, including U.S. Government, government agency
and corporate obligations. The Fund will seek to achieve its investment
objective while reducing volatility through the allocation of its assets among
the available types of securities based upon the Advisor's opinion of the risk
in each. There can be no assurance that the Fund will achieve its investment
objective.

INVESTMENT POLICIES

Under normal circumstances the Fund will invest in common stock and
securities convertible into common stock in a manner similar to that of Payson
Value Fund and in investment grade debt securities which the Advisor identifies
as providing high levels of income with safety and appreciation potential. For
a description of the investment policies and risk considerations of the Fund's
equity investments, see "Payson Value Fund Investment Objective and Policies."
The debt securities in which the Fund intends to invest include U.S. Government,
government agency, and corporate obligations.

The Fund will not purchase a security if as a result of the purchase less
than 25% of its total assets would be in fixed-income senior securities
(including debt securities, preferred stocks, and convertible debt securities
and convertible preferred stocks to the extent their value is attributable to
their fixed-income characteristics). This investment policy may be changed by
the Board of Directors of the Company, but only with 60 days' prior shareholder
notice. Subject to this restriction, the percentage of the Fund's assets
invested in each type of security at any time will be in accordance with the
judgment of the Advisor.
The Fund may invest in the following types of fixed income securities:

(1) Debt securities which are
rated in one of the three highest rating categories by a nationally recognized
statistical rating organization ("NRSRO") or which are unrated by any NRSRO and
judged by the Advisor to be of comparable quality;

(2) Obligations issued or guaranteed as to principal and interest by the
United States Government or by any of its agencies or instrumentalities ("U.S.
Government Securities");

(3) Mortgage-backed securities which are U.S. Government Securities or are
otherwise rated in one of the two highest rating categories by an NRSRO or which
are unrated by any NRSRO and judged by the Advisor to be of comparable quality;

(4) Commercial paper and other money market instruments rated in one of
the two highest short-term rating categories by an NRSRO or which are unrated by
any NRSRO and judged by the Advisor to be of comparable quality;

<PAGE>

(6) Convertible securities rated in one of the four highest rating
categories by an NRSRO or which are unrated by any NRSRO and judged by the
Advisor to be of comparable quality. For a description of convertible
securities, see "Payson Value Fund Investment Objective and Policies."

It is currently anticipated that the Fund will invest in debt obligations
with maturities ranging from short-term (including overnight) to thirty years,
and that the Fund's portfolio of debt securities will have an average dollar-
weighted maturity of between five and 15 years.

DEBT SECURITIES CONSIDERATIONS AND RISKS. The market value of debt
securities depends upon, among other things, conditions in the market for the
security and the fixed income markets generally, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
market value of the interest-bearing debt securities held by the Fund will be
affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. In other words, a decline
in interest rates produces an increase in market value, while an increase in
interest rates produces a decrease in market value. Moreover, the longer the
remaining maturity of a security, the greater will be the effect of interest
rate changes on the market value of that security. Changes in the ability of an
issuer to make payments of interest and principal and in the market's perception
of an issuer's creditworthiness will also affect the market value of the debt
securities of that issuer. Obligations of issuers of debt securities are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors. The possibility exists, therefore, that, as a
result of litigation or other conditions, the ability of any issuer to pay, when
due, the principal of and interest on its debt securities may be materially
impaired.

Securities in the permissible rating categories are generally considered to
be investment grade securities, although Moody's Investors Service, Inc.
("Moody's") indicates that securities rated Baa have speculative
characteristics. A further description of the ratings used by Moody's, Standard
& Poor's Corporation and other NRSROs is contained in the SAI. Unrated
securities may not be as actively traded as rated securities. A non-rated
security will be considered for investment by the Fund when the Adviser believes
that the financial condition of the issuer of such obligation and the protection
afforded by the terms of the obligation limit the risk to the Fund to a degree
comparable to that of rated securities in which the Fund may invest. The Fund
may retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Advisor to be of
comparable quality) only if the Advisor determines that retaining the security
is in the best interests of the Fund.

U.S. GOVERNMENT SECURITIES. The U.S. Government Securities in which the
Fund may invest include direct obligations of the U.S. Treasury (such as
Treasury bills and notes) and other securities backed by the full faith and
credit of the U.S. Government, such as those issued by the Federal Housing
Administration and Government National Mortgage Association ("GNMA"). The Fund
may also invest in U.S. Government Securities that have lesser degrees of
government backing. For instance, the Fund may invest in obligations of the
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") (which are supported by the right of the issuer to borrow
from the Treasury under certain circumstances) and obligations of the Student
Loan Marketing Association and the Federal Home Loan Banks (which are supported
only by the credit of the agency or instrumentality). There is no guarantee
that the U.S. Government will support securities not backed by its full faith
and credit and, accordingly, these securities may involve more risk than other
U.S. Government Securities.

MORTGAGE-BACKED SECURITIES. 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.

<PAGE>

other types. Mortgage servicers impose qualification standards for local
lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included
in the pools. In addition, many mortgages included in pools are insured
through private mortgage insurance companies.

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 the
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
five and 12 years.

YIELD CALCULATIONS. Yields on pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. In periods of falling interest rates the rate of prepayment
tends to increase, thereby shortening the actual average life of a pool of
mortgages. Conversely, in periods of rising rates the rate of prepayment tends
to decrease, thereby lengthening the actual average life of the pool. Actual
prepayment experience may cause the yield to differ from the assumed average
life yield. Reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of the Fund.

GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government
guarantor of mortgage-backed securities is GNMA, a wholly-owned United States
Government corporation within the Department of Housing and Urban Development.
Mortgage-backed securities are also issued by FNMA, a government-sponsored
corporation owned entirely by private stockholders that is subject to general
regulation by the Secretary of Housing and Urban Development, and FHLMC, a
corporate instrumentality of the United States Government. While FNMA and FHLMC
each guarantee the payment of principal and interest on the securities they
issue, unlike GNMA securities, their securities are not backed by the full faith
and credit of the United States Government.

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 may also 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 the Fund will
decrease as the coupon rate resets along with the decline in interest rates.
During periods of rising

<PAGE>

interest rates, changes in the coupon rates of the mortgages underlying the
Fund's ARMs may lag behind changes in market interest rates. This may result
in a lower value until the interest rate resets to market rates.

COLLATERALIZED MORTGAGE OBLIGATIONS. CMOs are debt obligations that are
collateralized by mortgages or mortgage pass-through securities issued by GNMA,
FHLMC or FNMA 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. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities. The
Adviser's analyses of particular CMO issues and estimates of future economic
indicators (such as interest rates) become more important to the performance of
the Fund as the securities become more complicated.

There may not be an active secondary market for certain floating or
variable rate instruments, which could make it difficult for the Fund to dispose
of an instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. The Fund could, for this or other reasons, suffer a
loss with respect to an instrument. The Advisor 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.

5. ADDITIONAL INVESTMENT
POLICIES

All investment policies of a Fund that are designated as fundamental and
each Fund's investment objective may not be changed without approval of the
holders of a majority of that Fund's outstanding voting securities. A majority
of a Fund's outstanding voting securities means the lesser of 67% of the shares
of that Fund present or represented at a shareholders meeting at which the
holders of more than 50% of the shares are present or represented, or more than
50% of the outstanding shares of the Fund. Except as otherwise indicated,
investment policies of the Funds are not fundamental and may be changed by the
Board of Directors of the Company (the "Board") without shareholder approval. A
further description of the Funds' investment policies is contained in the SAI.

REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund may
seek additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss. The
Advisor monitors the creditworthiness of counterparties to these transactions
and intends to enter into these transactions only when it believes the
counterparties present minimal credit risks and the income to be earned from the
transaction justifies the attendant risks.

<PAGE>

collateral. The Company maintains possession of the purchased securities and
any underlying collateral in these transactions, the total market value of
which on a continuous basis is at least equal to the repurchase price or
value of securities loaned, plus accrued interest. The Funds may pay fees to
arrange securities loans and each Fund will, as a fundamental policy, limit
securities lending to not more than 10% of the value of its total assets.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When these 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. The Funds enter into when-issued and forward commitments only with
the intention of actually receiving or delivering the securities, as the case
may be. 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, such as approval of a proposed financing by
appropriate municipal authorities.

During the period between a commitment and settlement, no payment is made
for the securities purchased and, thus, no interest accrues to the purchaser
from the transaction. However, at the time a Fund makes a commitment to
purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver
or pay for a security purchased or sold by the Fund may result in a loss or a
missed opportunity to make an alternative investment. Any significant
commitment of a Fund's assets committed to the purchase of securities on a when-
issued or forward commitment basis may increase the volatility of its net asset
value.

FOREIGN SECURITIES. The Funds may invest up to 20% of their assets in
securities of foreign issuers and in American Depository Receipts ("ADRs"). In
addition to the debt securities of domestic corporations, Payson Balanced Fund
may invest in debt securities registered and sold in the United States by
foreign issuers (Yankee Bonds) and debt securities sold outside the United
States by foreign or U.S. issuers (Euro-bonds). The Funds intend to restrict
their purchases of debt securities to issues denominated and payable in United
States dollars.

Investments in foreign companies involve certain risks, such as exchange
rate fluctuations, political or economic instability of the issuer or the
country of issue and the possible imposition of exchange controls, withholding
taxes on dividends or interest payments, confiscatory taxes or expropriation.
Foreign securities may also be subject to greater fluctuations in price than
securities of domestic corporations denominated in U.S. dollars. Foreign
securities and their markets may not be as liquid as domestic securities and
their markets, and foreign brokerage commissions and custody fees are generally
higher than those in the United States. In addition, less information may be
publicly available about a foreign company than about a domestic company, and
foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. With respect to their permitted investments in foreign securities,
the Funds do not limit the amount of their assets that may be invested in one
country or, in the case of Payson Value Fund, denominated in one currency.

The Funds may invest in sponsored and unsponsored ADRs, which are receipts
issued by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. Unsponsored ADRs may be created without
the participation of the foreign issuer. Holders of these ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.

TEMPORARY DEFENSIVE POSITION. When business or financial conditions
warrant, such as, for example, when issues of sufficient quality and liquidity
are not available or the Advisor believes the equity markets are overvalued, a
Fund may assume a temporary defensive position and invest all or part of its
assets in cash or prime quality cash equivalents, including (i) short-term U.S.
Government Securities, (ii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States, (iii) commercial paper, (iv) repurchase agreements covering any
of the securities in which the Fund may invest directly and (v) to the extent
permitted by the Investment Company Act of 1940, money market mutual funds.
During periods when and to the extent that the Fund has assumed a temporary
defensive position, it may not be pursuing its investment objective.

<PAGE>

PORTFOLIO TRANSACTIONS. The frequency of portfolio transactions of the
Funds (the portfolio turnover rate) will vary from year to year depending on
market conditions. Higher rates of turnover will result in higher brokerage
costs for the Funds. The Adviser weighs the anticipated benefits of short-term
investments against these consequences. The Funds' portfolio turnover rate is
reported under "Financial Highlights."

The Funds have no obligation to deal with any specific broker or dealer in
the execution of portfolio transactions. Consistent with their policy of
obtaining the best net results, the Funds may conduct brokerage transactions
through the Advisor or its affiliates. The Board has adopted policies, as
required by law, to ensure that these transactions are reasonable and fair and
that the commissions charged are comparable to those charged by non-affiliated
qualified broker-dealers.

6. MANAGEMENT

INVESTMENT ADVISOR

Since the inception of each Fund, H.M. Payson & Co. has served as the
Fund's investment advisor pursuant to an Investment Advisory Agreement with the
Company. Subject to the general supervision of the Board, the Advisor makes
investment decisions for the Funds. For its services under the Investment
Advisory Agreement, the Advisor receives, with respect to Payson Value Fund, an
advisory fee at an annual rate of 0.80% of that Fund's average daily net assets
and, with respect to Payson Balanced Fund, an advisory fee at an annual rate of
0.60% of that Fund's average daily net assets. The advisory fee paid by Payson
Value Fund is higher than that paid by most investment companies of all types to
their advisers, but the Company believes that the fee is appropriate for an
equity fund.

The Advisor was founded in Portland, Maine in 1854 and was incorporated
in Maine in 1987, making it one of the oldest investment firms in the United
States operating under its original name. The Advisor is a registered
broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc. The Advisor provides investment
management services through an investment advisory division and a trust
division. As of June 30, 1995, the Advisor had in excess of $630 million in
assets under management. The Advisor's clients include pension plans,
endowment funds and institutional and individual accounts.

Since July 10, 1995, John C. Knox, Director and Senior Research Analyst of
the Advisor, has been primarily responsible for the day-to-day management of
Payson Value Fund's portfolio. Since April 1, 1993, Peter E. Robbins, a
Managing Director and Director of Research of the Advisor, has been primarily
responsible for the day-to-day management of Payson Balanced Fund's portfolio.
Mr. Knox is a Chartered Financial Analyst and has been associated with the
Advisor since 1981. Mr. Robbins is a Chartered Financial Analyst and has been
associated with the Advisor since 1982, except for the period from January 1988
to October 1990. During that period Mr. Robbins was president of Mariner
Capital Group, a real estate development and non-financial asset management
business.

MANAGER AND DISTRIBUTOR

Subject to the supervision of the Board, Forum supervises the overall
management of the Funds and acts as distributor of the Funds' shares. Forum and
the Transfer Agent are members of the Forum Financial Group of companies and
together provide a full range of services to the investment company and
financial services industry. As of the date hereof, Forum acted as manager and
distributor of registered investment companies and collective trust funds with
assets of approximately $9.2 billion. Forum, whose address is 61 Broadway, New
York, New York 10006, is a registered broker-dealer and investment adviser and
is a member of the National Association of Securities Dealers, Inc. As of the
date of this Prospectus, Forum and the Transfer Agent were controlled by John Y.
Keffer, President and Chairman of the Company.

Under its management and distribution agreement with the Company, Forum
supervises all aspects of the Funds' operations, including the Company's receipt
of services for which the Company is obligated to pay, provides the Company with
general office facilities and provides, at the Company's expense, the services
of persons necessary to perform such supervisory, administrative and clerical
functions as are needed to effectively operate the Company. Those persons, as
well as certain employees and Directors of the Company, may be directors,
officers or employees of (and persons providing services to the Company may
include) Forum and its affiliates. In addition, under its agreement Forum acts
as distributor of the Funds' shares. Forum acts as the agent of the Company in
connection with the offering of shares of the Funds. For these services and
facilities, Forum receives with respect to each Fund a fee at an annual rate of
0.20% of each Fund's average daily net assets.

<PAGE>

SHAREHOLDER SERVICING

Shareholder inquiries and communications concerning the Funds may be
directed to the Transfer Agent. The Transfer Agent acts as the Funds' transfer
agent and dividend disbursing agent. The Transfer Agent maintains an account
for each shareholder of the Funds (unless such accounts are maintained by sub-
transfer agents or processing agents) and performs other transfer agency and
shareholder related functions. For its services, the Transfer Agent receives a
fee at an annual rate of 0.25% of each Fund's average daily net assets.

The Transfer Agent is authorized to subcontract any or all of its functions
to one or more qualified sub-transfer agents or processing agents, which may be
processing organizations (as described under "Purchases and Redemptions of
Shares - Purchases and Redemptions Through Financial Institutions"), Forum or
affiliates of Forum, who agree to comply with the terms of the Transfer Agency
Agreement. The Transfer Agent may pay those agents for their services, but no
such payment will increase the Transfer Agent's compensation from the Company.
In addition, the Transfer Agent performs portfolio accounting services for the
Fund, including determination of the Fund's net asset value per share, pursuant
to a separate agreement with the Company.

EXPENSES OF THE COMPANY

A Fund's expenses comprise Company expenses attributable to a Fund, which
are charged to the Fund, and expenses not attributable to a particular fund of
the Company, which are allocated among the Fund and all other funds of the
Company in proportion to their average net assets. Subject to Forum's
obligations to reimburse the Company for excess expenses of the Fund, the
Company pays for all of its expenses. The Advisor, Forum and the Transfer
Agent, in their sole discretion, may waive all or any portion of their
respective fees, which are accrued daily and paid monthly. Any such waiver,
which could be discontinued at any time, would have the effect of increasing a
Fund's performance for the period during which the waiver was in effect and
would not be recouped at a later date.

7. PURCHASES AND REDEMPTIONS
OF SHARES

GENERAL INFORMATION

Investments in the Funds may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through the Transfer
Agent, which accepts orders for purchases and redemptions from shareholders of
record and new investors. Shareholders of record will receive from the Company
periodic statements listing all account activity during the statement period.
The Company reserves the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders and charge a fee
for certain shareholder services, although no such fees are currently
contemplated.

PURCHASES. Fund shares are sold at a price equal to their net asset value
on all weekdays except customary national business holidays and Good Friday
("Fund Business Day"). Fund shares are issued immediately following the next
determination of net asset value made after an order for the shares in proper
form is accepted by the Transfer Agent. Each Fund's net asset value is
calculated at 4:00 p.m., Eastern time on each Fund Business Day. Fund shares
become entitled to receive dividends on the next Fund Business Day after
acceptance of an order.

REDEMPTIONS. Fund shares may be redeemed without charge at their net asset
value on any Fund Business Day. There is no minimum period of investment and no
restriction on the frequency of redemptions. Fund shares are redeemed as of the
next determination of the Fund's net asset value following acceptance by the
Transfer Agent of the redemption order in proper form (and any supporting
documentation which the Transfer Agent may require). Shares redeemed are not
entitled to receive dividends declared after the day on which the redemption
becomes effective.

<PAGE>

The Company employs reasonable procedures to insure that telephone orders
are genuine (which include recording certain transactions and the use of
shareholder security codes) and, if it does not, may be liable for any losses
due to unauthorized or fraudulent telephone instructions. Shareholders should
verify the accuracy of telephone instructions immediately upon receipt of
confirmation statements. During times of drastic economic or market changes,
the telephone redemption and exchange privileges may be difficult to implement.
In the event that a shareholder is unable to reach the Transfer Agent by
telephone, requests may be mailed or hand-delivered to the Transfer Agent.

PURCHASE AND REDEMPTION
PROCEDURES

The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Funds directly. These investors may obtain
the account application necessary to open an account by writing the Transfer
Agent at the following address:
Forum Funds, Inc.
[Name of Fund]
P.O. Box 446
Portland, Maine 04112

For those shareholder services not referenced on the account application
and to change information on a shareholder's account (such as addresses),
investors or existing shareholders should request an optional services form from
the Transfer Agent.

Initial Purchase of Shares

There is a $5,000 minimum for initial investments in either Fund ($2,000
for individual retirement accounts).

BY MAIL. Investors may send a check made payable to the Company along with
a completed account application to the Funds at the address listed above.
Checks are accepted at full value subject to collection. If a check does not
clear, the purchase order will be cancelled and the investor will be liable for
any losses or fees incurred by the Company, the Transfer Agent or Forum.

BY BANK WIRE. To make an initial investment in either Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Company at (207) 879-0009 to obtain an account number. The investor should
then instruct a member commercial bank to wire the investor's money immediately
to:
First National Bank of Boston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Financial Corp.
Account #: 541-54171
Re: (Name of Fund)
Account #:
Account Name:

Subsequent Purchases of Shares

There is a $500 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check or by sending a bank wire as indicated above.
Shareholders using the wire system for purchase should first telephone the
Company at (207) 879-0009 to notify it of the wire transfer. All payments
should clearly indicate the shareholder's name and account number.

<PAGE>

Clearing House member. Under the program, existing shareholders may authorize
amounts of $250 or more to be debited from their bank account and invested in a
Fund monthly or quarterly. Shareholders wishing to participate in this program
may obtain the applicable forms from the Transfer Agent. Shareholders may
terminate their automatic investments or change the amount to be invested at any
time by written notification to the Transfer Agent.

Redemption of Shares

BY TELEPHONE. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at (207) 879-0009 and providing the shareholder's account number, the exact name
in which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number. In response to the telephone
redemption instruction, the Fund will mail a check to the shareholder's record
address or, if the shareholder has elected wire redemption privileges, wire the
proceeds.

EXCHANGES

Fund shareholders are entitled to exchange their shares for shares of the
other Fund, any other fund of the Company or any other fund that participates in
the exchange program and whose shares are eligible for sale in the shareholder's
state of residence. Exchanges may only be made between accounts registered in
the same name. A completed account application must be submitted to open a new
account in a Fund through an exchange if the shareholder requests any
shareholder privilege not associated with the existing account. Exchanges are
subject to the fees charged by, and the restrictions listed in the prospectus
for, the fund into which a shareholder is exchanging, including minimum
investment requirements. The Funds do not charge for exchanges, and there is
currently no limit on the number of exchanges a shareholder may make.

purchase of the shares of a fund and then exchanged those shares into another
fund with a 3% sales charge, that shareholder would pay an additional 1%
sales charge on the exchange. Shares acquired through the reinvestment of
dividends and distributions are deemed to have been acquired with a sales
charge rate equal to that paid on the shares on which the dividend or
distribution was paid. The exchange privilege may be modified materially or
terminated by the Company at any time upon 60 days' notice to shareholders.

BY MAIL. Exchanges may be accomplished by written instructions to the
Transfer Agent accompanied by any stock certificate that may have been issued to
the shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.

EXCHANGE BY TELEPHONE. Exchanges may be accomplished by telephone by any
shareholder that has elected telephone exchange privileges by calling the
Transfer Agent at (207) 879-0009 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number.

RETIREMENT PROGRAMS

INDIVIDUAL RETIREMENT ACCOUNTS. Each of the Funds may be a suitable
investment vehicle for part or all of the assets held in individual retirement
accounts ("IRAs"). The minimum initial investment for an IRA is $2,000, and the
minimum subsequent investment is $500. Individuals may make tax-deductible IRA
contributions of up to a maximum of $2,000 annually. However, this deduction
will be reduced if the individual or, in the case of a married individual filing
jointly, either the individual or the individual's spouse is an active
participant in an employer-sponsored retirement plan and has adjusted gross
income above certain levels.

EMPLOYEE BENEFIT PLANS. The Funds may be a suitable investment vehicle for
part or all of the assets held in various employee benefit plans, including
401(k) plans, 403(b) plans and SARSEPs.

PURCHASES AND REDEMPTIONS THROUGH

FINANCIAL INSTITUTIONS

Shares may be purchased and redeemed through certain brokers, banks and
other financial institutions ("Processing Organizations"), including affiliates
of the Transfer Agent. Processing Organizations may charge their customers a
fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds. The Company is not responsible for
the failure of any institution to promptly forward these requests.

8. DIVIDENDS AND TAX MATTERS

DIVIDENDS

Dividends of each Fund's net investment income are declared and paid
quarterly. Dividends of net capital gain, if any, realized by the Funds are
distributed annually.

Shareholders may have all dividends reinvested in additional shares of the
Fund that paid the dividend or received in cash. In addition, shareholders may
have dividends of net capital gain reinvested in additional shares of the Fund
and dividends of net investment income paid in cash. All dividends are treated
in the same manner for Federal income tax purposes whether received in cash or
reinvested in shares of the Fund.

<PAGE>

shareholder in cash and may be paid more than seven days following the date on
which dividends would otherwise be reinvested.

TAXES

Dividends paid by the Funds out of their net investment income (including
any realized net short-term capital gain) are taxable to shareholders as
ordinary income. Distributions by the Funds of realized net long-term capital
gain are taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder may have held shares in the Fund. If Fund shares
are sold at a loss after being held for six months or less, the loss will be
treated as long-term capital loss to the extent of any long-term capital gain
distribution received on those shares.

Any dividend or distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the dividend or
distribution. To the extent that the income or gain comprising a dividend or
distribution were accrued by a Fund before the shareholder purchased the shares,
the dividend or distribution would be in effect a return of capital to the
shareholder. All dividends and distributions, including those that operate as a
return of capital, however, are taxable as described above to the shareholder
receiving them regardless of the length of time he may have held shares prior to
the dividend or distribution.

It is expected that a portion of each Fund's dividends to shareholders will
qualify for the dividends received deduction for corporations.

The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.

The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisors.

9. OTHER INFORMATION

PERFORMANCE INFORMATION

Each Fund's performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended
to indicate future performance. A Fund's yield is a way of showing the rate of
income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period. A
Fund also may advertise its total return over different periods of time or by
means of aggregate, average, year by year, or other types of total return
figures. Because average annual returns tend to smooth out variations in each
Fund's returns, shareholders should recognize that they are not the same as
actual year-by-year results.

Each Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Funds may be
compared to recognized indices of market performance. The comparative material
found in a Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.

BANKING LAW MATTERS

<PAGE>

affiliate to serve as a Processing Organization or perform sub-transfer agent
or similar services for the Company and its shareholders. If a bank or bank
affiliate were prohibited from performing all or a part of the foregoing
services, its shareholder customers would be permitted to remain shareholders
of the Company and alternative means for continuing to service them would be
sought. It is not expected that shareholders would suffer adverse financial
consequences as a result of any changes in bank or bank affiliate service
arrangements.

DETERMINATION OF NET ASSET VALUE

THE COMPANY AND ITS SHARES

Shares issued by the Company have no conversion, subscription or preemptive
rights. Shareholders of a Fund have equal and exclusive rights to dividends and
distributions declared by that Fund and to the net assets of that Fund upon
liquidation or dissolution. From time to time one or more shareholders may own
a large percentage of a Fund's shares. Accordingly, these shareholders may be
able to greatly affect (if not determine) the outcome of any shareholder vote.
Voting rights are not cumulative and, with respect to matters not affecting all
series of the Company, generally only shareholders of the affected series may
vote. Maryland law does not require a registered investment company to hold
annual meetings of shareholders and it is anticipated that shareholder meetings
will be held only when specifically required by Federal or state law.
Shareholders have available certain procedures for the removal of Directors.
All shares when issued in accordance with the terms of this Prospectus will be
fully paid and nonassessable. From time to time certain shareholders may own a
large percentage of shares of a Fund. Accordingly, these shareholders may be
able to greatly effect (if not determine) the outcome of any shareholder vote.

<PAGE>

DAILY ASSETS TREASURY FUND

Statement of Additional Information
January 5, 1996

This Statement of Additional Information ("SAI") supplements the
Prospectus dated January 5, 1996 offering Shares of Daily Assets Treasury Fund
and consists of these cover pages and the attached Statement of Additional
Information relating to shares of the Fund dated August 1, 1995 (the "August
SAI"), which is incorporated herein.

The information in the August SAI is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized
from a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By- Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

2. THE TRUST AND ITS SHARES

The Trust was organized in Delaware on August 29, 1995; the Trust's succeeded to
the assets and liabilities of Forum Funds, Inc. on January 5, 1996. Forum
Funds, Inc. was incorporated on March 24, 1980 and assumed the name of Forum
Funds, Inc. on March 16, 1987. The Board has the authority to issue an
unlimited number of shares of beneficial interest of separate series with no par
value per share and to create separate classes of shares within each series.
There are currently seven other series of the Trust.

The Trust is a business trust organized under Delaware law. Delaware law
provides that shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. 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 contract entered into or executed by the Trust or
the Trustees. The Trust Instrument provides for indemnification out of each
series' property of any shareholder or former shareholder held personally liable
for the obligations of the series. The Trust Instrument also provides that each
series shall, upon request, assume the defense of any claim made against any
shareholder for any

<PAGE>

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. Forum believes that, in view of the above,
there is no risk of personal liability to shareholders.

The Trust Instrument further provides that the Trustees shall not be liable to
any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise by subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

The Board is required to call a meeting of shareholders for the purpose of
voting upon the removal of any trustee when so requested in writing by the
shareholders of record holding at least 10% of the Trust's outstanding shares.

Each series capital consists of shares of beneficial interest. Shares are fully
paid and nonassessable, except as set forth above with respect to Trustee and
shareholder liability. Shareholders representing 10% or more of the Trust or a
series may, as set forth in the Trust Instrument, call meetings of the Trust or
series for any purpose related to the Trust or series, as the case may be,
including, in the case of a meeting of the entire Trust, the purpose of voting
on removal of one or more Trustees. The Trust or any series 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 series;
however, the Trustees may, without prior shareholder approval, change the form
of organization of the Trust by merger, consolidation or incorporation. If not
so terminated or reorganized, the Trust and its series will continue
indefinitely. Under the Trust Instrument, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to merge or consolidate into one
or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end
management investment company that will succeed to or assume the Trust's
registration statement.

SHAREHOLDINGS
S
As of October 27, 1995, the officers and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of the Fund. Also as of that date, the
shareholders listed below owned more than 5% of the Fund. Shareholders owning
25% or more of the shares of the Fund or of the Trust as a whole may be deemed
to be controlling persons. By reason of their substantial holdings of shares,
these persons may be able to require the Trust to hold a shareholder meeting to
vote on certain issues and may be able to determine the outcome of any
shareholder vote. As noted, certain of these shareholders are known to the
Trust to hold their shares of record only and have no beneficial interest,
including the right to vote, in the shares.

<PAGE>

SHAREHOLDER PERCENTAGE
OF FUND
SHARES OWNED
H.M. Payson & Co. Custody Account, FBO
Customers Under Management, Portland,
Maine 04101 52.43%

H.M. Payson & Co. Trust Account, FBO
Trust Funds Under Management, Portland,
Maine 04101 35.74%

3. FUND STRUCTURE

CORE AND GATEWAY. The Fund intends to seek to achieve its objective by
investing all of its investable assets in a separate portfolio of a registered,
open-end management investment company with substantially the same investment
objective and policies as the Fund. This "Core and Gateway" fund structure is
an arrangement whereby one or more investment companies or other collective
investment vehicles that share investment objectives - but offer their shares
through distinct distribution channels - pool their assets by investing in a
single investment company having substantially the same investment objective and
policies (a "Core Portfolio"). This means that the only investment securities
that will be held by the Fund will be the Fund's interest in the Core Portfolio.
This structure would permit other collective investment vehicles to invest
collectively in a Core Portfolio, allowing for greater economies of scale in
managing operations of the single Core Portfolio. In the event the Fund
invested all of its assets in a Core Portfolio, its methods of operation and
shareholder services would not be materially affected by its investment in a
corresponding Core Portfolio, except that the assets of the Fund may be managed
as part of a larger pool. If the Fund invested all of its assets in a Core
Portfolio, it would hold only investment securities issued by the Core
Portfolio; the Core Portfolio would directly invest in individual securities of
other issuers. The Fund would otherwise continue its normal operation. The
Board would retain the right to withdraw the Fund's investments from the Core
Portfolio at any time; the Fund would then resume investing directly in
individual securities of other issuers or could re-invest all of its assets in
another Core Portfolio.

The Board will authorize investing the Fund's assets in a Core Portfolio only if
it first determines that pooling is in the best interests of the Fund and its
shareholders. In determining whether to invest in a Core Portfolio, the Board
will consider, among other things, the opportunity to reduce costs and achieve
operational efficiencies. The Board will not authorize investment in a Core
Portfolio if it would materially increase costs to the Fund's shareholders,
unless, of course, there were perceived to be a corresponding increase in
benefits to shareholders.

