<PAGE>
As filed with the Securities and Exchange Commission on October 18, 1996
File No. 2-67052
File No. 811-3023
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 40
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 40
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FORUM FUNDS
(Formerly Forum Funds, Inc.)
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: 207-879-1900
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Max Berueffy, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
-----------------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485, paragraph (b)
---
on [ ] pursuant to Rule 485, paragraph (b)
---
60 days after filing pursuant to Rule 485, paragraph (a)(i)
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on August 1, 1996 pursuant to Rule 485, paragraph (a)(i)
---
X 75 days after filing pursuant to Rule 485, paragraph (a)(ii)
---
on [ ] pursuant to Rule 485, paragraph (a)(ii)
---
this post-effective amendment designates a new effective date for a
--- previously filed post-effective amendment
Registrant has registered an indefinite number of shares of beneficial interest
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Accordingly, no fee is payable herewith. Registrant filed
a Rule 24f-2 notice for its most recent fiscal year ended March 31, 1996, on
May 29, 1996.
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(Prospectus offering Shares of Value Equity Fund, International Equity Fund,
Restricted Maturity Fund and Opportunistic Bond Fund)
FORM N-1A LOCATION IN PROSPECTUS
ITEM NO. (CAPTION)
- --------- ----------------------
Item 1. Cover Page: Cover Page
Item 2. Synopsis: Prospectus Summary
Item 3. Condensed Financial
Information: Not Applicable
Item 4. General Description
of Registrant: Prospectus Summary; Investment Objectives
and Policies; Other Information
Item 5. Management of the Fund: Prospectus Summary; Management
Item 6. Capital Stock and
Other Securities: Investment Objectives and Policies;
Dividends and Tax Matters; Other
Information - The Trust and Its Shares
Item 7. Purchase of Securities
Being Offered: Purchases and Redemptions of Shares;
Other Information - Determination of Net
Asset Value; Management
Item 8. Redemption or Repurchase
of Shares: Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings: Not Applicable
<PAGE>
PART B
(SAI offering Shares of Value Equity Fund, International Equity Fund,
Restricted Maturity Fund and Opportunistic Bond Fund)
LOCATION IN STATEMENT
FORM N-1A OF ADDITIONAL INFORMATION
ITEM NO. (CAPTION)
- --------- -------------------------
Item 10. Cover Page: Cover Page
Item 11. Table of Contents: Cover Page
Item 12. General Information and History: Management; Other Matters
Item 13. Investment Objectives and
Policies: Investment Policies, Investment
Limitations
Item 14. Management of the Registrant: Management
Item 15. Control Persons and
Principal Holders of
Securities: Other Matters
Item 16. Investment Advisory
and Other Services: Management; Other Matters -
Custodian, Counsel, Auditors
Item 17. Brokerage Allocation
and Other Practices: Portfolio Transactions
Item 18. Capital Stock and
Other Securities: Determination of Net Asset Value
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered: Determination of Net Asset Value;
Additional Purchase and Redemption
Information
Item 20. Tax Status: Tax Matters
Item 21. Underwriters: Management
Item 22. Calculation of
Performance Data: Performance Data
Item 23. Financial Statements: Not Applicable
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(All other Prospectuses)
Not Applicable in this Filing
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART B
(All other SAIs)
Not Applicable in this Filing
<PAGE>
THE QUADRA FUNDS
RESTRICTED MATURITY TREASURY FUND
VALUE EQUITY FUND
INTERNATIONAL EQUITY FUND
OPPORTUNISTIC BOND FUND
FUND INFORMATION: ACCOUNT INFORMATION AND
SHAREHOLDER SERVICES:
QUADRA Capital Partners, L.P. The QUADRA Funds
270 Congress Street P.O. Box 446
Boston, Massachusetts 02210 Portland, Maine 04112
(617) XXX-XXXX (207) XXX-XXXX
(800) XXX-XXXX (800) XXX-XXXX
PROSPECTUS
[DATE]
__________________________________________________________________
This Prospectus offers shares of the QUADRA Restricted Maturity Treasury Fund,
QUADRA Value Equity Fund, QUADRA International Fund, and QUADRA Opportunistic
Bond Fund (each a "Fund" and collectively the "Funds"). The Funds are each
diversified portfolios of the Forum Funds (the "Trust"), an open-end, management
investment company.
This prospectus contains important information
about the Trust, the Funds and their investments, and the
services available to its shareholders. PLEASE READ IT BEFORE
INVESTING IN ANY OF THE FUNDS, AND RETAIN IT FOR FUTURE REFERENCE.
The Trust has filed with the Securities and Exchange Commission a Statement of
Additional Information dated [DATE]. It contains more detailed information
about the Funds and the Trust and is incorporated into this Prospectus by
reference. To obtain a free copy of the Statement of Additional Information,
please call The QUADRA Funds at (800) XXX-XXXX.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS SUMMARY
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Funds are described more fully in
this prospectus under "Investment Objectives and Policies."
RESTRICTED MATURITY TREASURY FUND seeks better than money market returns with
maximum credit protection and limited fluctuation in principal value by
investing primarily in a portfolio of U.S. Treasury bills and notes maturing
within 5 years.
VALUE EQUITY FUND seeks capital appreciation by investing primarily in a
diversified portfolio of common and preferred stock and securities
convertible into common stock.
INTERNATIONAL EQUITY FUND seeks long term capital appreciation by investing,
directly or indirectly, in companies based outside the United States.
OPPORTUNISTIC BOND FUND seeks total return, consistent with prudent investment
risk, by investing primarily in a portfolio of domestic and foreign debt
securities.
RISK FACTORS AND INVESTMENT CONSIDERATIONS
There can be no assurance that any of the Funds will achieve its investment
objective, and each Fund's net asset value and total return will fluctuate based
upon changes in the value of its portfolio securities. Upon redemption, an
investment in a Fund may be worth more or less than its original value.
All investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by certain Funds through borrowings or securities lending. For
more information about the risks of investing in the Funds, please see
"Investment Objectives and Policies," "Additional Investment Practices," and
"Appendix A: Investments, Investment Strategies and Risk Considerations."
The Value Equity Fund invests in securities that its investment advisers
believe may be undervalued by the market. This investment policy entail
certain risks in addition to those normally associated with investment in
equity securities. SEE "Investment Objectives and Policies."
The International Equity Fund and the Opportunistic Bond Fund each invest in
the securities of foreign issuers, including issuers domiciled in smaller,
emerging capital markets and may invest a significant portion of their assets
in currencies other than U.S. dollars. Investments in such securities involve
certain risks not associated with domestic investing, including fluctuations in
foreign exchange rates, uncertain political and economic developments, and the
possible imposition of exchange controls or other foreign laws or restrictions.
SEE "Investment Objectives and Policies."
Normally, the value of the investments made by the Restricted Maturity Treasury
Fund and the Opportunistic Bond Fund will vary inversely with changes in
interest rates. In addition, the Opportunistic Bond Fund's investments are
subject to "credit risk," the risk that the issuer of securities that the Fund
holds will become unable to honor its obligation under the debt instruments held
by the Fund. The Opportunistic Bond Fund, however, invest only in investment
grade securities (those rated in the top four grades by a national recognized
statistical rating organization such as Standard & Poor's. SEE "Investment
Objectives and Policies."
2
<PAGE>
MANAGEMENT
INVESTMENT ADVISER. QUADRA Capital Partners, L.P. ("Quadra"), is the Fund's
investment adviser. Quadra is responsible for, among other things, developing
and reviewing the investment strategies and policies of each Fund. See
"Management-Investment Advisory Services."
INVESTMENT SUBADVISERS. To assist it in carrying out its responsibilities, the
Adviser has retained the following subadvisers to render advisory services and
make daily investment decisions for each Fund:
- The portfolio of the RESTRICTED MATURITY TREASURY FUND is managed by
Anhalt/O'Connell, Inc.
- The portfolio of the VALUE EQUITY FUND is managed by Carl Domino
Associates, L.P.
- The portfolio of the INTERNATIONAL EQUITY FUND is managed by McDonald
Investment Management, Inc.
- The portfolio of the OPPORTUNISTIC BOND FUND is managed by LM Capital
Management, Inc.
Quadra is also responsible for monitoring the investments and the performance of
the subadviser on behalf of each of the Funds. Quadra and the subadvisers
may be referred to herein as "the Advisers". See "Management-Investment
Advisory Services."
ADMINISTRATOR AND DISTRIBUTOR. Forum Financial Services, Inc. is the distributor
of each Fund's shares. Its affiliate, Forum Administrative Services LLC is the
Fund's administrator. SEE "Management-Administrator" and "Management-
Distributor."
PURCHASES AND REDEMPTIONS
Shares of the Funds are offered to investors without any sales charge. The
minimum initial investment is $100,000. The Trust reserves the right to waive
the minimum investment requirement. There is no minimum for subsequent
investments.
Shares may be purchased or redeemed on days that the New York Stock Exchange
is open for trading, normally weekdays except customary business holidays and
Good Friday ("Fund Business Day"). Purchase and redemption orders are
accepted by the transfer agent between 9:00 a.m. and 6:00 p.m. (Eastern time)
on each Fund Business Day. SEE "Purchases and Redemptions of Shares."
DIVIDENDS
The Funds distribute substantially all of their net investment income and
capital gains, if any, to shareholders each year. Dividends and distributions
are reinvested in additional shares of the Fund unless a shareholder elects to
have them paid in cash. SEE "Dividends and Tax Matters."
VALUE EQUITY AND INTERNATIONAL EQUITY FUNDS. Dividends representing the net
investment income of the Equity Funds are declared and paid at least annually.
Net capital gains realized by the Funds, if any, also will be distributed
annually.
RESTRICTED MATURITY TREASURY FUNDS AND OPPORTUNISTIC BOND. Dividends
representing the net investment income of the Fixed Income Funds are declared
daily and paid monthly.
3
<PAGE>
EXPENSES OF INVESTING IN THE FUND
The following table should help you understand the various costs and expenses
that you will bear if you invest in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
(APPLICABLE TO EACH FUND)
Maximum Sales Load Imposed on Purchases. . . . . . . . . . . None
Maximum Sales Load Imposed on Reinvested Dividends . . . . . None
Deferred Sales Load. . . . . . . . . . . . . . . . . . . . . None
Redemption Fees. . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees. . . . . . . . . . . . . . . . . . . . . . . . None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Restricted
Maturity International Opportunistic
Treasury Value Equity Equity Bond
-------- ------------ ------ ----
<S> <C> <C> <C> <C>
Advisory Fees(after fee 0.25% 0.80% 1.05% 0.50%
waivers)(1)
12b-1 Fees None None None None
Other Expenses (after expense 0.20% 0.20% 0.20% 0.20%
reimbursements)(2)
Total Fund Operating Expenses(3) 0.45% 1.00% 1.25% 0.70%
</TABLE>
(1) The contractual Advisory Fees are 0.45% for the Restricted Maturity
Treasury Fund, 1.00% for the Value Equity Fund, 1.25% for the
International Equity Fund, and 0.70% for the Opportunistic Bond Fund.
Until May 1, 1997, however, the Adviser has agreed to waive its fees
and/or reimburse each Fund's expenses in order to cap each Fund's
expenses at the amount of Total Operating Expenses stated above.
(2) The amount of the Other Expenses is an estimate for the Funds'
current fiscal year ending March 31, 1997.
(3) Absent expense reimbursements and fee waivers Total Fund Operating
Expenses for Restricted Maturity Fund, Value Equity Fund, International
Fund, and Opportunistic Bond Fund, respectively would be .65%, 1.25%,
1.45% and .90%. For a further description of the various costs and expenses
incurred in the Funds' operation, SEE "Management."
EXAMPLE
The following is an example of the expenses you would pay on a hypothetical
$1,000 investment, assuming a 5% annual return and redemption at the end of each
period.
One Three
Year Years
---- -----
Restricted Maturity Treasury Fund 5 14
Value Equity Fund 10 32
International Equity Fund 13 40
Opportunistic Bond Fund 7 22
THE 5% ANNUAL RETURN IS NOT PREDICTIVE OF AND DOES NOT REPRESENT THE FUND'S
PROJECTED RETURNS; RATHER, IT IS REQUIRED BY GOVERNMENT REGULATION.
This example should not be considered a representation of past or future
expenses; actual expenses may be more or less than these examples.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
RESTRICTED MATURITY TREASURY FUND
INVESTMENT OBJECTIVE. The Fund seeks high level of income with maximum credit
protection and moderate fluctuation in principal value. There can be no
assurance, of course, that the Fund will achieve its investment objective.
INVESTMENT POLICIES. The Fund will seek to attain its investment objective by
investing primarily in a portfolio of U.S. Treasury bills and notes maturing
within 5 years. For a further description of the Fund's investment policies
see "Additional Investment Practices" below.
INVESTMENT CONSIDERATIONS AND RISKS. The Fund's yield and share price changes
daily in response to changes in interest rates, market conditions, other
economic and political news. In general, the value of the Fund's investments
will rise when interest rates fall, and vice versa. The Fund will restrict its
portfolio maturity and duration in order to limit its exposure to this interest
rate risk. The Fund may also employ various investment techniques to hedge a
portion of its risk, there is no guarantee that these strategies will work as
intended. Neither the Fund's share price nor its yield is guaranteed by the
United States Government.
VALUE EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Value Equity Fund is to
seek capital appreciation. The Fund seeks to achieve its investment
objective by investing primarily in a diversified portfolio of equity
securities, including common stock and securities convertible into common and
preferred stock. There can be no assurance, of course, that the Fund will
achieve its investment objective.
INVESTMENT POLICIES. Except when the Fund assumes a temporary defensive
position, the Fund will have at least 65% of its total assets invested in common
stock and securities convertible into common stock. The Fund intends to
invest principally in companies that the Adviser believes are undervalued in
comparison to the equity securities of similar companies. To identify these
companies, the Adviser will employ a number of valuation measures , including
but not limited to, an analysis of price/earnings ratios, price/book ratios,
dividend yield and measure of current profitability. For a further
description of the Fund's investment policies see "Additional Investment
Practices" below.
INVESTMENT CONSIDERATIONS AND RISKS. The value of the equity securities in
which the Fund invests may change rapidly in response to many factors, including
the market's perception of the value of those securities. Because the Adviser
seeks to invest in companies whose fundamental attributes, in the Adviser's
opinion, have not been fully recognized by the investment community, the Fund's
portfolio may exhibit a high degree of volatility or price fluctuation when
compared to the market averages.
An investment in the Fund is not by itself a complete or balanced investment
program. Nevertheless, the equity securities in which the Fund invests may be
an important part of an investor's portfolio, particularly for long-term
investors able to tolerate short-term fluctuations in the Fund's net asset
value. Investors in the Fund should be willing to accept the risk of the stock
market and should consider an investment in the Fund only as a part of their
overall investment portfolio.
INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Fund is long-term capital
appreciation through investment in securities markets outside the U.S. There is
no assurance that the Fund will achieve its objective.
5
<PAGE>
INVESTMENT POLICIES. The Fund will normally invest at least 65% of its total
assets in equity securities of companies domiciled outside the U.S. The Fund may
also invest in the securities of closed-end investment companies investing
primarily in foreign securities and in debt obligations of foreign governments,
international organizations and foreign corporations. The Fund invests in
securities of issuers in countries included in the Morgan Stanley Capital
International World Index ("MSCI World Index") of major world economies,
including, but not limited to, Australia; Austria; Belgium; Canada; Denmark;
Finland; France; Germany; Hong Kong; Ireland; Italy; Japan; Malaysia;
the Netherlands; New Zealand; Norway; Singapore; Spain; Sweden; Switzerland;
United Kingdom ("Major Market Countries"). For a further description of the
Fund's investment policies see "Additional Investment Practices" below.