FUND SHAREHOLDERS' VOTING RIGHTS. A Core Portfolio normally will not hold
meetings of its investors except as required under the 1940 Act. As a
shareholder in a Core Portfolio, the Fund would be entitled to vote in
proportion to its relative interest in the Core Portfolio. On any issue, the
Fund will vote its shares in a Core Portfolio in proportion to the votes cast by
its
<PAGE>

shareholders. If there are other investors in a Core Portfolio, there can
be no assurance that any issue that receives a majority of the votes cast by the
Fund's shareholders will receive a majority of votes cast by all Core Portfolio
shareholders. Generally, the Fund will hold a meeting of its shareholders to
obtain instructions on how to vote its interest in a Core Portfolio when the
Core Portfolio is conducting a meeting of its shareholders. However, subject to
applicable statutory and regulatory requirements, the Fund will not seek
instructions from its shareholders with respect to (i) any proposal relating to
a Core Portfolio that, if made with respect to the Fund, would not require the
vote of Fund shareholders, or (ii) any proposal relating to the Core Portfolio
that is identical to a proposal previously approved by the Fund's shareholders.

In addition to a vote to remove a director or trustee or change a fundamental
policy, examples of matters that will require approval of shareholders of a Core
Portfolio include, subject to applicable statutory and regulatory requirements:
the election of directors or trustees; approval of an investment advisory
contract; the dissolution of a Core Portfolio; certain amendments of the
organizational documents for the Core Portfolio; a merger, consolidation or sale
of substantially all of a Core Portfolio's assets; or any additional matters
required or authorized by the charter or trust instrument and By-laws of a Core
Portfolio or any registration statement of a Core Portfolio, or as the directors
or trustees of the Core Portfolio may consider desirable. The board of directors
or trustees of a Core Portfolio will typically reserve the power to change
nonfundamental policies without prior shareholder approval.

CONSIDERATIONS OF INVESTING IN A PORTFOLIO. The Fund's investment in a Core
Portfolio may be affected by the actions of other large investors in the Core
Portfolio, if any. For example, if the Core Portfolio had a large investor
other than the Fund that redeemed its interest in the Core Portfolio, the Core
Portfolio's remaining investors (including the Fund) might, as a result,
experience higher pro rata operating expenses, thereby producing lower returns.
The Fund may withdraw its entire investment from the Core Portfolio at any time,
if the Board determines that it is in the best interests of the Fund and its
shareholders to do so. The Fund might withdraw, for example, if other investors
in the Core Portfolio, by a vote of shareholders, changed the investment
objective or policies of the Core Portfolio in a manner not acceptable to the
Board. A withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by the Core Portfolio. That
distribution could result in a less diversified portfolio of investments for the
Fund and could affect adversely the liquidity of the Fund's portfolio. If the
Fund decided to convert those securities to cash, it usually would incur
transaction costs. If the Fund withdrew its investment from the Core Portfolio,
the Board would consider what action might be taken, including the management of
the Fund's assets in accordance with its investment objective and policies by
the Adviser or the investment of all of the Fund's investable assets in another
pooled investment entity having substantially the same investment objective as
the Fund.

4. DETERMINATION OF NET ASSET VALUE

Neither the Fund nor the Portfolio determine net asset value on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas. Purchases and

<PAGE>

redemptions are effected at the time of the next determination of net asset
value following the receipt of any purchase or redemption order.

<PAGE>

Account Information and
Shareholder Servicing: Distributor:
Forum Financial Corp. Forum Financial Services, Inc.
P.O. Box 446 61 Broadway
Portland, Maine 04112 New York, New York 10006
(207) 879-0001 (212) 363-3300
______________________________________________________________________________

STATEMENT OF ADDITIONAL INFORMATION
August 1, 1995

Forum Funds, Inc. (the "Company") is a registered open-end investment company.
This Statement of Additional Information supplements the Prospectus offering
shares of Daily Assets Treasury Fund (the "Funds") and should be read only in
conjunction with the applicable Prospectus, a copy of which may be obtained by
an investor without charge by contacting the Company's Distributor at the
address listed above.

TABLE OF CONTENTS
Page
----
1. Investment Policies . . . . . . . . 2
2. Investment Limitations. . . . . . . 4
3. Performance Data. . . . . . . . . . 5
4. Management. . . . . . . . . . . . . 6
5. Determination of Net Asset Value. . 12
6. Portfolio Transactions. . . . . . . 12
7. Additional Purchase and
Redemption Information. . . . . . . 13
8. Taxation. . . . . . . . . . . . . . 15
9. Other Information . . . . . . . . . 15

Appendix A - Description of Securities Ratings

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.

<PAGE>

1. INVESTMENT POLICIES

Debt securities with longer maturities tend to produce higher yields and are
generally subject to greater price movements than obligations with shorter
maturities. An increase in interest rates will generally reduce the market
value of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments.

Except for U.S. Government Securities (as defined in the Prospectus) and to the
limited extent otherwise permitted by Rule 2a-7 under the Investment Company Act
of 1940 ("1940 Act"), the Funds may not invest more than five percent of their
total assets in (i) the securities of any one issuer or (ii) securities that are
rated (or are issued by an issuer with comparable outstanding short-term debt
that is rated) in the second highest rating category or are unrated and
determined by Forum Advisors, Inc. (the "Adviser") to be of comparable quality.

RATINGS AS INVESTMENT CRITERIA

Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and other nationally recognized statistical rating organizations
("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 debt securities by several NRSROs is included in Appendix
A to this Statement of Additional Information. The Funds may use these ratings
to determine whether to purchase, sell or hold a security. However, ratings are
general and are not absolute standards of quality. Consequently, 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 has been purchased by a Fund, the Adviser will determine
whether the Fund should continue to hold the obligation pursuant to procedures
adopted by the Company's Board of Directors (the "Board"). In the event that a
security held by a Fund (i) is downgraded by an NRSRO below the highest rating
category (or an unrated security is determined by the Adviser to no longer be
comparable to a security bearing the highest rating) or (ii) to the Adviser's
knowledge has been given a rating by an NRSRO below the second highest rating
category, the Board will promptly reassess whether the security continues to
present minimal credit risks and will take such action as the Board determines
is in the best interests of the Fund and its shareholders. The reassessment
required by clause (ii) will not be required, however, if the security has been
disposed of (or has matured) within five business days of the Adviser's becoming
aware of the new rating (or comparable quality, in the case of an unrated
security) and the Board is notified of the action taken. 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.

WHEN-ISSUED SECURITIES AND DELAYED DELIVERY SECURITIES

A Fund may purchase securities on a when-issued or delayed delivery basis. In
those cases, the purchase price and the interest rate payable on the securities
are fixed on the transaction date and delivery and payment may take place a
month or more after the date of the transaction. At the

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<PAGE>

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. If the Fund chooses to dispose of the right to acquire a when-
issued security prior to its acquisition, it could, as with the disposition of
any other portfolio obligation, incur a gain or loss due to market fluctuation.

ILLIQUID SECURITIES

Each Fund may each invest up to 10% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days.

The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the Adviser, pursuant to
guidelines approved by the Board. The Adviser 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. The Adviser monitors the liquidity of the securities
in each Fund's portfolio and reports periodically on such decisions to the
Board.

LENDING OF PORTFOLIO SECURITIES

In order to obtain additional income, each Fund may from time to time lend
securities from their portfolio to brokers, dealers and financial institutions.
Securities loans must be callable at any time and must be continuously secured
by collateral from the borrower in the form of cash or U.S. Government
Securities with a market value, determined daily, at least equal to the value of
the securities being loaned. The Funds receive fees in respect of securities
loans from the borrower or interest from investing the cash collateral. The
Funds may pay fees to arrange the loans. The Funds may pay fees to arrange the
loans. As a fundamental policy, each Fund may not lend portfolio securities in
an amount greater than 33% of the value of its total assets. Each Fund intends
to enter securities loans only with those companies that the Adviser, under the
Board's general supervision, believes present minimal credit risks.

The Funds' use of securities lending entails certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss.
Failure by the other party to deliver a security purchased by the Fund may
result in a missed opportunity to make an alternative investment. The Adviser
monitors the creditworthiness of counterparties to these transactions and
intends to enter into these

-3-
<PAGE>

transactions only when it believes the counterparties present minimal credit
risks and the income to be earned from the transaction justifies the attendant
risks.

2. INVESTMENT LIMITATIONS

Each Fund has adopted the following fundamental investment limitations which are
in addition to those contained in the Funds' Prospectus and which may not be
changed without shareholder approval. Each Fund may not:

(1) Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests). Total borrowings may not exceed 33 1/3% of
each Fund's total assets and borrowing for purposes other than meeting
redemptions may not exceed 5% of the value of each the Fund's total assets.
Outstanding borrowings in excess of 5% of the value of a Fund's total assets
must be repaid before any subsequent investments are made by the Fund.

(2) Make loans, except that each Fund may (i) purchase debt securities which
are otherwise permissible investments, (ii) enter into repurchase agreements and
(iii) lend portfolio securities.

(3) Purchase securities, other than U.S. Government Securities, if more than
25% of the value of the Fund's total assets would be invested in securities of
issuers conducting their principal business activity in the same industry,
provided that consumer finance companies and industrial finance companies are
considered to be separate industries and that there is no limit on the purchase
of the securities of domestic commercial banks.

(4) With respect to 75% of its assets, purchase securities, other than U.S.
Government Securities, of any one issuer if more than 5% of the value of the
Fund's total assets would at the time of purchase be invested in any one issuer.

(5) Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. Collateralized loans of securities are not deemed to be pledges
or hypothecations for this purpose.

(6) Act as an underwriter of securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, the Fund may
be deemed to be an underwriter for purposes of the Securities Act of 1933.

(7) Purchase or sell real estate or any interest therein, except that the Fund
may invest in debt obligations secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein.

(8) Write put and call options.

(9) Purchase securities having voting rights, except the Fund may invest in
securities of other investment companies to the extent permitted by the 1940
Act.

-4-
<PAGE>

(10) Invest for the purpose of exercising control over any person.

(11) Issue senior securities except pursuant to Section 18 of the 1940 Act and
except that the Fund may borrow money subject to investment limitations
specified in the Fund's Prospectus.

(12) Purchase securities on margin, or make short sales of securities, except
for the use of short-term credit necessary for the clearance of purchases and
sales of portfolio securities.

(13) Invest in securities (other than fully-collateralized debt obligations)
issued by companies that have conducted continuous operations for less than
three years, including the operations of predecessors, unless guaranteed as to
principal and interest by an issuer in whose securities the Fund could invest.

(14) Invest in or hold securities of any issuer if officers and directors of the
Company 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.

(15) Invest in interests in oil or gas or interests in other mineral exploration
or development programs.

In addition, Daily Assets Treasury Fund may not:

(16) Purchase restricted securities.

In addition, Daily Assets Treasury Fund may not purchase or sell real property
(including limited partnership interests, but excluding readily marketable
interests in real estate investment trusts or readily marketable securirites of
companies which invest in real estate.)

If a percentage restriction on investment or utilization of assets as set forth
above 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
redemptions of shares will not be considered a violation of the limitation.

3. PERFORMANCE DATA

Each Fund may provide current annualized and effective annualized yield
quotations based on its daily dividends. These quotations may from time to time
be used in advertisements, shareholder reports or other communications to
shareholders. All performance information supplied by the Fund in advertising
is historical and is not intended to indicate future returns.

In performance advertising the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDC/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). In addition, a Fund may compare any of its performance
information with the performance of recognized stock, bond and

-5-
<PAGE>

other indexes. A Fund may refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussions of a Fund and comparative mutual fund
data and ratings reported in independent periodicals, such as newspapers and
financial magazines.

Any current yield quotation of a Fund which is used in such a manner as to be
subject to the provisions of Rule 482(d) under the Securities Act of 1933, as
amended, shall consist of an annualized historical yield, carried at least to
the nearest hundredth of one percent, based on a specific seven-calendar-day
period and shall be calculated by dividing the net change during the seven-day
period in the value of an account having a balance of one share at the beginning
of the period by the value of the account at the beginning of the period, and
multiplying the quotient by 365/7. For this purpose, the net change in account
value would reflect the value of additional shares purchased with dividends
declared on the original share and dividends declared on both the original share
and any such additional shares, but would not reflect any realized gains or
losses from the sale of securities or any unrealized appreciation or
depreciation on portfolio securities. In addition, any effective annualized
yield quotation used by a Fund shall be calculated by compounding the current
yield quotation for such period by adding 1 to the product, raising the sum to a
power equal to 365/7, and subtracting 1 from the result. Daily Assets Treasury
Fund's yield for the seven-day period ending March 31, 1995, was 5.34%, which is
equivalent to an effective yield of 5.48%. Although published yield information
is useful to investors in reviewing a Fund's performance, investors should be
aware that each 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. Also, Processing
Organizations may charge their customers direct fees in connection with an
investment in a Fund, which will have the effect of reducing the Fund's net
yield to those shareholders. The yields of a Fund are not fixed or guaranteed,
and an investment in a Fund is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of a Fund with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to
compare a Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.

Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.

4. MANAGEMENT

The directors and officers of the Company and their principal occupations during
the past five years are set forth below.

-6-
<PAGE>

John Y. Keffer, Chairman and President.

President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent) and
Forum Advisors, Inc. (a registered investment adviser). Mr. Keffer is a
director and/or officer of various registered investment companies for
which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is Two Portland Square, Portland, Maine
04101.

Costas Azariadis, Director.

Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.

James C. Cheng, Director.

Managing Director, Forum Financial Services, Inc. since September 1991.
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is 27 Temple Street, Belmont,
Massachusetts 02178.

J. Michael Parish, Director.

Partner at the law firm of Winthrop Stimson Putnam & Roberts since 1989.
Prior thereto, he was a partner at LeBoeuf, Lamb, Leiby & MacRae, a law
firm of which he was a member from 1974 to 1989. His address is 40 Wall
Street, New York, New York 10005.

Lee W. Shultheis, Vice President, Assistant Treasurer and Assistant Secretary.

Managing Director, Client & Product Services at Forum Financial Services,
Inc. since August 1991. Prior thereto, Mr. Shultheis was Vice President of
Mutual Funds Management at U.S. Trust Company of New York. His address is
Two Portland Square, Portland, Maine 04101.

Michael D. Martins, Treasurer.

Director of Fund Accounting at Forum Financial Corp. since June 1995.
Prior thereto, he served as a manager in the New York City office of
Deloitte & Touche LLP, where he was employed for over five years. His
address is Two Portland Square, Portland, Maine 04101.

-7-
<PAGE>

David I. Goldstein, Secretary.

Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also Secretary or Assistant
Secretary of various registered investment companies for which Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine 04101.

Renee A. Walker, Assistant Secretary

Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since December 1994. Prior thereto, Ms. Walker was employed by
Paine Webber, Inc. and Longwood Partners, Investment Partnership in Boston
Massachusetts. Her address is Two Portland Square, Portland, Maine 04101.

John Y. Keffer is an interested person of the Company as that term is defined in
the 1940 Act.

ADVISER

The Funds' investment adviser, Forum Advisors, Inc., furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing each Fund's investments and effecting portfolio transactions for each
Fund, pursuant to an investment advisory agreement between the Adviser and the
Company (the "Advisory Agreement"). The Advisory Agreement provided, with
respect to each Fund, for an initial term of one year from its effective date
and for its continuance in effect for successive twelve-month periods
thereafter, provided the agreement is specifically approved at least annually by
the Board or, with respect to either Fund, by vote of the shareholders of that
Fund, and in either case by a majority of the directors who are not parties to
the Advisory Agreement or interested persons of any such party.

The Advisory Agreement is terminable without penalty by the Company with respect
to a Fund on 60 days' written notice when authorized either by vote of the
Fund's shareholders or by a vote of a majority of the Board, or by the Adviser
on not more than 60 days' nor less than 30 days' written notice, and will
automatically terminate in the event of its assignment. The Advisory Agreement
also provides that, with respect to each Fund, the Adviser shall not be liable
for any error of judgment or mistake of law or for any act or omission in the
performance of its duties to the Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of the Adviser's duties or by reason of
reckless disregard of its obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to others.

For its services under the Investment Advisory Agreement, Forum receives with
respect to the Fund a fee at an annual rate of 0.20% of the average daily net
assets of the Fund. Fees payable under the Advisory Agreement with respect to
the Fund are outlined in the following table:

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<PAGE>

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------
1995 $59,382 $59,382 $0
1994 $51,098 $51,098 $0
1993 $5,112 $5,112 $0

In addition to receiving its advisory fee from the Funds, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in a Fund. In some instances the Adviser may elect to
credit against any investment management fee received from a client who is also
a shareholder in a Fund an amount equal to all or a portion of the fees received
by the Adviser or any affiliate of the Adviser from a Fund with respect to the
client's assets invested in the Fund.

The Adviser has agreed to reimburse the Company for certain of each Fund's
operating expenses (exclusive of interest, taxes, brokerage, fees and
organization expenses, all to the extent permitted by applicable state law or
regulation) which in any year exceed the limits prescribed by any state in which
the Fund's shares are qualified for sale. The Adviser believes that currently
the most restrictive expense ratio limitation imposed by any state is 2-1/2% of
the first $30 million of each Fund's average net assets, 2% of the next $70
million of its average net assets and 1-1/2% of its average net assets in excess
of $100 million. For the purpose of this obligation to reimburse expenses, the
Fund's annual expenses are estimated and accrued daily, and any appropriate
estimated payments will be made by the Adviser monthly.

Subject to the above obligations to reimburse the Company for its excess
expenses, the Company has confirmed its obligation to pay all its other
expenses, including: interest charges, taxes, brokerage fees and commissions;
certain insurance premiums; fees, interest charges and expenses of the
custodian, transfer agent and dividend disbursing agent; telecommunications
expenses; auditing, legal and compliance expenses; costs of forming the
corporation and maintaining corporate existence; costs of preparing and printing
the Company's prospectuses, statements of additional information, account
application forms and shareholder reports and delivering them to existing and
prospective shareholders; costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts and of
calculating the net asset value of shares of the Company; costs of reproduction,
stationery and supplies; compensation of directors, officers and employees of
the Company and costs of other personnel performing services for the Company who
are not officers of an Adviser, the manager and distributor or their respective
affiliates; costs of corporate meetings; Securities and Exchange Commission
registration fees and related expenses; state securities laws registration fees
and related expenses; and fees payable to the Adviser under the Investment
Advisory Agreements.

MANAGER AND DISTRIBUTOR

Forum Financial Services, Inc. ("Forum") was incorporated under the laws of the
State of Delaware on February 7, 1986 and supervises the overall management of
the Company (which includes, among other responsibilities, negotiation of
contracts and fees with, and monitoring of

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<PAGE>

performance and billing of, the transfer agent and custodian and arranging for
maintenance of books and records of the Company), provides the Company with
general office facilities and serves as distributor of shares of the Funds
pursuant to a management and distribution agreement between Forum and the
Company (the "Management and Distribution Agreement"). The Management and
Distribution Agreement provided, with respect to each Fund, for an initial term
of one year from its effective date and for its continuance in effect for
successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or, with respect to either
Fund, by the shareholders of that Fund, and in either case by a majority of the
directors who are not parties to the Management and Distribution Agreement or
interested persons of any such party.

The Management and Distribution Agreement terminates automatically if it is
assigned and may be terminated without penalty with respect to either Fund by
vote of that Fund's shareholders or by either party on not more than 60 days'
nor less than 30 days' written notice. The Management and Distribution
Agreement also provides that Forum shall not be liable for any error of judgment
or mistake of law or for any act or omission in the administration or management
of the Company, except for willful misfeasance, bad faith or gross negligence in
the performance of Forum's duties or by reason of reckless disregard of its
obligations and duties under the Management and Distribution Agreement.

For its services under the Management Agreement, Forum receives with respect to
the Fund a fee at an annual rate of 0.30% of the average daily net assets of the
Fund. Fees payable under the Management Agreement with respect to the Fund are
outlined in the following table:

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $89,073 $89,073 $0
1994 $76,647 $76,647 $0
1993 $7,668 $7,668 $0

Forum provides persons satisfactory to the Board to serve as officers of the
Company. Those officers, as well as certain other employees and directors of
the Company, may be directors, officers or employees of (and persons providing
services to the Company may include) Forum, its affiliates or affiliates of the
Adviser.

TRANSFER AGENT

Forum Financial Corp. (the "Transfer Agent") acts as transfer agent of the
Company pursuant to a transfer agency agreement (the "Transfer Agency
Agreement"). The Transfer Agency Agreement provided, with respect to each Fund,
for an initial term of one year from its effective date and for its continuance
in effect for successive twelve-month periods thereafter, provided that the
agreement is specifically approved at least annually by the Board or, with
respect to either Fund, by a vote of the shareholders of that Fund, and in
either case by a majority of the

-10-
<PAGE>

directors who are not parties to the Transfer Agency Agreement or interested
persons of any such party at a meeting called for the purpose of voting on the
Transfer Agency Agreement.

Among the responsibilities of the Transfer Agent as agent for the Company are:
(1) answering customer inquiries regarding account status and history, the
manner in which purchases and redemptions of shares of the Funds may be effected
and certain other matters pertaining to the Funds; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, assisting in processing purchase and redemption
transactions and receiving wired funds; (4) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (5) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (6) furnishing periodic statements and confirmations of
purchases and redemptions; (7) arranging for the transmission of proxy
statements, annual reports, prospectuses and other communications from the
Company to its shareholders; (8) arranging for the receipt, tabulation and
transmission to the Company of proxies executed by shareholders with respect to
meetings of shareholders of the Company; and (9) providing such other related
services as the Company or a shareholder may reasonably request.

The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Funds. The Transfer Agent or any sub-transfer
agent or other processing agent may elect to credit against the fees payable to
it by its clients or customers all or a portion of any fee received from the
Company or from the Transfer Agent with respect to assets of those customers or
clients invested in the Funds. The Transfer Agent, Forum or sub-transfer agents
or processing agents retained by the Transfer Agent may be Processing
Organizations (as defined in the Prospectus) and, in the case of sub-transfer
agents or processing agents, may also be affiliated persons of the Transfer
Agent or Forum.

For its services under the Transfer Agent Agreement, Forum receives with respect
to its transfer agency services a fee at an annual rate of 0.25% of the average
daily net assets of the Fund. Fees payable under the Transfer Agent Agreement
with respect to the Fund are outlined in the following table:

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $74,227 $62,206 $0
1994 $63,873 $63,873 $0
1993 $6,390 $6,390 $0

Pursuant to a Fund Accounting Agreement, the Transfer Agent also provides the
Funds with portfolio accounting, including the calculation of the Funds' net
asset value. For these services, the Transfer Agent receives with respect to
each Fund an annual fee ranging from $36,000 to $60,000 depending upon the
amount and type of the Fund's portfolio transactions and positions.

-11-
<PAGE>

5. DETERMINATION OF NET ASSET VALUE

The Company does not determine net asset value on the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas. Purchases and redemptions are effected at the time of the next
determination of net asset value following the receipt of any purchase or
redemption order.

Pursuant to the rules of the Securities and Exchange Commission, the Board has
established procedures to stabilize each Fund's net asset value at $1.00 per
share. These procedures include a review of the extent of any deviation of net
asset value per share as a result of fluctuating interest rates, based on
available market rates, from each Fund's $1.00 amortized cost price per share.
Should that deviation exceed 1/2 of 1%, the Board will consider whether any
action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Company has also established procedures to
ensure that portfolio securities meet the Funds' quality criteria.

6. PORTFOLIO TRANSACTIONS

Purchases and sales of portfolio securities for each Fund usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. There usually
are no brokerage commissions paid for such purchases. While the Company does
not anticipate that the Funds will pay any amounts of commission, in the event a
Fund pays brokerage commissions or other transaction-related compensation, the
payments may be made to broker-dealers who pay expenses of the Fund that it
would otherwise be obligated to pay itself. Any transaction for which a Fund
pays transaction-related compensation will be effected at the best price and
execution available, taking into account the amount of any payments made on
behalf of the Fund by the broker-dealer effecting the transaction. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and asked prices.

For the fiscal years ended March 31, 1995, 1994, and 1993, the Fund paid no
brokerage commissions.

Allocations of transactions to dealers and the frequency of transactions are
determined for each Fund by the Adviser in its best judgment and in a manner
deemed to be in the best interest of shareholders of that Fund rather than by
any formula. The primary consideration is prompt execution of orders in an
effective manner and at the most favorable price available to the Fund.

Investment decisions for the Funds will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its

-12-
<PAGE>

affiliates. If, however, a Fund and other investment companies or accounts
managed by the Adviser are contemporaneously engaged in the purchase or sale of
the same security, the transactions may be averaged as to price and allocated
equitably to each account. In some cases, this policy might adversely affect
the price paid or received by a Fund or the size of the position obtainable for
the Fund. In addition, when purchases or sales of the same security for a Fund
and for other investment companies managed by the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.

No portfolio transactions are executed with the Adviser, Forum or any of their
affiliates.

7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of each Fund are sold on a continuous basis by the distributor without
any sales charge.

In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Company may redeem shares involuntarily to reimburse
a Fund for any loss sustained by reason of the failure of a shareholder to make
full payment for shares purchased by the shareholder or to collect any charge
relating to transactions effected for the benefit of a shareholder which is
applicable to a Fund's shares as provided in the Prospectus from time to time.

The Company has filed a formal election with the Securities and Exchange
Commission pursuant to which a Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.

The Funds may wire proceeds of redemptions to shareholders that have elected
wire redemption privileges only if the wired amount is greater than $5,000. In
addition, the Funds will only wire redemption proceeds to financial institutions
located in the United States.

By use of the telephone redemption or exchange privilege, the shareholder
authorizes the Transfer Agent to act upon the instruction of any person
representing himself to either be, or to have the authority to act on behalf of,
the investor and believed by the Transfer Agent to be genuine. The records of
the Transfer Agent of such instructions are binding.

EXCHANGE PRIVILEGE

The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any Participating Fund, which includes (i) all other funds
of the Company and (ii) any other mutual fund for which Forum or its affiliates
act as investment adviser, manager or distributor and which participates in the
Company's exchange privilege program. The Company (and Federal tax law) treats
an exchange as a redemption of the shares owned and the purchase of the shares
of the fund being acquired.

-13-
<PAGE>

Exchange transactions are made on the basis of relative net asset values per
share at the time of the exchange transaction plus any applicable sales charge
of the Participating Fund whose shares are acquired. Exchanges are accomplished
by (i) a redemption of the shares of the fund exchanged at the next
determination of that fund's of net asset value after the exchange order in
proper form (including any necessary supporting documents by the fund whose
shares are being exchanged) is accepted by the Transfer Agent and (ii) a
purchase of the shares of the fund acquired at the next determination of that
fund's net asset value after (or occurring simultaneously with) the time of
redemption.

Shares of any Participating Fund may be exchanged without a sales charge for
shares of any Participating Fund that are offered without a sales charge.
Shares of any Participating Fund purchased with a sales charge may be exchanged
without a sales charge for shares of any other Participating Fund otherwise sold
with the same sales charge. If the Participating Fund whose shares are
purchased in the exchange transaction imposes a higher sales charge than was
paid originally on the exchanged shares, the shareholder will be responsible for
the difference between the two sales charges. Shareholders are entitled to any
reduced sales charges of the Participating Fund into which they are exchanging
to the extent those reduced sales charges would be applicable to that
shareholder's purchase of shares.

The Funds do not charge for the exchange privilege and there is currently no
limit on the number of exchanges a shareholder may make, but the Funds reserve
the right to limit excessive exchanges by any shareholder. A pattern of
frequent exchanges may be deemed by Forum to be contrary to the best interests
of a Fund's other shareholders and, at the discretion of Forum, may be limited
by that Fund's refusal to accept additional exchanges from the investor.

The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any Participating Fund or the Company. However the privilege
will not be terminated, and no material change that restricts the availability
of the privilege to shareholders will be implemented, without 60 days' advance
notice to shareholders. No notice need be given of an amendment whose only
material effect is to reduce amount of sales charge required to be paid on the
exchange and no notice need be given if redemptions of shares of a Fund are
suspended or a Fund temporarily delays or ceases the sale of its shares.

In addition to the funds of the Company, currently the only Participating Fund
is Sound Shore Fund, Inc. Shareholders of that fund are only permitted to
exchange into the following other Participating Funds: Investors Bond Fund,
TaxSaver Bond Fund and Daily Assets Treasury Fund.

INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT

The Funds offer an individual retirement plan (the "IRA") for individuals who
wish to use shares of the Funds as a medium for funding individual retirement
savings. Under the IRA, distributions of net investment income and capital gain
will be automatically reinvested in the IRA established for the investor. The
Funds' custodian furnishes custodial services to the IRAs

-14-
<PAGE>

for a service fee. Shareholders wishing to use a Fund's IRA should contact the
Transfer Agent for further details and information.

8. TAXATION

Qualification as a regulated investment company under the Internal Revenue Code
of 1986 does not involve governmental supervision of management or investment
practices or policies. Investors should consult their own counsel for a
complete understanding of the requirements the Funds must meet to qualify for
such treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by the Fund and assume that the Funds qualify as regulated investment companies.
Investors should consult their own counsel for further details and for the
application of state and local tax laws to the investor's particular situation.

Each Fund expects to derive substantially all of its gross income (exclusive of
capital gain) from sources other than dividends. Accordingly, it is expected
that none of the Funds' dividends or distributions will qualify for the
dividends-received deduction for corporations.

If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term capital loss to the extent of any long-term
capital gain distribution received on those shares.

Any capital gain distribution received by a shareholder reduces the net asset
value of his shares by the amount of the distribution. To the extent that
capital gain was accrued by a Fund before the shareholder purchased his shares,
the distribution would be in effect a return of capital to that shareholder.
All capital gain distributions, including those that operate as a return of
capital, are taxable to the shareholder receiving them as described above
regardless of the length of time he may have held his shares prior to the
distribution.

9. OTHER INFORMATION

CUSTODIAN

Pursuant to a Custodian Agreement with the Company, The First National Bank of
Boston, 100 Federal Street, Boston, Massachusetts 02106, acts as the custodian
of each Fund's assets. The custodian's responsibilities include safeguarding
and controlling the Funds' cash and securities, determining income and
collecting interest on Fund investments.

COUNSEL

Legal matters in connection with the issuance of shares of stock of the Company
are passed upon by Messrs. Seward & Kissel, One Battery Park Plaza, New York,
New York 10004. Seward & Kissel has relied upon the opinion of Messrs. Venable,
Baetjer and Howard, 1800 Mercantile Bank & Trust Building, 2 Hopkins Plaza,
Baltimore, Maryland 21201, for matters relating to Maryland law.

-15-
<PAGE>

AUDITORS

Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281-
1414, independent auditors, act as auditors for the Company.

THE COMPANY

The Company, which was incorporated in Maryland on March 24, 1980, assumed the
name Forum Funds, Inc. on March 16, 1987. The Company was incorporated under
the name Daily Income Extension Fund, Inc. and changed its name to Fahnestock
Daily Income Fund, Inc. on April 13, 1981. From May 19, 1986 through October 1,
1989, no public shares of the Company's common stock were outstanding.
Currently all the authorized stock of the Company is divided into thirteen
separate series of common stock, representing interests in: Daily Assets Fund,
Daily Assets Government Fund, Daily Assets Treasury Fund, Daily Assets TaxSaver
Fund, Investors Bond Fund, TaxSaver Bond Fund, Investors Stock Fund, Payson
Value Fund, Payson Balanced Fund, Maine Municipal Bond Fund, Maine TaxSaver
Money Fund, New Hampshire Bond Fund and Core Portfolio Plus.

As of July 17, 1995, the officers and Directors of the Company as a group owned
less than 1% of the outstanding shares of the Fund. Also as of that date, the
shareholders listed below owned more than 5% of the Fund. Shareholders owning
25% or more of the shares of the Fund or of the Company as a whole may be deemed
to be controlling persons. By reason of their substantial holdings of shares,
these persons may be able to require the Company to hold a shareholder meeting
to vote on certain issues and may be able to determine the outcome of any
shareholder vote. As noted, certain of these shareholders are known to the
Company to hold their shares of record only and have no beneficial interest,
including the right to vote, in the shares.

PERCENTAGE
OF FUND
SHARES
SHAREHOLDER OWNED
----------- --------

H.M. Payson & Co. Custody Account, FBO 54.61%
Customers Under Management, Portland,
Maine 04101

H.M. Payson & Co. Trust Account, FBO 34.72%
Trust Funds Under Management, Portland,
Maine 04101

FINANCIAL STATEMENTS

The financial statements of the Fund for the year ended March 31, 1995 (which
include a statement of assets and liabilities, a statement of operations, a
statement of changes in net assets, notes to financial statements, financial
highlights, a statement of investments and the auditors' report thereon) are
included in the Annual Report to Shareholders of the Company delivered along
with this SAI and are incorporated herein by reference.

-16-
<PAGE>

THE ANNUAL REPORT FOR THE YEAR ENDING MARCH 31, 1995 IS INCLUDED IN THIS
REGISTRATION STATEMENT AS APPENDIX A.

-17-
<PAGE>

APPENDIX A - DESCRIPTION OF SECURITIES RATINGS

1. CORPORATE BONDS

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")

Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.

Note: Those bonds in the Aa and A groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa1 and A1.

STANDARD AND POOR'S CORPORATION ("S&P")

Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.

Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.

Note: The ratings for AA and A may be modified by the addition of a plus (+) or
minus (-) sign to show the relative standing within the rating category.

<PAGE>

FITCH INVESTORS SERVICE, INC. ("FITCH")

AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.

A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA categories.

2. COMMERCIAL PAPER

MOODY'S INVESTORS SERVICE, INC.

Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.

Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:

--- Leading market positions in well-established industries.
--- High rates of return on funds employed.
--- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

<PAGE>

STANDARD AND POOR'S CORPORATION

S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues
with an A-2 designation is strong. However, the relative degree of safety is
not as high as for issues designated A-1. A-3 issues have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.

FITCH INVESTORS SERVICE, INC.

Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.

F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.

<PAGE>

MAINE MUNICIPAL BOND FUND

Statement of Additional Information dated January 5, 1996

This Statement of Additional Information ("SAI") supplements the
Prospectus dated January 5, 1996 offering Shares of Maine Municipal Bond Fund
and consists of these cover pages and the attached Statement of Additional
Information relating to shares of the Fund dated August 1, 1995 (the "August
SAI"), which is incorporated herein.

The information in the August SAI is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized
from a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

2. THE TRUST AND ITS SHARES

The Trust was organized in Delaware on August 29, 1995; the Trust's
succeeded to the assets and liabilities of Forum Funds, Inc. on January 5, 1996.
Forum Funds, Inc. was incorporated on March 24, 1980 and assumed the name of
Forum Funds, Inc. on March 16, 1987. The Board has the authority to issue an
unlimited number of shares of beneficial interest of separate series with no par
value per share and to create separate classes of shares within each series.
There are currently seven other series of the Trust.

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 contract entered into or executed by
the Trust or the Trustees. The Trust Instrument provides for indemnification
out of each series' property of any shareholder or former shareholder held
personally liable for the obligations of the series. 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

<PAGE>

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.
Forum believes that, in view of the above, there is no risk of personal
liability to shareholders.

The Trust Instrument further provides that the Trustees shall not be liable
to any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise by subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

Each series capital consists of shares of beneficial interest. Shares are
fully paid and nonassessable, except as set forth above with respect to Trustee
and shareholder liability. Shareholders representing 10% or more of the Trust
or a series may, as set forth in the Trust Instrument, call meetings of the
Trust or series for any purpose related to the Trust or series, as the case may
be, including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or any series 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
series; however, the Trustees may, without prior shareholder approval, change
the form of organization of the Trust by merger, consolidation or incorporation.
If not so terminated or reorganized, the Trust and its series will continue
indefinitely. Under the Trust Instrument, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to merge or consolidate into one
or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end
management investment company that will succeed to or assume the Trust's
registration statement.

As of October 27, 1995, 1995, the officers and Directors of the Trust as a
group owned less than 1% of the outstanding shares of the Fund. Also as of that
date, the shareholders listed below owned of record more than 5% of the Fund.
Shareholders owning 25% or more of the shares of the Fund or of the Trust as a
whole may be deemed to be controlling persons. By reason of their substantial
holdings of shares, these persons may be able to require the Trust to hold a
shareholder meeting to vote on certain issues and may be able to determine the
outcome of any shareholder vote. As noted, certain of these shareholders are
known to the Trust to hold their shares of record only and have no beneficial
interest, including the right to vote, in the shares.

<PAGE>

PERCENTAGE
OF FUND
SHARES
SHAREHOLDER OWNED
----------- -----

Merrill Lynch, Pierce, Fenner & Smith, 7.97%
Inc. (record holder), Jacksonville,
Florida

Barnhart & Co., Bar Harbor, Maine 5.18%

3. DETERMINATION OF NET ASSET VALUE

The Fund does not determine net asset value on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas. Purchases and
redemptions are effected at the time of the next determination of net asset
value following the receipt of any purchase or redemption order.

<PAGE>

MAINE MUNICIPAL BOND FUND

STATEMENT OF ADDITIONAL INFORMATION
August 1, 1995

Forum Funds, Inc. (the "Company") is a registered open-end investment company.
This Statement of Additional Information supplements the Prospectus offering
shares of the Maine Municipal Bond Fund (the "Fund") and should be read only in
conjunction with the Prospectus, a copy of which may be obtained by an investor
without charge by contacting the Company's Distributor at the address listed
above.

TABLE OF CONTENTS
Page
----

1. Investment Policies . . . . . . . . 2
2. Investment Limitations. . . . . . . 12
3. Performance Data. . . . . . . . . . 14
4. Management. . . . . . . . . . . . . 17
5. Determination of Net Asset Value. . 23
6. Portfolio Transactions. . . . . . . 23
7. Additional Purchase and
Redemption Information . . . . . 24
8. Taxation. . . . . . . . . . . . . . 25
9. Other Information . . . . . . . . . 26

Appendix A - Description of Securities Ratings
Appendix B - Description of Municipal Securities
Appendix C - Hedging Strategies

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.

<PAGE>

1. INVESTMENT POLICIES

RATINGS AS INVESTMENT CRITERIA

The Fund may retain a security whose rating has been lowered below the lowest
permissible rating category (or that is unrated and determined by the Adviser to
be of comparable quality) if the Adviser determines that retaining such security
is in the best interests of the Fund. A non-rated security is considered to be
of comparable quality to a rated security when the Adviser believes that the
financial condition of the issuer of the obligation and the protection afforded
by the terms of the obligation itself limit the risk to the Fund to a degree
comparable to that of the rated security.

MUNICIPAL SECURITIES

The term "municipal securities," as used in the Prospectus and this Statement of
Additional Information, means obligations of the type described in Appendix B
issued by or on behalf of states, territories, and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from Federal and Maine state income tax imposed on
individuals. The municipal securities in which the Fund will invest are limited
to those obligations which at the time of purchase: (i) are backed by the full
faith and credit of the United States; (ii) are municipal notes rated in the
four highest rating categories by an NRSRO, or, if not rated, are of comparable
quality as determined by the Adviser; (iii) are municipal bonds rated in the six
highest rating categories by an NRSRO or, if not rated, are of comparable
quality as determined by Adviser; or (iv) are other types of municipal
securities, provided that such obligations are of comparable quality as
determined by the Adviser to instruments in which the Fund may invest.

<PAGE>

MUNICIPAL LEASES

Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds or notes. Municipal leases and installment
purchase or conditional sale contracts (which normally provide for title to the
leased assets to pass eventually to the government lessee) are sometimes viewed
as a means for governmental issuers to acquire property and equipment without
meeting constitutional or statutory requirements for issuance of long-term debt.
The debt-issuance limitations of the constitution and statutes of the State of
Maine are inapplicable because of the inclusion in such leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. If no such appropriations are made, leased property is
ordinarily returned to, and disposed of by, a trustee in order to pay off all or
a portion of the liabilities under the lease. To reduce this risk, the Fund
will only purchase municipal leases subject to a non-appropriation clause when
the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit or guarantee of a bank or other entity that has
long term outstanding debt securities rated in one of the top two rating
categories by an NRSRO.

VARIABLE AND FLOATING RATE OBLIGATIONS

The interest rates payable on certain municipal securities, including municipal
leases, in which the Fund may invest are not fixed and may fluctuate based upon
changes in market rates. These securities are referred to as variable rate or
floating rate obligations. Other features of these obligations may include the
right whereby the Fund may demand prepayment of the principal amount of the
obligation prior to its stated maturity and the right of the issuer to prepay
the principal amount prior to maturity. The main benefit of a variable or
floating rate municipal security is that the interest rate adjustment minimizes
changes in the market value of the obligation. As a result, the purchase of
these municipal securities enhances the ability of the Fund to sell an
obligation prior to maturity at a price approximating the full principal amount
of the obligation. The payment of principal and interest by issuers of certain
municipal securities purchased by the Fund may be guaranteed by letters of
credit or other credit facilities offered by banks or other financial
institutions. Such guarantees will be considered in determining whether a
municipal security meets the Fund's investment quality requirements. The
Adviser will monitor the pricing, quality and liquidity of variable rate and
floating rate demand obligations held by the Fund on the basis of published
financial information, rating agency reports and other research services to
which the Fund or Adviser may subscribe.

PARTICIPATION INTERESTS

<PAGE>

municipal security owned by a bank or other financial institution. These
instruments carry a demand feature permitting the holder to tender them back to
the bank or other institution and are generally backed by an irrevocable letter
of credit or guarantee of the bank or institution. The Fund can exercise the
right, on not more than thirty days' notice, to sell such an instrument back to
the bank or institution from which it purchased the instrument and draw on the
letter of credit for all or any part of the principal amount of the Fund's
participation interest in the instrument, plus accrued interest. Generally, the
Fund will do so only (i) as required to provide liquidity to the Fund, (ii) to
maintain a high quality investment portfolio, or (iii) upon a default under the
terms of the demand instrument. Banks and other financial institutions retain
portions of the interest paid on such participation interests as their fees for
servicing such instruments and the issuance of related letters of credit,
guarantees and repurchase commitments. Exposure to credit losses arising from
the possible financial difficulties of borrowers might affect the bank's or
other institution's ability to meet its obligations under its letter of credit
or other guarantee.

The Fund will not purchase participation interests unless it is advised by
counsel or receives a ruling of the Internal Revenue Service that interest
earned by the Fund from the obligations in which it holds participation
interests is exempt from Federal income tax. The Internal Revenue Service has
announced that it ordinarily will not issue advance rulings on certain of the
Federal income tax consequences applicable to securities, or participation
interests therein, subject to a put. The Adviser will monitor the pricing,
quality and liquidity of participation interests held by the Fund on the basis
of published financial information, rating agency reports and other research
services to which the Fund or the Adviser may subscribe.

STAND-BY COMMITMENTS

The Fund acquires stand-by commitments solely to facilitate portfolio liquidity
and does not exercise its rights thereunder for trading purposes. Since the
value of a stand-by commitment is dependent on the ability of the stand-by
commitment writer to meet its obligation to repurchase, the Fund's policy is to
enter into stand-by commitment transactions only with municipal securities
dealers which in the opinion of the Adviser present minimal credit risks.

The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities. Stand-by commitments acquired
by the Fund are valued at zero in determining net asset value. When the Fund
pays directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

<PAGE>

The 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 the 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.

The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. For instance,
in periods of rising interest rates and falling bond prices, the Fund might sell
securities which it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices,
the 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 Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued or forward commitment transactions at prices
inferior to the current market values.

When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund 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 the Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or to dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss. 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, such as approval of a proposed financing by
appropriate municipal authorities. Any significant commitment of the 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. No when-issued or forward
commitment transactions will be entered into by the Fund if, as a result, more
than 15% of the value of the Fund's total assets would be committed to such
transactions.

The Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities (as defined in the Prospectus) and other liquid
high-grade debt securities in an amount at least equal to its commitments to
purchase securities on a when-issued or delayed delivery basis.

REPURCHASE AGREEMENTS

<PAGE>

The Fund may seek additional income by entering into repurchase agreements.
Repurchase agreements are transactions in which the Fund purchases a security
and simultaneously commits to resell that security to the seller at an agreed-
upon price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. The Company's custodian
maintains possession of the underlying collateral, which is maintained at not
less than 100% of the repurchase price, and which consists of the types of
securities in which the Fund may invest directly.

LENDING OF PORTFOLIO SECURITIES

The Fund may from time to time lend securities from its portfolio to brokers,
dealers and other financial institutions. Securities loans must be continuously
secured by cash or U.S. Government Securities with a market value, determined
daily, at least equal to the value of the Fund's securities loaned, including
accrued interest. The Fund receives interest in respect of securities loans
from the borrower or from investing cash collateral. The Fund may pay fees to
arrange the loans. The Fund will not lend portfolio securities in excess of 33
1/3% of the value of the Fund's total assets.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options,
repurchase agreements maturing in more than seven days and municipal leases
other than those the Adviser has determined are liquid pursuant to guidelines
established by the Company's Board of Directors (the "Board").

The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the Adviser, pursuant to
guidelines approved by the Board. The Adviser 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. The Adviser monitors the liquidity of the securities
in the Fund's portfolio and reports periodically on such decisions to the Board.

TEMPORARY DEFENSIVE POSITION

When the Fund assumes a temporary defensive position it may invest in (i) short-
term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-

<PAGE>

bearing savings deposits of commercial banks doing business in the United States
that have, at the time of investment, total assets in excess of one billion
dollars and that are insured by the Federal Deposit Insurance Corporation, (iii)
commercial paper of prime quality rated Prime-2 or higher by Moody's or A-2 or
higher by S&P or, if not rated, determined by the Adviser to be of comparable
quality, (iv) repurchase agreements covering any of the securities in which the
Fund may invest directly and (v) money market mutual funds.

The Fund may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. Under normal circumstances, the Fund intends
to invest less than 5% of the value of its net assets in the securities of other
investment companies. In addition to the Fund's expenses (including the various
fees), as a shareholder in another investment company, the Fund would bear its
pro rata portion of the other investment company's expenses (including fees).

GENERAL

Yields on municipal securities are dependent on a variety of factors, including
the general conditions of the money market and of the municipal bond and
municipal note markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Municipal securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. An increase in
interest rates will generally reduce the market value of portfolio investments,
and a decline in interest rates will generally increase the value of portfolio
investments.

There can be no assurance that the Fund's investment objective will be achieved.
The achievement of the Fund's objective is dependent in part on the continuing
ability of the issuers of municipal securities in which the Fund invests to meet
their obligations for the payment of principal and interest when due. Municipal
securities historically have not been subject to registration with the
Securities and Exchange Commission, although there have been proposals which
would require registration in the future.

The obligations of municipal securities issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. There is also the possibility that, as a result of litigation or
other conditions, the ability of any issuer to pay, when due, the principal of
and interest on its municipal securities may be materially affected.

CERTAIN INFORMATION CONCERNING THE STATE OF MAINE

Material in this section has been compiled from numerous sources including "The
Maine Economy: Year-End Review and Outlook, 1994," the most recent "State of
Maine Economic Reports" through the "Spring 1995" issue prepared and published
quarterly by

<PAGE>

the Economics Division of the Maine State Planning Office, and the Maine State
Planning Office Spring 1995 Forecast dated June 7, 1995. In addition, certain
information was obtained from Official Statements of the State of Maine
published in connection with the issuance of $20,000,000 Certificates of
Participation dated February 15, 1995, $61,350,000 general obligation bonds
dated May 1, 1995, and $182,000,000 State of Maine General Obligation Tax
Anticipation Notes dated July 20, 1995. Other information concerning Maine
budgetary matters was obtained from official legislative documents, the Office
of Fiscal and Program Review of the Maine Legislature, and the Bureau of the
Budget and the Bureau of Employee Relations of the Maine Department of
Administrative and Financial Services. The most recent information concerning
credit ratings on debt issued by or on behalf of the State of Maine and its
subordinate agencies was obtained from credit reports for the State of Maine
published by S&P on January 24, 1995, April 28, 1995, and July 7, 1995, and by
Moody's on January 23, 1995, February 1, 1995, April 27, 1995, May 4, 1995, July
10, 1995, and July 12, 1995.

Although the information derived from the above sources is believed to be
accurate, none of the information obtained from these sources has been
independently verified. While the following summarizes the most current
information available from the above sources, it does not reflect economic
conditions or developments which may have occurred or trends which may have
materialized since the dates indicated.

The State of Maine, which includes nearly one-half of the total land area of the
six New England states, currently has a population of 1,240,000. The structure
of the Maine economy is quite similar to that of the nation as a whole, except
that Maine has proportionately more activity in manufacturing and tourism, and
less activity in finance and services.

During the 1980's, Maine's economy surpassed national averages in virtually all
significant measures of economic growth. During this ten-year period, Maine
real economic growth was 40% as measured by the Maine Economic Growth Index, a
broad-based measure of economic growth which is corrected for inflation. This
economic growth compares to national real economic growth during the 1980's of
26% and 29%, measured by the United States Economic Growth Index and real Gross
National Product respectively. During this time period, resident employment in
Maine increased by 21%, while resident employment nationally increased by 19%.
Inflation-adjusted retail sales in Maine during this period increased by 72%, as
opposed to a 32% increase in such retail sales nationally. During the 1980's,
per capita personal income in Maine rose from 44th in the nation in 1979, to
26th in the nation in 1989, from 81% to 92% of the national average of per
capita personal income. During the 1980's, Maine's economy also became
significantly more diversified.

Since the fourth quarter of 1989, however, the Maine economy has not performed
as well as earlier. For example, the Maine economy sustained only 0.8% real
growth in 1989, and experienced real growth of -1.1% in 1990 and -2.6% in 1991.
Data show that the Maine economy began a sustained decline during the fourth
quarter of 1989. The second

<PAGE>

quarter of 1991 saw the seventh consecutive quarterly decline in the Maine
Economic Growth Index, and the third and fourth quarters of 1991 showed barely
positive economic growth of 0.9% and 0.2% respectively. Economic recovery in
Maine has also been hindered recently by losses in defense related jobs, with
the State losing since 1990 approximately 20% of its defense dependent
employment which peaked at 63,000 jobs in 1989.

Since 1991, however, the Maine economy has experienced a modest recovery. This
recovery continued through the end of calendar year 1994, and it appears to be
accelerating slightly from previous years. For example, Maine real economic
growth, as measured by the Maine Economic Growth Index ("EGI"), expanded at a
2.6% annual rate during 1994. While this is a significant improvement over the
1993 Maine EGI growth rate of 1.1%, it still lags behind the 1994 national
growth rate of 4.0%, as measured by Gross Domestic Product ("GDP"). According
to revised year-end economic data published by the Economics Division of the
Maine State Planning Office, almost all Maine economic indicators showed
improvement during 1994, and the improvement among various broad sectors of the
Maine economy accelerated slightly. For example, Maine consumer retail sales
increased 6.7% in 1994, as opposed to a 5.3% increase in 1995. Maine auto
transportation sales increased 12.8% in 1994 on top of a 12.4% increase in 1993.
Maine building supply sales increased 9.0% in 1994, as opposed to a 4.8%
increase in 1993. Maine construction contract awards increased 10.0% in 1994,
as opposed to a 15.9% decline in 1993. Maine payroll employment increased 2.3%
in 1994, as opposed to a 1.4% increase in 1993. The Maine unemployment rate
decreased by .7% in 1994 as opposed to a .9% increase in 1993. The only
broadly-reported Maine economic indicator for 1994 that did not outperform 1993
was unit sales of residential homes, with such sales experiencing only an 8.0%
increase in 1994, as opposed to an 11.4% increase in 1993. The consumer retail
sales data (including among other items taxable retail sales related to the auto
transportation and tourist industries) are particularly significant for State of
Maine credit purposes. Since roughly one-third of Maine State government
general fund revenues are derived from a 6% retail sales tax, the strong
performance of taxable retail sales in Maine in 1993 and 1994 has made it easier
for Maine State government to improve its fiscal condition.

The fiscal policies of the State of Maine are very conservative, and the State
is required by its Constitution to operate on a balanced budget. The Maine
Constitution does this by prohibiting the issuance of any debt by or on behalf
of the State which exceeds $2,000,000 "except to suppress insurrection, to repel
invasion, or for purposes of war, and except for temporary loans to be paid out
of money raised by taxation during the fiscal year in which they are made." The
Maine Constitution also prohibits the issuance of debt by or on behalf of the
State to fund "current expenditures". The Maine Constitution allows the
issuance of long-term debt when two-thirds of both houses of the Legislature
pass a law authorizing the issuance of such debt, and when the voters of the
State ratify and enact such a law at a general or special statewide election.
Amendments to the Maine Constitution have also been adopted to permit the
Legislature to authorize the issuance of bonds: (i) to insure payment on up to
$6,000,000 of revenue bonds of the Maine School

<PAGE>

Building Authority; (ii) to guarantee payment on up to $4,000,000 of student
loans; (iii) to insure payment on up to $1,000,000 of mortgage loans for Indian
housing; (iv) to insure payment on up to $4,000,000 of mortgage loans or small
business loans to Maine veterans; and (v) to insure payments on up to
$90,000,000 of mortgage loans for industrial, manufacturing, fishing,
agricultural, and recreational enterprises. The Maine Constitution provides
that if the Legislature fails to appropriate sufficient funds to pay principal
and interest on these bonds, the State Treasurer is required to set aside
sufficient funds from the first General Fund revenues received thereafter by the
State to make such payments.

As of May 31, 1995, there were outstanding $516,355,000 general obligation bonds
of the State and $31,900,000 bond anticipation notes of the State. On June 30,
1995, $175,000,000 outstanding tax anticipation notes of the State matured, and
on July 20, 1995, the State issued $182,000,000 tax anticipation notes to mature
on June 28, 1996. Various other Maine governmental agencies and quasi-municipal
corporations, including but not limited to the Maine Municipal Bond Bank, the
Maine Court Facilities Authority, the Maine Health and Higher Educational
Facilities Authority and the Maine Veterans' Homes, issue debt for Maine
governmental purposes, but this debt does not pledge the credit of the State.

The strength of Maine's economy during the 1980's enable the State to accumulate
relatively large unappropriated surpluses of general fund revenues. During the
economic contraction of 1989 through 1992, however, Maine State government
repeatedly reduced its expenditures in order to comply with the requirement of
the Maine Constitution that State government operate on a balanced budget. For
example, on December 23, 1991, the Legislature enacted revisions to the fiscal
year 1992 budget reducing General Fund expenditures by $53,815,843 and approving
a fiscal year 1992 budget of $1,490,717,628. The reductions made by the
December 23, 1991 budget revision included reductions in general purpose aid to
local schools and in State employee health insurance expenses, elimination of
the State Office of Comprehensive Land Use Planning, reduction of payments to
the University of Maine System and the Maine Technical College System, and
reduction of payments to municipalities under a State revenue sharing program.
On April 1, 1992, the Governor also signed into law revisions in the fiscal year
1993 budget reducing General Fund expenditures by $108,243,732 and approving a
fiscal year 1993 budget of $1,562,941,722. The reductions made by the April 1,
1992 budget revision included broad reductions in many State programs and the
freezing of wage increases for many State employees and employees at State
higher educational institutions. In addition, the State continued a program
which requires most State employees to take a number of days of unpaid leave
during each fiscal year, depending on job classification.

Because of the improvement of the Maine economy beginning in 1992, however, the
Governor signed into law on June 30, 1993 a State government budget for fiscal
years 1994 and 1995 in the amount of $3,208,476,191 that stabilized reductions
in State services and provided for slight increases in come State programs such
as educational and job training programs. As part of this budget, a temporary
increase from 5% to 6% in the

<PAGE>

State's retail sales tax was continued, but both a 5% and 10% surcharge on the
Maine State Income Tax and a 10% surcharge on the Maine Corporate Income Tax
were eliminated. On March 9, 1994 and April 15, 1995 respectively, the Governor
signed into law supplemental appropriations legislation for Maine State
government for fiscal years 1994 and 1995. Such legislation authorized on a net
basis the appropriation and expenditure of an additional $12,796,430 for State
government activities during fiscal years 1994 and 1995. It is expected that
such increases in expenditures will be funded by greater than originally
projected receipts of State tax revenues.

During the first six months of 1995, this trend of stabilizing Maine State
government finances has continued. On February 17, 1995, the Governor signed
into law a Supplemental Appropriations Budget which had the net effect of
slightly increasing State general fund expenditures for fiscal year 1995 by
$6,515,892. On May 15, 1995, the Governor signed into law a second Supplemental
Appropriations Budget for fiscal year 1995 which had the net effect of slightly
increasing State general fund expenditures by an additional $6,391,784. As part
of this Budget law, the Governor also received authority to establish a
"Productivity Realization Task Force: directed to identify over $45,000,000 in
reductions to State expenditures in fiscal years 1996 and 1997. On June 29,
1995, the Governor signed into law a Biennial Operating Budget authorizing
general fund expenditures in fiscal years 1996 and 1997 of $1,713,573,026 and
$1,785,543,156 respectively. As part of this Biennial Operating Budget, the
Legislature enacted a so-called State income tax cap, beginning in fiscal year
1998, which caps the amount of State income tax revenue which the State can
spend at $676,230,000, the amount of such revenue expected to be received by the
State during fiscal year 1998. Additional income tax revenue received once the
cap becomes effective would be deposited in a reserve fund and used to pay
income tax refunds to taxpayers. As part of this arrangement, income tax rates
also would be reduced by up to 20% to eliminate the collection of income tax
revenue above the amount of the cap. The Legislature is expected to review the
income tax cap plan periodically, and it is empowered to use excess income tax
revenue collected for unanticipated State liabilities. On June 30, 1995, the
Governor signed into law a Supplemental Appropriations Budget for fiscal years
1996 through 1997 totaling an additional $3,363,218 in general fund
expenditures. As part of these budget acts signed into law during the first six
months of 1995, the State also eliminated, as unneeded, several non-recurring
accounting practices, special taxes, and personnel policies such as deferred
State payments, and State employee unpaid leave days, designed to achieve a
balanced budget at the end of each fiscal year. There can be no assurance,
however, that the budget acts cited above for fiscal years 1996 and 1997 will
not be amended from time to time in order to comply with the balanced budget
requirement of the Maine Constitution.

Because of Maine's conservative debt policies and its Constitutional requirement
that State government operate under a balanced budget, Maine general obligation
bonds had been rated AAA by S&P and Aa1 by Moody's for many years.

<PAGE>

On June 6, 1991, however, S&P lowered its credit rating for Maine general
obligation bonds from AAA to AA+, and at the same time lowered its credit rating
on bonds issued by the Maine Municipal Bond Bank and the Maine Court Facilities
Authority, and on State of Maine Certificates of Participation for highway
equipment, from AA to A+. In taking this action, S&P said, "The rating action
is a result of declines in key financial indicators, and continued softness in
the state economy. The new rating continue to reflect the low debt burden of
the state, an economic base that has gained greater income levels and diversity
over the 1980's, and a legislative history of dealing effectively with financial
difficulties." These ratings have remained unchanged since June 6, 1991.
Because of recent improvements in the State of Maine economy, S&P views the
State's financial outlook as "stable", stating in its most recent July 7, 1995
credit report: "The outlook reflects . . . stable tax collections, despite the
slow economic recovery and the diminished likelihood of the need to adjust
expenditures because of inadequate revenue receipts."

On August 24, 1993, citing the "effects of protracted economic slowdown and the
expectation that Maine's economy will not soon return to the pattern of robust
growth evident in the mid-1980's," Moody's lowered the State of Maine's general
obligation bond rating from Aa1 to Aa. At the same time, Moody's lowered from
Aa1 to Aa the rating assigned to state-guaranteed bonds of the Maine School
Building Authority and the Finance Authority of Maine, and confirmed at A1 the
ratings assigned to the bonds of the Maine Court Facilities Authority and State
of Maine Certificates of Participation. These ratings have remained unchanged
since August 24, 1993. In its most recent credit report for the State of Maine,
dated July 12, 1995, Moody's said: "Reasonable revenue estimates and spending
restraint embodied in the fiscal 1996 budget are also noted, reflecting an
economy which, while emerging from recession, is not robust."

<PAGE>

2. INVESTMENT LIMITATIONS

The Fund has adopted the following fundamental investment limitations which are
in addition to those contained in the Fund's Prospectus and which may not be
changed without shareholder approval. The Fund may not:

(1) Borrow money, except for temporary or emergency purposes (including
the meeting of redemption requests) and except for entering into
reverse repurchase agreements, and provided that borrowings do not
exceed 33 1/3% of the Fund's total assets (computed immediately after
the borrowing).

(2) Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of
issuers conducting their principal business activity in the same
industry. For this purpose, consumer finance companies, industrial
finance companies, and gas, electric, water and telephone utility
companies are each considered to be separate industries.

(3) Purchase securities, other than U.S. Government Securities, of any one
issuer, if (a) more than 5% of the Fund's total assets taken at market
value would at the time of purchase be invested in the securities of
that issuer, or (b) such purchase would at the time of purchase cause
the Fund to hold more than 10% of the outstanding voting securities of
that issuer. Up to 50% of the Fund's total assets may be invested
without regard to this limitation.

(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes
of the Securities Act of 1933.

(5) Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the
purchase of commercial paper or debt securities which are otherwise
permissible investments.

(6) Purchase or sell real estate or any interest therein, except that the
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.

<PAGE>

(7) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and currency-related
contracts will not be deemed to be physical commodities.

(8) Issue senior securities except pursuant to Section 18 of the
Investment Company Act of 1940 ("1940 Act") and except that the Fund
may borrow money subject to investment limitations specified in the
Fund's Prospectus.

(9) Invest in interests in oil or gas or interests in other mineral
exploration or development programs.

(10) Purchase securities having voting rights except securities of other
investment companies.

The Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. The Fund may not:

(a) Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with
the writing of put and call options, collateralized loans of
securities and collateral arrangements with respect to margin for
futures contracts are not deemed to be pledges or hypothecations for
this purpose.

(b) Invest in securities of another registered investment company, except
in connection with a merger, consolidation, acquisition or
reorganization; and except that the Fund may invest in money market
funds and privately-issued mortgage related securities to the extent
permitted by the 1940 Act.

(c) Purchase securities on margin, or make short sales of securities,
except for the use of short-term credit necessary for the clearance of
purchases and sales of portfolio securities, but the Fund may make
margin deposits in connection with permitted transactions in options,
futures contracts and options on futures contracts.

(d) Invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted continuous
operations for less than three years, including the operations of
predecessors, unless guaranteed as to principal and interest by an
issuer in whose securities the Fund could invest, if as a result, more
than 5% of the value of the Fund's total assets would be so invested.