The International Equity Fund may also invest a significant portion of its
total assets in securities of issuers located in countries other than those
contained in the MCSI World Index ("emerging market securities"). A security
ordinarily will be considered to be an emerging market security when (1) its
issuer is organized in an emerging market country; (2) the issuer's primary
trading market is located in an emerging market country; or (3) in the
judgment of the investment adviser, at least 50% of the issuer's revenues or
profits are derived from goods produced or sold, investments made, or
services performed in emerging market countries or which have at least 50% of
their assets situated in such countries. Where the investment advisor
determines that the economy of a particular country included in the MSCI
World Index more appropriately reflects an emerging market economy, the adviser
may include such country in the emerging market category. The Fund may
consider investment companies to be located in the country or countries in
which they primarily make their portfolio investments.
The Fund will not necessarily seek to diversify investments on a geographic
basis within the emerging market category and, in this regard, the Fund may
invest more than 25% of its total assets in issuers located in any one
country. To the extent it invests in issuers located in one country, the Fund
is susceptible to factors adversely affecting that country. See "Investment
Considerations and Risks - Geographic Concentration" below.
The Fund may acquire emerging market securities that are denominated in
currencies other than a currency of an emerging market country.
In recent years, many emerging market countries have begun programs of economic
reform: removing import tariffs, dismantling trade barriers, deregulating
foreign investment, privatizing state owned industries, permitting the value of
their currencies to float against the dollar and other major currencies, and
generally reducing the level of state intervention in industry and commerce.
Important intra-regional economic integration also holds the promise of greater
trade and growth. At the same time, significant progress has been made in
restructuring the heavy external debt burden that certain emerging market
countries accumulated during the 1970s and 1980s. While there is no assurance
that these trends will continue, the Fund's investment adviser will seek out
attractive investment opportunities in these countries.
6
<PAGE>
INVESTMENT CONSIDERATIONS AND RISKS. The International Equity Fund may invest
in securities of foreign issuers, including issuers located in countries with
smaller, emerging capital markets. These investments involve certain risks
not associated with domestic investing, including fluctuations in foreign
exchange rates, uncertain political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws
or restrictions. Investment securities are selected on the basis of their
potential for capital appreciation without regard for current income. An
investment in the Fund is not by itself a complete or balanced investment
program. Because international investments generally involve risks in
addition to those risks associated with investments in the U.S., the Fund
should be considered only as a vehicle for international diversification and
not as a complete investment program. Nevertheless, an investment in
international equity securities may be an important part of an investor's
portfolio, particularly for long-term investors able to tolerate short-term
fluctuations in the Fund's net asset value. See "Considerations and Risks of
Investment in Foreign and Emerging Markets."
OPPORTUNISTIC BOND FUND
INVESTMENT OBJECTIVE. The Fund seeks total return consistent with prudent
investment risk. 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 primarily in a portfolio consisting of investment grade debt
securities. The Fund invests in a diversified portfolio of fixed and variable
rate U.S. dollar and non-dollar denominated fixed income securities of a broad
spectrum of United States and foreign issuers, including U.S. Government
Securities and the debt securities of financial institutions, corporations, and
others. For a further description of the Fund's investment policies
see "Additional Investment Practices" below.
7
<PAGE>
The Fund may invest any amount of its assets in U.S. Government Securities.
The Fund may not, however, invest more than 30 percent of its total assets in
the securities issued or guaranteed by any single agency or instrumentality
of the U.S. Government, except the U.S. Treasury.
The Fund may also invest in securities of financial institutions,
corporations, and others that are rated, at the time of purchase, within the
four highest long-term or two highest short-term rating categories assigned
by a nationally recognized statistical rating organization, such as Moody's
Investors Service, Standard & Poor's or Fitch Investors Service, L.P., or
which are unrated and determined by the Adviser to be of comparable quality.
See "Additional Investment Policies - Rating Matters" below. The Fund may
invest up to 10 percent of its total assets in participations purchased from
financial institutions in loans or securities in which the Fund may invest
directly.
The Fund may also invest up to 30 percent of its total assets in the
following instruments that the that the Subadviser believes do not present
undue risk: (i) U.S. dollar denominated and non-U.S. dollar denominated
instruments issued or guaranteed by governments of foreign countries or by
those countries' political subdivisions, agencies or instrumentalities, and
(ii) debt obligations of foreign corporations. The Fund will invest only in
U.S. dollar denominated instruments of emerging market issuers, and will
limit its investments in emerging market issuers to 20 percent of its total
assets. In addition, the Fund may invest up to 10 percent of its total assets
in securities denominated in Canadian dollars.
The Fund invests in debt obligations with maturities (or average life in the
case of mortgage-backed and similar securities) ranging from short-term
(including overnight) to 30 years. Under normal circumstances, the Fund's
portfolio of securities will have an average dollar-weighted portfolio maturity
between 3 and 7 years and a duration between 3 and 5 years. Duration is a
measure of a debt security's average life that reflects the present value of the
security's cash flow and, accordingly, is a measure of price sensitivity to
interest rate changes ("duration risk"). Because earlier payments on a debt
security have a higher present value, duration of a security, except a zero-
coupon security, is less than the security's stated maturity.
The Fund may also engage in certain strategies involving options (both
exchange-traded and over-the-counter) to attempt to enhance the Fund's return
and may attempt to reduce the overall risk of its investments ("hedge") by
using options and futures contracts. The Fund's ability to use these
strategies may be limited by market considerations, regulatory limits and tax
considerations. The Fund may write covered call and put options, buy put and
call options, buy and sell interest rate futures contracts and buy options
and write covered options on those futures contracts. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security or futures contract or maintains a
segregated account of liquid, high-grade debt instruments with a value at all
times sufficient to cover the Fund's obligations under the option.
INVESTMENT CONSIDERATIONS AND RISKS. In general, the value of the Fund's
investments will rise when interest rates fall, and vice versa. The Fund will
restrict its portfolio maturity and duration in order to limit its exposure to
this interest rate risk. The Fund may also employ various investment techniques
to hedge a portion of its risk, there is no guarantee that these strategies will
work as intended.
8
<PAGE>
In addition to exposure to changes in interest rates, the Opportunistic Bond
Fund is subject to the risk that the issuers of securities in the Fund's
portfolio will become unable to honor obligation under the debt instruments held
by the Fund. This risk exists even though the Opportunistic Bond Fund may only
invest in investment grade securities (those rated in the top four grades by a
national recognized statistical rating organization such as Standard & Poor's.
Because the Opportunistic Bond Fund may invest a significant portion of its
total assets in instruments denominated in currencies other than U.S.
dollars, the Fund is subject to the risk that fluctuations in the exchanges
rates between the U.S. dollar and foreign currencies may negatively affect
its investments. In addition, income from foreign securities will be received
and realized in foreign currencies, and Opportunistic Bond is required to
compute and distribute income in U.S. dollars. Accordingly, a decline in the
value of a particular foreign currency against the U.S. dollar will reduce
the dollars available to make a distribution. Similarly, if the exchange rate
declines between the time after the Fund's income has been earned and
computed in U.S. dollars and the time it is paid, or between the time the
Fund incurs expenses in U.S. dollars and the time such expenses are paid, the
Fund may have to liquidate portfolio securities to acquire sufficient U.S.
dollars to make a distribution.
An investment in the Fund involves certain risks not associated with domestic
investing, including fluctuations in foreign exchange rates, uncertain
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. Investment
securities are selected on the basis of their potential for capital
appreciation without regard for current income. An investment in the Fund is
not by itself a complete or balanced investment program. Because
international investments generally involve risks in addition to those risks
associated with investments in the U.S., the Fund should be considered only
as a vehicle for international diversification and not as a complete
investment program. Nevertheless, an investment in international equity
securities may be an important part of an investor's portfolio, particularly
for long-term investors able to tolerate short-term fluctuations in the
Fund's net asset value. SEE "Considerations and Risks of Investment in
Foreign and Emerging Markets."
CONSIDERATIONS AND RISKS OF INVESTMENTS IN FOREIGN AND EMERGING MARKETS.
The International Equity Fund and the Opportunistic Bond Fund may both invest
in securities of foreign issuers, including issuers located in countries with
smaller, emerging capital markets. These investments involve certain risks
not associated with domestic investing, including fluctuations in foreign
exchange rates, uncertain political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws
or restrictions. Investment securities are selected on the basis of their
potential for capital appreciation without regard for current income. An
investment in the Fund is not by itself a complete or balanced investment
program. Because international investments generally involve risks in
addition to those risks associated with investments in the U.S., the Fund
should be considered only as a vehicle for international diversification and
not as a complete investment program. Nevertheless, an investment in
international equity securities may be an important part of an investor's
portfolio, particularly for long-term investors able to tolerate short-term
fluctuations in the Fund's net asset value.
9
<PAGE>
POLITICAL AND ECONOMIC RISKS. In any emerging market country, there is the
possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could affect investments
in those countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as economic
growth rates, rates of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments positions. Certain foreign
investments may also be subject to foreign withholding taxes, thereby
reducing the income available for distribution to the International Equity
and Opportunistic Bond Funds' shareholders.
Certain emerging market countries may restrict investment by foreign
entities. For example, some of these countries may limit the size of foreign
investment in certain issuers, require prior approval of foreign investment
by the government, impose additional tax on foreign investors or limit
foreign investors to specific classes of securities of an issuer that have
less than advantageous rights (with regard to convertibility, for example)
than classes available to domiciliaries of the country.
Substantial limitations may also exist in certain countries with respect to a
foreign investor's ability to repatriate investment income, capital or the
proceeds of sales of securities. The Portfolio could be adversely affected by
delays in, or refusals to grant, any required governmental approvals for
repatriation of capital. No more than 15% of the Portfolio's net assets will
comprise, in the aggregate, assets which are (i) subject to material legal
restrictions on repatriation or (ii) invested in illiquid securities.
FINANCIAL INFORMATION AND STANDARDS. Often the regulation of, and available
information about, issuers and their securities is less extensive in foreign
markets, and particularly emerging market countries, than in the United
States. Foreign companies may not be subject to uniform accounting, auditing
and financial reporting standards or to requirements or practices comparable
to those applicable to U.S. companies.
REGULATION AND LIQUIDITY OF MARKETS. Government supervision and regulation of
exchanges and brokers in emerging market countries is frequently less
extensive than in the United States. These markets may have different clearance
and settlement procedures. In certain cases, settlements have not kept pace
with the volume of securities transactions, making it difficult to conduct
such transactions. Delays in settlement could adversely affect or interrupt
the Portfolio's intended investment program or result in investment losses
due to intervening declines in security values.
Securities markets in emerging market countries are substantially smaller
than U.S. securities markets and have substantially less trading volume,
resulting in diminished liquidity and greater price volatility. Reduced
secondary market liquidity may make it more difficult for the Portfolio to
determine the value of its portfolio securities or dispose of particular
instruments when necessary. Brokerage commissions and other transaction costs
on foreign securities exchanges are generally higher as well.
CURRENCY FLUCTUATIONS AND DEVALUATIONS. Because the International Equity Fund
and Opportunistic Bond Fund will invest in non-U.S. currency denominated
securities, changes in foreign currency exchange rates will affect the value
of each Fund's investments. A decline in the value of currencies in which a
Fund's investments are denominated against the dollar will result in a
corresponding decline in the dollar value of its assets. This risk tends to
be heightened in the case of investing in certain emerging market countries.
For example, some currencies of emerging market countries have experienced
steady devaluations relative to the U.S. dollar, and major adjustments have
been made in certain of such currencies periodically. Some emerging market
countries may also have managed currencies which do not freely float against
the dollar. Exchange rates are influenced generally by the forces of supply
and demand in the foreign currency markets and by numerous other political
and economic events occurring outside the United States, many of which may be
difficult, if not impossible, to predict.
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The International Equity Fund and the Opportunistic Bond Fund may each enter
into forward contracts to purchase or sell foreign currencies in anticipation
of its currency requirements Fund and to protect against possible adverse
movements in foreign exchange rates. Although such contracts may reduce the
risk of loss to the Fund due to a decline in the value of the currency which
is sold, they also limit any possible gain which might result should the
value of such currency rise.
INFLATION. Several emerging market countries have experienced substantial,
and in some periods extremely high, rates of inflation in recent years.
Inflation and rapid fluctuations in inflation rates may have very negative
effects on the economies and securities markets of certain emerging market
countries. Further, inflation accounting rules in some emerging market
countries require, for companies that keep accounting records in the local
currency, that certain assets and liabilities be restated on the company's
balance sheet in order to express items in terms of currency of constant
purchasing power. Inflation accounting may indirectly generate losses or
profits for certain emerging market companies.
GEOGRAPHIC CONCENTRATION. The International Equity and the Opportunistic Bond
Fund may each invest more than 25% of its total assets in issuers located in
any one country. To the extent a Fund invests in issuers located in one
country, it is susceptible to factors adversely affecting that country. In
particular, these factors may include the political and economic developments
and foreign exchange rate fluctuations discussed above. As a result of
investing substantially in one country, the value of a Fund's assets may
fluctuate more widely than the value of shares of a comparable Fund having a
lesser degree of geographic concentration.
ADDITIONAL INVESTMENT PRACTICES
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 the Fund's outstanding voting securities. A majority
of a Fund's outstanding voting securities means the lesser of 67 percent of
the shares of the Fund present or represented at a shareholders' meeting at
which the holders of more than 50 percent of the shares are present or
represented, or more than 50 percent 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 Trustees of the Trust without
shareholder approval. The investments and investment techniques identified
in this prospectus, and their associated risks are described in more detail
in Appendix A: Investments, Investment Strategies and Risk Considerations
which is attached to this Prospectus.
INVESTMENT LIMITATIONS. The Funds have adopted the investment limitations listed
below, each of which is a nonfundamental policy except as noted. Other
investment limitations, including additional provisions with respect to the
limitations listed below, are described in the SAI.
DIVERSIFICATION. Each Fund is a "diversified" portfolio as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). As a fundamental
policy, with respect to 75 percent
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of its assets, no Fund may purchase a security (other than a U.S. Government
Security) if, as a result, (i) more than 5 percent of the Fund's total assets
would be invested in the securities of a single issuer or (ii) the Fund would
own more than 10 percent of the outstanding voting securities of any single
issuer. Each Fund reserves the right to invest all or a portion of its assets
in another diversified, open-end investment company with substantially the same
investment objective and policies as the Fund.
CONCENTRATION. Each Fund is prohibited from concentrating its assets in
the securities of issuers in any single industry. As a fundamental policy, no
Fund may purchase securities if, immediately after the purchase, more than 25
percent of the value of the Fund's total assets would be invested in the
securities of issuers conducting their principal business activities in the
same industry. This limit does not apply to investments in U.S. Government
Securities, foreign government securities, repurchase agreements covering
U.S. Government Securities or investment company securities. It is currently
anticipated that none of the Funds will concentrate in securities issued
by any single foreign government.
ILLIQUID SECURITIES. Each Fund will limit its purchase of illiquid
securities. No Fund may knowingly acquire securities or invest in repurchase
agreements with respect to any securities if, as a result, more than 15
percent of the Fund's net assets taken at current value would be invested in
securities which are not readily marketable. Illiquid investments include
securities that are illiquid by virtue of legal or contractual restrictions
on the sale of such securities and repurchase agreements not entitling the
holder to principal within 7 days. Under the supervision of the Board, the
Advisers determine and monitor the liquidity of portfolio securities.
BORROWING AND LENDING. As a fundamental policy, each Fund may borrow money for
temporary or emergency purposes, including the meeting of redemption requests,
but not in excess of 33 1/3 percent of the value of the Fund's total assets as
computed immediately after the borrowing. Borrowing for other than temporary or
emergency purposes or meeting redemption requests is limited to 5 percent of the
value of each Fund's total assets. When a Fund establishes a segregated account
to limit the amount of leveraging of the Fund with respect to certain investment
techniques, the Fund does not treat those techniques as involving borrowings
(although they may have characteristics and risks similar to borrowings and
result in the Fund's assets being leveraged). See "Appendix A: Investments,
Investment Strategies and Risk Considerations - Borrowing" and "Techniques
Involving Leverage." As a fundamental policy, no Fund may 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
for the Fund.
MARGIN AND SHORT SALES. No Fund may purchase securities on margin or make short
sales of securities, except short sales against the box. These prohibitions do
not restrict the Funds' ability to use short-term credits necessary for the
clearance of portfolio transactions and to make margin deposits in connection
with permitted transactions in options and futures contracts.
TEMPORARY DEFENSIVE POSITION. When business or financial conditions warrant,
each Fund may assume a temporary defensive position and invest all or any
portion of their assets in cash or in cash equivalents, including (i) short-term
U.S. Government Securities, (ii) prime quality short-term instruments of
commercial banks, (iii) prime quality commercial paper, (iv) repurchase
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agreements with banks and broker-dealers covering any of the securities in which
the Fund may invest directly and (v) shares of money market mutual funds.
Prime quality refers to the two highest short-term ratings of a nationally
recognized statistical rating organization. During periods when and to the
extent that a Fund has assumed a temporary defensive position, it will not be
pursuing its investment objective. The Funds may from time to time maintain
investments in cash and cash equivalents pending investment in securities.
The International Equity Fund may hold cash and bank instruments denominated
in any major foreign currency.
COMMON INVESTMENT TECHNIQUES. Each of the Funds may enter into repurchase
agreements (for reasons other than temporary defensive purposes) and reverse
repurchase agreements, may lend their portfolio securities and may purchase
portfolio securities on a when-issued or forward commitment basis. It is
currently anticipated that the Value Equity Fund and International Equity
Fund (the "Equity Funds") will not enter into reverse repurchase agreements
or purchase portfolio securities on a when-issued or forward commitment basis
to any significant extent.
FIXED INCOME SECURITIES AND THEIR CHARACTERISTICS. Although the Restricted
Maturity Treasury Fund and the Opportunistic Bond Fund (the "Fixed Income
Funds") only invest in U.S. Government and investment grade fixed income
securities, including money market instruments, an investment in the Funds is
subject to risk even if all fixed income securities in the Funds' portfolios are
paid in full at maturity. All fixed income securities, including U.S. Government
Securities, can change in value when there is a change in interest rates or the
issuer's actual or perceived creditworthiness or ability to meet its
obligations.
The market value of the interest-bearing debt securities held by the Fixed
Income 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,
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. The possibility exists, therefore,
that, the ability of any issuer to pay, when due, the principal of and interest
on its debt securities may become impaired.
The Opportunistic Bond Fund may also invest in fixed income securities issued by
the governments of foreign countries or by those countries' political
subdivisions, agencies or instrumentalities as well as by supranational
organizations such as the International Bank for Reconstruction and Development.
To the extent otherwise permitted, the Funds may invest in these securities if
the Adviser or LM Capital believes that the securities do not present risks
inconsistent with a Fund's investment objective.
RATING MATTERS. The Opportunistic Bond Fund also may purchase unrated securities
if LM Capital determines the security to be of comparable quality to a rated
security that the Fund may purchase. Unrated securities may not be as actively
traded as rated securities. The Fund may retain a security whose rating has been
lowered below the Fund's lowest permissible rating category (or that are unrated
and determined by the Adviser to be of comparable quality to
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securities whose rating has been lowered below the Fund's lowest permissible
rating category) if LM Capital determines that retaining the security is in the
best interests of the Fund.
The Opportunistic Bond Fund's investments are subject to "credit risk" relating
to the financial condition of the issuers of the securities that the Funds hold.
To limit credit risk, the Fund may only invest in securities that are investment
grade - rated in the top four long-term investment grades by a NRSRO or in
the top two short-term investment grades by an NRSRO. Accordingly, the
lowest permissible long-term investment grades for corporate bonds, including
convertible bonds, are Baa in the case of Moody's Investor Service
("Moody's") and BBB in the case of Standard & Poor's ("S&P") and Fitch
Investors Service, L.P. ("Fitch"); the lowest permissible long-term
investment grades for preferred stock are Baa in the case of Moody's and BBB
in the case of S&P and Fitch; and the lowest permissible short-term
investment grades for short-term debt, including commercial paper, are
Prime-2 (P-2) in the case of Moody's, A-2 in the case of S&P and F-2 in the
case of Fitch. A further description of the rating categories of certain
NRSROs is contained in the SAI. All these ratings are generally considered to
be investment grade ratings, although Moody's indicates that securities with
long-term ratings of Baa have speculative characteristics.
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Opportunistic
Bond Fund invests may have variable or floating rates of interest and, under
certain limited circumstances, may have varying principal amounts. 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. Similarly 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 Treasury or other
government securities or indices on those securities as well as any other rate
of interest or index. Certain variable rate securities (including mortgage-
backed securities) pay interest at a rate that varies inversely to prevailing
short-term interest rates (sometimes referred to as inverse floaters). For
example, upon reset the interest rate payable on a security may go down when the
underlying index has risen. During periods when short-term interest rates are
relatively low as compared to long-term interest rates, the Fund may attempt to
enhance its yield by purchasing inverse floaters. Certain inverse floaters may
have an interest rate reset mechanism that multiplies the effects of changes in
the underlying index. While this form of leverage may increase the security's,
and thus the Fund's, yield, it may also increase the volatility of the
security's market value.
There may not be an active secondary market for any particular floating or
variable rate instrument; this could make it difficult for the Fund to dispose
of the instrument during periods of market volatility or economic uncertainty or
if the issuer's credit became impaired at a time when the Fund was not entitled
to exercise any demand rights it might have. The Fund could, for this or other
reasons, suffer a loss with respect to the instrument. The Advisers monitor the
liquidity of the Fund's investments in variable and floating rate instruments,
but there can be no guarantee that an active secondary market will exist at any
time.
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Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, the Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Fund intends to purchase these securities only when the Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Advisers may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that an Adviser
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
CORE AND GATEWAY -Registered Trademark-. Notwithstanding the other investment
policies of the Funds, each Fund may seek to achieve its investment objective
by converting to a Core and Gateway structure. Upon future action by the
Board of Trustees and notice to shareholders, a Fund 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.
PORTFOLIO TRANSACTIONS. The investment advisers place orders for the purchase
and sale of assets they manage with brokers and dealers selected by and in the
discretion of the respective adviser. The investment advisers seek "best
execution" for all portfolio transactions, but a Fund may pay higher than the
lowest available commission rates when an investment adviser believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign securities
exchanges, and this may cause higher brokerage expenses to accrue to a Fund that
invests in foreign securities than would be the case for comparable transactions
effected on United States securities exchanges.
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in a Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to International Portfolio and a possible
increase in short-term capital gains or losses. Tax rules applicable to short-
term trading may affect the timing of a Fund's portfolio transactions or its
ability to realize short-term trading profits or establish short-term positions.
MANAGEMENT
The business of the Trust and the Funds is managed under the direction of the
Board. The Board formulates the general policies of the Fund and
meets periodically to review each Fund's performance, monitor its investment
activities and practices, and discuss other matters affecting the Fund and the
Trust. Additional information regarding the Trustees, as well as the Company's
executive officers, may be found in the Statement of Additional Information
under the heading "Management - Trustees and Officers."
INVESTMENT ADVISORY SERVICES
THE ADVISER
QUADRA CAPITAL PARTNERS, L.P. (the "Quadra"), 270 Congress Street, Boston,
Massachusetts 02210, serves as investment adviser to the Fund pursuant to an
investment advisory agreement with the Trust. Subject to the general control of
the Board, the Adviser is responsible for among other things, developing a
continuing investment program for each Fund in accordance with its investment
objective and reviewing the investment strategies and policies of each Fund.
Quadra will enter into investment sub-advisory agreements with one or more
investment subadvisers ("Subadvisers") to exercise investment discretion over
the assets (or a portion of the assets) of each Fund.
For its services under the Investment Advisory Agreement, the Advisor receives,
with respect to the Restricted Maturity Fund a fee at an annual rate of 0.45
percent of that Fund's average daily net assets; with respect to the Value
Equity Fund a fee at an annual rate of 1.00 percent of that Fund's average daily
net assets; with respect to the International Equity Fund a fee at an annual
rate of 1.25 percent of that Fund's average daily net assets; and, with respect
to the Opportunistic Bond Fund a fee at an annual rate of 0.70 percent of that
Fund's average daily net assets.
The Adviser is a limited partnership organized under the laws of the State of
Delaware on September 8, 1995, and is a registered investment adviser under the
Investment Advisers Act of 1940. As a new entity, the Adviser has no previous
experience managing an investment company. The managing partners of the Adviser
have significant experience, however, in the formation and management of trust
and investment management entities including registered investment companies,
registered investment advisers, and a commingled fund of funds.
SUB-ADVISERS
To assist it in carrying out its responsibility, the Adviser has retained
various subadvisers to render advisory services and make daily investment
decisions for each Fund. The Adviser makes recommendations to the Trust's Board
of Trustees regarding the selection and retention of these Sub-advisers. On an
ongoing basis, the Adviser evaluates the sub-advisers and reports to the Board
concerning their investment results. The Adviser also reviews the investments
made for the Funds by the sub-advisers to see that they comply with the Fund's
investment objectives, policies and restrictions.
The Adviser pays a fee to each of the subadvisers. These fees do not increase
the fees paid by shareholders of the Funds.
CARL DOMINO ASSOCIATES, L.P., ("Domino"), 580 Village Boulevard, West Palm
Beach, Florida 33409, manages the portfolio of the VALUE EQUITY FUND. Domino
is a limited partnership organized under the laws of the State of Delaware,
and is registered as an investment adviser under the Advisers Act. Domino was
founded in 1987 and presently manages approximately $1 billion in assets for
colleges and universities, retirement funds, state and local governments,
investment companies and other institutions.
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MCDONALD INVESTMENT MANAGEMENT, INC. ("McDonald"), 40 King Street West, Suite
3910, Toronto, Ontario, Canada M5H 3Y2, manages the portfolio of the
INTERNATIONAL EQUITY FUND. McDonald was organized in 1990 as a corporation
under the laws of the Province of Ontario. It presently manages
approximately $70 million for retirement funds, non-profit organizations,
other institutions and individuals. It is registered in the United States as
an investment adviser under the Advisers Act.
ANHALT/O'CONNELL INC. ("Anhalt/O'Connell"), 345 South Figueroa Street, Los
Angeles, California 90071, manages the portfolio of the RESTRICTED MATURITY
TREASURY FUND. Anhalt/O'Connell is a corporation organized under the laws of
the State of California, and is registered as an investment adviser under the
Advisers Act. It was organized in 1984. Anhalt/O'Connell presently manages
approximately $800 million for retirement funds and other institutions.
LM CAPITAL MANAGEMENT, INC. ("LM Capital"), 5560 La Jolla Boulevard, Suite E,
La Jolla, California 92037, manages the portfolio of the OPPORTUNISTIC BOND
FUND. LM is a corporation organized in 1988 under the laws of the State of
California, and is registered as an investment adviser under the Advisers
Act. LM Capital presently manages approximately $350 million for pension
funds, state and local governments, other institutions and individuals.
Quadra performs internal due diligence on each Subadviser and monitors each
Subadviser's performance using its proprietary investment adviser selection and
monitoring process. Quadra will be responsible for communicating performance
targets and evaluations to Subadvisers, supervising each Subadviser's compliance
with the Fund's fundamental investment objectives and policies, authorizing
Subadvisers to engage in certain investment techniques for the Fund, and
recommending to the Board of Trustees whether sub-advisory agreements should be
renewed, modified or terminated. Quadra also may from time to time recommend
that the Board of Trustees replace one or more Subadvisers or appoint additional
Subadvisers, depending on the Adviser's assessment of what combination of
Subadvisers it believes will optimize each Fund's chances of achieving its
investment objective.
Section 15(a) of the 1940 Act requires that the Trust's shareholders approve its
investment advisory contracts. As interpreted, this requirement applies to the
appointment of the Subadvisers. The Trust has applied for a conditional
exemption from this shareholder approval requirement. The Securities and
Exchange Commission has granted such applications in the past, and the Trust
expects it will receive the requested exemption. If the exemption it is granted,
the Board of Trustees would be able to appoint additional or replacement
Subadvisers without Shareholder approval. The Board would not, however, be able
to replace Quadra Capital Partners as investment adviser to each Fund without
complying with the shareholder approval requirements of the 1940 Act and
applicable regulations.
ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration Agreement
with Forum Administrative Services LLC ("FAS"). As provided in this
agreement, FAS is responsible for the supervision of the overall management
of the Trust (including the Trust's receipt of services for which it must
pay), providing the Trust with general office facilities and providing
persons satisfactory to the Board of Trustees to serve as officers of the
Trust. For these services, Forum receives from each Fund a fee computed and
paid monthly at an annual rate of 0.10% of the first $50 million of the
Fund's average daily net assets and 0.05% of the average daily net assets
over $50 million, subject to an annual minimum of $40,000. Like the Adviser,
Forum, in its sole discretion, may waive all or any portion of its fees.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Forum Financial
Services, Inc. ("Forum") acts as distributor of the Fund's shares. Forum
acts as the agent of the Trust in connection with the offering of shares of
the Fund. Forum receives no compensation for its services under the
Distribution Agreement. Forum may enter into arrangements with banks,
broker-dealers or other financial institutions ("Selected Dealers") through
which investors may purchase or redeem shares. Forum may, at its own expense
and from its own resources, compensate certain persons who provide services
in connection with the sale or expected sale of shares of the Fund. Investors
purchasing shares of the Fund through another financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that it may charge.
Forum is located at Two Portland Square, Portland, Maine 04101. It was
incorporated under the laws of the State of Delaware on February 7, 1986 and as
of the date hereof manages, administers or distributes registered investment
companies and collective investment funds with assets of approximately $x.xx
billion. Forum 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, FAS and Forum Financial Corp., the
Transfer Agent of the Trust, were controlled by John Y. Keffer, president and
Chairman of the Trust.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Forum Financial
Corp. ("FFC") pursuant to which FFC acts as the Fund's transfer agent and
dividend disbursing agent. FFC maintains an account for each shareholder of the
Trust (unless such accounts are maintained by sub-transfer agents), performs
other transfer agency functions and acts as dividend disbursing agent for the
Trust. In addition, FFC performs portfolio accounting services for the Fund,
including determination of the Fund's net asset value.
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EXPENSES OF THE TRUST
The Adviser has agreed to reimburse the Trust 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 Trust may elect not to
qualify its shares for sale in every state. 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, the Trust is obligated to pay all of the
Trust's other expenses. Each Funds' expenses include Trust expenses
attributable to the Fund, which are allocated to the Fund, and expenses not
specifically attributable to the Fund, which are allocated among the Funds
and all other funds of the Trust in proportion to their average net assets.
Quadra may elect to waive (or continue to waive) all or a portion of fees,
which are accrued daily and paid monthly. Any such waivers will have the
effect of increasing the Fund's performance for the period during which the
waiver is in effect. No fee waivers may be recouped at a later date. Fee
waivers are voluntary and may be reduced or eliminated at any time.