(e) Invest in or hold securities of any issuer if officers and directors
of the Company or the Fund's investment adviser, individually owning

<PAGE>

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.

(f) Purchase securities for investment while any borrowing equaling 5% or
more of the Fund's total assets is outstanding or borrow for purposes
other than meeting redemptions in an amount exceeding 5% of the value
of the Fund's total assets.

(g) Acquire securities or invest in repurchase agreements with respect to
any securities if, as a result, more than (i) 15% of the Fund's net
assets (taken at current value) would be invested in repurchase
agreements not entitling the holder to payment of principal within
seven days and in securities which are not readily marketable,
including securities that are illiquid by virtue of restrictions on
the sale of such securities to the public without registration under
the Securities Act of 1933 ("Restricted Securities") or (ii) 10% of
the Fund's total assets would be invested in Restricted Securities.

(h) Invest in oil, gas or other mineral exploration or development
programs, or leases, provided that the Fund may invest in securities
issued by companies engaged in such activities.

(i) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which
invest in real estate.)

Except as required by the 1940 Act, 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 the
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.

For purposes of limitation number 4 listed in the Fund's Prospectus, which
relates to the diversification of the Fund's assets, the District of Columbia,
each state, each political subdivision, agency, instrumentality and authority
thereof, and each multi-state agency of which a state is a member is deemed to
be a separate "issuer." When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from the government
creating the subdivision and the security is backed only by the assets and
revenues of the subdivision, such subdivision would be deemed to be the sole
issuer. Similarly, in the case of industrial development bonds and private
activity bonds, if the bond is backed only by the assets and revenues of the
nongovernmental user, the nongovernmental user would be deemed to be the sole
issuer. However, if in either case the creating government or some other agency
guarantees a security, that guarantee would be considered a separate security
and would be treated as an issue of such government or other agency.

<PAGE>

No more than 25% of the Fund's total assets may be invested in the securities of
one issuer. However, this limitation does not apply to securities of an issuer
payable solely from the proceeds of U.S. Government Securities.

3. PERFORMANCE DATA

The Fund may quote performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's net asset value, yield and total return
will fluctuate in response to market conditions and other factors, and the value
of Fund shares when redeemed may be more or less than their original cost.

Standardized SEC yield and total return information as of March 31, 1995 is
outlined in the following table:

30 Day 30 Day Total Return
Annualized Annualized Tax Total Return Since
Yield Equivalent Yield 1 Year Inception
----- ---------------- ------ ---------

5.00% 9.18% 2.36% 5.71%

Tax equivalent yield is based on a combined Federal and Maine state income tax
rate of 49.5% (Federal 39.6% and State of Maine 9.9%).

The Fund commenced operations on December 5, 1991.

In performance advertising the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDC/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). The Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Municipal Bond Buyers Indices, the Salomon
Brothers Bond Index, the Shearson Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund may refer in such materials to mutual fund performance rankings and other
data published by Fund Tracking Companies. Performance advertising may also
refer to discussions of the Fund and comparative mutual fund data and ratings
reported in independent periodicals, such as newspapers and financial magazines.

YIELD CALCULATIONS

Standard SEC yields for the Fund used in advertising are computed by dividing
the Fund's interest income for a given 30 days or one-month period, net of
expenses, by the

<PAGE>

average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced
with respect to bonds purchased at a premium over their par value by subtracting
a portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.

Income calculated for the purpose of determining the 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 the Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.

The tax equivalent yield for the Fund is the rate an investor would have to earn
from a fully taxable investment in order to equal the Fund's yield after taxes.
Tax equivalent yields are calculated by dividing the Fund's yield by one minus
the stated Federal or combined Federal and state tax rate. (If only a portion
of the Fund's yield is tax-exempt, only that portion is adjusted in the
calculation.)

Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware 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. Also, Processing Organizations may
charge their customers direct fees in connection with an investment in the Fund,
which will have the effect of reducing the Fund's net yield to those
shareholders. The yields of the Fund are not fixed or guaranteed, and an
investment in the Fund is not insured or guaranteed. Accordingly, yield
information may not necessarily be used to compare shares of the Fund with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to
compare the Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.

TOTAL RETURN CALCULATIONS

Total returns quoted in advertising reflect all aspects of the Fund's return,
including the effect of reinvesting dividends and capital gain distributions,
and any change in the Fund's net asset value per share over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not

<PAGE>

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 by finding the average annual
compounded rates of return of a hypothetical investment over a given period
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; and
ERV = ending redeemable value.

ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.

In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields and other performance information may be quoted
numerically or in a table, graph or similar illustration.

Period total return is calculated according to the following formula:

PT = (ERV/P-1)

Where:

P = a hypothetical initial payment of $1,000;
PT = period total return;
ERV = ending redeemable value.

4. MANAGEMENT

The Directors and officers of the Company and their principal occupations during
the past five years are set forth below.

<PAGE>

John Y. Keffer, Chairman and President.

President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Financial Corp. (a registered transfer agent)
and Forum Advisors, Inc. (a registered investment adviser). Mr. Keffer
is a director and/or officer of various registered investment companies
for which Forum Financial Services, Inc. serves as manager, administrator
and/or distributor. His address is Two Portland Square, Portland,
Maine 04101.

Costas Azariadis, Director.

<PAGE>

James C. Cheng, Director.

J. Michael Parish, Director.

Lee W. Shultheis, Vice President, Assistant Treasurer and Assistant Secretary.

Michael D. Martins, Treasurer.

David I. Goldstein, Secretary.

Renee A. Walker, Assistant Secretary

Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since December 1994. Prior thereto, Ms. Walker was employed by
Longwood Partners, Investment Partnership and Paine Webber, Inc. in Boston
Massachusetts. Her address is Two Portland Square, Portland, Maine 04101.

<PAGE>

John Y. Keffer is an interested person of the Company as that term is defined in
the 1940 Act.

ADVISER

The Fund's investment adviser, Forum Advisors, Inc., furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing the Fund's investments and effecting portfolio transactions for the
Fund, pursuant to an investment advisory agreement between the Adviser and the
Company (the "Advisory Agreement"). The Advisory Agreement provides for an
initial term of one year from its effective date with respect to the Fund and
for its continuance in effect for successive twelve-month periods thereafter,
provided the agreement is specifically approved at least annually by the Board
or by vote of the shareholders, and in either case by a majority of the
directors who are not parties to the Advisory Agreement or interested persons of
any such party.

The Advisory Agreement is terminable without penalty by the Company on 60 days'
written notice when authorized either by vote of the Fund's shareholders or by a
vote of a majority of the Board, or by the Adviser on not more than 60 days' nor
less than 30 days' written notice, and will automatically terminate in the event
of its assignment. The Advisory Agreement also provides that the Adviser shall
not be liable for any error of judgment or mistake of law or for any act or
omission in the performance of its duties to the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of the Adviser's
duties or by reason of reckless disregard of its obligations and duties under
the Advisory Agreement. The Advisory Agreement provides that the Adviser may
render services to others.

For its services under the Investment Advisotry Agreement, Forum receives with
respect to the Fund a fee at an annual rate of 0.40% of the average daily net
assets of the Fund. Fees payable under the Advisory Agreement with respect to
the Fund are outlined in the following table:

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $105,063 $91,930 $13,133
1994 $92,788 $85,563 $7,225
1993 $35,825 $35,825 $0

In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in the Fund. In some instances the Adviser may elect
to credit against any investment management fee received from a client who is
also a shareholder in the Fund an amount equal to all or a portion of the fees
received by the Adviser or any affiliate of the Adviser from the Fund with
respect to the client's assets invested in the Fund.

<PAGE>

The Adviser has agreed to reimburse the Company for certain of the Fund's
operating expenses (exclusive of interest, taxes, brokerage, fees and
organization expenses, all to the extent permitted by applicable state law or
regulation) which in any year exceed the limits prescribed by any state in which
the Fund's shares are qualified for sale. The Company may elect not to qualify
its shares for sale in every state. The Adviser believes that currently the
most restrictive expense ratio limitation imposed by any state is 2-1/2% of the
first $30 million of the Fund's average net assets, 2% of the next $70 million
of its average net assets and 1-1/2% of its average net assets in excess of $100
million. For the purpose of this obligation to reimburse expenses, the Fund's
annual expenses are estimated and accrued daily, and any appropriate estimated
payments will be made by the Adviser monthly.

MANAGER AND DISTRIBUTOR

Forum Financial Services, Inc. ("Forum") was incorporated under the laws of the
State of Delaware on February 7, 1986, and supervises the overall management of
the Company (which includes, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent and custodian and arranging for maintenance of books and records
of the Company) pursuant to a management agreement with the Company (the
"Management Agreement"). The Management Agreement provides for an initial term
of one year from its effective date with respect to the Fund and for its
continuance in effect for successive twelve-month periods thereafter, provided
the agreement is specifically approved at least annually by the Board or by the
shareholders and, in either case, by a majority of the directors who are not
parties to the Management Agreement or interested persons of any such party and
do not have any direct or indirect financial interest in the Management
Agreement.

<PAGE>

The Management Agreement terminates automatically if it is assigned and may be
terminated without penalty with respect to the Fund by vote of the Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that Forum shall not be
liable for any error of judgment or mistake of law or for any act or omission in
the administration or management of the Company, except for willful misfeasance,
bad faith or gross negligence in the performance of Forum's duties or by reason
of reckless disregard of its obligations and duties under the Management
Agreement.

Forum also acts as distributor of the Fund's shares pursuant to a distribution
services agreement (the "Distribution Services Agreement") and, pursuant
thereto, receives, and may reallow to certain financial institutions, the sales
charge paid by the purchasers of the Fund's shares. The aggregate sales charges
payable to Forum with respect to the Fund are outlined in the following table:

FISCAL YEAR AGGREGATE AMOUNT AMOUNT
ENDED MARCH 31 SALES CHARGE RETAINED REALLOWED
-------------- ------------ -------- ---------

1995 $133,896 $17,656 $116,239
1994 $476,541 $61,740 $414,800
1993 $461,958 $66,286 $395,672

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $78,797 $78,797 $0
1994 $69,591 $53,083 $16,508
1993 $26,869 $26,869 $0

Forum provides persons satisfactory to the Board to serve as officers of the
Company. Those officers, as well as certain other employees and Directors of
the Company, may be directors, officers or employees of (and persons providing
services to the Company may include) Forum, its affiliates or certain affiliates
of the Advisers.

TRANSFER AGENT

<PAGE>

date with respect to the Fund and for its continuance in effect for successive
twelve-month periods thereafter, provided that the agreement is specifically
approved at least annually by the Board or by a vote of the shareholders, and in
either case by a majority of the directors who are not parties to the Transfer
Agency Agreement or interested persons of any such party at a meeting called for
the purpose of voting on the Transfer Agency Agreement.

Among the responsibilities of the Transfer Agent as agent for the Company are:
(1) answering customer inquiries regarding account status and history, the
manner in which purchases and redemptions of shares of the Fund may be effected
and certain other matters pertaining to the Fund; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, assisting in processing purchase and redemption
transactions and receiving wired funds; (4) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (5) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (6) furnishing periodic statements and confirmations of
purchases and redemptions; (7) arranging for the transmission of proxy
statements, annual reports, prospectuses and other communications from the
Company to its shareholders; (8) arranging for the receipt, tabulation and
transmission to the Company of proxies executed by shareholders with respect to
meetings of shareholders of the Company; and (9) providing such other related
services as the Company or a shareholder may reasonably request.

The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Fund with
respect to assets invested in the Fund. The Transfer Agent or any sub-transfer
agent or other processing agent may elect to credit against the fees payable to
it by its clients or customers all or a portion of any fee received from the
Company or from the Transfer Agent with respect to assets of those customers or
clients invested in the Fund. The Transfer Agent, Forum or sub-transfer agents
or processing agents retained by the Transfer Agent may be Processing
Organizations (as defined in the Prospectus) and, in the case of sub-transfer
agents or processing agents, may also be affiliated persons of the Transfer
Agent or Forum.

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $78,797 $78,797 $0
1994 $69,591 $53,083 $16,508
1993 $26,869 $26,869 $0

<PAGE>

Pursuant to a Fund Accounting Agreement, the Transfer Agent also provides the
Fund with portfolio accounting, including the calculation of the Fund's net
asset value. For these services, the Transfer Agent receives an annual fee
ranging from $36,000 to $60,000 depending upon the amount and type of the Fund's
portfolio transactions and positions. Fees payable under the Transfer Agent
Agreement with respect to fund accounting services for the Fund are outlined in
the following table:

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $78,797 $78,797 $0
1994 $69,591 $53,083 $16,508
1993 $26,869 $26,869 $0

The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation for acting as custodian, investment manager, nominee,
agent or fiduciary for its customers or clients who are shareholders of the Fund
with respect to assets invested in the Fund.

5. DETERMINATION OF NET ASSET VALUE

6. PORTFOLIO TRANSACTIONS

Purchases and sales of portfolio securities for the Fund usually are principal
transactions. Portfolio securities for the Fund are normally purchased directly
from the issuer or from an underwriter or market maker for the securities.
There usually are no brokerage commissions paid for such purchases. Purchases
from underwriters of portfolio securities include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers serving as
market makers include the spread between the bid and asked prices.

The Fund may effect purchases and sales through brokers who charge commissions.
Allocations of transactions to brokers and dealers and the frequency of
transactions are determined by the Adviser in its best judgment and in a manner
deemed to be in the best interest of shareholders of the Fund rather than by any
formula. The primary consideration is prompt execution of orders in an
effective manner and at the most

<PAGE>

favorable price available to the Fund. For the fiscal years ended March 31,
1995, 1994, 1993, the Fund paid no brokerage commissions.

The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commission, including certain dealer spreads, paid
in connection with Fund transactions, the Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Adviser may also take into account
payments made by brokers effecting transactions for the Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.

In addition, the Adviser may give consideration to research services furnished
by brokers or dealers to the Adviser for its use and may cause the Fund to pay
these brokers a higher amount of commission than may be charged by other
brokers. Such research and analysis may be used by the Adviser in connection
with services to clients other than the Fund, and the Adviser's fee is not
reduced by reason of the Adviser's receipt of the research services.

Investment decisions for the Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, the Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by the Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for the Fund and for other investment companies and accounts
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.

No portfolio transactions are executed with the Adviser, Forum or any of their
affiliates.

7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares in the Fund are sold on a continuous basis by the distributor.

Set forth below is an example of the method of computing the offering price of
the Fund's shares. The example assumes a purchase of shares of common stock
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of
$10.46 on March 31, 1995.

Net Asset Value Per Share . . . . . . . $ 10.46

Sales Charge, 3.75% of offering price

<PAGE>

(3.90% of net asset value per share). . $ 0.41

Offering to Public. . . . . . . . . . . $ 10.87

In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Company may redeem shares involuntarily, from time
to time, 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 the Fund's shares as provided in the
Prospectus.

The Fund may wire proceeds of redemptions to shareholders that have elected wire
redemption privileges only if the wired amount is greater than $5,000. In
addition, the Fund will only wire redemption proceeds to financial institutions
located in the United States.

By use of telephone redemption and exchange privileges, the shareholder
authorizes the Transfer Agent to act upon the instruction of any person
representing himself either to be, or to have the authority to act on behalf of,
the investor and believed by the Transfer Agent to be genuine. The records of
the Transfer Agent of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund account in the name of
the shareholder.

EXCHANGE PRIVILEGE

The exchange privilege permits shareholders of the Fund to exchange their shares
for shares of any other fund of the Company or shares of certain other
portfolios of investment companies which retain Forum or its affiliates as
investment adviser or distributor and which participate in the Company's
exchange privilege program ("Participating Fund"). For Federal income tax
purposes, exchange transactions are treated as sales on which a purchaser will
realize a capital gain or loss depending on whether the value of the shares
redeemed is more or less than his basis in such shares at the time of the
transaction.

<PAGE>

charge, shares of any other Participating Fund otherwise sold with the same
sales charge. If the Participating Fund purchased in the exchange transaction
imposes a higher sales charge than was paid originally on the exchanged shares,
the shareholder will be responsible for the difference between the two sales
charges. Shares acquired through the reinvestment of dividends and
distributions are deemed to have been acquired with a sales charge rate equal to
that paid on the shares on which the dividend or distribution was paid.

The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Company. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.

8. TAXATION

Qualification as a regulated investment company under the Internal Revenue Code
of 1986 does not involve governmental supervision of management or investment
practices or policies. Investors should consult their own counsel for a
complete understanding of the requirements the Fund must meet to qualify for
such treatment. The following discussion relates solely to Federal income taxes
on dividends and distributions by the Fund and assumes that the Fund qualifies
as a regulated investment company. Investors should consult their own counsel
for further details and for the application of state and local tax laws to the
investor's particular situation.

The Fund expects to derive substantially all of its gross income (exclusive of
capital gain) from sources other than dividends. Accordingly, it is expected
that none of the Fund's dividends or distributions will qualify for the
dividends-received deduction for corporations.

9. OTHER INFORMATION

CUSTODIAN

Pursuant to a Custodian Agreement, The First National Bank of Boston, 100
Federal Street, Boston, Massachusetts 02106, acts as the custodian of the
Fund's assets. The custodian's responsibilities include safeguarding and
controlling the Fund's cash and securities, determining income and collecting
interest on Fund investments.

COUNSEL

<PAGE>

Howard, 1800 Mercantile Bank & Trust Building, 2 Hopkins Plaza, Baltimore,
Maryland 21201, for matters relating to Maryland law.

AUDITORS

Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281-
1414, independent auditors, act as auditors for the Company.

THE COMPANY

The Company, which was incorporated in Maryland on March 24, 1980, assumed the
name Forum Funds, Inc. on March 16, 1987. The Company was incorporated under
the name Daily Income Extension Fund, Inc. and changed its name to Fahnestock
Daily Income Fund, Inc. on April 13, 1981. From May 19, 1986 through October 1,
1989, no public shares of the Company's common stock were outstanding.
Currently all the authorized stock of the Company is divided into thirteen
separate series of Common Stock, representing interests in: Daily Assets Fund,
Daily Assets Government Fund, Daily Assets Treasury Fund, Daily Assets TaxSaver
Fund, Investors Bond Fund, TaxSaver Bond Fund, Investors Stock Fund, Payson
Value Fund, Payson Balanced Fund, Maine Municipal Bond Fund, Maine TaxSaver
Money Fund, New Hampshire Bond Fund and Core Portfolio Plus.

As of July 17, 1995, the officers and Directors of the Company as a group owned
less than 1% of the outstanding shares of the Fund. Also as of that date, the
shareholders listed below owned of record no more than 5% of the Fund.
Shareholders owning 25% or more of the shares of a Fund or of the Company as a
whole may be deemed to be controlling persons. By reason of their substantial
holdings of shares, these persons may be able to require the Company to hold a
shareholder meeting to vote on certain issues and may be able to determine the
outcome of any shareholder vote. As noted, certain of these shareholders are
known to the Company to hold their shares of record only and have no beneficial
interest, including the right to vote, in the shares.

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

Administrative Data Management Corp. 37.96%
(record holder), Woodbridge, New Jersey

Merrill Lynch, Pierce, Fenner & Smith, 7.78%
Inc. (record holder), Jacksonville,
Florida

<PAGE>

FINANCIAL STATEMENTS

THE ANNUAL REPORT FOR THE YEAR ENDING MARCH 31, 1995 IS INCLUDED IN THIS
REGISTRATION STATEMENT AS APPENDIX A.

<PAGE>

MAINE MUNICIPAL BOND FUND

APPENDIX A - DESCRIPTION OF SECURITIES RATINGS

1. CORPORATE AND MUNICIPAL BONDS (INCLUDING CONVERTIBLE BONDS)

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")

Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.

<PAGE>

Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.

STANDARD AND POOR'S CORPORATION ("S&P")

Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.

Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.

Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.

Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.

Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of

<PAGE>

interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, they are not likely to have the capacity to
pay interest and repay principal.

Bonds rated CC typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.

The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.

Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.

Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.

FITCH INVESTORS SERVICE, INC. ("FITCH")

BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.

BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business

<PAGE>

and financial alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.

B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.

Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.

2. SHORT TERM MUNICIPAL LOANS

MOODY'S INVESTORS SERVICE, INC.

MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.

MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the MIG-1/VMIG-1 group.

MIG 3/VMIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.

MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and, although not
distinctly or predominantly speculative, there is specific risk.

<PAGE>

STANDARD AND POOR'S CORPORATION

SP-1. Very strong or strong capacity to pay principal and interest. Those
issues which are determined to possess overwhelming safety characteristics will
be given a plus (+) designation.

SP-2. Satisfactory capacity to pay principal and interest.

SP-3. Speculative capacity to pay principal and interest.

3. OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER

MOODY'S INVESTORS SERVICE, INC.

Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.

Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:

STANDARD AND POOR'S CORPORATION

<PAGE>

overwhelming or very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign designation. The
capacity for timely payment on issues with an A-2 designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1. A-3 issues have a satisfactory capacity for timely payment. They are,
however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. Issues rated B
are regarded as having only an adequate capacity for timely payment. However,
such capacity may be damaged by changing conditions or short-term adversities.

FITCH INVESTORS SERVICE, INC.

F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.

F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.

F-3. Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below investment grade.

F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.

D. Issues assigned this rating are in actual or imminent payment default.

<PAGE>

MAINE MUNICIPAL BOND FUND

APPENDIX B - DESCRIPTION OF MUNICIPAL SECURITIES

1. MUNICIPAL BONDS

Municipal Bonds which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:

General Obligation Bonds are issued by such entities as states, counties,
cities, towns, and regional districts. The proceeds of these obligations are
used to fund a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems. The
basic security behind General Obligation Bonds is the issuer's pledge of its
full faith and credit and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount of special assessments.

Revenue Bonds in recent years have come to include an increasingly wide variety
of types of municipal obligations. As with other kinds of municipal
obligations, the issuers of revenue bonds may consist of virtually any form of
state or local governmental entity, including states, state agencies, cities,
counties, authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide
additional security in the form of a debt service reserve fund to be used to
make principal and interest payments. Various forms of credit enhancement, such
as a bank letter of credit or municipal bond insurance, may also be employed in
revenue bond issues. Housing authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.

In recent years, revenue bonds have been issued in large volumes for projects
that are privately owned and operated as described below.

Private Activity Bonds are considered municipal bonds if the interest paid
thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing and health. These bonds are
also used to finance public facilities such as airports, mass transit systems
and ports. The payment of the principal and

<PAGE>

interest on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and personal
property as security for such payment.

While, at one time, the pertinent provisions of the Internal Revenue Code (the
"Code") permitted private activity bonds to bear tax-exempt interest in
connection with virtually any type of commercial or industrial project (subject
to various restrictions as to authorized costs, size limitations, state per
capita volume restrictions, and other matters), the types of qualifying projects
under the Code have become increasingly limited, particularly since the
enactment of the Tax Reform Act of 1986. Under current provisions of the Code,
tax-exempt financing remains available, under prescribed conditions, for owner-
occupied housing, certain privately owned and operated rental multi-family
housing facilities, nonprofit hospital and nursing home projects, certain
manufacturing or industrial projects, and solid waste disposal projects, among
others, and for the refunding (that is, the tax-exempt refinancing) of various
kinds of other private commercial projects originally financed with tax-exempt
bonds. In future years, the types of projects qualifying under the Code for
tax-exempt financing are expected to become increasingly limited.

Because of terminology formerly used in the Code, virtually any form of private
activity bond may still be referred to as an "industrial development bond," but
more and more frequently revenue bonds have become classified according to the
particular type of facility being financed, such as hospital revenue bonds,
nursing home revenue bonds, multifamily housing revenues bonds, single family
housing revenue bonds, industrial development revenue bonds and solid waste
resource recovery revenue bonds.

Tax-exempt bonds are also categorized according to whether the interest is or is
not includible in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying the bonds
are or are not deductible in part by banks and other financial institutions, and
according to other criteria relevant for Federal income tax purposes. Due to
the increasing complexity of Code and related requirements governing the
issuance of tax-exempt bonds, industry practice has uniformly required, as a
condition to the issuance of such bonds, but particularly for revenue bonds, an
opinion of nationally recognized bond counsel as to the tax-exempt status of
interest on the bonds.

2. MUNICIPAL NOTES

Municipal Notes generally are used to provide for short-term capital needs and
usually have maturities of one year or less. They include the following:

Tax Anticipation Notes are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.

<PAGE>

Revenue Anticipation Notes are issued in expectation of receipt of other types
of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.

Bond Anticipation Notes are issued to provide interim financing until long-term
financing can be arranged. In most cases, the long-term bonds then provide the
money for the repayment of the Notes.

Construction Loan Notes are sold to provide construction financing. After
successful completion and acceptance, many projects receive permanent financing
through the Federal Housing Administration under the Federal National Mortgage
Association or the Government National Mortgage Association.

Tax-Exempt Commercial Paper is a short-term obligation with a stated maturity
of 365 days or less. It is issued by agencies of state and local governments to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing.

3. MUNICIPAL LEASES

Municipal Leases, which may take the form of a lease or an installment purchase
or conditional sale contract, are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities such as fire
and sanitation vehicles, telecommunications equipment and other capital assets.
Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The debt-
issuance limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of "non-
appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase
municipal leases subject to a non-appropriation clause when the payment of
principal and accrued interest is backed by an unconditional irrevocable letter
of credit or guarantee of a bank or other entity that meets the criteria
described in the Prospectus.

<PAGE>

MAINE MUNICIPAL BOND FUND

APPENDIX C - HEDGING STRATEGIES

1. BOND INDEX FUTURES

Futures contracts on a municipal bond index (the "Index") are traded on the
Chicago Board of Trade. Maine Municipal Bond Fund may seek to hedge itself
against changes in interest rates by purchasing and selling futures contracts on
the Index or any municipal bond index hereafter approved for trading by the
Commodity Futures Trading Commission. The Index assigns numerical values to the
municipal securities comprising the Index and, based on those values, fluctuates
in accordance with market movements of the municipal bonds comprising the Index.
The purchaser or seller of a futures contract on the Index agrees to take or
make delivery of an amount of cash equal to the difference between a specified
dollar multiple of the value of the Index on the expiration date of the
contract, "current contract value," and the price at which the contract was
originally purchased or sold. No physical delivery of the municipal bonds
underlying the Index is made.

BOND INDEX FUTURES CHARACTERISTICS. Unlike the purchase or sale of a specific
security by the Fund, no price is paid or received by the Fund upon the purchase
or sale of an index futures contract. Initially, the Fund will be required to
deposit with the broker through which such transaction is effected or in a
segregated account with the Fund's custodian an amount of cash or U.S. Treasury
bills equal to a specified dollar amount per contract as of the date thereof.
This amount is known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds to finance
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker will be made on a daily basis as the price of the underlying index
fluctuates, a process known as "marking to the market." For example, when the
Fund has purchased an index futures contract and the price of the futures
contract has risen in response to a rise in the Index, that position will have
increased in value and the Fund will receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Fund has
purchased an index futures contract and the price of the futures contract has
declined in response to a decrease in the Index, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the broker. At any time prior to expiration of the futures contract, the
Adviser may elect to close the position by taking an opposite position which
will operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain.

<PAGE>

RISKS OF TRANSACTIONS IN INDEX FUTURES. There are several risks in connection
with the use of index futures by the Fund as a hedging device. One risk arises
because of the imperfect correlation between movements in the price of the index
futures and the hedge. The price of the index futures may move more than or
less than the price of the securities being hedged. If the price of the index
futures moves less than the price of the securities which are the subject of the
hedge, the hedge will not be fully effective but, if the price of the securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the index future. If the price of the future
moves more than the price of the underlying securities, the Fund will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movements in the price of the index futures, the Fund may buy
or sell index futures of a greater contract value than the dollar amount of
securities being hedged if the volatility over a particular time period of the
prices of such securities has been greater than the volatility over such time
period of the Index, or if otherwise deemed to be appropriate by the Adviser.
Conversely, the Fund may buy or sell fewer index futures if the volatility over
a particular time period of the prices of the securities being hedged is less
than the volatility over such time period of the Index, or it is otherwise
deemed to be appropriate by the Adviser. It is also possible that, where the
Fund has sold index futures to hedge its portfolio against a decline in the
market, the market may advance and the value of securities held in the Fund may
decline. If this occurred, the Fund would lose money on the future and also
experience a decline in the value of its portfolio securities. However, over
time the value of a diversified portfolio should tend to move in the same
direction as the Index, although there may be deviations arising from
differences between the composition of the Fund's portfolios and the securities
comprising the Index.

When index futures are purchased to hedge against possible increases in the
price of municipal bonds before the Fund is able to invest its cash (or cash
equivalents) in municipal bonds in an orderly fashion, it is possible that the
market may decline instead. If the Fund then determines not to invest in
municipal bonds at that time because of concern as to possible further market
decline or for other reasons, the Fund will realize a loss on the index futures
that is not offset by a reduction in the price of securities purchased.

In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the portion of
the portfolio being hedged, the price of index futures may not correlate
perfectly with movement in the Index due to certain market distortions. Rather
than meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the Index and the index futures markets. Secondly, from
the point of view of speculators, deposit requirements in the futures

<PAGE>

market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the index futures market
may also cause temporary price distortions. Due to the possibility of price
distortion in the index futures market, and because of the imperfect correlation
between the movements in the Index and movements in the price of index futures,
a correct forecast of general market trends by the Adviser may still not result
in a successful hedging transaction over a short time frame.

Positions in futures on the Index may be closed out only on the Chicago Board of
Trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell index futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close an index futures investment position, and in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event index futures have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the index futures. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures markets and thus provide an offset on index futures.

Successful use of index futures by the Fund is also subject to the Adviser's
ability to predict correctly movements in the direction of the municipal bond
markets. For example, if the Fund has hedged against the possibility of a
decline in the municipal bond market and bond prices increase instead, the Fund
will lose part or all of the benefit of the increased value of the portfolio
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. The Fund
may have to sell portfolio securities at a time when it may be disadvantageous
to do so.

2. OTHER FUTURES CONTRACTS AND OPTIONS ON FUTURES

The Fund may invest in certain other financial futures contracts ("futures
contracts") and options thereon. The Fund may sell a futures contract or a call
option thereon or purchase a futures contract or a put option thereon as a hedge
against a decrease in the value of the Fund's securities. A futures contract
sale creates an obligation by the Fund, as seller, to deliver the specific type
of instrument called for in the contract at a specified future time for a
specified price. A futures contract purchase creates an obligation by the Fund,
as purchaser, to take delivery of the specific type of financial instrument at a
specified future time at a specified price. The Fund is required to maintain
margin deposits with brokerage firms through which it effects futures contracts
as described under "Bond Index Futures Characteristics."

<PAGE>

Although the terms of futures contracts specify actual delivery or receipt of
securities, in most instances the contracts are closed out before the settlement
date without the making or taking of delivery of the securities. Closing out of
a futures contract is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a futures contract sale is effected
by entering into a futures contract purchase for the same aggregate amount of
the specific type of financial instrument and same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is
immediately paid the difference and thus realizes a gain. If the purchase price
of the offsetting transaction exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract sale.
If the offsetting sale price exceeds the purchase price, the Fund realizes a
gain, and if the offsetting sale price is less than the purchase price, the Fund
realizes a loss.

Unlike a futures contract, which requires the parties to buy and sell a security
on a set date, an option on a futures contract entitles its holder to decide on
or before a future date whether to enter into such a contract. If the holder
decides not to enter into the contract, the premium paid for the option is lost.
Since the value of the option is fixed at the point of sale, the holder is not
required to make daily payments of cash to reflect the change in the value of
the underlying contract as would be the case for a purchaser or seller of a
futures contract. The value of the option does change and is reflected in the
net asset value of the Fund.

Currently, futures contracts can be purchased on certain debt securities issued
by the U.S. Treasury, the Standard & Poor's 500 Stock Index, certificates of the
Government National Mortgage Association and bank certificates of deposit. The
Fund may invest in futures contracts covering these types of financial
instruments as well as in new types of such contracts that become available in
the future.

Financial futures contracts are traded in an auction environment on the floors
of several exchanges -- principally, the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership which is also
responsible for handling daily account of deposit or withdrawals of margin.

Investing in futures contracts involves the risks of imperfect correlations,
secondary market illiquidity and the Adviser's incorrect predictions of market
movements, as described under "Bond Index Futures Characteristics."

Put and call options on financial futures have characteristics similar to those
of other options. For a further description of options, see "Put and Call
Options" below.

<PAGE>

In addition to the risks associated with investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop.

The Fund may not enter into futures contracts or related options thereon if
immediately thereafter (i) the amount committed to margin plus the amount paid
for option premiums exceeds 5% of the value of the Fund's total assets or (ii)
the sum of the current contract values of open futures contracts purchased and
sold by the Fund would exceed 30% of the value of the Fund's total assets. In
instances involving the purchase of futures contracts by the Fund, an amount
equal to the market value of the futures contract will be deposited in a
segregated account of cash and cash equivalents to collateralize the position
and thereby insure that the use of such futures contract is unleveraged.

3. PUT AND CALL OPTIONS

The Fund may purchase put and call options written by others and write put and
call options covering the types of securities in which the Fund may invest. A
put option (sometimes called a "standby commitment") gives the buyer of such
option, upon payment of a premium, the right to deliver a specified amount of a
security 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 a security on or
before a fixed date, at a predetermined price. The Fund will not purchase any
option if, immediately thereafter, the aggregate cost of all outstanding options
purchased by the Fund would exceed 5% of the value of its total assets; a Fund
will not write any option (other than options on futures contracts) if,
immediately thereafter, the aggregate value of its portfolio securities subject
to outstanding options would exceed 30% of its total assets.

When the Fund writes a put option it maintains in a segregated account cash or
U.S. Government securities in an amount adequate to purchase the underlying
security should the put be exercised. When the Fund writes a call option it
must own at all times during the option period either the underlying securities
or an offsetting call option on the same securities. If a put option written by
the Fund were exercised, the Fund would be obligated to purchase the underlying
security at the exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying security at the
exercise price.

The risk involved in writing a put option is that there could be a decrease in
the market value of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold to the Fund at a higher price than its
current market value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying security caused by
declining interest rates or other factors. If this occurred, the option could
be

<PAGE>

exercised and the underlying security would then be sold by the Fund at a lower
price than its current market value. These risks could be reduced by entering
into a closing transaction as described below. The Fund retains the premium
received from writing a put or call option whether or not the option is
exercised.

The Fund may dispose of an option which it has purchased by entering into a
"closing sale transaction" with the writer of the option. A closing sale
transaction terminates the obligation of the writer of the option and does not
result in the ownership of an option. The Fund realizes a profit or loss from a
closing sale transaction if the premium received from the transaction is more
than or less than the cost of the option.

The Fund may terminate its obligation to the holder of an option written by the
Fund through a "closing purchase transaction." The Fund may not, however,
effect a closing purchase transaction with respect to such an option after it
has been notified of the exercise of such option. The Fund realizes a profit or
loss from a closing purchase transaction if the cost of the transaction is more
or less than the premium received by the Fund from writing the option.

<PAGE>

NEW HAMPSHIRE BOND FUND

Statement of Additional Information dated January 5, 1996

This Statement of Additional Information ("SAI") supplements the
Prospectus dated January 5, 1996 offering Shares of New Hampshire Bond Fund and
consists of these cover pages and the attached Statement of Additional
Information relating to shares of the Fund dated August 1, 1995 (the "August
SAI"), which is incorporated herein.

The information in the August SAI is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized
from a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have
seven active series corresponding to the current series of the Company.

2. THE TRUST AND ITS SHARES

The Trust was organized in Delaware on August 29, 1995; the Trust's
succeeded to the assets and liabilities of Forum Funds, Inc. on January 5, 1996.
Forum Funds, Inc. was incorporated on March 24, 1980 and assumed the name of
Forum Funds, Inc. on March 16, 1987. The Board has the authority to issue an
unlimited number of shares of beneficial interest of separate series with no par
value per share and to create separate classes of shares within each series.

There are currently seven other series of the Trust.

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 contract entered into or executed by
the Trust or the Trustees. The Trust Instrument provides for indemnification
out of each series' property of any shareholder or former shareholder held
personally liable for the obligations of the series. 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

<PAGE>

The Trust Instrument further provides that the Trustees shall not be liable
to any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise by subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

Each series capital consists of shares of beneficial interest. Shares are
fully paid and nonassessable, except as set forth above with respect to Trustee
and shareholder liability. Shareholders representing 10% or more of the Trust
or a series may, as set forth in the Trust Instrument, call meetings of the
Trust or series for any purpose related to the Trust or series, as the case may
be, including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or any series 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
series; however, the Trustees may, without prior shareholder approval, change
the form of organization of the Trust by merger, consolidation or incorporation.
If not so terminated or reorganized, the Trust and its series will continue
indefinitely. Under the Trust Instrument, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to merge or consolidate into one
or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end
management investment company that will succeed to or assume the Trust's
registration statement.

<PAGE>

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

Independence Trust, Manchester, New Hampshire 22.45%
03150-0119

Merrill Lynch, Pierce, Fenner & Smith, Inc. 5.39%
(record holder), Jacksonville, Florida 32216

3. DETERMINATION OF NET ASSET VALUE

<PAGE>

NEW HAMPSHIRE BOND FUND

STATEMENT OF ADDITIONAL INFORMATION
August 1, 1995

Forum Funds, Inc. (the "Company") is a registered open-end investment company.
This Statement of Additional Information supplements the Prospectus offering
shares of the New Hampshire Bond Fund (the "Fund") and should be read only in
conjunction with the Prospectus, a copy of which may be obtained by an investor
without charge by contacting the Company's Distributor or Shareholder Servicing
at the addresses listed above.

TABLE OF CONTENTS
Page
----

1. Investment Policies . . . . . . . . 2
2. Investment Limitations. . . . . . . 8
3. Performance Data. . . . . . . . . . 9
4. Management. . . . . . . . . . . . . 11
5. Determination of Net Asset Value. . 15
6. Portfolio Transactions. . . . . . . 15
7. Additional Purchase and
Redemption Information. . . . . . . 16
8. Taxation. . . . . . . . . . . . . . 17
9. Other Information . . . . . . . . . 17

Appendix A - Description of Securities Ratings
Appendix B - Description of Municipal Securities

<PAGE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.

<PAGE>

1. INVESTMENT POLICIES

RATINGS AS INVESTMENT CRITERIA

The Fund may retain a security whose rating has been lowered below the
lowest permissible rating category (or that is unrated and determined by the
Adviser to be of comparable quality) if the Adviser determines that retaining
such security is in the best interests of the Fund. A non-rated security is
considered to be of comparable quality to a rated security when the Adviser
believes that the financial condition of the issuer of the obligation and the
protection afforded by the terms of the obligation itself limit the risk to the
Fund to a degree comparable to that of the rated security.

MUNICIPAL SECURITIES

The term "municipal securities," as used in the Prospectus and this
Statement of Additional Information, means obligations of the type described in
Appendix B issued by or on behalf of New Hampshire, territories and possessions
of the United States and their political subdivisions, agencies and
instrumentalities, the interest from which is exempt from Federal income tax and
New Hampshire state income and dividends taxes. The municipal securities in
which the Fund will invest are limited to those obligations which at the time of
purchase: (i) are backed by the full faith and credit of the United States
Government; (ii) are municipal notes rated in the four highest rating categories
by an NRSRO, or, if not rated, are of comparable quality as determined by the
Adviser; (iii) are municipal bonds rated in the six highest rating categories by
an NRSRO or, if not rated, are of comparable quality as determined by the
Adviser; or (iv) are other types of municipal securities, provided that such
obligations are of comparable quality as determined by the Adviser to
instruments in which the Fund may invest.

<PAGE>

MUNICIPAL LEASES

Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds or notes. Municipal leases and installment
purchase or conditional sale contracts (which normally provide for title to the
leased assets to pass eventually to the government lessee) are sometimes viewed
as a means for governmental issuers to acquire property and equipment without
meeting constitutional or statutory requirements for issuance of long-term debt.
However, in New Hampshire the State agency that supervises raising of revenue by
local units of government takes the position that municipal leases are subject
to statutory requirements for issuance of long-term debt unless they contain
"non-appropriations" clauses providing that the governmental unit's obligation
to make future payments under the lease or contract is contingent upon annual
appropriation by the legislative body of the governmental unit. Also, the New
Hampshire State Attorney General will ordinarily not approve any form of lease
contracted by State government in the absence of such a "non-appropriations"
clause. Accordingly, the Fund will purchase municipal leases that do not
contain "non-appropriations" clauses only if such leases have been authorized in
accordance with statutory requirements for issuance of long-term debt. The Fund
will purchase municipal leases containing "non-appropriations" clauses only if
the payment of principal and accrued interest is backed by an unconditional,
irrevocable letter of credit or guarantee of a bank or other entity that has
long-term outstanding debt securities rated in one of the top two rating
categories by an NRSRO (or are unrated and determined by the Adviser to be of
comparable quality).

TEMPORARY DEFENSIVE POSITION

As a temporary defensive position the Fund may invest without limit in
cash, the types of financial institution obligations in which the Fund is
permitted to invest (as described in the Prospectus) and short-term debt
instruments issued or guaranteed as to principal and interest by the United
States Government or by any of its agencies and instrumentalities ("U.S.
Government Securities"). The U.S. Government Securities in which the Fund may
invest include (i) direct obligations of the U.S. Treasury (such as Treasury
bills and notes) and obligations issued or guaranteed by U.S. government
agencies and instrumentalities backed by the full faith and credit of the U.S.
Government, such as those guaranteed by the Federal Housing Administration and
issued by the Government National Mortgage Association and (ii) securities
supported primarily or solely by the creditworthiness of the issuer, such as
securities of the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation 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, these securities may involve more risk than U.S.
Government Securities backed by the U.S. Government's full faith and credit.

<PAGE>

VARIABLE AND FLOATING RATE OBLIGATIONS

The interest rates payable on certain municipal securities, including
municipal leases, in which the Fund may invest are not fixed and may fluctuate
based upon changes in market rates. These securities are referred to as
variable rate or floating rate obligations. Other features of these obligations
may include the right whereby the Fund may demand prepayment of the principal
amount of the obligation prior to its stated maturity and the right of the
issuer to prepay the principal amount prior to maturity. The main benefit of a
variable or floating rate municipal security is that the interest rate
adjustment minimizes changes in the market value of the obligation. As a
result, the purchase of these municipal securities enhances the ability of the
Fund to sell an obligation prior to maturity at a price approximating the full
principal amount of the obligation. The payment of principal and interest by
issuers of certain municipal securities purchased by the Fund may be guaranteed
by letters of credit or other credit facilities offered by banks or other
financial institutions. Such guarantees will be considered in determining
whether a municipal security meets the Fund's investment quality requirements.
The Adviser will monitor the pricing, quality and liquidity of variable rate and
floating rate demand obligations held by the Fund on the basis of published
financial information, rating agency reports and other research services to
which the Fund or Adviser may subscribe.

PARTICIPATION INTERESTS

The Fund may purchase participation interests in municipal bonds, including
private activity bonds and floating and variable rate securities that are owned
by banks or other financial institutions. A participation interest gives the
Fund an undivided interest in a municipal security owned by a bank or other
financial institution. These instruments carry a demand feature permitting the
holder to tender them back to the bank or other institution and are generally
backed by an irrevocable letter of credit or guarantee of the bank or
institution. The Fund can exercise the right, on not more than thirty days'
notice, to sell such an instrument back to the bank or institution from which it
purchased the instrument and draw on the letter of credit for all or any part of
the principal amount of the Fund's participation interest in the instrument,
plus accrued interest. Generally, the Fund will do so only (i) as required to
provide liquidity to the Fund, (ii) to maintain a high quality investment
portfolio, or (iii) upon a default under the terms of the demand instrument.
Banks and other financial institutions retain portions of the interest paid on
such participation interests as their fees for servicing such instruments and
the issuance of related letters of credit, guarantees and repurchase
commitments. Exposure to credit losses arising from the possible financial
difficulties of borrowers might affect the bank's or other institution's ability
to meet its obligations under its letter of credit or other guarantee.

The Fund will not purchase participation interests unless it is advised by
counsel or receives a ruling of the Internal Revenue Service or appropriate New
Hampshire regulatory agency that interest earned by the Fund from the
obligations in which it holds

<PAGE>

participation interests is exempt from Federal income tax and New Hampshire
interest and dividends taxes. The Internal Revenue Service has announced that
it ordinarily will not issue advance rulings on certain of the Federal income
tax consequences applicable to securities, or participation interests therein,
subject to a put. The Adviser will monitor the pricing, quality and liquidity
of participation interests held by the Fund on the basis of published financial
information, rating agency reports and other research services to which the Fund
or the Adviser may subscribe.

STAND-BY COMMITMENTS

The Fund acquires stand-by commitments solely to facilitate portfolio
liquidity and does not exercise its rights thereunder for trading purposes.
Since the value of a stand-by commitment is dependent on the ability of the
stand-by commitment writer to meet its obligation to repurchase, the Fund's
policy is to enter into stand-by commitment transactions only with municipal
securities dealers which in the opinion of the Adviser present minimal credit
risks.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

<PAGE>

obtaining the benefit of currently higher cash yields. However, if the Adviser
were to forecast incorrectly the direction of interest rate movements, the Fund
might be required to complete such when-issued or forward commitment
transactions at prices inferior to the current market values.

When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitment
transactions only with the intention of actually receiving or delivering the
securities, as the case may be. If the Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or to dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss. 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, such as approval of a proposed financing by
appropriate municipal authorities. Any significant commitment of the 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. No when-issued or forward
commitment transactions will be entered into by the Fund if, as a result, more
than 15% of the value of the Fund's total assets would be committed to such
transactions.

The Fund will establish and maintain with its custodian a separate account
with cash, U.S. Government Securities and other liquid high-grade debt
securities in an amount at least equal to its commitments to purchase securities
on a when-issued or delayed delivery basis.

ILLIQUID SECURITIES

The Fund may invest up to 15% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, repurchase agreements maturing in more than seven
days and municipal leases other than those the Adviser has determined are liquid
pursuant to guidelines established by the Company's Board of Directors (the
"Board").

<PAGE>

The Adviser monitors the liquidity of the securities in the Fund's portfolio and
reports periodically on such decisions to the Board.

GENERAL

Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the money market and of the municipal bond
and municipal note markets, the size of a particular offering, the maturity of
the obligation and the rating of the issue. Municipal securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. An increase in
interest rates will generally reduce the market value of portfolio investments,
and a decline in interest rates will generally increase the value of portfolio
investments.

There can be no assurance that the Fund's investment objective will be
achieved. The achievement of the Fund's objective is dependent in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due. Municipal securities historically have not been subject to registration
with the Securities and Exchange Commission, although there have been proposals
which would require registration in the future.

CERTAIN INFORMATION CONCERNING THE STATE OF NEW HAMPSHIRE

Material in this section has been abstracted from the State of New
Hampshire Official Statement dated November 30,1994, which is compiled by the
Treasurer of the State of New Hampshire and which is provided to prospective
purchasers of debt securities offered by the State. While information in the
Official Statement is believed to be accurate, none of that information has been
independently verified. Also, it does not reflect economic conditions or
developments that may have occurred or trends that may have materialized since
the date of the Official Statement. Additionally, economic and fiscal
conditions in individual municipalities within the State may vary from general
economic and fiscal conditions.

New Hampshire is located in the New England Region and is bordered by the
states of Maine, Massachusetts, and Vermont and the Province of Quebec, Canada.
New

<PAGE>

Hampshire's geographic area is 9,304 square miles and its April 1993 population
was 1,125,000, representing a slight increase from 1992 levels. New Hampshire's
population had increased by more than 20% in the 1980-1990 period.

New Hampshire's per capita personal income increased by 115% from 1980
through 1990. In 1991 it continued to grow faster than the New England region
as a whole and in 1992 and 1993 it grew at a slightly lower rate than the
region. New Hampshire's per capita personal income in 1993 was 106.7% of the
national level, ranking 10th in the United States.

In 1993, New Hampshire's largest employment sector was the service sector
(27.3% of employment in 1993), followed by retail and wholesale trade (25.6% of
employment in 1993). Manufacturing was the third largest sector (19.4% of
employment in 1993). Non-agricultural employment levels have remained fairly
stable. but The unemployment rate declined to 6.6% in 1993, less than the
national average, and preliminary data for the first nine months of 1994 show
New Hampshire's unemployment rate at 3.9%, compared to a national average of
5.9%.

After a significant growth in residential building activity in the period
1980-86 (data based on residential building permits), New Hampshire's
residential building activity declined beginning in 1987, and declined below
1980 levels in 1990 and 1991 and 1992. In 1993, residential building activity
surpassed 1990 levels. Reflecting the State and regional economic downturn in
real estate, in October 1991 State and Federal banking officials closed the
subsidiary banks of five of the State's largest bank holding companies. The
subsidiary banking assets of three of those companies were sold to First New
Hampshire Bank, a subsidiary of the Bank of Ireland. The subsidiary banking
assets of the two remaining holding companies were sold to an investor group
which opened a new banking , acquired in 1994 by Shawmut National Corporation.
All depositors of the closed banks were protected to the full amounts of their
deposits. Significant real estate assets of the closed banks continue to be
disposed of, which may affect real estate values for some time. In 1993, the
state's financial institutions reported a general return to profitability.

New Hampshire finances the operations of state government through
specialized taxes, user charges and revenues received from the State liquor
sales and distribution system. There is no general tax on sales or earned
income. The two highest revenue-producing taxes have been the Business Profits
Tax and the Rooms and Meals Tax until 1992, when Medicaid Enhancement Revenues
became the single largest revenue source. In 1992, State and local taxes
amounted to $98.10 per $1,000 of personal income, which was the fourth lowest in
the United States. However, because local property taxes are the principal
source of funding for municipal operations and primary

<PAGE>

and secondary education, New Hampshire was highest among all states in local
property tax collections per $1,000 of personal income.

New Hampshire State government's budget is enacted to cover a biennial
period through a series of legislative bills that establish appropriations and
estimated revenues for each sub-unit of State government, along with
supplemental and special legislation. By statute, the budget process is
initiated by the Governor, who is required to submit operating and capital
budget proposals to the Legislature by February 15 in each odd-numbered year.
While the Governor is required to state the means through which all expenditures
will be financed, there is no constitutional or statutory requirement that the
Governor propose or the Legislature adopt a budget without resorting to
borrowing. There is no line item veto.

State government funds include the General Fund, four special purpose funds
and three enterprise funds, as well as certain "fiduciary" funds. All
obligations of the State are paid from the State Treasury, and must be
authorized by a warrant signed by the Governor and approved by the Executive
Council, except for payments of debt obligations, which are paid by the State
Treasurer under statutory authority.

By statute, at the close of each fiscal year, any General Fund operating
surplus up to 5% of General Fund unrestricted revenue must be deposited in a
Revenue Stabilization Reserve Account ("Rainy Day Fund"). With approval of the
Legislative Fiscal Committee, the Governor and the Executive Council, the Rainy
Day Fund is available to defray operating deficits in ensuing years if there is
a shortfall in forecast revenue. By statute, the Rainy Day Fund may not be used
for any other purpose except by special appropriation approved by two-thirds of
each Legislative chamber and the Governor. At the end of the 1990 fiscal year,
$28.5 Million was transferred from the Rainy Day Fund to the General Fund as
partial offset to an operating deficit., As of June 30, 1993 there was a
balance of $20.0 million in the rainy Day Fund, resulting from transfer of a
portion of the fiscal year-end 1993 General Fund surplus.

The Department of Administrative Services is responsible for maintenance of
State government's accounting system, annual reports and general budget
oversight. Expenditures are controlled against appropriations through an
integrated accounting system which compares the amount of an appropriation to
expenditures and encumbrances previously charged against that appropriation
before creating an expenditure. By law, with certain exceptions unexpended and
unencumbered balances of appropriations lapse to surplus in the applicable fund
at the end of each fiscal year, along with unappropriated revenues in excess of
legislative estimates. Legislative financial controls involve the Office of
Legislative Budget Assistant ("LBA") which acts under supervision of the
Legislative Fiscal Committee and Joint Legislative Capital Budget Overview
Committee. LBA conducts overall post-audit and review of the budgetary process.
State government financial statements are prepared in accordance

<PAGE>

with generally accepted accounting principles ("GAAP") and are independently
audited annually.

Starting in fiscal year 1988, growth in State General Fund revenues
declined and in fiscal 1990 declined below fiscal 1989 levels, reflecting the
regional and national recession. In 1991, the Legislature enacted increases in
rates of various special taxes and fees, acceleration of Business Profits Tax
collections and a Medicaid Enhancement Tax assessed on New Hampshire hospitals
which generated major new matching revenues from the Federal Medicaid program.
Excluding revenues from the Medicaid Enhancement Tax, revenues in fiscal 1991
were 5.4% above 1990 levels. Net revenues from the Medicaid Enhancement Tax are
not expected to be permanent. At the end of fiscal 1991, the annual deficit in
the General Fund was $13.8 million, with a cumulative deficit of $24.5 million.
On a GAAP basis, a General Fund surplus of approximately $18.6 million was
recorded at fiscal year-end 1992, due primarily to receipt of revenues from
Federal counterpart funds to the Medicaid Enhancement Tax. At fiscal year-end
1993, the General Fund surplus was $31.5 million, primarily reflecting improved
revenues.

There is no constitutional limit on the State's power to issue obligations
or incur indebtedness, and no constitutional requirement for referendum to
authorize incurrence of indebtedness by the State. Authorization and issuance
of debt is governed entirely by statute. New Hampshire pursues a debt
management program designed to minimize use of short-term debt for operating
purposes and to coordinate issuance of tax-exempt securities by the State and
its agencies.

State-guaranteed bonded indebtedness is authorized not only for general
purposes of State government, but also for the New Hampshire Turnpike System,
University System of New Hampshire, water supply and pollution control, water
resources acquisition and construction, School Building Authority, Pease
Development Authority, Business Finance Authority, Municipal Bond Bank and
cleanup of municipal Super Fund sites and landfills. In addition, the Housing
Finance Authority and Higher Education and Health Facilities Authority are
authorized to issue bonds that do not constitute debts or obligations of the
State.

Procedure for incurrence of bonded indebtedness by individual
municipalities is governed by State statutes, which prescribe actions that must
be pursued by municipalities in incurring bonded indebtedness and limitations on
the amount of such indebtedness. In general, incurrence of bonded indebtedness
by a municipality must be for a statutorily authorized purpose and requires a
two-thirds majority vote of the municipality's legislative body.

On December 30, 1993, the New Hampshire Supreme Court reinstated and
remanded for trial a lawsuit challenging the constitutionality of the State's
system of financing public schools primarily through local property taxes. The
Court ruled that the New Hampshire Constitution imposes an enforceable duty on
the State to provide an

<PAGE>

"adequate" education to every educable child and to guarantee adequate funding.
However, the Court did not determine the adequacy of the State's current
education programs or current funding levels, leaving those matters to the
Legislative and Executive branches to determine in the first instance. The
potential impact, if any, of this litigation on the State's finances cannot
presently be determined.

2. INVESTMENT LIMITATIONS

The Fund has adopted the following fundamental investment limitations that
cannot be changed without the affirmative vote of a majority of the Fund's
outstanding voting securities. The Fund may not:

(1) With respect to 50% of its assets, purchase a security other than
a U.S. Government Security of any one issuer if, as a result, more
than 5% of the Fund's total assets would be invested in the securities
of that issuer or the Fund would own more than 10% of the outstanding
voting securities of that issuer.

(2) Purchase securities if, immediately after the purchase, more than
25% of the value of the Fund's total assets would be invested in the
securities of issuers having their principal business activities in
the same industry, provided there is no limit on investments in U.S.
Government Securities, municipal securities or in the securities of
domestic financial institutions (not including their foreign
branches). For this purpose, consumer finance companies, industrial
finance companies, and gas, electric, water and telephone utility
companies are each considered to be separate industries.

(3) Underwrite securities of other issuers, except to the extent that
the Fund may be considered to be acting as an underwriter in
connection with the disposition of portfolio securities.

(4) Purchase or sell real estate or any interest therein, except that
the Fund may invest in debt obligations secured by real estate or
interests therein or issued by companies that invest in real estate or
interests therein.

(5) Invest in commodities or in commodity contracts, except that, to
the extent the Fund is otherwise permitted, the Fund may enter into
financial futures contracts and options on those futures contracts and
may invest in currencies and currency-related contracts.

(6) Borrow money, except for temporary or emergency purposes
(including the meeting of redemption requests) and except for entering
into reverse repurchase agreements, provided that borrowings do not
exceed 33 1/3% of the Fund's net assets.

<PAGE>

(7) Issue senior securities except as appropriate to evidence
indebtedness that the Fund is permitted to incur, and provided that
the Fund may issue shares of additional series or classes that the
Board may establish.

(8) Make loans except for loans of portfolio securities, through the
use of repurchase agreements, and through the purchase of debt
securities that are otherwise permitted investments.

The Fund has adopted the following nonfundamental investment limitations
that may be changed by the Board without shareholder approval. The Fund may
not:

(a) Purchase securities for investment while any borrowing equaling
5% or more of the Fund's total assets is outstanding; and if at any
time the Fund's borrowings exceed the Fund's investment limitations
due to a decline in net assets, such borrowings will be promptly
(within three days) reduced to the extent necessary to comply with the
limitations.

(b) Purchase securities that have voting rights, except the Fund may
invest in securities of other investment companies to the extent
permitted by the Investment Company Act of 1940 (the "1940 Act").

(c) Purchase securities on margin, or make short sales of securities,
except for the use of short-term credit necessary for the clearance of
purchases and sales of portfolio securities.

(d) Invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted continuous
operations for less than three years, including the operations of
predecessors (unless guaranteed as to principal and interest by an
issuer in whose securities the Fund could invest) if as a result, more
than 5% of the value of the Fund's total assets would be so invested.

(e) Invest in or hold securities of any issuer other than the Fund
if, to the Fund's knowledge, those directors and officers of the
Company or the Fund's investment 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.

(f) Invest in oil, gas or other mineral exploration or development
programs, or leases, provided that the Fund may invest in securities
issued by companies engaged in such activities.

<PAGE>

(g) Acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (i) 15% of the
Fund's net assets (taken at current value) would be invested in
repurchase agreements not entitling the holder to payment of principal
within seven days and in securities which are not readily marketable
or (ii) 10% of the Fund's total assets would be invested in securities
that are illiquid by virtue of restrictions on the sale of such
securities to the public without registration under the Securities Act
of 1933.

(h) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which
invest in real estate.)

Except as required by the 1940 Act, 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 the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.

For purposes of limitation number (1) listed above, the District of
Columbia, each state, each political subdivision, agency, instrumentality and
authority thereof, and each multi-state agency of which a state is a member is
deemed to be a separate "issuer." When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from the
government creating the subdivision and the security is backed only by the
assets and revenues of the subdivision, such subdivision would be deemed to be
the sole issuer. Similarly, in the case of industrial development bonds and
private activity bonds, if the bond is backed only by the assets and revenues of
the nongovernmental user, the nongovernmental user would be deemed to be the
sole issuer. However, if in either case, the creating government or some other
agency guarantees a security, that guarantee would be considered a separate
security and would be treated as an issue of such government or other agency.
No more than 25% of the Fund's total assets may be invested in the securities of
one issuer. However, this limitation does not apply to securities of an issuer
payable solely from the proceeds of U.S. Government Securities.

3. PERFORMANCE DATA

The Fund may quote performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's net asset value, yield and
total return will fluctuate in response to market conditions and other factors,
and the value of Fund shares when redeemed may be more or less than their
original cost.

Standardized SEC yield and total return information as of March 31, 1995 is
outlined in the following table:

<PAGE>

30 DAY
30 DAY ANNUALIZED TAX TOTAL RETURN
ANNUALIZED EQUIVALENT TOTAL RETURN SINCE
YIELD YIELD 1 YEAR INCEPTION
----- ----- ------ ---------

5.06% 8.63% 2.32% 3.75%

Tax equivalent yield is based on a combined Federal and New Hampshire state
income tax rate of 39.6% and New Hampshire state interest and dividend tax rate
of 5% was 8.67%.

The Fund commenced operations on December 31, 1992.

In performance advertising the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDC/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). The Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Municipal Bond Buyers Indices, the Salomon
Brothers Bond Index, the Shearson Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund may also refer in such materials to mutual fund performance rankings and
other data published by Fund Tracking Companies. Performance advertising may
also refer to discussions of the Fund and comparative mutual fund data and
ratings reported in independent periodicals, such as newspapers and financial
magazines.

YIELD CALCULATIONS

Yields for the Fund used in advertising are computed by dividing the Fund's
interest income for a given 30 days or one month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced
with respect to bonds purchased at a premium over their par value by subtracting
a portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.

<PAGE>

Income calculated for the purpose of determining the 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 the Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.

The tax equivalent yield for the Fund is the rate an investor would have to
earn from a fully taxable investment in order to equal the Fund's yield after
taxes. Tax equivalent yields are calculated by dividing the Fund's yield by one
minus the stated Federal or combined Federal and state tax rate. (If only a
portion of the Fund's yield is tax-exempt, only that portion is adjusted in the
calculation.)

Although published yield information is useful to investors in reviewing
the Fund's performance, investors should be aware 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. Also, Processing Organizations (as
defined in the Prospectus) may charge their customers direct fees in connection
with an investment in the Fund, which will have the effect of reducing the
Fund's net yield to those shareholders. The yields of the Fund are not fixed or
guaranteed, and an investment in the Fund is not insured or guaranteed.
Accordingly, yield information may not necessarily be used to compare shares of
the Fund with investment alternatives which, like money market instruments or
bank accounts, may provide a fixed rate of interest. Also, it may not be
appropriate to compare the Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.

TOTAL RETURN CALCULATIONS

Total returns quoted in advertising reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that the performance is not constant over time but changes from year to year,
and that average annual returns represent averaged figures as opposed to the
actual year-to-year performance of the Fund.

Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:

P(1+T)(n) = ERV, where:

<PAGE>

P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at the
beginning of the applicable period).

Period total return is calculated according to the following formula:

PT = (ERV/P-1), where:

P = a hypothetical initial payment of $1,000;
PT = period total return;
ERV = ending redeemable value.

4. MANAGEMENT

The directors and officers of the Company and their principal occupations
during the past five years are set forth below.