Subject to the obligation of Quadra to reimburse the Trust for certain
excess expenses, under the Investment Advisory Agreements, the Trust has
confirmed its obligation to pay all the Trust's expenses, including: interest
charges, taxes, brokerage fees and commissions; certain insurance premiums;
fees, interest charges and expenses of any subcustodian, transfer agent and
dividend disbursing agent and providers of pricing, credit analysis and dividend
services; telecommunications expenses; auditing, legal and compliance expenses;
costs of maintaining corporate existence; costs of preparing and printing the
Fund's prospectuses, SAI, account application forms and shareholder reports and
delivering them to existing 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 Fund; costs of
reproduction, stationery and supplies; compensation of trustees, officers and
employees of the Fund or Trust who are not employees of Quadra, Forum or their
affiliates and costs of other personnel performing services for the Fund; costs
of meetings of the Trust; SEC registration fees and related expenses; state
securities laws registration fees and expenses; fees and out of pocket expenses
payable to Quadra and Forum; and fees and expenses paid by the Fund pursuant to
the distribution plan.
PURCHASES AND REDEMPTIONS OF SHARES
GENERAL INFORMATION
Shares of a Fund may be purchased or redeemed at a price equal to their net
asset value next-determined after acceptance of an order on days when the New
York Stock Exchange ("NYSE") is open ("Fund Business Day"). Each Fund's net
asset value is calculated at the close of trading on the NYSE. The NYSE is
normally open on all weekdays except customary national business holidays and
Good Friday until 4:00 p.m. If the NYSE closes early, however, the Trust will
advance the time at which its NAV is calculated. Purchase or redemption orders
are accepted by the transfer agent between 9:00 a.m. and 6:00 p.m. (Eastern).
Investors may purchase or redeem shares of a Fund by following the instructions
set forth below. Shareholders of record will receive from the Trust periodic
statements listing all account activity during the statement period. The Trust
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
next-determined after acceptance of an order on each Fund Business Day. Fund
shares are issued immediately after an order for the shares in proper form is
accepted by the Transfer Agent. Fund shares become entitled to receive dividends
on the next Fund Business Day after the order is accepted.
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.
Normally, redemption proceeds are paid immediately, 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 to
purchase the shares 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 for more than seven days after
the tender of the shares to the Fund 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.
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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 Trust will
only effect a redemption in portfolio securities if the particular shareholder
is redeeming more than $250,000 or 1% of the Fund's net assets, whichever is
less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine (which include recording certain transactions and the use of shareholder
security codes). If the Trust did not employ such procedures, it could 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.
Due to the cost to the Trust of maintaining smaller accounts, the Trust reserves
the right to redeem, upon not less than 60 days' written notice, all shares in
any Fund account with an aggregate net asset value of less than $25,000. The
Trust 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 Funds directly. These investors may open an
account by completing the application at the back of this Prospectus or by
contacting the Transfer Agent at the address on the first page of this
prospectus. For those shareholder services not referenced on the account
application and to change information regarding a shareholder's account (such as
addresses), investors should request an Optional Services Form from the Transfer
Agent.
INITIAL PURCHASE OF SHARES
There is a $100,000 minimum for an initial investment in any of the Funds. The
Trust reserves the right to waive the minimum investment requirement. There is
no minimum for subsequent investments.
BY MAIL. Investors may send a check made payable to The Quadra Funds along with
a completed account application to the address listed 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 canceled and the investor will be
liable for any losses or fees incurred by the Trust, the Transfer Agent or
Forum.
BY BANK WIRE. To make an initial investment in a Fund using the wire system for
transmittal of money among banks, an investor should first telephone the Trust
at 800-XXX-XXX or (XXX) XXX-XXXX to obtain an account number. The investor
should then instruct a 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: ____________
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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. There may be a charge imposed by
the bank for transmitting payment by wire, and there also may be a charge for
the use of Federal Funds.
SUBSEQUENT PURCHASES OF SHARES
There is no 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
Quadra Funds at (800) XXX-XXXX or (XXX) XXX-XXXX 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, pre-selected 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
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.
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 (800)
XXX-XXXX or (XXX) XXX-XXXX 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 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, pre-
selected 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.
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<PAGE>
OTHER REDEMPTION MATTERS. 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.
The Transfer Agent will deem a shareholder's account "lost" if correspondence to
the shareholder's address of record is returned for six months, unless the
Transfer Agent determines the shareholder's new address. When an account is
deemed lost all distributions on the account will be reinvested in additional
shares of the Fund. In addition, the amount of any outstanding (unpaid for six
months or more) checks for distributions that have been returned to the Transfer
Agent will be reinvested and the checks will be canceled.
EXCHANGES
Shareholders may exchange their shares for shares of any other Quadra Fund,
or the Daily Assets Cash Fund, a money market Fund of the Trust offered
through a separate prospectus, if shares of the Fund 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 $100,000. 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.
The Trust (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 instruction 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.
BY TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling the Transfer Agent at
(800) XXX-XXXX or (XXX) XXX-XXXX 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
None of the Funds individually should be considered a complete investment
vehicle for the assets held in individual retirement accounts ("IRAs"). The
minimum initial investment for an IRA is $100,000. The Trust reserves the right
to waive this minimum. There is no minimum subsequent investment. 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.
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PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of the Transfer Agent ("Processing Organizations").
Investors who purchase shares through a Processing Organization may be
charged a fee for their services and if the investors effect transactions in
Fund Shares through a broker or agent. Investors will be subject to the
procedures of their Processing Organization, which may include 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 Processing
Organization's procedures and should read this Prospectus in conjunction with
any materials and information provided by their Processing Organization.
Customers who purchase Fund shares through a Processing Organization may or
may not be the shareholder of record and, subject to their Processing
Organization's and the Fund's procedures, may have Fund shares transferred
into their name. Under their arrangements with the Trust, broker-dealer
Processing Organizations are not generally required to deliver payment for
purchase orders until several business days after a purchase order has been
received by a Fund. Certain other Processing Organizations may also 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 Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
VALUE EQUITY AND INTERNATIONAL EQUITY FUNDS. Dividends representing the net
investment income of the Equity Funds are declared and paid at least annually.
Net capital gains realized by the Funds, if any, also will be distributed
annually.
OPPORTUNISTIC BOND AND RESTRICTED MATURITY TREASURY FUNDS. Dividends
representing the net investment income of the Fixed Income Funds are declared
daily and paid monthly. 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.
GENERAL. 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.
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TAXES
Each Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986. As 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.
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.
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.
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<PAGE>
Each Fund's advertisements any 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
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 Trust 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 Trust 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 Trust 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 TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and assumed
the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996, Forum
Funds, Inc. was reorganized as a Delaware business trust. The Trust has an
unlimited number of authorized shares of beneficial interest. The Board may,
without shareholder approval, divide the authorized shares into an unlimited
number of separate portfolios or series (such as the Fund) and may in the future
divide portfolios or series into two or more classes of shares (such as Investor
and Institutional Shares). Currently the authorized shares of the Trust are
divided into 15 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote.
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APPENDIX A
INVESTMENTS, INVESTMENT STRATEGIES
AND RISK CONSIDERATIONS
COMMON STOCK AND PREFERRED STOCK
VALUE EQUITY FUND AND INTERNATIONAL EQUITY FUND (collectively, the "Equity
Funds"). Common stockholders are the owners of the company issuing the stock
and, accordingly, vote on various corporate governance matters such as mergers.
They are not creditors of the company, but rather, upon liquidation of the
company are entitled to their pro rata share of the company's assets after
creditors (including fixed income security holders) and, if applicable,
preferred stockholders are paid. Preferred stock is a class of stock having a
preference over common stock as to dividends and, in the alternative, as to the
recovery of investment. A preferred stockholder is a shareholder in the company
and not a creditor of the company as is a holder of the company's fixed income
securities. Dividends paid to common and preferred stockholders are
distributions of the earnings of the company and not interest payments, which
are expenses of the company. Equity securities owned by a Fund may be traded on
national securities exchanges, in the over-the-counter market or on a regional
securities exchange and may not be traded every day or in the volume typical of
securities traded on a major national securities exchange. As a result,
disposition by a Fund of a portfolio security to meet redemptions by
shareholders or otherwise may require the Fund to sell these securities at a
discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over an extended period of time. The
market value of all securities, including equity securities, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth.
CONVERTIBLE SECURITIES
VALUE EQUITY FUND AND INTERNATIONAL EQUITY FUND. Convertible securities,
which include convertible debt, convertible preferred stock and other
securities exchangeable under certain circumstances for shares of common
stock, are fixed income securities or preferred stock which generally may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. A convertible security entitles the holder
to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Before conversion, convertible securities have characteristics
similar to nonconvertible debt securities in that they ordinarily provide a
stream of income with generally higher yields than those of common stocks of
the same or similar issuers. These securities are usually senior to common
stock in a company's capital structure, but usually are subordinated to
non-convertible debt securities. In general, the value of a convertible
security is the higher of its investment value (its value as a fixed income
security) and its conversion value (the value of the underlying shares of
common stock if the security is converted). As a fixed income security, the
value of a convertible security generally increases when interest rates
decline and generally decreases when interest rates rise. The value of a
convertible security is, however, also influenced by the value of the
underlying common stock. The Fund may only invest in convertible securities
that are investment grade.
The Fund may invest in equity-linked securities, including Preferred Equity
Redemption Cumulative Stock ("PERCS"), Equity-Linked Securities ("ELKS"), and
Liquid Yield Option Notes ("LYONS"). Equity-Linked Securities are securities
that are convertible into or based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
these securities is not fixed but is based on the price of the underlying common
stock, which may rise or fall. In addition, it is not possible to predict how
equity-linked securities will trade in the secondary market or whether the
market for them will be liquid or illiquid.
<PAGE>
WARRANTS
EQUITY FUNDS. A Fund may invest in warrants, which are options to purchase
an equity security at a specified price (usually representing a premium over
the applicable market value of the underlying equity security at the time of
the warrant's issuance) and usually during a specified period of time. Unlike
convertible securities and preferred stocks, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the
possible lack of a liquid market for the resale of the warrants, potential
price fluctuations as a result of speculation or other factors and failure of
the price of the underlying security to reach a level at which the warrant
can be prudently exercised (in which case the warrant may expire without
being exercised, resulting in the loss of the Fund's entire investment
therein). [add disclosure re exchange traded, foreign warrants]
ADRS AND EDRS
INTERNATIONAL EQUITY FUND. A Fund may invest in sponsored and unsponsored
American Depository Receipts ("ADRs"), which are receipts issued by an
American bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. ADRs, in registered form, are designed for use in
U.S. securities markets. 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. The International Equity Fund may also invest in European Depository
Receipts ("EDRs"), receipts issued by a European financial institution
evidencing an arrangement similar to that of ADRs, and in other similar
instruments representing securities of foreign companies. EDRs, in bearer
form, are designed for use in European securities markets.
U.S. GOVERNMENT SECURITIES
ALL FUNDS. The Funds may invest in securities issued by the United States
Treasury, such as Treasury bills, notes and bonds, that are fully guaranteed as
to payment of principal and interest by the United States Government. The Funds
(other than the Restricted Maturity Treasury Fund) may invest in U.S. Government
Securities, that is, obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities. The U.S.
Government Securities in which these Funds may invest include obligations issued
or guaranteed by U.S. Government agencies and instrumentalities and backed by
the full faith and credit of the U.S. Government, such as those guaranteed by
the Small Business Administration or issued by the Government National Mortgage
Association. In addition, the U.S. Government Securities in which the Funds may
invest include 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, although these securities have
historically involved little risk of loss of principal if held to maturity, they
may involve more risk than securities backed by the U.S. Government's full faith
and credit.
ZERO-COUPON SECURITIES
OPPORTUNISTIC BOND FUND. The Fund may invest in separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury.
These components are traded independently under the Treasury's Separate Trading
of Registered Interest and Principal of Securities ("STRIPS") program or as
Coupons Under Book Entry Safekeeping ("CUBES"). The Funds may invest in other
types of related zero-coupon securities. For instance, a number of banks and
brokerage firms separate the principal and interest portions of U.S. Treasury
securities and sell them separately in the form of receipts or certificates
representing undivided interests in these instruments. These instruments are
generally held by a bank in a custodial or trust account on behalf of the owners
of the securities and are known by various names, including Treasury Receipts
("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates of
Accrual on Treasury Securities ("CATS"). Zero-coupon securities also may be
issued by corporations and municipalities.
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Zero-coupon securities are sold at original issue discount and pay no interest
to holders prior to maturity, but a Fund holding a zero-coupon security must
include a portion of the original issue discount of the security as income.
Because of this, zero-coupon securities may be subject to greater fluctuation of
market value than the other securities in which the Funds may invest. The Funds
distribute all of their net investment income, and may have to sell portfolio
securities to distribute imputed income, which may occur at a time when the
Adviser or Schroder would not have chosen to sell such securities and which may
result in a taxable gain or loss.
CORPORATE DEBT SECURITIES
COMMERCIAL PAPER
OPPORTUNISTIC BOND FUND. The corporate debt securities in which the Fund may
invest include corporate bonds and notes and short-term investments such as
commercial paper and variable rate demand notes. Commercial paper (short-term
promissory notes) is issued by companies to finance their or their affiliates'
current obligations and is frequently unsecured. Variable and floating rate
demand notes are unsecured obligations redeemable upon not more than 30 days'
notice. These obligations include master demand notes that permit investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangement
with the issuer of the instrument. The issuer of these obligations often has
the right, after a given period, to prepay the outstanding principal amount of
the obligations upon a specified number of days' notice. These obligations
generally are not traded, nor generally is there an established secondary
market for these obligations. To the extent a demand note does not have a 7 day
or shorter demand feature and there is no readily available market for the
obligation, it is treated as an illiquid security.
FINANCIAL INSTITUTION OBLIGATIONS
EQUITY FUNDS AND OPPORTUNISTIC BOND FUND. A Fund may invest in obligations of
financial institutions, including negotiable certificates of deposit, bankers'
acceptances and time deposits of U.S. banks (including savings banks and savings
associations), foreign branches of U.S. banks, foreign banks and their non-U.S.
branches (Eurodollars), U.S. branches and agencies of foreign banks (Yankee
dollars), and wholly-owned banking-related subsidiaries of foreign banks.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce the Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than 7 days are
treated as illiquid securities if there is no readily available market for the
securities. A Fund's investments in the obligations of foreign banks and their
branches, agencies or subsidiaries may be obligations of the parent, of the
issuing branch, agency or subsidiary, or both. Investments in foreign bank
obligations are limited to banks and branches located in countries which the
Advisers believe do not present undue risk.
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PARTICIPATION INTERESTS
OPPORTUNISTIC BOND FUND. The Fund may purchase participation interests in loans
or securities in which the Fund may invest directly that are owned by banks or
other financial institutions. A participation interest gives the Fund an
undivided interest in a loan or security in the proportion that the Fund's
interest bears to the total principal amount of the security. Participation
interests, which may have fixed, floating or variable rates, may 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. For
certain participation interests the Fund will have the right to demand payment,
on not more than 7 days' notice, for all or a part of the Fund's participation
interest. The Fund will only purchase participation interests from banks or
other financial institutions that the Adviser deems to be creditworthy. The Fund
will not invest more than 10 percent of its total assets in participation
interests in which the Fund does not have demand rights.
ILLIQUID SECURITIES
RESTRICTED SECURITIES
ALL FUNDS. Each Fund may invest up to 15 percent of its net assets in securities
that at the time of purchase are illiquid. Historically, illiquid securities
have included securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of 1933
("restricted securities"), securities which are otherwise not readily
marketable, such as over-the-counter options, and repurchase agreements not
entitling the holder to payment of principal in 7 days. Limitations on resale
may have an adverse effect on the marketability of portfolio securities and a
Fund might also have to register restricted securities in order to dispose of
them, resulting in expense and delay. A Fund might not be able to dispose of
restricted or other securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions. There can be no assurance
that a liquid market will exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on the issuer's ability to honor
a demand for repayment of the unregistered security. A securities contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the Securities Act of 1933 or other exemptions, the Advisers may determine that
such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board. These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular
Rule 144A security, a Fund's holdings of that security may be illiquid.