John Y. Keffer, Chairman and President.

His address is Two Portland Square, Portland, Maine 04101.

Costas Azariadis, Director.

Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of

<PAGE>

Pennsylvania. His address is Department of Economics, University of
California, Los Angeles, 405 Hilgard Avenue, Los Angeles, California 90024.

James C. Cheng, Director.

J. Michael Parish, Director.

Lee W. Shultheis, Vice President, Assistant Treasurer and Assistant Secretary.

<PAGE>

Michael D. Martins, Treasurer.

David I. Goldstein, Secretary.

Renee A. Walker, Assistant Secretary.

John Y. Keffer is an interested person of the Company as that term is defined in
the 1940 Act.

ADVISER

The Fund's investment adviser, Forum Advisors, Inc., furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing the Fund's investments and effecting portfolio transactions for the
Fund pursuant to an investment advisory agreement with the Company (the
"Investment Advisory Agreement"). The Investment Advisory Agreement provides
for an initial term of one year from its effective date with respect to the Fund
and for its continuance in effect for successive twelve-month periods
thereafter, provided the agreement is specifically approved at least annually by
the Board or by vote of the shareholders and, in either case, by a majority of
the directors who are not parties to the Investment Advisory Agreement or
interested persons of any such party.

<PAGE>

The Investment Advisory Agreement is terminable without penalty by the
Company with respect to the Fund on 60 days' written notice when authorized
either by a vote of its shareholders or by a vote of a majority of the Board, or
by the Adviser on not more than 60 days' nor less than 30 days' written notice,
and will automatically terminate in the event of its assignment. The Investment
Advisory Agreement also provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties to the Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of the Adviser's duties or by reason of
reckless disregard of its obligations and duties under the Investment Advisory
Agreement. The Advisory Agreement provides that the Adviser may render services
to others.

For its services under the Investment Advisory Agreement, Forum receives
with respect to the Fund a fee at an annual rate of 0.40% of the average daily
net assets of the Fund. Fees payable under the Advisory Agreement with respect
to the Fund are outlined in the following table:

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $17,826 $17,826 $0
1994 $7,395 $7,395 $0
1993 $206 $206 $0

The Investment Advisory Agreement provides that the Adviser may render
services to others. In addition to receiving its advisory fee from the Fund,
the Adviser may also act and be compensated as investment manager for its
clients with respect to assets which are invested in the Fund. In some
instances the Adviser may elect to credit against any investment management fee
received from a client who is also a shareholder in the Fund an amount equal to
all or a portion of the fees received by the Adviser or any affiliate of the
Adviser from the Fund with respect to the client's assets invested in the Fund.

<PAGE>

annual expenses are estimated and accrued daily, and any appropriate estimated
payments will be made by the Adviser monthly.

MANAGER AND DISTRIBUTOR

Forum Financial Services, Inc. ("Forum") was incorporated under the laws of
the State of Delaware on February 7, 1986, and supervises the overall management
of the Company (which includes, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent and custodian and arranging for maintenance of books and records
of the Company) pursuant to a management agreement with the Company (the
"Management Agreement"). The Management Agreement provides for an initial term
of one year from its effective date with respect to the Fund and for its
continuance in effect for successive twelve-month periods thereafter, provided
the agreement is specifically approved at least annually by the Board or by the
shareholders and, in either case, by a majority of the directors who are not
parties to the Management Agreement or interested persons of any such party and
do not have any direct or indirect financial interest in the Management
Agreement.

The Management Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to the Fund by vote of the Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that Forum shall not be
liable for any error of judgment or mistake of law or for any act or omission in
the administration or management of the Company, except for willful misfeasance,
bad faith or gross negligence in the performance of Forum's duties or by reason
of reckless disregard of its obligations and duties under the Management
Agreement.

<PAGE>

Forum also acts as distributor of the Fund's shares pursuant to a
distribution services agreement (the "Distribution Services Agreement") and,
pursuant thereto, receives, and may reallow to certain financial institutions,
the sales charge paid by the purchasers of the Fund's shares. The aggregate
sales charges payable to Forum with respect to the Fund are outlined in the
following table:

FISCAL YEAR AGGREGATE AMOUNT AMOUNT
ENDED MARCH 31 SALES CHARGE RETAINED REALLOWED
-------------- ------------ -------- ---------

1995 $33,166 $4,429 $28,737
1994 $147,210 $19,206 $128,004

For its services under the Management Agreement, Forum receives with respect
to the Fund a fee at an annual rate of 0.30% of the average daily net assets of
the Fund. Fees payable under the Management Agreement with respect to the Fund
are outlined in the following table:

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $13,369 $13,369 $0
1994 $5,546 $5,546 $0
1993 $154 $154 $0

Forum provides persons satisfactory to the Board to serve as officers of
the Company. Those officers, as well as certain other employees and directors
of the Company, may be directors, officers or employees of (and persons
providing services to the Company may include) Forum and its affiliates.

TRANSFER AGENT

Forum Financial Corp. (the "Transfer Agent") acts as transfer agent of the
Company pursuant to a transfer agency agreement with the Company (the "Transfer
Agency Agreement"). The Transfer Agency Agreement provides for an initial term
of one year from its effective date with respect to the Fund and for its
continuance in effect for successive twelve-month periods thereafter, provided
the agreement is specifically approved at least annually by the Board or by a
vote of the shareholders and, in either case, by a majority of the directors who
are not

<PAGE>

parties to the Transfer Agency Agreement or interested persons of any such
party, at a meeting called for the purpose of voting on the Transfer Agency
Agreement.

Among the responsibilities of the Transfer Agent as agent for the Company
are: (1) answering customer inquiries regarding account status and history, the
manner in which purchases and redemptions of shares of the Fund may be effected
and certain other matters pertaining to the Fund; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, assisting in processing purchase and redemption
transactions and receiving wired funds; (4) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (5) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (6) furnishing periodic statements and confirmations of
purchases and redemptions; (7) arranging for the transmission of proxy
statements, annual reports, prospectuses and other communications from the
Company to its shareholders; (8) arranging for the receipt, tabulation and
transmission to the Company of proxies executed by shareholders with respect to
meetings of shareholders of the Company; and (9) providing such other related
services as the Company or a shareholder may reasonably request.

The Transfer Agent or any sub-transfer agent or processing agent may also
act and receive compensation as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Fund with
respect to assets invested in the Fund. The Transfer Agent or any sub-transfer
agent or other processing agent may elect to credit against the fees payable to
it by its clients or customers all or a portion of any fee received from the
Company or from the Transfer Agent with respect to assets of those customers or
clients invested in the Fund. The Transfer Agent, Forum or sub-transfer agents
or processing agents retained by the Transfer Agent may be Processing
Organizations (as defined in the Prospectus) and, in the case of sub-transfer
agents or processing agents, may also be affiliated persons of the Transfer
Agent or Forum.

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $11,414 $8,715 $2,699
1994 $11,731 $4,622 $7,109
1993 $129 $0 $0

Pursuant to a Fund Accounting Agreement with the Company, the Transfer
Agent also provides the Fund with portfolio accounting, including the
calculation of the Fund's

<PAGE>

net asset value. For these services, the Transfer Agent receives with respect
to the Fund an annual fee ranging from $36,000 to $60,000 depending upon the
amount and type of the Fund's portfolio transactions and positions.

5. DETERMINATION OF NET ASSET VALUE

The Company does not determine net asset value on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas. Purchases and redemptions are effected at the time
of the next determination of net asset value following the receipt of any
purchase or redemption order.

6. PORTFOLIO TRANSACTIONS

Purchases and sales of portfolio securities for the Fund usually are
principal transactions. Portfolio securities for the Fund are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked prices. For the fiscal year ended March 31, 1995, the Fund paid no
brokerage commissions.

The Fund may effect purchases and sales through brokers who charge
commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.

The Fund may not always pay the lowest commission or spread available.
Rather, in determining the amount of commission, including certain dealer
spreads, paid in connection with Fund transactions, the Adviser takes into
account such factors as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the services described below)
and any risk assumed by the executing broker. The Adviser may also take into
account payments made by brokers effecting transactions for the Fund (i) to the
Fund or (ii) to other persons on behalf of the Fund for services provided to it
for which it would be obligated to pay.

In addition, the Adviser may give consideration to research services
furnished by brokers or dealers to the Adviser for its use and may cause the
Fund to pay these brokers a higher amount of commission than may be charged by
other brokers. Such research and analysis may be used by the Adviser in
connection with services to clients other than the Fund, and the Adviser's fee
is not reduced by reason of the Adviser's receipt of the research services.

<PAGE>

Investment decisions for the Fund will be made independently from those for
any other account or investment company that is or may in the future become
managed by the Adviser or its affiliates. If, however, the Fund and other
investment companies or accounts managed by the Adviser are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by the Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for the Fund and for other investment companies and
accounts managed by the Adviser occur contemporaneously, the purchase or sale
orders may be aggregated in order to obtain any price advantages available to
large denomination purchases or sales.

No portfolio transactions are executed with the Adviser, Forum or any of
their affiliates.

7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares in the Fund are sold on a continuous basis by Forum, as the
distributor of the Company.

Set forth below is an example of the method of computing the offering price
of the Fund's shares. The example assumes a purchase of shares of common stock
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of
$10.06 on March 31, 1995.

Net Asset Value Per Share $ $ 10.06

Sales Charge, 3.75% of offering price
(3.90% of net asset value per share). . $ 0.39

Offering to Public. . . . . . . . . . . $ 10.45

In addition to the situations described in the Prospectus under "Purchases
and Redemptions of Shares," the Company may redeem shares involuntarily, from
time to time, 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 the Fund's shares as provided in
the Prospectus.

The Company has filed a formal election with the Securities and Exchange
Commission pursuant to which the Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.

<PAGE>

The Fund may wire proceeds of redemptions to shareholders that have elected
wire redemption privileges only if the wired amount is greater than $5,000. In
addition, the Fund will only wire redemption proceeds to financial institutions
located in the United States.

EXCHANGE PRIVILEGE

The exchange privilege permits shareholders of the Fund to exchange their
shares for shares of any other fund of the Company or shares of certain other
portfolios of investment companies which retain Forum or its affiliates as
investment adviser or distributor and which participate in the Company's
exchange privilege program ("Participating Fund"). For Federal income tax
purposes, exchange transactions are treated as sales on which a purchaser will
realize a capital gain or loss depending on whether the value of the shares
redeemed is more or less than his basis in such shares at the time of the
transaction.

Exchange transactions will be made on the basis of relative net asset
values per share at the time of the exchange transaction plus any sales charge
applicable to the Participating Fund whose shares are being acquired. Shares of
any Participating Fund may be redeemed and the proceeds used to purchase,
without a sales charge, shares of any other Participating Fund that are offered
without a sales charge. Shares of any Participating Fund purchased with a sales
charge may be redeemed and the proceeds used to purchase, without a sales
charge, shares of any other Participating Fund otherwise sold with the same
sales charge. If the Participating Fund purchased in the exchange transaction
imposes a higher sales charge than was paid originally on the exchanged shares,
the shareholder will be responsible for the difference between the two sales
charges. Shares acquired through the reinvestment of dividends and
distributions are deemed to have been acquired with a sales charge rate equal to
that paid on the shares on which the dividend or distribution was paid.

The terms of the exchange privilege are subject to change, and the
privilege may be terminated by any of the Participating Funds or the Company.
However the privilege will not be terminated, and no material change that
restricts the availability of the privilege to shareholders will be implemented,
without reasonable advance notice to shareholders.

<PAGE>

8. TAXATION

The Fund expects to derive substantially all of its gross income (exclusive
of capital gain) from sources other than dividends. Accordingly, it is expected
that none of the Fund's dividends or distributions will qualify for the
dividends-received deduction for corporations.

9. OTHER INFORMATION

CUSTODIAN

Pursuant to a Custodian Agreement with the Company, The First National Bank
of Boston, 100 Federal Street, Boston, Massachusetts 02106, acts as the
custodian of the Fund's assets. The custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, determining income
and collecting interest on Fund investments.

COUNSEL

Legal matters in connection with the issuance of shares of stock of the
Company are passed upon by Messrs. Seward & Kissel, One Battery Park Plaza, New
York, New York 10004. Seward & Kissel has relied upon the opinion of Messrs.
Venable, Baetjer and Howard, 1800 Mercantile Bank & Trust Building, 2 Hopkins
Plaza, Baltimore, Maryland 21201, for matters relating to Maryland law.

AUDITORS

Deloitte & Touche LLP, Two World Financial Center, New York, New York
10281-1414, independent auditors, act as auditors for the Company.

THE COMPANY

<PAGE>

authorized stock of the Company is divided into thirteen separate series of
common stock, representing interests in: Daily Assets Fund, Daily Assets
Government Fund, Daily Assets Treasury Fund, Daily Assets TaxSaver Fund,
Investors Bond Fund, TaxSaver Bond Fund, Investors Stock Fund, Payson Value
Fund, Payson Balanced Fund, Maine Municipal Bond Fund, Maine TaxSaver Money
Fund, New Hampshire Bond Fund and Core Portfolio Plus.

As of July 17, 1995, the officers and Directors of the Company as a group
owned less than 1% of the outstanding shares of the Fund. Also as of that date,
the shareholders listed below owned or owned of record more than 5% of the Fund.
Shareholders owning 25% or more of the shares of the Fund or of the Company as a
whole may be deemed to be controlling persons. By reason of their substantial
holdings of shares, these persons may be able to require the Company to hold a
shareholder meeting to vote on certain issues and may be able to determine the
outcome of any shareholder vote. As noted, certain of these shareholders are
known to the Company to hold their shares of record only and have no beneficial
interest, including the right to vote, in the shares.

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

Administrative Data Management Corp., 33.90%
Woodbridge, New Jersey 07095-1198

Independence Trust, Manchester, New Hampshire 20.34%
03150-0119

Merrill Lynch, Pierce, Fenner & Smith, Inc. 5.64%
(record holder), Jacksonville, Florida 32216

FINANCIAL STATEMENTS

THE ANNUAL REPORT FOR THE YEAR ENDING MARCH 31, 1995 IS INCLUDED IN THIS
REGISTRATION STATMENT AS APPENDIX A.

<PAGE>

APPENDIX A - DESCRIPTION OF SECURITIES RATINGS

1. CORPORATE AND MUNICIPAL BONDS (INCLUDING CONVERTIBLE BONDS)

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")

Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.

<PAGE>

Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Note: Those bonds in the Aa, A, Baa, or B groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1, Baa1,
Ba1, and B1.

STANDARD AND POOR'S CORPORATION ("S&P")

Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.

Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas, they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.

Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of

<PAGE>

interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, they are not likely to have the capacity to
pay interest and repay principal.

Bonds rated CC typically are subordinated to senior debt which is assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.

Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.

FITCH INVESTORS SERVICE, INC. ("FITCH")

BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business

<PAGE>

and financial alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.

CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C Bonds are in imminent default in payment of interest or principal.

2. SHORT TERM MUNICIPAL LOANS

MOODY'S INVESTORS SERVICE, INC.

MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the MIG-1/VMIG-1 group.

MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.

<PAGE>

STANDARD AND POOR'S CORPORATION

SP-1. Very strong or strong capacity to pay principal and interest. Those
issues which are determined to possess overwhelming safety characteristics will
be given a plus (+) designation.

SP-2. Satisfactory capacity to pay principal and interest.

SP-3. Speculative capacity to pay principal and interest.

3. OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER

MOODY'S INVESTORS SERVICE, INC.

Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.

Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:

- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

<PAGE>

STANDARD AND POOR'S CORPORATION

FITCH INVESTORS SERVICE, INC.

F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.

F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.

F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.

D. Issues assigned this rating are in actual or imminent payment default.

<PAGE>

NEW HAMPSHIRE BOND FUND

APPENDIX B - DESCRIPTION OF MUNICIPAL SECURITIES

1. MUNICIPAL BONDS

Municipal Bonds which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:

In recent years, revenue bonds have been issued in large volumes for projects
that are privately owned and operated as described below.

<PAGE>

interest on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and personal
property as security for such payment.

2. MUNICIPAL NOTES

Municipal Notes generally are used to provide for short-term capital needs and
usually have maturities of one year or less. They include the following:

<PAGE>

Revenue Anticipation Notes are issued in expectation of receipt of other types
of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.

Bond Anticipation Notes are issued to provide interim financing until long-term
financing can be arranged. In most cases, the long-term bonds then provide the
money for the repayment of the Notes.

3. MUNICIPAL LEASES

<PAGE>

INVESTORS BOND FUND FUND
TAXSAVER BOND FUND

Statement of Additional Information dated January 5, 1996

This Statement of Additional Information ("SAI") supplements the
Prospectus dated January 5, 1996 offering Shares of Investors Bond Fund and
Taxsaver Bond Fund (the "Funds") and consists of these cover pages and the
attached Statement of Additional Information relating to shares of the Funds
dated August 1, 1995 (the "August SAI"), which is incorporated herein.

The information in the August SAI is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized
from a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

2. THE TRUST AND ITS SHARES

The Trust was organized in Delaware on August 29, 1995; the Trust's
succeeded to the assets and liabilities of Forum Funds, Inc. on January 5, 1996.
Forum Funds, Inc. was incorporated on March 24, 1980 and assumed the name of
Forum Funds, Inc. on March 16, 1987. The Board has the authority to issue an
unlimited number of shares of beneficial interest of separate series with no par
value per share and to create separate classes of shares within each series.
There are currently seven other series of the Trust.

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 contract entered into or executed by
the Trust or the Trustees. The Trust Instrument provides for indemnification
out of each series' property of any shareholder or former shareholder held
personally liable for the obligations of the series. 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

<PAGE>

The Trust Instrument further provides that the Trustees shall not be liable
to any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise by subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

Each series capital consists of shares of beneficial interest. Shares are
fully paid and nonassessable, except as set forth above with respect to Trustee
and shareholder liability. Shareholders representing 10% or more of the Trust
or a series may, as set forth in the Trust Instrument, call meetings of the
Trust or series for any purpose related to the Trust or series, as the case may
be, including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or any series 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
series; however, the Trustees may, without prior shareholder approval, change
the form of organization of the Trust by merger, consolidation or incorporation.
If not so terminated or reorganized, the Trust and its series will continue
indefinitely. Under the Trust Instrument, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to merge or consolidate into one
or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end
management investment company that will succeed to or assume the Trust's
registration statement.

As of October 27, 1995, 1995, the officers and Directors of the Trust as a
group owned less than 1% of the outstanding shares of the Fund. Also as of that
date, the shareholders listed below owned of record more than 5% of either Fund.
Shareholders owning 25% or more of the shares of a Fund or of the Trust as a
whole may be deemed to be controlling persons. By reason of their substantial
holdings of shares, these persons may be able to require the Trust to hold a
shareholder meeting to vote on certain issues and may be able to determine the
outcome of any shareholder vote. As noted, certain of these shareholders are
known to the Trust to hold their shares of record only and have no beneficial
interest, including the right to vote, in the shares.

<PAGE>

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

Irwin Union Bank & Trust Co. (record 67.63%
holder), Columbus, Ohio 47201

EBIU & Co. (record holder), Columbus, 9.29%
Ohio 47201

Post & Co., New York, New York 10268 5.23%

INVESTORS BOND FUND

TAXSAVER BOND FUND

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

Irwin Union Bank & Trust Co. (record 47.98 %
holder), Columbus, Ohio 47201

Leonore Zusman TTEE, Dayton, Ohio 45402 11.02%

Lawrence L. Zusman TTEE, Dayton, Ohio 9.87%
45402

3. DETERMINATION OF NET ASSET VALUE

Neither Fund determines net asset value on the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas. Purchases and
redemptions are effected at the time of the next determination of net asset
value following the receipt of any purchase or redemption order.

<PAGE>

INVESTORS BOND FUND/TAXSAVER BOND FUND SAI STICKER - TO COME

INVESTORS BOND FUND

TAXSAVER BOND FUND

STATEMENT OF ADDITIONAL INFORMATION
August 1, 1995

Forum Funds, Inc. (the "Company") is a registered open-end investment company.
This Statement of Additional Information supplements the Prospectus offering
shares of the Investors Bond Fund and TaxSaver Bond Fund (collectively the
"Funds" and individually a "Fund") and should be read only in conjunction with
the Prospectus, a copy of which may be obtained by an investor without charge by
contacting the Company's Distributor at the address listed above.

TABLE OF CONTENTS
Page

1. Investment Policies . . . . . . . . 2
2. Investment Limitations. . . . . . . 9
3. Performance Data. . . . . . . . . . 12
4. Management. . . . . . . . . . . . . 15
5. Determination of Net Asset Value. . 22
6. Portfolio Transactions. . . . . . . 22
7. Additional Purchase and
Redemption Information. . . . . . . 23
8. Taxation. . . . . . . . . . . . . . 25
9. Other Information . . . . . . . . . 26

Appendix A - Description of Securities Ratings
Appendix B - Description of Municipal Securities
Appendix C - Hedging Strategies

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.

<PAGE>

1. INVESTMENT POLICIES

RATINGS AS INVESTMENT CRITERIA

Each Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the
investment adviser to be of comparable quality) if the investment adviser
determines that retaining such security is in the best interests of the Fund.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

Each 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.

The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance,
in periods of rising interest rates and falling bond prices, a Fund might sell
securities which it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices, a
Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby

<PAGE>

obtaining the benefit of currently higher cash yields. However, if the
investment adviser to a Fund were to forecast incorrectly the direction of
interest rate movements, the Fund might be required to complete such when-issued
or forward commitment transactions at prices inferior to the current market
values.

When-issued securities and forward commitments may be sold prior to the
settlement date, but 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, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or to dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss. When-issued securities may include bonds purchased on a "when, as
and if issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Any significant commitment of a Fund's assets
to the purchase of securities on a "when, as and if issued" basis may increase
the volatility of its net asset value.

Each Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities (as defined in the Prospectus) and other liquid
high-grade debt securities in an amount at least equal to its commitments to
purchase securities on a when-issued or delayed delivery basis.

ILLIQUID SECURITIES

Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.

The Company's Board of Directors ("Board") has the ultimate responsibility for
determining whether specific securities are liquid or illiquid. The Board has
delegated the function of making day-to-day determinations of liquidity to the
investment adviser of each Fund, pursuant to guidelines approved by the Board.
The investment adviser 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.
The investment adviser monitors the liquidity of the securities in each Fund's
portfolio and reports periodically on such decisions to the Board.

<PAGE>

FUTURES CONTRACTS AND OPTIONS

Each Fund may in the future seek to hedge against a decline in the value of
securities it owns or an increase in the price of securities which it plans to
purchase through the writing and purchase of exchange-traded and over-the-
counter options and the purchase and sale of futures contracts and options on
those futures contracts. The TaxSaver Bond Fund may buy or sell municipal bond
index futures contracts and both 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.

If the adviser anticipates that interest rates will rise, a Fund may sell
futures contracts as a hedge against a decrease in the value of the Fund's
portfolio securities. Conversely, if the adviser anticipates a decline in
interest rates, a Fund may purchase futures contracts to protect itself against
an increase in the price of the debt securities that the Fund might wish to
purchase.

In addition, each Fund may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with a value at all times sufficient to cover the Fund's
obligation under the option.

The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options, futures contracts or related options and movements in the
price of the securities hedged or used for cover; (3) the fact that skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Funds invest; (4) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time; and (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences. Other risks include the inability of the Fund, as the writer of
covered call options, to benefit from the appreciation of the underlying
securities above the exercise price and the possible loss of the entire premium
paid for options purchased by the Fund. In addition, options and futures
contracts do not pay interest, but may produce taxable capital gains.

Each Fund will not hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, each Fund
will not buy futures contracts or write put options whose underlying value
exceeds 10% of the Fund's total assets and will not purchase call options if the
value of purchased call options would exceed 5% of the Fund's total assets. A
Fund will not enter into futures contracts and options thereon if immediately
thereafter more than 5% of the value of the Fund's total assets would be
invested in these options or committed to margin on futures contracts.

<PAGE>

A Fund will only invest in futures and options contracts after providing notice
to its shareholders, filing a notice of eligibility (if required) and otherwise
complying with the requirements of the Commodity Futures Trading Commission
("CFTC"). The CFTC's rules provide that the Funds are permitted to purchase
futures or options contracts subject to CFTC jurisdiction only (1) for bona fide
hedging purposes within the meaning of the rules of the CFTC; provided, however,
that in the alternative with respect to each long position in a futures or
options contract entered into by a Fund, the underlying commodity value of such
contract at all times does not exceed the sum of cash, short-term United States
debt obligations or other United States dollar denominated short-term money
market instruments set aside for this purpose by the Fund, cash proceeds from
existing Fund investments due in 30 days and accrued profit on the contract held
with a futures commissions merchant; and (2) subject to certain limitations.

REPURCHASE AGREEMENTS

The Funds may seek additional income by entering into repurchase
agreements. Repurchase agreements are transactions in which a Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not related
to the coupon rate or maturity of the purchased security. The Company's
custodian maintains possession of the underlying collateral, which is maintained
at not less than 100% of the repurchase price, and which consists of the types
of securities in which the Fund may invest directly.

LENDING OF PORTFOLIO SECURITIES

The Funds may from time to time lend securities from its portfolio to brokers,
dealers and other financial institutions. Securities loans must be continuously
secured by cash or U.S. Government Securities with a market value, determined
daily, at least equal to the value of the Fund's securities loaned, including
accrued interest. A Fund receives interest in respect of securities loans from
the borrower or from investing cash collateral. The Funds may pay fees to
arrange the loans. Each Fund will, as a fundamental policy, limit securities
lending to not more than 10% of the value of its total assets.

TEMPORARY DEFENSIVE POSITION

When a Fund assumes a temporary defensive position it may invest in (i) short-
term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation, (iii) commercial paper of prime quality rated Prime-2 or
higher by Moody's or A-2 or higher by S&P or, if not rated, determined by the
adviser to be of comparable quality, (iv) repurchase agreements

<PAGE>

covering any of the securities in which the Fund may invest directly and (v)
money market mutual funds.

The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. Under normal circumstances, each Fund
intends to invest less than 5% of the value of its net assets in the securities
of other investment companies. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).

INVESTORS BOND FUND

MORTGAGE-RELATED SECURITIES. As described in the Investors Bond Fund
Prospectus, that Fund may invest in mortgage-related securities, including
Collateralized Mortgage Obligations ("CMOs"). CMOs are typically structured
with a number of classes or series that have different maturities and are
generally retired in sequence. Each class of bonds receives periodic interest
payments according to the coupon rate on the bonds. However, all monthly
principal payments and any prepayments from the collateral pool are paid first
to the "Class 1" bondholders. The principal payments are such that the Class 1
bonds will be completely repaid no later than, for example, five years after the
offering date. Thereafter, all payments of principal are allocated to the next
most senior class of bonds until that class of bonds has been fully repaid.
Although full payoff of each class of bonds is contractually required by a
certain date, any or all classes of bonds may be paid off sooner than expected
because of an acceleration in prepayments of the obligations comprising the
collateral pool.

ASSET-BACKED SECURITIES. The Investors Bond Fund may invest in asset-backed
securities, which have structural characteristics similar to mortgage-backed
securities but have underlying assets that are not mortgage loans or interests
in mortgage loans. Asset-backed securities are securities that represent direct
or indirect participations in, or are secured by and payable from, 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. Such assets are securitized through the use of
trusts and special purpose corporations.

Asset-backed securities 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 present certain risks that are not presented by
mortgage-related debt securities or other securities in which the Investors Bond
Fund may invest. Primarily, these securities do not always have the benefit of
a security interest in comparable collateral. Credit card receivables are
generally unsecured and the debtors

<PAGE>

are entitled to the protection of a number of state and Federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Automobile receivables
generally are secured, but by automobiles rather than residential real property.
Most issuers of automobile receivables permit the loan servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. 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 the market cycle has not been tested.

TAXSAVER BOND FUND

MUNICIPAL SECURITIES. The term "municipal securities," as used in the
Prospectus and this Statement of Additional Information with respect to the
TaxSaver Bond Fund, means obligations of the type described in Appendix B issued
by or on behalf of states, territories, and possessions of the United States and
their political subdivisions, agencies and instrumentalities, the interest on
which is exempt from Federal income tax. The municipal securities in which the
TaxSaver Bond Fund will invest are limited to those obligations which at the
time of purchase: (i) are backed by the full faith and credit of the United
States; (ii) are municipal notes rated in the two highest rating categories by
an NRSRO, or, if not rated, are of comparable quality as determined by the
Fund's investment adviser; (iii) are municipal bonds rated in the six highest
rating categories by an NRSRO or, if not rated, are of comparable quality as
determined by the Fund's investment adviser; or (iv) are other types of
municipal securities, provided that such obligations are of comparable quality,
as determined by the Fund's investment adviser, to instruments in which the Fund
may invest.

MUNICIPAL NOTES. Municipal notes, which may be either "general obligation"
or "revenue" securities, are intended to fulfill short-term capital needs and
generally have original maturities of 397 days or less. They include tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
construction loan notes and tax-exempt commercial paper.

MUNICIPAL LEASES. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds or notes. Lease
and installment purchase or conditional sale contracts (which normally provide
for title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance

<PAGE>

limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of "non-
appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase
municipal leases subject to a non-appropriation clause when the payment of
principal and accrued interest is backed by an unconditional irrevocable letter
of credit or guarantee of a bank or other entity that has long term outstanding
debt securities rated in one of the top two rating categories by an NRSRO.

VARIABLE AND FLOATING RATE OBLIGATIONS. The interest rates payable on
certain municipal securities, including municipal leases, in which the Fund may
invest are not fixed and may fluctuate based upon changes in market rates.
These securities are referred to as variable rate or floating rate obligations.
Other features of these obligations may include the right whereby the Fund may
demand prepayment of the principal amount of the obligation prior to its stated
maturity and the right of the issuer to prepay the principal amount prior to
maturity. The main benefit of a variable or floating rate municipal security is
that the interest rate adjustment minimizes changes in the market value of the
obligation. As a result, the purchase of these municipal securities enhances
the ability of the Fund to sell an obligation prior to maturity at a price
approximating the full principal amount of the obligation. The payment of
principal and interest by issuers of certain municipal securities purchased by
the Fund may be guaranteed by letters of credit or other credit facilities
offered by banks or other financial institutions. Such guarantees will be
considered in determining whether a municipal security meets the Fund's
investment quality requirements. The investment adviser will monitor the
pricing, quality and liquidity of variable rate and floating rate demand
obligations held by the Fund on the basis of published financial information,
rating agency reports and other research services to which the Fund or the
investment adviser of the Fund may subscribe.

PARTICIPATION INTERESTS. The Fund may purchase participation interests in
municipal bonds, including private activity bonds and floating and variable rate
securities that are owned by banks or other financial institutions. A
participation interest gives the Fund an undivided interest in a municipal
security owned by a bank or other financial institution. These instruments
carry a demand feature permitting the holder to tender them back to the bank or
other institution and are generally backed by an irrevocable letter of credit or
guarantee of the bank or institution. The Fund can exercise the right, on not
more than thirty days' notice, to sell such an instrument back to the bank or
institution from which it purchased the instrument and draw on the letter of
credit for all or any part of the principal amount of the Fund's participation
interest in the instrument, plus accrued interest. Generally, the Fund will do
so only (i) as required to provide liquidity to the Fund, (ii) to maintain a
high quality investment portfolio, or (iii) upon a default under the terms of
the demand instrument. Banks and other financial institutions retain portions
of the interest paid on such participation interests as their fees for servicing
such instruments and the issuance of related letters of credit, guarantees and
repurchase commitments. Exposure to credit losses arising from the possible
financial difficulties of borrowers

<PAGE>

might affect the bank's or other institution's ability to meet its obligations
under its letter of credit or other guarantee.