A-4
<PAGE>
BORROWING
ALL FUNDS. Each Fund may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, in amounts up to 33 1/3 percent of
the Fund's total assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet the needs for
which funds were borrowed). Under adverse market conditions, a Fund might have
to sell portfolio securities to meet interest or principal payments at a time
when investment considerations would not favor such sales. No Fund may purchase
securities for investment while any borrowing equal to 5 percent or more of the
Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding 5 percent of the value of the Fund's total
assets. A Fund's use of borrowed proceeds to make investments would subject the
Fund to the risks of leveraging. Reverse repurchase agreements, short sales not
against the box, dollar roll transactions and other similar investments that
involve a form of leverage have characteristics similar to borrowings but are
not considered borrowings if the Fund maintains a segregated account; the use of
these techniques in connection with a segregated account may result in a Fund's
assets being 100 percent leveraged. See "Appendix A - Techniques Involving
Leverage."
TECHNIQUES INVOLVING LEVERAGE
ALL FUNDS. Utilization of leveraging involves special risks and may involve
speculative investment techniques. The Funds may borrow for other than temporary
or emergency purposes, lend their securities, enter reverse repurchase
agreements, and purchase securities on a when issued or forward commitment
basis. In addition, certain funds may engage in dollar roll transactions and
Intermediate U.S. Government Fund may purchase securities on margin and sell
securities short (other than against the box). Each of these transactions
involve the use of "leverage" when cash made available to the Fund through the
investment technique is used to make additional portfolio investments. In
addition, the use of swap and related agreements may involve leverage. The Funds
use these investment techniques only when the Adviser to a Fund believes that
the leveraging and the returns available to the Fund from investing the cash
will provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset value of the
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
A-5
<PAGE>
SEGREGATED ACCOUNT. In order to limit the risks involved in various transactions
involving leverage, the Trust's custodian will set aside and maintain in a
segregated account cash, U.S. Government Securities and other liquid, high-grade
debt securities in accordance with SEC guidelines. The accounts value, which is
marked to market daily, will be at least equal to the Fund's commitments under
these transactions. The Fund's commitments may include (i) the Fund's
obligations to repurchase securities under a reverse repurchase agreement,
settle when-issued and forward commitment transactions and make payments under a
cap or floor (see "Appendix A - Swap Agreements") and (ii) the greater of the
market value of securities sold short or the value of the securities at the time
of the short sale (reduced by any margin deposit). The net amount of the excess,
if any, of a Fund's obligations over its entitlements with respect to each
interest rate swap will be calculated on a daily basis and an amount at least
equal to the accrued excess will be maintained in the segregated account. If the
Fund enters into an interest rate swap on other than a net basis, the Fund will
maintain the full amount accrued on a daily basis of the Fund's obligations with
respect to the swap in their segregated account. The use of a segregated account
in connection with leveraged transactions may result in a Fund's portfolio being
100 percent leveraged.
REPURCHASE AGREEMENTS
SECURITIES LENDING
REVERSE REPURCHASE AGREEMENTS
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
DOLLAR ROLL TRANSACTIONS
A Fund's use of repurchase agreements, securities lending, reverse repurchase
agreements and forward commitments (including dollar roll transactions) 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 while these transactions remained open or a counterparty
defaulted on its obligations, the 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 Advisers monitor the
creditworthiness of counterparties to these transactions and intend to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income to be earned from the transaction justifies
the attendant risks. Counterparty insolvency risk with respect to repurchase
agreements is reduced by favorable insolvency laws that allow the Fund, among
other things, to liquidate the collateral held in the event of the bankruptcy of
the counterparty. Those laws do not apply to securities lending and,
accordingly, securities lending involves more risk than does the use of
repurchase agreements. As a result of entering forward commitments and reverse
repurchase agreements, as well as lending its securities, a Fund may be exposed
to greater potential fluctuations in the value of its assets and net asset value
per share. See "Appendix A - Techniques Involving Leverage."
REPURCHASE AGREEMENTS - ALL FUNDS. A Fund may enter into repurchase agreements,
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 1 to 7 days later. The resale price of a repurchase
agreement reflects a market rate of interest that is not related to the coupon
rate or maturity of the purchased security. The Trust's custodian maintains
possession of the collateral underlying a repurchase agreement, which has a
market value, determined daily, at least equal to the repurchase price, and
which consists of the types of securities in which the Fund may invest directly.
International Portfolio and, with respect to the portion of their assets managed
in the International Fund style, Diversified Equity Fund, Growth Equity Fund and
each Balanced Fund, may enter into repurchase agreements with foreign entities.
SECURITIES LENDING - ALL FUNDS. A Fund may lend securities from its portfolios
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. A Fund may pay fees
to arrange the loans. No Fund will lend portfolio securities in excess of 33 1/3
percent of the value of the Fund's total assets.
A-6
<PAGE>
REVERSE REPURCHASE AGREEMENTS - OPPORTUNISTIC BOND FUND. The Fund may enter into
reverse repurchase agreements, transactions in which the Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate. Because
certain of the incidents of ownership of the security are retained by the Fund,
reverse repurchase agreements may be viewed as a form of borrowing by the Fund
from the buyer, collateralized by the security sold by the Fund. The Fund will
use the proceeds of reverse repurchase agreements to fund redemptions or to make
investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the Fund
with those monies. Any significant commitment of the Fund's assets to the
reverse repurchase agreements will tend to increase the volatility of the
Fund's net asset value per share.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS - ALL FUNDS. A Fund may purchase
fixed income securities on a "when-issued" or "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 3 months after the transaction. During the period between a
commitment and settlement, no payment is made for the securities purchased and
no interest on the security accrues to the purchaser. 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 a security purchased by a Fund may result in a loss or a missed
opportunity to make an alternative investment.
The use of when-issued transactions and forward commitments enables a Fund to
hedge against anticipated changes in interest rates and prices. If the Adviser
or Schroder were to forecast incorrectly the direction of interest rate
movements, however, a Fund might be required to complete these transactions when
the value of the security is lower than the price paid by the Fund. Except for
dollar-roll transactions, a Fund will not purchase securities on a when-issued
or forward commitment basis if, as a result, more than 15 percent (35 percent in
the case of Total Return Bond Fund) of the value of the Fund's total assets
would be committed to such transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds purchase securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
When-issued securities may include bonds purchased on a "when, and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Commitment of a Fund's assets to the purchase of securities
on a when-issued or forward commitment basis will tend to increase the
volatility of the Fund's net asset value per share.
DOLLAR ROLL TRANSACTIONS - OPPORTUNISTIC BOND FUND. The Fund may enter into
dollar roll transactions wherein the Fund sells fixed income securities,
typically mortgage-backed securities, and makes a commitment to purchase
similar, but not identical, securities at a later date from the same party. Like
a forward commitment, during the roll period no payment is made for the
securities purchased and no interest or principal payments on the security
accrue to the purchaser, but the Fund assumes the risk of ownership. The Fund is
compensated for entering into dollar roll transactions by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. Like other
when-issued securities or firm commitment agreements, dollar roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the price at which a Fund is committed to purchase similar
securities. In the event the buyer of securities under a dollar roll transaction
becomes insolvent, the Fund's use of the proceeds of the transaction may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
The Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio and not for investment leverage. The Fund will
limit its obligations on dollar roll transactions to 35 percent of its net
assets.
A-7
<PAGE>
SWAP AGREEMENTS
OPPORTUNISTIC BOND FUND. To manage its exposure to different types of
investments, the Fund may enter into interest rate, currency and mortgage (or
other asset) swap agreements and may purchase and sell interest rate "caps,"
"floors" and "collars." In a typical interest rate swap agreement, one party
agrees to make regular payments equal to a floating interest rate on a specified
amount (the "notional principal amount") in return for payments equal to a fixed
interest rate on the same amount for a specified period. If a swap agreement
provides for payment in different currencies, the parties may also agree to
exchange the notional principal amount. Mortgage swap agreements are similar to
interest rate swap agreements, except that the notional principal amount is tied
to a reference pool of mortgages. In a cap or floor, one party agrees, usually
in return for a fee, to make payments under particular circumstances. For
example, the purchaser of an interest rate cap has the right to receive payments
to the extent a specified interest rate exceeds an agreed upon level; the
purchaser of an interest rate floor has the right to receive payments to the
extent a specified interest rate falls below an agreed upon level. A collar
entitles the purchaser to receive payments to the extent a specified interest
rate falls outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on the Fund's
performance. See "Appendix A - Techniques Involving Leverage." Swap agreements
involve risks depending upon the counterparties creditworthiness and ability to
perform as well as the Fund's ability to terminate its swap agreements or reduce
its exposure through offsetting transactions. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when they believe the counterparties present
minimal credit risks and the income expected to be earned from the transaction
justifies the attendant risks.
SHORT SALES
ALL FUNDS. Each of the Funds may make short sales of securities it owns or has
the right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box"). In a short
sales "against the box", the Fund does not immediately deliver the securities
sold and would not receive the proceeds from the sale. The seller is said to
have a short position in the securities sold until it delivers the securities
sold, at which time it receives the proceeds of the sale. The Fund's decision to
make a short sale "against the box" may be a technique to hedge against market
risks when the Adviser believes that the price of a security may decline,
causing a decline in the value of a security owned by the Fund or a security
convertible into or exchangeable for such security. In such case, any future
losses in the Fund's long position would be reduced by an offsetting future gain
in the short position. The Fund's ability to enter into short sales transactions
is limited by certain tax requirements. See "Dividends, Distributions and Taxes"
in the SAI.
A-8
<PAGE>
ASSET-BACKED SECURITIES
OPPORTUNISTIC BOND FUND. 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. The
Fund may not invest more than 10 percent of its net assets in asset-backed
securities that are backed by a particular type of credit, for instance, credit
card receivables. Asset-backed securities, including adjustable rate asset-
backed securities, have yield characteristics similar to those of mortgage-
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.
FOREIGN EXCHANGE CONTRACTS AND FOREIGN CURRENCY FORWARD CONTRACTS
INTERNATIONAL EQUITY FUND AND OPPORTUNISTIC BOND FUND. Changes in foreign
currency exchange rates will affect the U.S. dollar values of securities
denominated in currencies other than the U.S. dollar. The rate of exchange
between the U.S. dollar and other currencies fluctuates in response to forces
of supply and demand in the foreign exchange markets. These forces are
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
When investing in foreign securities a Fund usually effects currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange market. The Fund incurs foreign exchange expenses in
converting assets from one currency to another.
A Fund may enter into foreign currency forward contracts or currency futures or
options contracts for the purchase or sale of foreign currency to "lock in" the
U.S. dollar price of the securities denominated in a foreign currency or the
U.S. dollar value of interest and dividends to be paid on such securities, or to
hedge against the possibility that the currency of a foreign country in which a
Fund has investments may suffer a decline against the U.S. dollar. The Funds
have no present intention to enter into currency futures or options contracts
but may do so in the future. A forward currency contract is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. This method of attempting to hedge the
value of a Fund's portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. Although the strategy of engaging in foreign currency transactions
could reduce the risk of loss due to a decline in the value of the hedged
currency, it could also limit the potential gain from an increase in the value
of the currency. The Funds do not intend to maintain a net exposure to such
contracts where the fulfillment of the Fund's obligations under such contracts
would obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities or other assets denominated in that
currency. A Fund will not enter into these contracts for speculative purposes
and will not enter into non-hedging currency contracts. These contracts involve
a risk of loss if the Adviser fails to predict currency values correctly.
A-9
<PAGE>
FUTURES CONTRACTS AND OPTIONS
ALL FUNDS. A Fund may seek to enhance its return through the writing (selling)
and purchasing of exchange-traded and over-the-counter options on fixed income
securities or indices. A Fund may also to attempt to hedge against a decline in
the value of securities owned by it or an increase in the price of securities
which it plans to purchase through the use of those options and the purchase and
sale of interest rate futures contracts and options on those futures contracts.
A Fund may only write options that are covered. An option is covered if, so long
as the Fund is obligated under the option, it owns an offsetting position in the
underlying security or futures contract or maintains cash, U.S. Government
Securities or other liquid, high-grade debt securities in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option. Certain futures strategies employed by a Balanced Fund in making
temporary allocations may not be deemed to be for bona fide hedging purposes, as
defined by the Commodity Futures Trading Commission. A Fund may enter into these
futures contracts only if the aggregate of initial margin deposits for open
futures contract positions does not exceed 5 percent of the Fund's total assets.
RISK CONSIDERATIONS. A Fund's use of options and futures contracts subjects the
Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (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 correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time, which, among other things, may hinder a Fund's ability to limit exposures
by closing its positions; (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences; and (6) the potential for unlimited loss when investing in futures
contracts or writing options for which an offsetting position is not held.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures position or that a counterparty in an over-the-
counter option transaction will be able to perform its obligations. There are a
limited number of options on interest rate futures contracts and exchange traded
options contracts on fixed income securities. Accordingly, hedging transactions
involving these instruments may entail "cross-hedging." As an example, a Fund
may wish to hedge existing holdings of mortgage-backed securities, but no listed
options may exist on those securities. In that event, the Adviser may attempt to
hedge the Fund's securities by the use of options with respect to similar fixed
income securities. The Fund may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist.
LIMITATIONS. The Funds have no current intention of investing in futures
contracts and options thereon for purposes other than hedging. No Fund may
purchase any call or put option on a futures contract if the premiums associated
with all such options held by the Fund would exceed 5 percent of the Fund's
total assets as of the date the option is purchased. No Fund may sell a put
option if the exercise value of all put options written by the Fund would exceed
50 percent of the Fund's total assets or sell a call option if the exercise
value of all call options written by the Fund would exceed the value of the
Fund's assets. In addition, the current market value of all open futures
positions held by a Fund will not exceed 50 percent of its total assets.
A-10
<PAGE>
OPTIONS ON SECURITIES. A call option is a contract pursuant to which the
purchaser of the call option, in return for a premium paid, has the right to buy
the security underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price during the option
period. A put option gives its purchaser, in return for a premium, the right to
sell the underlying security at a specified price during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy the
underlying security, upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying security or index, the relationship
of the exercise price to the market price, the historical price volatility of
the underlying security or index, the option period, supply and demand and
interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
INDEX FUTURES CONTRACTS. Bond and stock index futures contracts are bilateral
agreements pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the bond or stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the securities comprising the index is made. Generally, these futures
contracts are closed out prior to the expiration date of the contract.
OPTIONS ON FUTURES CONTRACTS. Options on futures contracts are similar to stock
options except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF FUND SHARES,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
A-11
<PAGE>
TABLE OF CONTENTS PAGE
----
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . .
EXPENSES OF INVESTING IN THE FUND. . . . . . . . . . . . . . . .
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . .
ADDITIONAL INVESTMENT PRACTICES. . . . . . . . . . . . . . . . .
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . .
PURCHASES AND REDEMPTIONS OF SHARES. . . . . . . . . . . . . . .
DIVIDENDS AND TAX MATTERS. . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX A: INVESTMENTS, INVESTMENT STRATEGIES
AND RISK CONSIDERATIONS . . . . . . . . . . . . .