The Fund will not purchase participation interests unless it is advised by
counsel or receives a ruling of the Internal Revenue Service that interest
earned by the Fund from the obligations in which it holds participation
interests is exempt from Federal income tax. The Internal Revenue Service has
announced that it ordinarily will not issue advance rulings on certain of the
Federal income tax consequences applicable to securities, or participation
interests therein, subject to a put. The investment adviser will monitor the
pricing, quality and liquidity of participation interests held by the Fund on
the basis of published financial information, rating agency reports and other
research services to which the Fund or the investment adviser of the Fund may
subscribe.

STAND-BY COMMITMENTS. The Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Since the value of a stand-by commitment is dependent on the
ability of the stand-by commitment writer to meet its obligation to repurchase,
the Fund's policy is to enter into stand-by commitment transactions only with
municipal securities dealers which in the opinion of the investment adviser
present minimal credit risks.

The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund are valued at zero in determining net asset value. When the Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of the Fund's
portfolio of securities.

GENERAL

There can be no assurance that the Fund's objective will be achieved. The
achievement of the Fund's investment objective is dependent in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due. Municipal securities historically have not been subject to registration
with the Securities and Exchange Commission, although there have been proposals
which would require registration in the future.

<PAGE>

2. INVESTMENT LIMITATIONS

Each Fund has adopted the following fundamental investment limitations which are
in addition to those contained in the Fund's Prospectus and which may not be
changed without shareholder approval. Each Fund may not:

(6) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental

<PAGE>

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.

(7) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and currency-related
contracts will not be deemed to be physical commodities.

(9) Invest in interests in oil or gas or interests in other mineral
exploration or development programs.

Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Each Fund may not:

(e) Invest in or hold securities of any issuer if officers and directors
of the Company or the Fund's investment adviser, individually owning

<PAGE>

beneficially more than 1/2 of 1% of the securities of the issuer, in
the aggregate own more than 5% of the issuer's securities.

(h) Purchase securities having voting rights except securities of other
investment companies.

(i) Purchase or sell real property leases (including limited
partnership interests, but excluding readily marketable interests in
real estate investment trusts or readily marketable securities of
companies which invest in real estate.)

For purposes of limitation number 3 listed in the TaxSaver Bond Fund's
Prospectus, which relates to the diversification of the Fund's assets, the
District of Columbia, each state, each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of which a
state is a member is deemed to be a separate "issuer." When the assets and
revenues of an agency, authority, instrumentality or other political subdivision
are separate from the government creating the subdivision and the security is
backed only by the assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of private
activity bonds, if the bond is backed only by the assets and revenues of the
nongovernmental user, then such nongovernmental user would be deemed to be the
sole issuer. However, if in either case, the creating government or some other
agency guarantees a security, that guarantee would be considered a separate
security and would be treated as an issue of such government or other agency.

<PAGE>

No more than 25% of a Fund's total assets may be invested in the securities of
one issuer. However, this limitation does not apply to securities of an issuer
payable solely from the proceeds of U.S Government Securities.

3. PERFORMANCE DATA

The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
indicate future returns. The Funds' net asset value, yield and total return
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.

Standardized SEC yield and total return information as of March 31, 1995 is
outlined in the following tables:

30 Day
Annualized
30 Day Tax Total Total Total Return
Annualized Equivalent Return 1 Return Since
Yield Yield Year 5 Year Inception
----- ----- ---- ------ ---------
INVESTORS
BOND FUND 7.66% N/A% 0.67% 8.58% 8.32%

30 Day
Annualized
30 Day Tax Total Total Total Return
Annualized Equivalent Return 1 Return Since
Yield Yield Year 5 Year Inception
----- ----- ---- ------ ---------
TAXSAVER
BOND FUND 5.45% 8.63% 2.23% 7.14% 7.05%

Tax-equivalent yield is based on a Federal income tax rate of 39.6%.

The Funds commenced operations on October 2, 1989.

In performance advertising each Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). Each Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Municipal Bond Buyers Indices, the Salomon
Brothers Bond Index, the Shearson Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, U.S Treasury
bonds, bills or notes and changes in the Consumer Price Index as

<PAGE>

published by the U.S. Department of Commerce. The Funds may refer to general
market performances over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook").
In addition, the Funds may refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussions of the Funds and comparative mutual
fund data and ratings reported in independent periodicals, such as newspapers
and financial magazines.

For example, the Funds may advertise the historical advantages, based on assumed
investments made on particular dates, in long term corporate bonds or in the S&P
500 Composite Stock Index against U.S Treasury bills, as published by the
companies listed above.

YIELD CALCULATIONS

Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30 days or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced
with respect to bonds purchased at a premium over their par value by subtracting
a portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.

Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.

The tax equivalent yield for the TaxSaver Bond Fund is the rate an investor
would have to earn from a fully taxable investment in order to equal the Fund's
yield after taxes. Tax equivalent yields are calculated by dividing the Fund's
yield by one minus the stated Federal or combined Federal and state tax rate.
(If only a portion of the Fund's yield is tax-exempt, only that portion is
adjusted in the calculation.)

<PAGE>

information may not necessarily be used to compare shares of a Fund with
investment alternatives which, like money market instruments or bank accounts,
may provide a fixed rate of interest. Also, it may not be appropriate to
compare a Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.

TOTAL RETURN CALCULATIONS

Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Funds.

Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:

P(1+T)(n) = ERV

Where:

P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value.

ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.

In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields and other performance information may be quoted
numerically or in a table, graph or similar illustration.

Period total return is calculated according to the following formula:

<PAGE>

PT = (ERV/P-1)

Where:

PT = period total return.
The other definitions are the same as in
average annual total return above.

4. MANAGEMENT

The Directors and officers of the Company and their principal occupations during
the past five years are set forth below.

John Y. Keffer, Chairman and President.

Costas Azariadis, Director.

James C. Cheng, Director.

J. Michael Parish, Director.

<PAGE>

Lee W. Shultheis, Vice President, Assistant Treasurer and Assistant Secretary.

Michael D. Martins, Treasurer.

David I. Goldstein, Secretary.

Renee A. Walker, Assistant Secretary

Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since December 1994. Prior thereto, Ms. Walker was employed by
Longwood Partners, Investment Partnership and Paine Webber, Inc. in Boston,
Massachusetts. Her address is Two Portland Square, Portland, Maine 04101.

John Y. Keffer is an interested person of the Company as that term is defined in
the 1940 Act.

ADVISER

The Funds' investment adviser, Forum Advisors, Inc. (the "Adviser") furnishes at
its own expense all services, facilities and personnel necessary in connection
with managing each Fund's investments and effecting portfolio transactions for
the respective Fund, each pursuant to an Investment Advisory Agreement with the
Company. Each such Investment Advisory Agreement provides for an initial term
of two years from its effective date with respect to a Fund and for its
continuance in effect for successive twelve-month periods thereafter, provided
the agreement is specifically approved at least annually by the Board or by vote
of the shareholders of the Fund, and in either case by a majority of the
directors who are not parties to the Investment Advisory Agreement or interested
persons of any such party.

<PAGE>

Each Investment Advisory Agreement is terminable without penalty by the Company
with respect to the Fund on 60 days' written notice when authorized either by
vote of its shareholders or by a vote of a majority of the Board, or by the
respective Adviser on not more than 60 days' nor less than 30 days' written
notice, and will automatically terminate in the event of its assignment. Each
Investment Advisory Agreement also provides that, with respect to a Fund, the
Adviser shall not be liable for any error of judgment or mistake of law or for
any act or omission in the performance of its duties to the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties or by reason of reckless disregard of its obligations and
duties under the Investment Advisory Agreement. Each Investment Advisory
Agreement provides that the Adviser may render services to others.

Prior to August 1, 1991, for services under its Investment Advisory Agreement,
the Adviser received, with respect to the Investors Bond Fund, an advisory fee
at an annual rate of 0.55% of the average daily net assets for the first $300
million of the Fund's net assets, 0.51% of the average daily net assets for the
next $400 million of the Fund's net assets, and 0.47% of the average daily net
assets of the Fund's remaining net assets. Prior to August 1, 1991, with
respect to the TaxSaver Bond Fund, the Adviser received an advisory fee at an
annual rate of 0.50% of the average daily net assets for the first $300 million
of the Fund's net assets, 0.46% of the average daily net assets of the next $400
million of the Fund's net assets and 0.42% of the average daily net assets of
the Fund's remaining net assets. Upon approval by the Funds' shareholders, the
advisory fee was reduced to 0.40% of the average daily net assets for each of
the Investors Bond Fund and the TaxSaver Bond Fund. Such fees are accrued daily
and paid monthly. Fees payable under the Advisory Agreement with respect to the
each Fund are outlined in the following tables:

INVESTORS BOND FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $100,098 $9,407 $90,691
1994 $111,913 $34,865 $77,048
1993 $103,100 $52,045 $51,055

TAXSAVER BOND FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $65,238 $59,238 $6,000
1994 $69,755 $69,755 $0
1993 $53,914 $53,914 $0

<PAGE>

In addition to receiving its advisory fee from the Funds, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in the Funds. In some instances the Adviser may elect
to credit against any investment management fee received from a client who is
also a shareholder in the Fund an amount equal to all or a portion of the fees
received by the Adviser or any affiliate of the Adviser from the Fund with
respect to the client's assets invested in the Fund.

The Adviser has agreed to reimburse the Company for certain of the operating
expenses of the Funds (exclusive of interest, taxes, brokerage, fees and
organization expenses, all to the extent permitted by applicable state law or
regulation) which in any year exceed the limits prescribed by any state in which
the Fund's shares are qualified for sale. The manager and distributor believe
that currently the most restrictive expense ratio limitation imposed by any
state is 2-1/2% of the first $30 million of each Fund's average net assets, 2%
of the next $70 million of its average net assets and 1-1/2% of its average net
assets in excess of $100 million. For the purpose of this obligation to
reimburse expenses, the Fund's annual expenses are estimated and accrued daily,
and any appropriate estimated payments will be made by the Adviser or the
manager and distributor monthly.

Subject to the above obligations to reimburse the Company for its excess
expenses, the Company has confirmed its obligation to pay all its other
expenses, including: interest charges, taxes, brokerage fees and commissions;
certain insurance premiums; fees, interest charges and expenses of the
custodian, transfer agent and dividend disbursing agent; telecommunications
expenses; auditing, legal and compliance expenses; costs of forming the
corporation and maintaining corporate existence; costs of preparing and printing
the Company's prospectuses, statements of additional information, account
application forms and shareholder reports and delivering them to existing and
prospective shareholders; costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts and of
calculating the net asset value of shares of the Company; costs of reproduction,
stationery and supplies; compensation of directors, officers and employees of
the Company and costs of other personnel performing services for the Company who
are not officers of the Adviser, the manager and distributor or their respective
affiliates; costs of corporate meetings; Securities and Exchange Commission
registration fees and related expenses; state securities laws registration fees
and related expenses; and fees payable to the Adviser under the Investment
Advisory Agreements.

MANAGER AND DISTRIBUTOR

Forum Financial Services, Inc. (the "Manager") was incorporated under the laws
of the State of Delaware on February 7, 1986 and supervises the overall
management of the Company (which includes, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of the Company), provides the Company with general office
facilities and serves as distributor of shares of the Funds pursuant to a

<PAGE>

management agreement between the Manager and the Company (the "Management
Agreement"). The Management Agreement provided, with respect to each Fund, for
an initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or, with respect to a Fund,
by the shareholders of that Fund, and in either case by a majority of the
directors who are not parties to the Management Agreement or interested persons
of any such party and do not have any direct or indirect financial interest in
the Distribution Plan or in any agreement related to the Distribution Plan.

The Management Agreement terminates automatically if it is assigned and may be
terminated without penalty with respect to a Fund by vote of that Fund's
shareholders or by either party on not more than 60 days' nor less than 30 days'
written notice. The Management Agreement also provides that the Manager shall
not be liable for any error of judgment or mistake of law or for any act or
omission in the administration or management of the Company, except for willful
misfeasance, bad faith or gross negligence in the performance of the Manager's
duties or by reason of reckless disregard of its obligations and duties under
the Management Agreement.

Forum also acts as distributor of each Fund's shares pursuant to a distribution
services agreement (the "Distribution Services Agreement") and, pursuant
thereto, receives, and may reallow to certain financial institutions, the sales
charge paid by the purchasers of each Fund's shares. The aggregate sales
charges payable to Forum with respect to each Fund are outlined in the following
tables:

INVESTORS BOND FUND

FISCAL YEAR AGGREGATE AMOUNT AMOUNT
ENDED MARCH 31 SALES CHARGE RETAINED REALLOWED
-------------- ------------ -------- ---------

1995 $1,705 $243 $1,463
1994 $7,704 $968 $0
1993 $37,642 $4,497 $0

TAXSAVER BOND FUND

FISCAL YEAR AGGREGATE AMOUNT AMOUNT
ENDED MARCH 31 SALES CHARGE RETAINED REALLOWED
-------------- ------------ -------- ---------
1995 $7,701 $1,012 $6,689
1994 $5,939 $721 $0
1993 $16,414 $2,078 $0

For its services under the Management Agreement, the manager receives with
respect to each Fund a fee at an annual rate of 0.30% of the average daily net
assets of each Fund.

<PAGE>

Fees payable under the Management Agreement with respect to each Fund are
outlined in the following tables:

INVESTORS BOND FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $75,074 $75,074 $0
1994 $83,934 $58,722 $25,212
1993 $77,325 $33,775 $43,550

TAXSAVER BOND FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $48,928 $48,928 $0
1994 $52,316 $44,565 $7,751
1993 $40,436 $13,378 $27,058

The Manager provides persons satisfactory to the Board to serve as officers of
the Company. Those officers, as well as certain other employees and Directors
of the Company, may be directors, officers or employees of (and persons
providing services to the Company may include) the Manager, its affiliates or
certain affiliates of the Adviser.

TRANSFER AGENT

Forum Financial Corp. (the "Transfer Agent") acts as transfer agent of the
Company pursuant to a transfer agency agreement (the "Transfer Agency
Agreement"). The Transfer Agency Agreement provided, with respect to each Fund,
for an initial term of two years from its effective date and for its continuance
in effect for successive twelve-month periods thereafter, provided that the
agreement is specifically approved at least annually by the Board or, with
respect to a Fund, by a vote of the shareholders of that Fund, and in either
case by a majority of the directors who are not parties to the Transfer Agency
Agreement or interested persons of any such party at a meeting called for the
purpose of voting on the Transfer Agency Agreement.

<PAGE>

The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Funds. The Transfer Agent or any sub-transfer
agent or other processing agent may elect to credit against the fees payable to
it by its clients or customers all or a portion of any fee received from the
Company or from the Transfer Agent with respect to assets of those customers or
clients invested in the Fund. The Transfer Agent, the Manager or sub-transfer
agents or processing agents retained by the Transfer Agent may be Processing
Organizations (as defined in the Prospectus) and, in the case of sub-transfer
agents or processing agents, may also be affiliated persons of the Transfer
Agent or the Manager.

For its services under the Transfer Agent Agreement, Forum receives with respect
to its transfer agency services a fee at an annual rate of 0.25% of the average
daily net assets of each Fund. Fees payable under the Transfer Agent Agreement
with respect to each Fund are outlined in the following tables:

INVESTORS BOND FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $62,562 $49,813 $12,749
1994 $74,145 $64,394 $9,751
1993 $64,438 $34,468 $29,970

<PAGE>

TAXSAVER BOND FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $40,794 $28,091 $12,703
1994 $47,796 $40,156 $7,640
1993 $33,696 $16,150 $17,546

Pursuant to a Fund Accounting Agreement, the Transfer Agent also provides each
Fund with portfolio accounting, including the calculation of the Fund's net
asset value. For these services, the Transfer Agent receives with respect to a
Fund an annual fee ranging from $36,000 to $60,000 depending upon the amount and
type of the Fund's portfolio transactions and positions.

5. DETERMINATION OF NET ASSET VALUE

6. PORTFOLIO TRANSACTIONS

Purchases and sales of portfolio securities for the Funds usually are principal
transactions. Portfolio securities for these Funds are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually are no brokerage commissions paid for such purchases.
Purchases from underwriters of portfolio securities include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked prices.

The Funds may effect purchases and sales through brokers who charge commissions.
Allocations of transactions to brokers and dealers and the frequency of
transactions are determined by the Adviser in its best judgment and in a manner
deemed to be in the best interest of shareholders of the Funds rather than by
any formula. The primary

<PAGE>

consideration is prompt execution of orders in an effective manner and at the
most favorable price available to the Funds. For the fiscal years ended March
31, 1995, 1994, and 1993, the Funds did not pay any brokerage commissions.

A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with Fund transactions, the Adviser take into account such factors as
size of the order, difficulty of execution, efficiency of the executing broker's
facilities (including the services described below) and any risk assumed by the
executing broker. The Adviser may also take into account payments made by
brokers effecting transactions for a Fund (i) to the Fund or (ii) to other
persons on behalf of the Fund for services provided to it for which it would be
obligated to pay.

In addition, the Adviser may give consideration to research services furnished
by brokers to the Adviser for its use and may cause a Fund to pay these brokers
a higher amount of commission than may be charged by other brokers. Such
research and analysis may be used by the Adviser in connection with services to
clients other than the Funds, and the Adviser's fee is not reduced by reason of
the Adviser's receipt of the research services.

Investment decisions for each Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, a Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by a Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for a Fund and for other investment companies and accounts managed
by the Adviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large
denomination purchases or sales.

No portfolio transactions are executed with the Adviser, the Manager or any of
their affiliates.

7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of each Fund are sold on a continuous basis by the distributor.

Set forth below is an example of the method of computing the offering price of
each Fund's shares. The example assumes a purchase of shares of common stock
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectuses at a price based on the net asset value per share of
each Fund on March 31, 1995.

<PAGE>

Investors TaxSaver
Bond Bond
Fund Fund
---- ----

Net Asset Value Per Share $ 10.05 $ 10.37

Sales Charge, 3.75% of offering
price (3.90% of net asset value
per share) $ 0.39 $ 0.40

Offering to Public $ 10.44 $ 10.77

In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Company may redeem shares involuntarily, from time
to time, to reimburse a portfolio 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 the Fund's shares as provided in
the Prospectus.

EXCHANGE PRIVILEGE

The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any other fund of the Company or shares of certain other
portfolios of investment companies which retain the Manager or its affiliates as
investment adviser or distributor and which participate in the Company's
exchange privilege program ("Participating Fund"). For Federal income tax
purposes, exchange transactions are treated as sales on which a purchaser will
realize a capital gain or loss depending on

<PAGE>

whether the value of the shares redeemed is more or less than his basis in such
shares at the time of the transaction.

Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge
may be redeemed and the proceeds used to purchase, without a sales charge,
shares of any other Participating Fund otherwise sold with the same sales
charge. If the Participating Fund purchased in the exchange transaction imposes
a higher sales charge than was paid originally on the exchanged shares, the
shareholder will be responsible for the difference between the two sales
charges. Shares acquired through the reinvestment of dividends and
distributions are deemed to have been acquired with a sales charge rate equal to
that paid on the shares on which the dividend or distribution was paid.

INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT

The Investors Bond Fund offers an individual retirement plan (the "IRA") for
individuals who wish to use shares of the Funds as a medium for funding
individual retirement savings. Under the IRA, distributions of net investment
income and capital gain will be automatically reinvested in the IRA established
for the investor. The Fund's custodian furnishes custodial services to the IRAs
for a service fee. Shareholders wishing to use the Fund's IRA should contact
the Transfer Agent for further details and information.

8. TAXATION

Qualification as a regulated investment company under the Internal Revenue Code
of 1986 does not involve governmental supervision of management or investment
practices or policies. Investors should consult their own counsel for a
complete understanding of the requirements the Funds must meet to qualify for
such treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by a Fund and assume that each Fund qualifies as a regulated investment company.
Investors should consult their own counsel for further details and for the
application of state and local tax laws to the investor's particular situation.

The Funds expect to derive substantially all of their gross income (exclusive of
capital gain) from sources other than dividends. Accordingly, it is expected
that most of the

<PAGE>

Funds' dividends or distributions will not qualify for the dividends-received
deduction for corporations.

Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered 60% long-term and 40% short-term
capital gain or loss. A Fund can elect to exempt its section 1256 contracts
which are part of a "mixed straddle" from the application of section 1256.

With respect to equity or over-the-counter put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the
respective Fund's holding period with respect to such option. However, gain or
loss realized upon the lapse or closing out of such options that are written by
a Fund will be treated as short-term capital gain or loss. In general, if a
Fund exercises an option, or if an option that a Fund has written is exercised,
gain or loss on the option will not be separately recognized but the premium
received or paid will be included in the calculation of gain or loss upon
disposition of the property underlying the option.

9. OTHER INFORMATION

CUSTODIAN

Pursuant to a Custodian Agreement, The First National Bank of Boston, 100
Federal Street, Boston, Massachusetts 02106, acts as the custodian of each
Fund's assets. The custodian's responsibilities include safeguarding and
controlling the Funds' cash and securities, determining income and collecting
interest on Fund investments.

COUNSEL

AUDITORS

Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281-
1414, independent auditors, act as auditors for the Company.

<PAGE>

THE COMPANY

The Company, which was incorporated in Maryland on March 24, 1980, assumed the
name Forum Funds, Inc. on March 16, 1987. The Company was incorporated under
the name Daily Income Extension Fund, Inc. and changed its name to Fahnestock
Daily Income Fund, Inc. on April 13, 1981. From May 19, 1986 through October 1,
1989, no public shares of the Company's common stock were outstanding.
Currently all the authorized stock of the Company is divided into thirteen
separate series of common stock, representing interests in: Daily Assets Fund,
Daily Assets Government Fund, Daily Assets Treasury Fund, Daily Assets TaxSaver
Fund, Investors Bond Fund, TaxSaver Bond Fund, Payson Value Fund, Payson
Balanced Fund, Maine Municipal Bond Fund, Maine TaxSaver Money Fund, New
Hampshire Bond Fund and Core Portfolio Plus.

As of July 17, 1995, the officers and Directors of the Company as a group owned
less than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned or owned of record more than 5% of either Fund.
Shareholders owning 25% or more of the shares of a Fund or of the Company as a
whole may be deemed to be controlling persons. By reason of their substantial
holdings of shares, these persons may be able to require the Company to hold a
shareholder meeting to vote on certain issues and may be able to determine the
outcome of any shareholder vote. As noted, certain of these shareholders are
known to the Company to hold their shares of record only and have no beneficial
interest, including the right to vote, in the shares.

INVESTORS BOND FUND

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

Irwin Union Bank & Trust Co. (record 66.43%
holder), Columbus, Ohio 47201

EBIU & Co. (record holder), Columbus,
Ohio 47201 9.01%

TAXSAVER BOND FUND

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

Irwin Union Bank & Trust Co. (record 47.16%
holder), Columbus, Ohio 47201

Leonore Zusman TTEE, Dayton, Ohio 45402 11.38%

<PAGE>

Lawrence L. Zusman TTEE, Dayton, Ohio 10.02%
45402

FINANCIAL STATEMENTS

THE ANNUAL REPORT FOR THE YEAR ENDED MARCH 31, 1995 IS INCLUDED IN THIS
REGISTRATION STATEMENT AS APPENDIX A.

<PAGE>

INVESTORS BOND FUND
TAXSAVER BOND FUND

APPENDIX A - DESCRIPTION OF SECURITIES RATINGS

1. CORPORATE AND MUNICIPAL BONDS (INCLUDING CONVERTIBLE BONDS)

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")

Moody's rates corporate bond issues, including convertible debt issues, as
follows:

Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

<PAGE>

Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.

Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.

STANDARD AND POOR'S CORPORATION ("S&P")

S&P rates corporate bond issues, including convertible debt issues, as follows:

Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.

<PAGE>

uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments.

Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.

Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.

Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.

Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.

FITCH INVESTORS SERVICE, INC. ("FITCH")

Fitch rates corporate bond issues, including convertible debt issues, as
follows:

A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more

<PAGE>

vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings.

BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C Bonds are in imminent default in payment of interest or principal.

<PAGE>

2. PREFERRED STOCK

MOODY'S INVESTORS SERVICE, INC.

Moody's rates preferred stock as follows:

An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.

An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.

An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.

An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present
but may be questionable over any great length of time.

An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of
the issue over any long period of time may be small.

An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.

An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.

An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a

<PAGE>

mid-range ranking; and the modifier 3 indicates that the issuer ranks in the
lower end of its generic rating category.

STANDARD & POOR'S CORPORATION

S&P rates preferred stock as follows:

AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.

A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.

An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.

An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.

Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.

A preferred stock rated C is a non-paying issue.

A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.

To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.

<PAGE>

3. SHORT TERM MUNICIPAL LOANS

MOODY'S INVESTORS SERVICE, INC.

MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the MIG-1/VMIG-1 group.

STANDARD AND POOR'S CORPORATION

SP-1. Very strong or strong capacity to pay principal and interest. Those
issues which are determined to possess overwhelming safety characteristics will
be given a plus (+) designation.

SP-2. Satisfactory capacity to pay principal and interest.

SP-3. Speculative capacity to pay principal and interest.

4. OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER

MOODY'S INVESTORS SERVICE, INC.

Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.

Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:

-- Leading market positions in well-established industries.
-- High rates of return on funds employed.

<PAGE>

-- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

STANDARD AND POOR'S CORPORATION

FITCH INVESTORS SERVICE, INC.

F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.

F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.

<PAGE>

F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.

D. Issues assigned this rating are in actual or imminent payment default.

<PAGE>

INVESTORS BOND FUND
TAXSAVER BOND FUND

APPENDIX B - DESCRIPTION OF MUNICIPAL SECURITIES

1. MUNICIPAL BONDS

Municipal Bonds which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:

GENERAL OBLIGATION BONDS are issued by such entities as states, counties,
cities, towns, and regional districts. The proceeds of these obligations are
used to fund a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems. The
basic security behind General Obligation Bonds is the issuer's pledge of its
full faith and credit and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount of special assessments.

REVENUE BONDS in recent years have come to include an increasingly wide variety
of types of municipal obligations. As with other kinds of municipal
obligations, the issuers of revenue bonds may consist of virtually any form of
state or local governmental entity, including states, state agencies, cities,
counties, authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide
additional security in the form of a debt service reserve fund to be used to
make principal and interest payments. Various forms of credit enhancement, such
as a bank letter of credit or municipal bond insurance, may also be employed in
revenue bond issues. Housing authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.

In recent years, revenue bonds have been issued in large volumes for projects
that are privately owned and operated as described below.

PRIVATE ACTIVITY BONDS are considered municipal bonds if the interest paid
thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and

<PAGE>

manufacturing, housing and health. These bonds are also used to finance public
facilities such as airports, mass transit systems and ports. The payment of the
principal and interest on such bonds is dependent solely on the ability of the
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property as security for such payment.

2. MUNICIPAL NOTES

Municipal Notes generally are used to provide for short-term capital needs and
usually have maturities of one year or less. They include the following:

<PAGE>

TAX ANTICIPATION NOTES are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.

REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other types
of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.

BOND ANTICIPATION NOTES are issued to provide interim financing until long-term
financing can be arranged. In most cases, the long-term bonds then provide the
money for the repayment of the Notes.

CONSTRUCTION LOAN NOTES are sold to provide construction financing. After
successful completion and acceptance, many projects receive permanent financing
through the Federal Housing Administration under the Federal National Mortgage
Association or the Government National Mortgage Association.

TAX-EXEMPT COMMERCIAL PAPER is a short-term obligation with a stated maturity
of 365 days or less. It is issued by agencies of state and local governments to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing.

3. MUNICIPAL LEASES

<PAGE>

INVESTORS BOND FUND
TAXSAVER BOND FUND

APPENDIX C - HEDGING STRATEGIES

As discussed in the Prospectus, the Adviser to each Fund may engage in certain
options and futures strategies to attempt to hedge a Fund's portfolio. The
instruments in which the Fund may invest include (i) options on securities and
stock indexes, (ii) stock index and interest rate futures contracts ("futures
contracts"), and (iii) options on futures contracts. Use of these instruments
is subject to regulation by the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures are traded,
and the Commodity Futures Trading Commission ("CFTC").

The various hedging and income strategies referred to herein and in each Fund's
Prospectus are intended to illustrate the type of strategies that are available
to, and may be used by, the Adviser in managing a Fund's portfolio. Depending
on prevailing market conditions, use of these strategies may enable the Adviser
to reduce investment risks to which a Fund may be subject. No assurance can be
given, however, that any strategies will succeed.

The Funds will not use leverage in their hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities 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 the Fund to an obligation to another party unless it owns either (1) an
offsetting ("covered") position or (2) cash, U.S. government securities or other
liquid, short-term debt securities with a value sufficient at all times to cover
its potential obligations. Each Fund will comply with guidelines established by
the SEC with respect to coverage and, if the guidelines so require, will set
aside cash, U.S. government securities or other liquid, high-grade debt
securities in a segregated account with its custodian in the prescribed amount.
Securities, options or futures positions used for cover and assets held in a
segregated account cannot be sold or closed out while the hedging 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. The Funds may purchase put and call options written by
others and write (sell) put and call options covering specified securities or
stock index-related amounts. A put option (sometimes called a "standby
commitment") gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security or specified amount of cash
(on stock-index options) to the writer of the option on or before a fixed date
at a predetermined price. A call option (sometimes called a

<PAGE>

"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 a
security or specified amount of cash (on stock-index options) 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 or security. 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 Adviser believes that a liquid secondary market for
the option exists. When a Fund purchases an OTC option, it relies on the dealer
from which it has purchased the OTC option to make or take delivery of the
securities or 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 are currently treated as illiquid securities.

A Fund may purchase call options on equity securities that the Adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of 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. The Funds may similarly purchase put
options in order to hedge against a decline in market value of securities held
in its portfolio. The put enables a 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
higher 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 Fund may write covered call options when the Adviser 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
Fund may write covered put options only to effect closing transactions.

A Fund may purchase and write put and call options on stock indexes in much the
same manner as the equity and debt security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
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 stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.

<PAGE>

SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Funds may effectively
terminate their right or obligation under an option contract by entering into a
closing transaction. For instance, if a Fund wished to terminate its potential
obligation to sell securities under a call option it had written, a call option
of the same series (an identical call option) would be purchased by the Fund.
Closing transactions essentially permit the Funds to realize profits or limit
losses on its options positions prior to the exercise or expiration of the
option. In addition:

(1) The successful use of options as a hedging strategy depends upon the
Adviser's ability to forecast the direction of price fluctuations in the
underlying securities markets, or in the case of a stock index option,
fluctuations in the market sector represented by the index.

(2) Options normally have expiration dates of up to nine months. Options that
expire unexercised have no value. Unless an option purchased by a Fund is
exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.

(3) A position in an exchange listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange listed
options relate to equity securities. Exchange markets for options on debt
securities are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on debt
securities) only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market exists. There
is no assurance that a liquid secondary market will exist for any particular
option at any specific time. If it is not possible to effect a closing
transaction, a Fund would have to exercise the option which it purchased in
order to realize any profit. The inability to effect a closing transaction on
an option written by a Fund may result in material losses to that Fund.

(4) The Funds' activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.

FUTURES STRATEGIES. Several futures contracts on broad-based stock indexes
currently are traded; these include the Standard & Poor's 500 Stock Index on the
Chicago Mercantile Exchange, the New York Stock Exchange Composite Stock Index
on the New York Futures Exchange and the Major Market Index on the Chicago Board
of Trade. In addition, several interest rate futures contracts currently are
traded; these include various futures contracts on Treasury bonds, notes and
bills on the Chicago Board of Trade as well as a 30 Interest Rate contract also
traded on the Chicago Board of Trade.

Futures contracts on a municipal bond index are traded on the Chicago Board of
Trade. This index assigns relative values, which fluctuate in accordance with
current market

<PAGE>

conditions, to the municipal bonds comprising the index. Options on various of
these futures contracts are also traded.

A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash or securities as called for
in the contract at a specified future date and at a specified price. For stock
index futures contracts, delivery is of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the time of
the contract and the close of trading of the contract. For interest rate
futures contracts, delivery is of the underlying debt securities.

A Fund may sell stock index futures contracts in anticipation of a general
market or market sector decline that may adversely affect the market values of
the Fund's securities. To the extent that the Fund's portfolio correlates with
a given stock index, the sale of futures contracts on that index could reduce
the risks associated with a market decline and thus provide an alternative to
the liquidation of securities positions. The Funds may purchase a stock index
futures contract if a significant market or market sector advance is
anticipated. These purchases would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in the future.

The Fund may purchase call options on a stock index future as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. A Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Funds may write covered call options on
stock index future contracts as a partial hedge against a decline in the prices
of stocks held in the Funds' portfolio. This is analogous to writing covered
call options on securities.

A Fund may use interest rate futures contracts and options thereon to hedge its
portfolio against changes in the general level of interest rates. A Fund may
purchase an interest rate futures contract when it intends to purchase debt
securities but has not yet done so. This strategy may minimize the effect of
all or part of an increase in the market price of the debt security which the
Fund intended to purchase in the future. A Fund may sell an interest rate
futures contract in order to continue to receive the income from a debt
security, while endeavoring to avoid part or all of the decline in market value
of that security which would accompany an increase in interest rates.

A Fund may purchase a call option on an interest rate futures contract to hedge
against a market advance in debt securities which the Fund planned to acquire at
a future date. The purchase of a call option on an interest rate futures
contracts is analogous to the purchase of a call option on an individual debt
security which can be used as a temporary substitute for a position in the
security itself. A Fund may also write covered call options on

<PAGE>

interest rate futures contracts as a partial hedge against a decline in the
price of debt securities held in the Fund's portfolio or purchase put options on
interest rate futures contracts in order to hedge against a decline in the value
of debt securities held in the Fund's portfolio.

SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING. The
following relate to each Fund's use of futures contracts and options on futures
contracts and, to the extent in the future they were to be permitted, foreign
currency and other options traded on a commodities exchange (collectively,
"futures contracts and related options").

No price is paid upon entering into futures contracts. Instead, upon entering
into a futures contract, a Fund would be required to deposit with its custodian
in a segregated account in the name of the futures broker an amount of cash or
U.S. government securities generally equal to 5% or less of the contract value.
This amount is known as "initial margin." Subsequent payments, called
"variation margin," to and from the broker, would be made on a daily basis as
the value of the futures position varies, a process known as "marking to the
market." When writing a call option on a futures contract, variation margin
must be deposited in accordance with applicable exchange rules. The initial
margin in futures transactions is in the nature of a performance bond or good-
faith deposit on the contract that is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been satisfied.

Holders and writers of futures and related options can enter into offsetting
closing transactions, similar to closing transactions on options, by selling or
purchasing, respectively, a futures contract or related option with the same
terms as the position held or written. Positions in futures contracts may be
closed only on an exchange providing a secondary market for the futures
contracts.

Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Futures or options contract prices could move to the daily
limit for several consecutive trading days with little or no trading and thereby
prevent prompt liquidation of positions. In such event, it may not be possible
for a Fund to close a position, and in the event of adverse price movements, a
Fund would have to make daily cash payments of variation margin (except in the
case of purchased options). In addition:

(1) Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict movements in the direction of the
overall securities and interest rate markets, which requires different skills
and techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading

<PAGE>

of the securities which are used to formulate an index or even actual
fluctuations in the relevant index itself.

(2) The price of futures contracts may not correlate perfectly with movement in
the price of the hedged securities due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities which cause this situation to occur. As a result, a correct forecast
of general market trends may still not result in successful hedging through the
use of futures contracts over the short term. Activities of large traders in
both the futures and securities markets involving arbitrage and other investment
strategies may result in temporary price distortions.

(3) Although the Funds intend to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures position, and in the event of adverse price movements, the Funds would
continue to be required to make daily cash payments of variation margin.

(4) Like other options, options on futures contracts have a limited life. The
Funds will not trade options on futures contracts unless and until, in the
Adviser's opinion, the market for such options has developed sufficiently that
the risks in connection with options are not greater than the risks in
connection with futures transactions.

(5) Purchasers of options on futures contracts pay a premium in cash at the
time of purchase. This amount and the transaction costs is all that is at risk.
Sellers of options on futures contracts, however, must post an initial margin
and are subject to additional margin calls which could be substantial in the
event of adverse price movements.

(6) Each Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.

<PAGE>

PAYSON VALUE FUND
PAYSON BALANCED FUND

Statement of Additional Information dated January 5, 1996

This Statement of Additional Information ("SAI") supplements the
Prospectus dated January 5, 1996 offering Shares of Payson Value Fund and Payson
Balanced Fund (the "Funds") and consists of these cover pages and the attached
Statement of Additional Information relating to shares of the Funds dated
August 1, 1995 (the "August SAI"), which is incorporated herein.

The information in the August SAI is amended as follows:

1. REORGANIZATION AS A DELAWARE BUSINESS TRUST

Effective January 5, 1996, Forum Funds, Inc. (the "Company") reorganized
from a Maryland corporation into a Delaware business trust under the name Forum
Funds (the "Trust"). As a Delaware business trust, the Trust's operations will
be governed by its Trust Instrument, By-laws and applicable Delaware law rather
than by the Articles of Incorporation, By-Laws and Maryland law, which
presently govern the Company's operations. The Trust initially will have seven
active series corresponding to the current series of the Company.

2. THE TRUST AND ITS SHARES

The Trust was organized in Delaware on August 29, 1995; the Trust's
succeeded to the assets and liabilities of Forum Funds, Inc. on January 5, 1996.
Forum Funds, Inc. was incorporated on March 24, 1980 and assumed the name of
Forum Funds, Inc. on March 16, 1987. The Board has the authority to issue an
unlimited number of shares of beneficial interest of separate series with no par
value per share and to create separate classes of shares within each series.
There are currently seven other series of the Trust.

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 contract entered into or executed by
the Trust or the Trustees. The Trust Instrument provides for indemnification
out of each series' property of any shareholder or former shareholder held
personally liable for the obligations of the series. 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

<PAGE>

The Trust Instrument further provides that the Trustees shall not be liable
to any person other than the Trust or its shareholders; moreover, the Trustees
shall not be liable for any conduct whatsoever, provided that a Trustee is not
protected against any liability to which he would otherwise by subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

Each series capital consists of shares of beneficial interest. Shares are
fully paid and nonassessable, except as set forth above with respect to Trustee
and shareholder liability. Shareholders representing 10% or more of the Trust
or a series may, as set forth in the Trust Instrument, call meetings of the
Trust or series for any purpose related to the Trust or series, as the case may
be, including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or any series 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
series; however, the Trustees may, without prior shareholder approval, change
the form of organization of the Trust by merger, consolidation or incorporation.
If not so terminated or reorganized, the Trust and its series will continue
indefinitely. Under the Trust Instrument, the Trustees may, without shareholder
vote, cause the Trust to merge or consolidate into one or more trusts,
partnerships or corporations or cause the Trust to merge or consolidate into one
or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end
management investment company that will succeed to or assume the Trust's
registration statement.

As of October 27, 1995, 1995, the officers and Directors of the Trust as a
group owned less than 1% of the outstanding shares of the Fund. Also as of that
date, the shareholders listed below owned of record more than 5% of either Fund.
Shareholders owning 25% or more of the shares of a Fund or of the Trust as a
whole may be deemed to be controlling persons. By reason of their substantial
holdings of shares, these persons may be able to require the Trust to hold a
shareholder meeting to vote on certain issues and may be able to determine the
outcome of any shareholder vote. As noted, certain of these shareholders are
known to the Trust to hold their shares of record only and have no beneficial
interest, including the right to vote, in the shares.

<PAGE>

PAYSON VALUE FUND
PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

ALA & Co. (record holder), Portland, 22.97%
Maine 04101

Payse & Co. (record holder), Portland, 17.60%
Maine 04101

PAYSON BALANCED FUND

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

ALA & Co. (record holder), Portland, 20.71%
Maine 04101

Payse & Co. (record holder), Portland, 15.69%
Maine 04101

3. DETERMINATION OF NET ASSET VALUE

<PAGE>

PAYSON VALUE FUND
PAYSON BALANCED FUND

Investment Advisor: Account Information and
H.M. Payson & Co. Shareholder Servicing:
One Portland Square Forum Financial Corp.
P.O. Box 31 P.O. Box 446
Portland, Maine 04112 Portland, Maine 04112
207-772-3761 207-879-0009
800-456-6710

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

STATEMENT OF ADDITIONAL INFORMATION
August 1, 1995

Forum Funds, Inc. (the "Company") is a registered open-end investment company.
This Statement of Additional Information supplements the Prospectus offering
shares of Payson Value Fund and Payson Balanced Fund (collectively the "Funds"
and individually a "Fund") and should be read only in conjunction with the
Prospectus, a copy of which may be obtained by an investor without charge by
contacting the Company's Distributor, Forum Financial Services, Inc., Two
Portland Square, Portland, Maine 04101.

TABLE OF CONTENTS
Page
----

1. Investment Policies . . . . . . . . 2
2. Investment Limitations. . . . . . . 6
3. Performance Data. . . . . . . . . . 8
4. Management. . . . . . . . . . . . . 11
5. Determination of Net Asset Value. . 17
6. Portfolio Transactions. . . . . . . 18
7. Additional Purchase and
Redemption Information . . . . . 19
8. Taxation. . . . . . . . . . . . . . 20
9. Other Information . . . . . . . . . 21

Appendix A - Description of Securities Ratings

<PAGE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.

<PAGE>

1. INVESTMENT POLICIES

Each Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the Advisor
to be of comparable quality) if the Advisor determines that retaining such
security is in the best interests of the Fund.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

<PAGE>

to complete such when-issued or forward commitment transactions at prices
inferior to the current market values.

ILLIQUID SECURITIES

The Company's Board of Directors ("Board") has the ultimate responsibility for
determining whether specific securities are liquid or illiquid. The Board has
delegated the function of making day-to-day determinations of liquidity to the
Advisor, pursuant to guidelines approved by the Board. The Advisor 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. The Advisor monitors the liquidity of the
securities in each Fund's portfolio and reports periodically on such decisions
to the Board.

CONVERTIBLE SECURITIES

The Funds may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles

<PAGE>

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 in that they ordinarily provide a
stable stream of income with generally higher yields than those of common stocks
of the same or similar issuers. Convertible securities rank senior to common
stock in a corporation's capital structure but are usually subordinated to
comparable nonconvertible securities. Although no securities investment is
without some risk, investment in convertible securities generally entails less
risk than in the issuer's common stock. However, the extent to which such risk
is reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. Convertible
securities have unique investment characteristics in that they generally (1)
have higher yields than common stocks, but lower yields than comparable non-
convertible securities, (2) are less subject to fluctuation in value than the
underlying stocks since they have fixed income characteristics and (3) provide
the potential for capital appreciation if the market price of the underlying
common stock increases.

The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.

A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.

TEMPORARY DEFENSIVE POSITION.

When a Fund assumes a temporary defensive position it may invest in (i) short-
term U.S. Government Securities, (ii) certificates of deposit, bankers'
acceptances and interest-

<PAGE>

FUTURES CONTRACTS AND OPTIONS

Each Fund may in the future seek to hedge against a decline in the value of
securities it owns or an increase in the price of securities which it plans to
purchase through the writing and purchase of exchange-traded and over-the-
counter options and the purchase and sale of futures contracts and options on
those futures contracts. Payson Value Fund may buy or sell stock index futures
contracts, such as contracts on the S&P 500 stock index, and Payson Balanced
Fund may buy and sell bond index futures contracts. In addition, both Funds may
buy or sell futures contracts on Treasury bills, Treasury bonds and other
financial instruments. The Funds may write covered options and buy options on
the futures contracts in which they may invest.

In addition, the Funds may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with a value at all times sufficient to cover the Fund's
obligation under the option.

The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the Advisor's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options, futures contracts or related options and movements in the
price of the securities hedged or used for cover; (3) the fact that skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Funds invest; (4) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time; and (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences. Other risks include the inability

<PAGE>

of the Fund, as the writer of covered call options, to benefit from the
appreciation of the underlying securities above the exercise price and the
possible loss of the entire premium paid for options purchased by the Fund.

A Fund will only invest in futures and options contracts after providing notice
to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain limitations.

2. INVESTMENT LIMITATIONS

The Funds have adopted the following fundamental investment limitations which
are in addition to those contained in the Funds' Prospectus and which may not be
changed without shareholder approval. Each Fund may not:

<PAGE>

(b) such purchase would at the time of purchase cause the Fund to hold
more than 10% of the outstanding voting securities of that issuer. Up
to 75% of the Fund's total assets may be invested without regard to
this limitation.

(7) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and currency-related
contracts will not be deemed to be physical commodities.

(9) Invest in interests in oil or gas or interests in other mineral
exploration or development programs.

Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Each Fund may not:

(b) Invest in securities of another registered investment company, except
in connection with a merger, consolidation, acquisition or
reorganization;

<PAGE>

and except that the Fund may invest in money market funds and
privately-issued mortgage related securities to the extent permitted
by the 1940 Act.

(e) Invest in or hold securities of any issuer if officers and directors
of the Company or the Advisor, individually owning beneficially more
than 1/2 of 1% of the securities of the issuer, in the aggregate own
more than 5% of the issuer's securities.

(h) Invest in oil, gas or other mineral exploration or development
programs, or leases, provided that the Fund may invest in securities
issued by companies engaged in such activities.

(i) Purchase or sell real property (including limited partnership
interests but excluding readily marketable interests in real estate
investment trusts or readily marketable securities of companies which
invest in real estate.)

<PAGE>

(j) Invest in warrants if (i) more than 5% of the value of the Fund's
net assets will be invested in warrants (valued at the lower of cost
or market) or (ii) more than 2% of the value of the Fund's net assets
would be invested in warrants which are not listed on the New York
Stock Exchange or the American Stock Exchange. For purpose of this
limitation, warrants acquired by the Fund in units or attached to
securities are deemed to have no value.

3. PERFORMANCE DATA

The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
indicate future returns. A Fund's net asset value, yield and total return
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.

Total returns for the year ended March 31, 1995 and average annual total returns
for the periods from commencement of operations to through March 31, 1995 are as
follows.

Total Return 1 Total Return Since
Year Inception
---- ---------
PAYSON VALUE FUND 6.52% 10.90%

Total Return 1 Total Return Since
Year Inception
---- ---------
PAYSON BALANCED FUND 6.00% 9.28%

Payson Value Fund commenced operations on July 31, 1992. Payson Balanced Fund
commenced operations on November 25, 1991.

<PAGE>

Composite Stock Price Index, the Dow Jones Industrial Average, and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. A
Fund may refer in such materials to mutual fund performance rankings and other
data published by Fund Tracking Companies. Performance advertising may also
refer to discussions of a Fund and comparative mutual fund data and ratings
reported in independent periodicals, such as newspapers and financial magazines.

YIELD CALCULATIONS

Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced
with respect to bonds purchased at a premium over their par value by subtracting
a portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.

Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. Also, Processing Organizations may charge
their customers direct fees in connection with an investment in a Fund, which
will have the effect of reducing the Fund's net yield to those shareholders.
The yields of each Fund are not fixed or guaranteed, and an investment in a Fund
is not insured or guaranteed. Accordingly, yield information may not
necessarily be used to compare shares of a Fund with investment alternatives
which, like money market instruments or bank accounts, may provide a fixed rate
of interest. Also, it may not be appropriate to compare a Fund's yield
information directly to similar information regarding investment alternatives
which are insured or guaranteed.

TOTAL RETURN CALCULATIONS

<PAGE>

hypothetical historical investment in a Fund over a stated period, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Funds.

Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:

P(1+T)(n) = ERV

Where:

P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value.

ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.

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.

<PAGE>

4. MANAGEMENT

The directors and officers of the Company and their principal occupations during
the past five years are set forth below.

John Y. Keffer, Chairman and President.

Costas Azariadis, Director.

James C. Cheng, Director.

J. Michael Parish, Director.

Lee W. Shultheis, Vice President, Assistant Treasurer and Assistant Secretary.

<PAGE>

Michael D. Martins, Treasurer.

David I. Goldstein, Secretary.

Renee A. Walker, Assistant Secretary.

Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since December 1994. Prior thereto, Ms. Walker was employed by
Longwood Partners, Investment Partnership and Paine Webber, Inc. in Boston,
Massachusetts. Her address is Two Portland Square, Portland, Maine 04101.

John Y. Keffer is an interested person of the Company as that term is defined in
the 1940 Act.

ADVISOR

The Advisor furnishes at its own expense all services, facilities and personnel
necessary in connection with managing each Fund's investments and effecting
portfolio transactions for each Fund, pursuant to an investment advisory
agreement between the Advisor and the Company (the "Advisory Agreement"). The
Advisory Agreement provides, with respect to each Fund, for an initial term of
two years from its effective date and for its continuance in effect for
successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or, with respect to either
Fund, by vote of the shareholders of that Fund, and in either case by a majority
of the directors who are not parties to the Advisory Agreement or interested
persons of any such party.

<PAGE>

Fund, the Advisor shall not be liable for any error of judgment or mistake of
law or for any act or omission in the performance of its duties to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of the Advisor's duties or by reason of reckless disregard of its obligations
and duties under the Advisory Agreement. In addition, under the Advisory
Agreement, if the Advisor ceases to act as a Fund's investment advisor, or in
the event the Advisor so requests in writing, the Company will change a Fund's
name so as not to include the word "Payson." The Advisory Agreement provides
that the Advisor may render services to others.

For its services under the Investment Advisory Agreement, H.M. Payson & Co.
receives with respect to each Fund a fee at an annual rate of 0.80% and 0.60% of
the average daily net assets of Payson Value Fund and Payson Balanced Fund,
respectively. Fees payable under the Advisory Agreement with respect to each
Fund are outlined in the following tables:

PAYSON VALUE FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $51,285 $0 $51,285
1994 $27,628 $1,434 $26,194
1993 $7,034 $7,034 $0

PAYSON BALANCED FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $75,058 $0 $75,058
1994 $50,158 $2,662 $47,496
1993 $23,512 $23,512 $0

In addition to receiving its advisory fee from the Funds, the Advisor may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in a Fund. In some instances the Advisor may elect to
credit against any investment management fee received from a client who is also
a shareholder in a Fund an amount equal to all or a portion of the fees received
by the Advisor or any affiliate of the Advisor from a Fund with respect to the
client's assets invested in that Fund.

MANAGER AND DISTRIBUTOR

<PAGE>

monitoring of performance and billing of, the transfer agent and custodian and
arranging for maintenance of books and records of the Company), provides the
Company with general office facilities and serves as distributor of shares of
the Funds pursuant to a management and distribution agreement between Forum and
the Company (the "Management and Distribution Agreement"). The Management and
Distribution Agreement provided, with respect to each Fund, for an initial term
of one year from its effective date and for its continuance in effect for
successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or, with respect to either
Fund, by the shareholders of that Fund, and in either case by a majority of the
directors who are not parties to the Management and Distribution Agreement or
interested persons of any such party and do not have any direct or indirect
financial interest in the Distribution Plan or in any agreement related to the
Distribution Plan. (See "Management -- Distribution Plan.")

For its services under the Management Agreement, Forum receives with respect to
each Fund a fee at an annual rate of 0.20% of the average daily net assets of
the Fund. Fees payable under the Management Agreement with respect to each Fund
are outlined in the following tables:

PAYSON VALUE FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $12,821 $12,821 $0
1994 $6,907 $6,907 $0
1993 $1,758 $1,758 $0

PAYSON BALANCED FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $25,019 $25,019 $0
1994 $16,719 $16,719 $0
1993 $7,837 $7,837 $0

<PAGE>

Forum has agreed to reimburse the Company for certain of the Funds' operating
expenses (exclusive of interest, taxes, brokerage, fees and organization
expenses, all to the extent permitted by applicable state law or regulation)
which in any year exceed the limits prescribed by any state in which the Funds'
shares are qualified for sale. Forum believes that currently the most
restrictive expense ratio limitation imposed by any state is 2-1/2% of the first
$30 million of each Funds' average net assets, 2% of the next $70 million of its
average net assets and 1-1/2% of its average net assets in excess of $100
million. For the purpose of this obligation to reimburse expenses, the Funds'
annual expenses are estimated and accrued daily, and any appropriate estimated
payments will be made by Forum monthly.

Subject to the obligations of Forum to reimburse the Company for its excess
expenses as described in the Prospectus, the Company has confirmed its
obligation to pay all of its other expenses, including: interest charges,
taxes, brokerage fees and commissions; certain insurance premiums; fees,
interest charges and expenses of the custodian, transfer agent and dividend
disbursing agent; telecommunications expenses; auditing, legal and compliance
expenses; costs of forming the corporation and maintaining corporate existence;
costs of preparing and printing the Company's prospectuses, statements of
additional information, account application forms and shareholder reports and
delivering them to existing and prospective shareholders; costs of maintaining
books of original entry for portfolio and fund accounting and other required
books and accounts and of calculating the net asset value of shares of the
Company; costs of reproduction, stationery and supplies; compensation of
directors, officers and employees of the Company and costs of other personnel
performing services for the Company who are not officers of the Advisor, Forum
or their respective affiliates; costs of corporate meetings; Securities and
Exchange Commission registration fees and related expenses; state securities
laws registration fees and related expenses; fees payable to the Advisor under
the Advisory Agreement and to Forum under the Management and Distribution
Agreement and all other fees and expenses paid by the Company under the
Distribution Plan.

DISTRIBUTION PLAN

In accordance with Rule 12b-1 under the 1940 Act, the Company adopted a
distribution plan (the "Plan") which provides that all written agreements
relating to the Plan must be in a form satisfactory to the Board. In addition,
the Plan requires the Company, the Advisor and Forum to prepare, at least
quarterly, written reports setting forth all amounts expended for distribution
purposes by the Company, the Advisor and Forum pursuant to

<PAGE>

the Plan and identifying the distribution activities for which those
expenditures were made.

The Plan provides that it will remain in effect for one year from the date of
its adoption and thereafter shall continue in effect provided it is approved at
least annually by the shareholders or by the Board, including a majority of
directors who are not interested persons of the Company and who have no direct
or indirect interest in the operation of the Plan or in any agreement related to
the Plan. The Plan further provides that it may not be amended to increase
materially the costs which may be borne by the Company for distribution pursuant
to the Plan without shareholder approval and that other material amendments of
the Plan must be approved by the directors in the manner described in the
preceding sentence. The Plan may be terminated at any time by a vote of the
Board or, with respect to either Fund, by the Fund's shareholders.

During the fiscal year ended March 31, 1993, neither Fund paid any distribution
related expenses pursuant to the Distribution Plan.

TRANSFER AGENT

<PAGE>

PAYSON VALUE FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $16,027 $3,820 $12,207
1994 $8,634 $8,634 $0
1993 $2,198 $0 $0

PAYSON BALANCED FUND

FISCAL YEAR
ENDED MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------------- --------- ---------- -------

1995 $31,274 $19,059 $12,215
1994 $20,899 $20,899 $0
1993 $9,797 $0 $0

<PAGE>

5. DETERMINATION OF NET ASSET VALUE

6. PORTFOLIO TRANSACTIONS

Purchases and sales of debt securities for Payson Balanced Fund usually are
principal transactions. Portfolio Securities for that Fund are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked prices.

Payson Value Fund will, and Payson Balanced Fund may, effect purchases and sales
through brokers who charge commissions. Allocations of transactions to brokers
and dealers and the frequency of transactions are determined by the Advisor in
its best judgment and in a manner deemed to be in the best interest of
shareholders of the Fund rather than by any formula. The primary consideration
is prompt execution of orders in an effective manner and at the most favorable
price available to the Fund. For the fiscal years ended March 31, 1995, 1994,
and 1993, the aggregate brokerage commissions paid by Payson Value Fund were
$15,276, $8,809, and $8,942, respectively. For the fiscal years ended March 31,
1995, 1994, and 1993, the aggregate brokerage commissions paid by Payson
Balanced Fund were $27,143, $22,915, and $11,747, respectively.

A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with Fund transactions, the Advisor takes into account such factors
as size of the order, difficulty of execution, efficiency of the executing
broker's facilities (including the services described below) and any risk
assumed by the executing broker. The Advisor may also take into account
payments made by brokers effecting transactions for a Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.

In addition, the Advisor may give consideration to research services furnished
by brokers to the Advisor for its use and may cause a Fund to pay these brokers
a higher amount of commission than may be charged by other brokers. Such
research and analysis may be used by the Advisor in connection with services to
clients other than the Funds, and the Advisor's fee is not reduced by reason of
the Advisor's receipt of the research services.

<PAGE>

Investment decisions for the Funds will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Advisor or its affiliates. If, however, a Fund and other investment
companies or accounts managed by the Advisor are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by a Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for a Fund and for other investment companies and accounts managed
by the Advisor occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large
denomination purchases or sales.

In the future the Funds, consistent with the policy of obtaining best net
results, may conduct brokerage transactions through the Advisor's affiliates,
affiliates of those persons or Forum. If a Fund anticipates conducting
brokerage transactions through these persons, the Board will adopt procedures in
conformity with applicable rules under the 1940 Act to ensure that all brokerage
commissions paid to these persons are reasonable and fair.

7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Shares of each Fund are sold on a continuous basis by the distributor without
any sales charge.

In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Company may redeem shares involuntarily, from time
to time, to reimburse a Fund for any loss sustained by reason of the failure of
a shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to a Fund's shares as provided in the
Prospectus.

EXCHANGE PRIVILEGE

The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any other fund of the Company or shares of certain other
portfolios of investment companies which retain Forum or its affiliates as
investment adviser or, distributor and which participate in the Company's
exchange privilege program ("Participating Fund"). For Federal income tax
purposes, exchange transactions are treated as sales on which a purchaser will
realize a capital gain or loss depending on whether the value of the shares
redeemed is more or less than his basis in such shares at the time of the
transaction.

<PAGE>

By use of the exchange privilege, the shareholder authorizes the Transfer Agent
to act upon the instruction of any person representing himself to either be, or
to have the authority to act on behalf of, the investor and believed by the
Transfer Agent to be genuine. The records of the Transfer Agent of such
instructions are binding. Proceeds of an exchange transaction may be invested
in another Participating Fund in the name of the shareholder.

Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge
may be redeemed and the proceeds used to purchase, without a sales charge,
shares of any other Participating Fund otherwise sold with the same sales
charge. If the Participating Fund purchased in the exchange transaction imposes
a higher sales charge than was paid originally on the exchanged shares, the
shareholder will be responsible for the difference between the two sales
charges. Shares acquired through the reinvestment of dividends and
distributions are deemed to have been acquired with a sales charge rate equal to
that paid on the shares on which the dividend or distribution was paid.

PAYROLL PURCHASE PROGRAM

Shares of the Funds may be purchased by employees of employers participating in
the Payroll Purchase Program ("PPP"). Employers wishing to participate must
arrange payroll deduction or other bulk transmission of investments to the
Funds. An employer may not participate unless, at all times, at least five of
the employer's employees are participating in this program.

Once an employer chooses to participate in PPP through a payroll deduction or
other bulk purchase plan, subsequent investments will be automatic and will
continue until such time as the investor notifies the applicable Fund and his
employer to discontinue further investments. Due to the varying procedures to
prepare, process and forward the transmission to the Fund, there may be a delay
between the time of the deduction and the time the money reaches the Fund. An
investment in the Fund will be made at the applicable offering price determined
on the day that both the check and the payroll deduction data are received in
required form by the Transfer Agent.

<PAGE>

INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT

8. TAXATION

Qualification as a regulated investment company under the Internal Revenue Code
of 1986 does not involve governmental supervision of management or investment
practices or policies. Investors should consult their own counsel for a
complete understanding of the requirements the Funds must meet to qualify for
such treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by a Fund and assume that each Fund qualifies as a regulated investment company.
Investors should consult their own counsel for further details and for the
application of state and local tax laws to the investor's particular situation.

Payson Value Fund expects to derive a substantial amount of its gross income
(exclusive of capital gain) from dividends. Accordingly, that portion of that
Fund's dividends so derived will qualify for the dividends-received deduction
for corporations. Payson Balanced Fund expects to derive substantially all of
its gross income (exclusive of capital gain) from sources other than dividends.
Accordingly, it is expected that most of that Fund's dividends or distributions
will not qualify for the dividends-received deduction for corporations.

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received or paid will be included in the calculation of gain or loss upon
disposition of the property underlying the option.

9. OTHER INFORMATION

CUSTODIAN

Pursuant to a Custodian Agreement, The First National Bank of Boston, 100
Federal Street, Boston, MA 02106, acts as the custodian of the Funds' assets.
The custodian's responsibilities include safeguarding and controlling the Funds'
cash and securities, determining income and collecting interest on Fund
investments.

COUNSEL

AUDITORS

Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281-
1414, independent auditors, act as auditors for the Company.

THE COMPANY

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be able to require the Company to hold a shareholder meeting to vote on certain
issues and may be able to determine the outcome of any shareholder vote. As
noted, certain of these shareholders are known to the Company to hold their
shares of record only and have no beneficial interest, including the right to
vote, in the shares.

PAYSON VALUE FUND

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

ALA & Co. (record holder), Portland, 23.08%
Maine 04101

Payse & Co. (record holder), Portland, 14.80%
Maine 04101

Key Trust Co. (record holder), 5.76%
Cleveland, Ohio

PAYSON BALANCED FUND

PERCENTAGE
OF FUND
SHAREHOLDER SHARES OWNED
----------- ------------

ALA & Co. (record holder), Portland, 20.95%
Maine 04101

Payse & Co. (record holder), Portland, 14.94%
Maine 04101

FINANCIAL STATEMENTS

The financial statements of Payson Balanced Fund for the year ended March 31,
1995, which are included in the Annual Report to Shareholders of the Company and
delivered along with this Statement of Additional Information, are incorporated
herein by reference.

THE ANNUAL REPORT FOR THE YEAR ENDING MARCH 31, 1995 IS INCLUDED IN THIS
REGISTRATION STATEMENT AS APPENDIX A.