A-12
<PAGE>
THE QUADRA FUNDS
RESTRICTED MATURITY TREASURY FUND
VALUE EQUITY FUND
INTERNATIONAL EQUITY FUND
OPPORTUNISTIC BOND FUND
- -------------------------------------------------------------------------------
ACCOUNT INFORMATION AND
INVESTMENT ADVISER: SHAREHOLDER SERVICES:
QUADRA Capital Partners, L.P. Forum Financial Corp.
270 Congress Street P.O. Box 446
Boston, Massachusetts 02210 Portland, Maine 04112
(207) XXX-XXXX
(800) XXX-XXXX
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
[date]
This Statement of Additional Information supplements the Prospectus offering
shares of the QUADRA Value Equity Fund, International Fund, U.S. Treasury Fund
and Opportunistic Bond Fund (each a "Fund" and collectively the "Funds"). The
Funds are each diversified portfolios of the Forum Funds (the "Trust"), an open-
end, management investment company. This Statement of Additional Information
should be read only in conjunction with the Prospectus, which you may obtain
without charge by contacting the Trust's Distributor, Forum Financial Services,
Inc., Two Portland Square, Portland, Maine 04101.
TABLE OF CONTENTS
Page
----
1. Investment Policies . . . . . . . .
2. Investment Limitations. . . . . . .
3. Performance Data. . . . . . . . . .
4. Management. . . . . . . . . . . . .
5. Determination of Net Asset Value. .
6. Portfolio Transactions. . . . . . .
7. Additional Purchase and
Redemption Information . . . . .
8. Taxation. . . . . . . . . . . . . .
9. Other Information . . . . . . . . .
Appendix A - Description of Securities Ratings
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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>
As used in this SAI, the following terms shall have the meanings listed:
"Investment Advisers" shall mean Quadra Capital Partners, L.P. and each of
the investment subadvisers that provide investment advice and portfolio
management for one or more of the Funds pursuant to an investment
subadvisory agreement with Quadra Capital Partners, L.P.
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Custodian" shall mean First National Bank of Boston, or its successor,
acting in its capacity as custodian of a Fund.
"Equity Funds" shall mean the Quadra Value Equity Fund and the Quadra
International Equity Fund.
"FFC" shall mean Forum Financial Corp., the Trust's fund accountant.
"Fitch" shall mean Fitch Investors Service, Inc.
"Fixed Income Funds" shall mean each of the Quadra Restricted Maturity
Treasury Fund and the Quadra Opportunistic Bond Fund.
"Forum" shall mean Forum Financial Services, Inc., the distributor of the
Trust's shares.
"Forum Administrative" shall mean Forum Administrative Services, LLC, the
Trust's administrator.
"Fund" shall mean each of the separate portfolios of the Trust to which
this Statement of Additional Information relates as identified on the cover
page.
"Moody's" shall mean Moody's Investors Service, Inc.
"NRSRO" shall mean a nationally recognized statistical rating organization.
"Quadra" shall mean Quadra Capital Partners, L.P., the investment adviser
to the Funds.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's Rating Group.
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"Subadviser" shall mean each of the investment advisers that provide
investment advice and portfolio management for the Funds pursuant to an
investment subadvisory agreements with Quadra.
"Transfer Agent" shall mean Forum Financial Corp. acting in its capacity as
transfer and dividend disbursing agent of the a Fund.
"Trust" shall mean Forum Funds, an open-end management investment company
registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
1. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning each Fund's investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any investment
or employ any investment technique or strategy not referenced in the Prospectus
which relates to that Fund. For example, while the SAI describes "swap"
transactions below, only those Funds whose investment policies, as described in
the Prospectus, allow the Fund to invest in swap transactions may do so.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations. A description of the range of ratings
assigned to various types of bonds and other securities by several NRSROs is
included in Appendix A to this SAI. The Funds may use these ratings to
determine whether to purchase, sell or hold a security. It should be
emphasized, however, that 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 is purchased by a Fund (neither event
requiring sale of such security by a Fund), the Investment Adviser of the Fund
will determine whether the Fund should continue to hold the obligation. To the
extent that the ratings given by a NRSRO may change as a result of changes in
such organizations or their rating systems, the Investment Adviser will attempt
to substitute comparable ratings. Credit ratings attempt to evaluate the safety
of principal and interest payments and do not evaluate the risks of fluctuations
in market value. Also, rating agencies may fail to make timely changes in
credit ratings. An issuer's current financial condition may be better or worse
than a rating indicates.
A Fund may purchase unrated securities if its Investment Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be
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as actively traded as rated securities. A Fund may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and determined by its Investment Adviser to be of comparable quality
to securities whose rating has been lowered below the lowest permissible rating
category) if the Investment Adviser determines that retaining such security is
in the best interests of the Fund.
To limit credit risks, the Funds may only invest in securities that are
investment grade (rated in the top four long-term investment grades by an NRSRO
or in the top two short-term investment grades by an NRSRO.) Accordingly, the
lowest permissible long-term investment grades for corporate bonds, including
convertible bonds, are Baa in the case of Moody's and BBB in the case of S&P and
Fitch; the lowest permissible long-term investment grades for preferred stock
are baa in the case of Moody's and BBB in the case of S&P and Fitch; and the
lowest permissible short-term investment grades for short-term debt, including
commercial paper, are Prime-2 (P-2) in the case of Moody's, A-2 in the case of
S&P and F-2 in the case of Fitch. All these ratings are generally considered to
be investment grade ratings, although Moody's indicates that securities with
long-term ratings of Baa have speculative characteristics.
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 obtaining the benefit of
currently higher cash yields. However, if the Fund's 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 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-
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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 Trust's Board of Trustee's ("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
Advisers, 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.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities 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
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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-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars and that are insured by the Federal Deposit
Insurance Corporation, (iii) commercial paper of prime quality rated Prime-2 or
higher by Moody's or A-2 or higher by S&P or, if not rated, determined by the
Fund's Subadviser to be of comparable quality, (iv) repurchase agreements
covering any of the securities in which the Fund may invest directly and (v)
money market mutual funds.
The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. In addition to the Fund's expenses
(including the various fees), as a shareholder in another investment company, a
Fund would bear its pro rata portion of the other investment company's expenses
(including fees).
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<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 Value Equity Fund and the International Equity
Fund (collectively, the "Equity Funds") may buy or sell stock index futures
contracts, such as contracts on the S&P 500 stock index. The Opportunistic Bond
Fund may buy and sell bond index futures contracts. In addition, all of the
Funds may buy or sell futures contracts on Treasury bills, Treasury bonds and
other financial instruments. The Funds may write covered options and buy
options on the futures contracts in which they may invest.
In addition, the Funds may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with a value at all times sufficient to cover the Fund's
obligation under the option.
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.
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.
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
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<PAGE>
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:
(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.
(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 75% 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.
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(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.
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Each 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 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 Trust or the Adviser, individually owning beneficially more
than 1/2 of 1% of the securities of the issuer, in the aggregate own
more than 5% of the issuer's securities.
(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
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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) 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.
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.
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.
In performance advertising the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDC/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). In addition, a Fund may compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Salomon Brothers Bond Index, the Shearson
Lehman Bond Index, the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. A Fund may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of a
Fund and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
YIELD CALCULATIONS
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Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced
with respect to bonds purchased at a premium over their par value by subtracting
a portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. Also, Processing Organizations may charge
their customers direct fees in connection with an investment in a Fund, which
will have the effect of reducing the Fund's net yield to those shareholders.
The yields of each Fund are not fixed or guaranteed, and an investment in a Fund
is not insured or guaranteed. Accordingly, yield information may not
necessarily be used to compare shares of a Fund with investment alternatives
which, like money market instruments or bank accounts, may provide a fixed rate
of interest. Also, it may not be appropriate to compare a Fund's yield
information directly to similar information regarding investment alternatives
which are insured or guaranteed.
TOTAL RETURN CALCULATIONS
Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:
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n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value.
ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields and other performance information may be quoted
numerically or in a table, graph or similar illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in
average annual total return above.
4. MANAGEMENT
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Chairman and President (age 53)
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
Trustee 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, Trustee (age 52)
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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, Trustee (age 53)
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, Trustee (age 52)
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.
Mark D. Kaplan, Vice President, Assistant Treasurer and Assistant Secretary
(age 40)
Managing Director at Forum Financial Services, Inc. since September 1995.
Prior thereto, Mr. Kaplan was Managing Director and Director of Research at
H.M. Payson & Co. His address is Two Portland Square, Portland, Maine
04101.
Michael D. Martins, Treasurer (age 30)
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.
David I. Goldstein, Secretary (age 34)
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.
Max Berueffy, Assistant Secretary (age 44)
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1994. Prior thereto, Mr. Berueffy was on the staff of the U.S.
Securities and Exchange Commission for seven years, first in the appellate
branch of the Office of the General
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Counsel, then as a counsel to Commissioner Grundfest and finally as a
senior special counsel in the Division of Investment Management. His
address is Two Portland Square, Portland, Maine 04101.
Don L. Evans, Assistant Secretary (age 47)
Assistant Counsel, Forum Financial Services, Inc., with which he has been
associated since August 1995. Prior thereto, Mr. Evans was associated with
the law firm of Bisk & Lutz and prior thereto the law firm of Weiner &
Strother. Mr. Evans is also 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.
M. Paige Turney, Assistant Secretary (age 27).
Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since 1995. Ms. Turney was employed from 1992 as a Senior Fund
Accountant with First Data Corporation in Boston, Massachusetts. Prior
thereto she was a student at Montana State University Her address is Two
Portland Square, Portland, Maine 04101.
John Y. Keffer is an interested person of the Trust as that term is defined in
the 1940 Act.
ADVISERS
QUADRA Capital Partners, L.P. ("Quadra"), 270 Congress Street, Boston,
Massachusetts 02210, serves as investment adviser to the Funds pursuant to an
investment advisory agreement with the Trust (the "Advisory Agreement"). To
assist it in carrying out its responsibility, the Adviser has retained the
Subadvisers to render advisory services and make daily investment decisions for
each Fund pursuant to an investment subadvisory agreements with Quadra (the
"Subadvisory Agreements").
The Advisers furnish at their own expense all services, facilities and personnel
necessary to perform their duties under the Advisory or Subadvisory Agreements.
The Advisory and Subadvisory Agreements provide, with respect to each Fund, for
an initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or, with respect to 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 and Subadvisory Agreements are terminable without penalty by the
Trust 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 Advisor on not more than 60 days' nor less than 30 days' written notice,
and will automatically terminate in the event of its
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assignment. The Agreements also provide that, with respect to each Fund, the
Adviser shall not be liable for any error of judgment or mistake of law or for
any act or omission in the performance of its duties to the Fund, except for
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties or by reason of reckless disregard of its obligations and
duties under the Agreements. 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 Trust will change a Fund's name so as not to
include the word "Quadra." The Advisory and Subadvisory Agreements provide that
the Advisers may render services to others.
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
Forum Administrative Services, LLC ("FAdS") acts as administrator to the
Trust pursuant to an Administration Agreement with the Trust. As administrator,
FAdS provides management and administrative services necessary to the operation
of the Trust (which include, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent and custodian and arranging for maintenance of books and records
of the Trust), and provides the Trust with general office facilities. The
Administration Agreement will remain in effect for a period of twelve months
with respect to the Fund and thereafter is automatically renewed each year for
an additional term of one year.
The Administration Agreement terminates automatically if it is assigned and
may be terminated without penalty with respect to the Fund by vote of the Fund's
shareholders or by either party on not more than 60 days' written notice. The
Administration Agreement also provides that FAdS shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
administration or management of the Trust, except for willful misfeasance, bad
faith or gross negligence in the performance of Forum's duties or by reason of
reckless disregard of its obligations and duties under the Administration
Agreement.
At the request of the Board, FAdS provides persons satisfactory to the Board to
serve as officers of the Trust. Those officers, as well as certain other
employees and Trustees of the Trust, may be directors, officers or employees of
FAdS, the Adviser, the subadviser or their affiliates.
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DISTRIBUTOR
Forum Financial Services, Inc. ("Forum"), an affiliate of FAdS, is the
Trust's distributor and acts as the agent of the Trust in connection with the
offering of shares of the Fund pursuant to a Distribution Agreement. The
Distribution Agreement will continue in effect for twelve months and will
continue in effect thereafter only if its continuance is specifically approved
at least annually by the Board or by vote of the shareholders entitled to vote
thereon, and in either case, by a majority of the Trustees who (i) are not
parties to the Distribution Agreement, (ii) are not interested persons of any
such party or of the Trust and (iii) with respect to any class for which the
Trust has adopted a distribution plan, have no direct or indirect financial
interest in the operation of that distribution plan or in the Distribution
Agreement, at a meeting called for the purpose of voting on the Distribution
Agreement. All subscriptions for shares obtained by Forum are directed to the
Trust for acceptance and are not binding on the Trust until accepted by it.
Forum receives no compensation or reimbursement of expenses for the distribution
services provided pursuant to the Distribution Agreement and is under no
obligation to sell any specific amount of Fund shares.
The Distribution Agreement provides that Forum shall not be liable for any
error of judgment or mistake of law or in any event whatsoever, except for
willful misfeasance, bad faith or gross negligence in the performance of Forum's
duties or by reason of reckless disregard of its obligations and duties under
the Distribution Agreement.
The Distribution Agreement is terminable with respect to the Fund without
penalty by the Trust on 60 days' written notice when authorized either by vote
of the Fund's shareholders or by a vote of a majority of the Board, or by Forum
on 60 days' written notice. The Distribution Agreement will automatically
terminate in the event of its assignment.
Forum may enter into agreements with selected broker-dealers, banks, or
other financial institutions for distribution of shares of the Fund. These
financial institutions may charge a fee for their services and may receive
shareholders service fees even though shares of the Fund are sold without sales
charges or distribution fees. These financial institutions may otherwise act as
processing agents, and will be responsible for promptly transmitting purchase,
redemption and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the
procedures of the institution through whom they purchase shares, which may
include charges, investment minimums, cutoff times and other restrictions in
addition to, or different from, those listed herein. Information concerning any
charges or services will be provided to customers by the financial institution.
Investors purchasing shares of the Fund in this manner should acquaint
themselves with their institution's procedures and should read this Prospectus
in conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
TRANSFER AGENT
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Forum Financial Corp. ("FFC") acts as transfer agent of the Trust 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
directors who are not parties to the Transfer Agency Agreement or interested
persons of any such party at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of FFC as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Funds may be effected and certain
other matters pertaining to the Funds; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the Trust to its
shareholders; (8) arranging for the receipt, tabulation and transmission to the
Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FFC or any sub-transfer agent or processing agent may also act and receive
compensation as custodian, investment manager, nominee, agent or fiduciary for
its customers or clients who are shareholders of the Funds with respect to
assets invested in the Funds. FFC or any sub-transfer agent or other processing
agent may elect to credit against the fees payable to it by its clients or
customers all or a portion of any fee received from the Trust or from FFC with
respect to assets of those customers or clients invested in the Funds. FFC,
Forum or sub-transfer agents or processing agents retained by FFC may be
Processing Organizations (as defined in the Prospectus) and, in the case of sub-
transfer agents or processing agents, may also be affiliated persons of FFC or
Forum.
For its services under the Transfer Agency Agreement, Forum receives, with
respect to each Series: a fee of $24,000 per year; such amounts to be computed
and paid monthly in arrears by the Fund; and (iii) Annual Shareholder Account
Fees of $25.00 for a retail and $125.00 for an institutional shareholder
account; such fees to be computed as of the last business day of the prior
month. Fees payable under the Transfer Agent Agreement with respect to each
Fund are outlined in the following tables:
Pursuant to a Fund Accounting Agreement, FFC prepares and maintains books and
records of each Fund on behalf of the Company as required under the 1940 Act,
calculates the net asset value per share of each Fund and dividends and capital
gain distributions and prepares periodic
17
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reports to shareholders and the Securities and Exchange Commission. For its
services, FFC receives from the Company with respect to each Fund a fee of
$36,000 per year plus surcharges of $6,000 to $24,000 for specified asset
levels. FFC is paid additional surcharges of $12,000 per year for each of the
following: a portfolio with more than a specified number of securities
positions and/or international positions; investments in derivative instruments;
percentages of assets invested in asset backed securities; and, a monthly
portfolio turnover rate of 10% or greater.
FFC 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.
EXPENSES
Under the Advisory Agreement, the Trust has confirmed its obligation to pay
all its expenses subject to the obligation of the Adviser to reimburse the Trust
for its excess expenses as described in the Prospectus. The Trust 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.
The Trust's expenses include: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Trust's custodian and transfer agent; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining corporate
existence; costs of preparing and printing the Trust's prospectuses, statements
of additional information and shareholder reports and delivering them to
existing shareholders; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; compensation of the Trust's Trustees;
compensation of the Trust's officers and employees who are not employees of the
Adviser, Forum or their respective affiliates and costs of other personnel
performing services for the Trust; costs of corporate meetings; Securities and
Exchange Commission registration fees and related expenses; state securities
laws registration fees and related expenses; the fees payable under the Advisory
Agreement, and the Administration and Distribution Agreement.
5. DETERMINATION OF NET ASSET VALUE
The Trust 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, 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.
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6. PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities for the Fixed Income Funds usually are
principal transactions. Portfolio Securities for these Funds are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and
asked prices.
The Equity Funds will, and the Fixed Income Funds may, effect purchases and
sales through brokers who charge commissions. Allocations of transactions to
brokers and dealers and the frequency of transactions are determined by the
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.
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 Advisers may give consideration to research and investment
analysis services furnished by brokers or dealers to the Advisers for its use
and may cause the Fund to pay these brokers a higher amount of commission than
may be charged by other brokers. Such research and analysis is of the types
described in Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended, and is designed to augment the Advisers' own internal research and
investment strategy capabilities. The Adviser may use the research and analysis
in connection with services to clients other than the Fund, and the Advisers'
fee is not reduced by reason of the Advisers' receipt of the research services.
Investment decisions for the Funds will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Advisers or their affiliates. If, however, a Fund and other investment
companies or accounts managed by one of the Advisers are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by a Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for a Fund and for other investment companies and
accounts managed by one of the Advisers occur contemporaneously, the purchase or
sale orders may be aggregated in order to obtain any price advantages available
to large denomination purchases or sales.
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In the future the Funds, consistent with the policy of obtaining best net
results, may conduct brokerage transactions through the Advisers' 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.
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse a Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to a Fund's shares as provided in the
Prospectus.
The Trust has filed a formal election with the Securities and Exchange
Commission pursuant to which a Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any other fund of the Trust 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 Trust'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.
By use of the exchange privilege, the shareholder authorizes FFC to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FFC to be genuine.
The records of FFC of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction 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
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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 Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The 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 for a service fee.
Shareholders wishing to use a Fund's IRA should contact FFC 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 Fixed Income Funds expect to derive a substantial amount of their gross
income (exclusive of capital gain) from dividends. Accordingly, that portion of
the Fixed Income Funds' dividends so derived will qualify for the dividends-
received deduction for corporations. The Equity 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 Equity
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.
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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, 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
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, One Battery
Park Plaza, New York, New York 10004
AUDITORS
, Two World Financial Center, New York, New York 10281-1438,
independent auditors, act as auditors for the Trust.
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and assumed
the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996, Forum
Funds, Inc. was reorganized as a Delaware business trust. The Trust has an
unlimited number of authorized shares of beneficial interest. The Board may,
without shareholder approval, divide the authorized shares into an unlimited
number of separate portfolios or series (such as the Fund) and may in the future
divide portfolios or series into two or more classes of shares (such as Investor
and Institutional Shares). Currently the authorized shares of the Trust are
divided into 15 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally,
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shares will be voted in the aggregate without reference to a particular
portfolio or class, except if the matter affects only one portfolio or class or
voting by portfolio or class is required by law, in which case shares will be
voted separately by portfolio or class, as appropriate. Delaware law does not
require the Trust to hold annual meetings of shareholders, and it is anticipated
that shareholder meetings will be held only when specifically required by
Federal or state law. Shareholders have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
As of [DATE], 1996, the officers and Directors of the Trust 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.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As noted, certain of these
shareholders are known to the Trust to hold their shares of record only and have
no beneficial interest, including the right to vote, in the shares.
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THE QUADRA FUNDS
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
<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.
A-2
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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.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated CC typically are debt subordinated to senior debt which is assigned
an actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
A-3
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Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
A-4
<PAGE>
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
2. PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
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.
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An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
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<PAGE>
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
3. SHORT-TERM DEBT (COMMERCIAL PAPER)
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2, both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
--- Leading market positions in well-established industries.
--- High rates of return on funds employed.
--- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues
with an A-2 designation is strong. However, the relative degree of safety is
not as high as for issues designated A-1. A-3 issues have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
A-7
<PAGE>
FITCH INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.
F-3. Issues assigned this rating have characteristics suggesting that the
degree of assurance for timely payment is adequate, however, near-term adverse
changes could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D.. Issues assigned this rating are in actual or imminent payment default.
A-8
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS.
Not Applicable to this filing.
FINANCIAL HIGHLIGHTS.
Not Applicable to this filing.
(b) EXHIBITS.
NOTE: * INDICATES THAT THE EXHIBIT IS INCORPORATED HEREIN BY REFERENCE. ALL
REFERENCES TO A POST-EFFECTIVE AMENDMENT ("PEA") OR PRE-EFFECTIVE AMENDMENT
("PREEA") ARE TO PEAS AND PREEAS TO REGISTRANT'S REGISTRATION STATEMENT ON FORM
N-1A, FILE NO. 2-67052.
(1)* Copy of the Trust Instrument of the Registrant dated August 29,
1995 (filed as Exhibit 1 to PEA No. 34).
(2)* Copy of By-Laws of the Registrant (filed as Exhibit 2 to PEA No.
30)
(3) None.
(4) (a) Sections 2.04 and 2.06 of Registrant's Trust Instrument
provide as follows:
"SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided
by the Trustees, Shares shall be transferable on the
records of the Trust only by the record holder thereof or
by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of
a duly executed instrument of transfer and such evidence
of the genuineness of such execution and authorization
and of such other matters as may be required by the
Trustees. Upon such delivery the transfer shall be
recorded on the register of the Trust. Until such record
is made, the Shareholder of record shall be deemed to be
the holder of such Shares for all purposes hereunder and
neither the Trustees nor the Trust, nor any transfer
agent or registrar nor any officer, employee or agent of
the Trust shall be affected by any notice of the proposed
transfer.
"SECTION 2.06 ESTABLISHMENT OF SERIES. The Trust created hereby
shall consist of one or more Series and separate and
distinct records shall be maintained by the Trust for
each Series and the assets associated with any such
Series shall be held and accounted for separately from
the assets of the Trust or any other Series. The Trustees
shall have full power and authority, in their sole
discretion, and without obtaining any prior authorization
or vote of the Shareholders of any Series of the Trust,
to establish and designate and to change in any manner
any such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes
thereof as the Trustees may from time to time determine,
to divide or combine the Shares or any Series or classes
thereof into a greater or lesser number, to classify or
reclassify any issued Shares or any Series or classes
thereof into one or more Series or classes of Shares, and
to take such other action with respect to the Shares as
the Trustees may deem desirable. The establishment and
designation of any Series shall be effective upon the
adoption of a resolution by a majority of the Trustees
setting forth such establishment
<PAGE>
and designation and the relative rights and preferences
of the Shares of such Series. A Series may issue any
number of Shares and need not issue shares. At any time
that there are no Shares outstanding of any particular
Series previously established and designated, the
Trustees may by a majority vote abolish that Series and
the establishment and designation thereof.
"All references to Shares in this Trust Instrument shall be
deemed to be Shares of any or all Series, or classes
thereof, as the context may require. All provisions
herein relating to the Trust shall apply equally to each
Series of the Trust, and each class thereof, except as
the context otherwise requires.
"Each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series.
Each holder of Shares of a Series shall be entitled to
receive his pro rata share of all distributions made with
respect to such Series. Upon redemption of his Shares,
such Shareholder shall be paid solely out of the funds
and property of such Series of the Trust."
(5) (a)* Investment Advisory Agreement between Registrant and
Westwood Ventures, Ltd. (filed as Exhibit 5 (a) to PEA
No. 36).
(b)* Investment Subadvisory Agreement between Westwood
Ventures, Ltd. and Forum Advisors, Inc. relating to the
Sportsfund (filed as Exhibit 5 (b) to PEA No. 36).
(6) (a)* Form of Management and Distribution Agreement between
Registrant and Forum Financial Services, Inc. (filed as
Exhibit 6(a) to PEA No. 33).
(b)* Form of Distribution Services Agreement between
Registrant and Forum Financial Services, Inc. (filed as
Exhibit 6(b) to PEA No. 33).).
(c)* Form of Selected Dealer Agreement between Forum Financial
Services, Inc. and securities brokers (filed as Exhibit
6(c) to PEA 21).
(d)* Form of Bank Affiliated Selected Dealer Agreement between
Forum Financial Services, Inc. and bank affiliates filed
as Exhibit 6(d) of PEA 21).
(7) None.
(8) (a)* Form of Transfer Agency Agreement between Registrant and
Forum Financial Corp. (filed as Exhibit 8(a) to PEA No.
33).
(b)* Form of Custodian Agreement between Registrant and the
First National Bank of Boston (filed as Exhibit 8(b) to
PEA No. 33).
(9) (a)* Form of Management Agreement between Registrant and Forum
Financial Services, Inc. (filed as Exhibit 9(a) to PEA
No. 33).
(10)* Opinion of Seward & Kissel dated January 5, 1996 (filed as
Exhibit 10 of PEA No. 33).
(11) Not applicable to this filing.
(12) None.
(13)* Investment Representation letter of Reich & Tang, Inc. as
original purchaser of shares of registrant (filed as Exhibit 13
to Registration Statement).
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<PAGE>
(14)* Form of Disclosure Statement and Custodial Account Agreement
applicable to individual retirement accounts (filed as Exhibit
14 of PEA No. 21).
(15) (a)* Form of Rule 12b-1 Plan adopted by the Registrant (filed
as Exhibit 15 of PEA No. 16).
(b)* Rule 12b-1 Plan adopted by the Registrant with respect to
the Payson Value Fund and the Payson Balanced Fund (filed
as Exhibit 8(c) of PEA No. 20).
Other Exhibits*:
Powers of Attorney (filed as Other Exhibits to PEA No. 34).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF SEPTEMBER 30, 1996
Title of Class Number of Holders
-------------- -----------------
Investors Stock Fund 0
Investors Bond Fund 76
TaxSaver Bond Fund 47
Daily Assets Cash Fund 0
Daily Assets Treasury Fund 51
Daily Assets Government Fund 0
Payson Value Fund 277
Payson Balanced Fund 396
Maine Municipal Bond Fund 390
New Hampshire Bond Fund 86
Sportsfund 30
Austin Global Equity Fund 0
Oak Hall Equity Fund 0
Core Portfolio Plus 0
ITEM 27. INDEMNIFICATION.
In accordance with Section 3803 of the Delaware Business Trust Act,
SECTION 5.2 of the Registrant's Trust Instrument provides as follows:
"5.2. INDEMNIFICATION.
"(a) Subject to the exceptions and limitations contained in
Section (b) below:
"(i) Every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall
be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action,
suit or proceeding in which he becomes involved as a party or
otherwise by virtue of being or having been a Trustee or officer
and against amounts paid or incurred by him in the settlement
thereof;
"(ii) The words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened
while in
C-3
<PAGE>
office or thereafter, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and
other liabilities.
"(b) No indemnification shall be provided hereunder to a
Covered Person:
"(i) Who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust
or its Holders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of the Covered Person's office or (B) not to have
acted in good faith in the reasonable belief that Covered
Person's action was in the best interest of the Trust; or
"(ii) In the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the Trustee's
or officer's office,
"(A) By the court or other body approving the
settlement;
"(B) By at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the
matter based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or
"(C) By written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full
trial-type inquiry);
provided, however, that any Holder may, by appropriate legal
proceedings, challenge any such determination by the Trustees or
by independent counsel.
"(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights to
which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such
a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
"(d) Expenses in connection with the preparation and presentation of
a defense to any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 5.2 may be paid by the Trust
or Series from time to time prior to final disposition thereof upon
receipt of an undertaking by or on behalf of such Covered Person that
such amount will be paid over by him to the Trust or Series if it is
ultimately determined that he is not entitled to indemnification under
this Section 5.2; provided, however, that either (a) such Covered
Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance
payments or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a trial-
type inquiry or full investigation), that there is reason to believe
that such Covered Person will be found entitled to indemnification
under this Section 5.2.
"(e) Conditional advancing of indemnification monies under
this Section 5.2 for actions based upon the 1940 Act may be made only
on the following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation
of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount
of the advance which exceeds that amount which it is ultimately
determined that he is entitled to receive from the Trust by reason of
indemnification; and (iii) (a) such promise must be secured by a surety
bond, other suitable insurance or an equivalent form of security which
assures that any repayments may be obtained by the Trust without delay
or litigation,
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<PAGE>
which bond, insurance or other form of security must be provided by the
recipient of the advance, or (b) a majority of a quorum of the Trust's
disinterested, non-party Trustees, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be
found entitled to indemnification.
"(f) In case any Holder or former Holder of any Series shall
be held to be personally liable solely by reason of the Holder or
former Holder being or having been a Holder of that Series and not
because of the Holder or former Holder acts or omissions or for some
other reason, the Holder or former Holder (or the Holder or former
Holder's heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability.
The Trust, on behalf of the affected Series, shall, upon request by the
Holder, assume the defense of any claim made against the Holder for any
act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series."
Paragraph 4 of each Investment Advisory Agreement provides in substance as
follows:
"4. We shall expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and
we agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or and to our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Paragraphs 3(f) and (g) and paragraph 5 of the Management and Distribution
Agreement provide as follows:
"(f) We agree to indemnify, defend and hold you, your several
officers and directors, and any person who controls you within the
meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
which you, your officers and directors or any such controlling person
may incur, under the Securities Act, or under common law or otherwise,
arising out of or based upon any alleged untrue statement of a material
fact contained in our Registration Statement or Prospectus in effect
from time to time under the Securities Act or arising out of or based
upon any alleged omission to state a material fact required to be
stated in either thereof or necessary to make the statements in either
thereof not misleading; provided, however, that in no event shall
anything contained in this paragraph 3(f) be so construed as to protect
you against any liability to us or our security holders to which you
would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of your duties, or by reason of
your reckless disregard of your obligations and duties under this
paragraph. Our agreement to indemnify you, your officers and directors
and any such controlling person as aforesaid is expressly conditioned
upon our being notified of any action brought against you, your
officers and directors or any such controlling person, such
notification to be given by letter or by telegram addressed to us at
our principal office in New York, New York, and sent to us by the
person against whom such action is brought within ten days after the
summons or other first legal process shall have been served. The
failure so to notify us of any such action shall not relieve us from
any liability which we may have to the person against whom such action
is brought by reason of any such alleged untrue statement or omission
otherwise than on account of our indemnity agreement contained in this
paragraph 3(f). We will be entitled to assume the defense of any suit
brought to enforce any such claim, and to retain counsel of good
standing chosen by us and approved by you. In the event we do elect to
assume the defense of any such suit and retain counsel of good standing
approved by you, the defendant or defendants in such suit shall bear
the fees and expenses of any additional counsel retained by any of
them; but in case we do not elect to assume the defense of any such
suit, or in case you do not approve of counsel chosen by us, we will
reimburse you or the controlling person or persons named as defendant
or defendants in such suit, for the fees and expenses of any counsel
retained by you or them.
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<PAGE>
Our indemnification agreement contained in this paragraph 3(f) and our
representations and warranties in this agreement shall remain operative
and in full force and effect regardless of any investigation made by or
on behalf of you, your officers and directors or any controlling person
and shall survive the sale of any shares of our common stock made
pursuant to subscriptions obtained by you. This agreement of indemnity
will inure exclusively to your benefit, to the benefit of your
successors and assigns, and to the benefit of your officers and
directors and any controlling persons and their successors and assigns.
We agree promptly to notify you of the commencement of any litigation
or proceeding against us in connection with the issue and sale of any
shares of our common stock.
"(g) You agree to indemnify, defend and hold us, our several officers
and directors, and person who controls us within the meaning of Section
15 of the Securities Act, free and harmless from and against any and
all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which we, our
officers or directors, or any such controlling person may incur under
the Act or under common law or otherwise, but only to the extent that
such liability, or expense incurred by us, our officers or directors or
such controlling person resulting from such claims or demands shall
arise out of or be based upon any alleged untrue statement of a
material fact contained in information furnished in writing by you in
your capacity as distributor to us for use in our Registration
Statement or Prospectus in effect from time to time under the Act, or
shall arise out of or be based upon any alleged omission to state a
material fact in connection with such information required to be stated
in the Registration Statement or Prospectus or necessary to make such
information not misleading. Your agreement to indemnify us, our
officers and directors, and any such controlling person as aforesaid is
expressly conditioned upon your being notified of any action brought
against us, our officers or directors or any such controlling person,
such notification to be given by letter or telegram addressed to you at
your principal office in New York, New York, and sent to you by the
person against whom such action is brought, within ten days after the
summons or other first legal process shall have been served. You shall
have a right to control the defense of such action, with counsel of
your own choosing, satisfactory to us, if such action is based solely
upon such alleged misstatement or omission on your part, and in any
other event you and we, our officers or directors or such controlling
person shall each have the right to participate in the defense or
preparation of the defense of any such action. The failure so to notify
you of any such action shall not relieve you from any liability which
you may have to us, to our officers or directors, or to such
controlling person by reason of any such untrue statement or omission
on your part otherwise than on account of your indemnity agreement
contained in this paragraph 3(g).
"5 We shall expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and
we agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or to our security holders to which you would
otherwise be subject by reason or willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Section 9(a) of the Distribution Services Agreement provides:
"The Company agrees to indemnify, defend and hold the Underwriter, and
any person who controls the Underwriter within the meaning of Section
15 of the Securities Act, free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Underwriter or
any such controlling person may incur, under the Securities Act or
under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Company's
Registration Statement or the Prospectus or Statement of Additional
Information in effect from time to time under the Securities Act and
relating to the Fund or arising out of or based upon any alleged
omission to state a material fact required to be stated in any thereof
or necessary to make the statements in
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<PAGE>
any thereof not misleading; provided, however, that in no event shall
anything herein contained be so construed as to protect the Underwriter
against any liability to the Company or its security holders to which
the Underwriter would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of the Underwriter's reckless disregard of its
obligations and duties under this agreement. The Company's agreement to
indemnify the Underwriter and any controlling person as aforesaid is
expressly conditioned upon the Company's being notified of the
commencement of any action brought against the Underwriter or any such
controlling person, such notification to be given by letter or by
telegram addressed to the Company at its principal office in New York,
New York, and sent to the Company by the person against whom such
action is brought within ten days after the summons or other first
legal process shall have been served. The Company will be entitled to
assume the defense of any suit brought to enforce any such claim, and
to retain counsel of good standing chosen by the Company and approved
by the Underwriter. In the event the Company elects to assume the
defense of any such suit and retain counsel of good standing approved
by the Underwriter, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case
the Company does not elect to assume the defense of the suit or in case
the Underwriter does not approve of counsel chosen by the Company, the
Company will reimburse the Underwriter or the controlling person or
persons named defendant or defendants in the suit for the fees and
expenses of any counsel retained by the Underwriter or such person. The
indemnification agreement contained in this Section 9 shall remain
operative and in full force and effect regardless of any investigation
made by or on behalf of the Underwriter or any controlling person and
shall survive the sale of the Fund's shares made pursuant to
subscriptions obtained by the Underwriter. This agreement of indemnity
will inure exclusively to the benefit of the Underwriter, to the
benefit of its successors and assigns, and to the benefit of any
controlling persons and their successors and assigns. The Company
agrees promptly to notify the Underwriter of the Underwriter of the
commencement of any litigation or proceeding against the Company in
connection with the issue and sale of any of shares of the Fund. The
failure to do so notify the Company of the commencement of any such
action shall not relieve the Company from any liability which it may
have to the person against whom the action is brought by reason of any
alleged untrue statement or omission otherwise than on account of the
indemnity agreement contained in this Section 9."
In so far as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
Forum Advisors, Inc.
The descriptions of Forum Advisors, Inc. under the caption "Management-
Adviser" in the Prospectus and Statement of Additional Information
relating to the Investors Bond Fund, the TaxSaver Bond Fund, the Daily
Assets Cash Fund, the Daily Assets Government Fund, the Daily Assets
Treasury Fund , the Daily Assets TaxSaver Fund, the Maine Municipal
Bond Fund, the New Hampshire Bond Fund and the Sportsfund, constituting
certain of Parts A and B, respectively, of the Registration Statement
are incorporated by reference herein.
The following are the directors and officers of Forum Advisors, Inc.,
Two Portland Square, Portland, Maine 04101, including their business
connections which are of a substantial nature.
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John Y. Keffer, President and Secretary.
Chairman and President of the Registrant; President and
Secretary of Forum Financial Services, Inc. and of Forum
Financial Corp. Mr. Keffer is a director and/or officer of
various registered investment companies for which Forum
Financial Services, Inc. Serves as manager, administrator and/or
distributor.
David R. Keffer, Vice President and Treasurer.
Vice President, Assistant Secretary and Assistant Treasurer of
the Registrant; Vice President and Treasurer of Forum Financial
Services, Inc. and of Forum Financial Corp. Mr. Keffer is an
officer of various registered investment companies for which
Forum Financial Services, Inc. Serves as manager, administrator
and/or distributor.
H.M. Payson & Co.
The descriptions of H.M. Payson & Co. under the caption "Management -
Adviser" in the Prospectus and Statement of Additional Information,
with respect to the Payson Value Fund and the Payson Balanced Fund,
constituting certain of Parts A and B, respectively, of this
Registration Statement are incorporated by reference herein.
The following are the directors and principal executive officers of
H.M. Payson & Co., including their business connections which are of a
substantial nature. The address of H.M. Payson & Co. is One Portland
Square, Portland, Maine 04101.
Adrian L. Asherman, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1955, General
Partner from 1964 to 1987 and Managing Director since 1987. His
address is One Portland Square, Portland, Maine 04101.
John C. Downing, Managing Director and Treasurer.
Portfolio Manger of H.M. Payson since 1983 and Managing Director
since 1992. Mr. Downing has been associated with H.M. Payson
since 1983. His address is One Portland Square, Portland, Maine
04101.
William A. Macleod, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1984 and Managing
Director since 1989. His address is One Portland Square,
Portland, Maine 04101.
Thomas M. Pierce, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1975, General
Partner from 1981 to 1987 and Managing Director since 1987. His
address is One Portland Square, Portland, Maine 04101.
Peter E. Robbins, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1992, 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. General Partner of H.M. Payson & Co. from 1986 to
1987, and Managing Director from 1987 to 1988, and since 1993.
John H. Walker, Managing Director and President.
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Portfolio Manager of H.M. Payson & Co. since 1967, General
Partner from 1974 to 1987, and Managing Director since 1987. Mr.
Walker is also a Director of York Holding Company and York
Insurance Company. His address is One Portland Square, Portland,
Maine 04101.
Teresa M. Esposito, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. Her address
is One Portland Square, Portland, Maine 04101.
John C. Knox, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. His address
is One Portland Square, Portland, Maine 04101.
Harold J. Dixon, Managing Director and Secretary.
Managing Director of H.M. Payson & Co. since 1995. His address
is One Portland Square, Portland, Maine 04101.
Laura McDill, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. Her address
is One Portland Square, Portland, Maine 04101.
Westwood Ventures, Ltd.
The descriptions of Westwood Ventures, Ltd. under the caption
"Management - Adviser" in the Prospectus and Statement of Additional
Information, with respect to the Sportsfund, constituting certain of
Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of
Westwood Ventures, Ltd., including their business connections which are
of a substantial nature. The address of Westwood Ventures, Ltd.. is 450
Seventh Avenue, Suite 3304, New York, New York 10123.
Gary Miller, President, Chief Executive Officer and Chairman of the
Board.
Adam Zalta, Executive Vice President, Director and Treasurer.
President, Atlaz International, a national computer manufacturer
and reseller, since
Lawrence J. Toscano, Director and Assistant Secretary.
Member of the Law Firm of Heller, Horowitz & Feit, P.C., since
1983, (attorneys for Westwood Ventures, Ltd.)
Austin Investment Management, Inc.
The description of Austin Investment Management, Inc. under the caption
"Management - Adviser" in the Prospectus and Statement of Additional
Information with respect to the Austin Global Equities Fund,
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<PAGE>
constituting part of Parts A and B, respectively, of this Registration
Statement are incorporated by reference herein.
The following is the director and principal executive officer of Austin
Investment Management, Inc. 375 Park Avenue, New York, New York 10152,
including their business connections which are of a substantial nature.
Peter Vlachos, Director, President Treasurer and Secretary
Oak Hall Capital Advisors, Inc.
The description of Oak Hall Capital Advisors, Inc. under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Oak Hall Equity Fund, constituting part
of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of,
Oak Hall Capital Advisors, Inc. 122 East 42nd Street, New York, New
York 10168, including their business connections which are of a
substantial nature.
Alexander G. Anagnos, Director and Portfolio Manager.
Consultant to American Services Corporation and Financial
Advisor to WR Family Associates.
Lewis G. Cole, Director.
Partner, the Law Firm of Strook, Strook & Lavan.
John C. Hathaway, President, director and Portfolio Manager.
John J. Hock, Executive Vice President.
Charles D. Klein, Portfolio Manager.
Director, American Securities Corporation and Financial Advisor
to WR Family Associates.
David P. Steinmann, Executive Vice President, Secretary and Treasurer.
Administrator WR Family Associates and Secretary and Treasurer
of American Securities Corporation.
Carl Domino Associates, L.P.
The description of Carl Domino Associates, L.P. under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Value Equity Fund, constituting part of
Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of,
Carl Domino Associates, L.P., 580 Village Blvd., West Palm Beach, FL
33409 including their business connections which are of a substantial
nature.
Carl J. Domino, Managing Partner & Portfolio Manager.
Paul Scoville, Jr., Senior Portfolio Manager.
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<PAGE>
Ann Fritts Syring, Senior Portfolio Manager.
John Wagstaff-Callahan, Senior Portfolio Manager.
Prior to joining Carl Domino Associates, L.P., Mr. Wagstaff-
Callahan was a Trustee with Batterymarch Financial Management, Boston,
Massachusetts.
Stephen Krider Kent, Jr., Senior Portfolio Manager.
Prior to joining Carl Domino Associates, L.P., Mr. Kent was a
Senior Portfolio Manager with Gamble, Jones Holbrook & Bent, Carlsbad,
California.
Anhalt/O'Connell, Inc.
The description of Anhalt/O'Connell, Inc. under the caption "Management
- Advisor" in the Prospectus and Statement of Additional Information
with respect to the Restricted Maturity Treasury Fund, constituting
part of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of,
Anhalt/O'Connell, Inc., 345 South Figueroa Street, Suite 303, Los
Angeles, CA, including their business connections which are of a
substantial nature.
Paul Edward Anhalt, Managing Director and Chairman.
Mr. Anhalt is also a partner of Anhalt/O'Connell, a partnership,
and was formerly Managing Director and Consulting Economist of Trust
Company of the West.
Michael Frederick O'Connell, Managing Director
Mr. O'Connell is also a partner of Anhalt/O'Connell, a
partnership, and was formerly Managing Director of Trust Company of the
West and Vice President of Institutional Research Services, Inc., a
registered broker-dealer.
LM Capital Management, Inc.
The description of LM Capital Management, Inc., under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Opportunistic Bond Fund, constituting
part of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of, LM
Capital Management, Inc., including their business connections which
are of a substantial nature.
Luis Malzel, Managing Director.
John Chalker, Managing Director
McDonald Investment Management, Inc.
The description of McDonald Investment Management, Inc., under the
caption "Management - Advisor" in the Prospectus and Statement of
Additional Information with respect to the International Equity Fund,
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<PAGE>
constituting part of Parts A and B, respectively, of this Registration
Statement are incorporated by reference herein.
The following are the directors and principal executive officers of
McDonald Investment Management, Inc., including their business
connections which are of a substantial nature.
John McDonald, President and Chief Investment Officer.
Ron Belcot, Vice President - Research and Trading.
Bill Hallman, Vice President.
Ray DiBernardo, Vice President., Managing Director
Mr. DiBernardo was formerly a portfolio manager with Royal
Trust.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Forum Financial Services, Inc., Registrant's underwriter, serves
as underwriter to Avalon Capital, Inc., Core Trust (Delaware),
The CRM Funds, The Cutler Trust, Monarch Funds, Norwest
Advantage Funds, Norwest Select Funds, Sound Shore Fund, Inc.,
Stone Bridge Funds, Inc. and Trans Adviser Funds, Inc.
(b) John Y. Keffer, President and Secretary of Forum Financial
Services, Inc., is the Chairman and President of the Registrant.
David R. Keffer, Vice President and Treasurer of Forum Financial
Services, Inc., is the Vice President, Assistant Treasurer and
Assistant Secretary of the Registrant. Their business address is
Two Portland Square, Portland, Maine 04101.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of Forum Financial Services, Inc. and
Forum Financial Corp., Two Portland Square, Portland, Maine 04101. The records
required to be maintained under Rule 31a-1(b)(1) with respect to journals of
receipts and deliveries of securities and receipts and disbursements of cash are
maintained at the offices of the Registrants custodians, The First National Bank
of Boston, 100 Federal Street, Boston, Massachusetts 02106, and Imperial Trust
Company, 201 N. Figueroa Street, Suite 610, Los Angeles, California, 90012. The
records required to be maintained under Rule 31a-1(b)(5), (6) and (9) are
maintained at the offices of the Registrant's adviser or subadviser, as listed
in Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(i) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectuses
offering those shares or the commencement of public shares of the
respective shares; and,
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(ii) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Portland and the State of Maine on the 15th day
of October, 1996.
FORUM FUNDS
By: /s/ John Y. Keffer
------------------------------
John Y. Keffer, President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 15th day of October, 1996.
Signatures Title
---------- -----
(a) Principal Executive Officer
/s/ John Y. Keffer President
-------------------------------
John Y. Keffer and Chairman
(b) Principal Financial and Accounting Officer
/s/ Michael D. Martins Treasurer
-------------------------------
Michael D. Martins
(c) A majority of the Trustees
/s/ John Y. Keffer Trustee
-------------------------------
John Y. Keffer
James C. Cheng* Trustee
J. Michael Parish* Trustee
Costas Azariadis* Trustee
By: /s/ John Y. Keffer
---------------------
John Y. Keffer
Attorney in Fact*
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