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As filed with the Securities and Exchange Commission on June 14, 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. 36
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
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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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David I. Goldstein, 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
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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)
--- on [ ] 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.
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(Prospectus offering Shares of Austin Global Equity 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
Objective and Policies; Other
Information
Item 5. Management of the Fund: Prospectus Summary; Management
Item 6. Capital Stock and
Other Securities: Investment Objective 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
2
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(Prospectus offering Shares of Oak Hall Equity 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
Objective, Policies, and
Limitations; Other Information
Item 5. Management of the Fund: Prospectus Summary; Management
Item 6. Capital Stock and
Other Securities: Investment Objective,
Policies, and Limitations;
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
3
<PAGE>
PART B
(SAI offering Shares of Austin Global Equity Find)
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 and
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 and
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
4
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PART B
(SAI offering Shares of Oak Hall Equity 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 and
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 and
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: Taxation
Item 21. Underwriters: Management
Item 22. Calculation of
Performance Data: Performance Data
Item 23. Financial Statements: Not Applicable
5
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART A
(All other Prospectuses)
Not Applicable in this Filing
6
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(c))
PART B
(All other SAIs)
Not Applicable in this Filing
7
<PAGE>
AUSTIN GLOBAL EQUITY FUND
Two Portland Square
Portland, Maine 04101
Account Information and
Shareholder Servicing:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04112
(207) 879-0001
This Prospectus offers shares of the Austin Global Equity Fund (the "Fund"),
which is a diversified portfolio of Forum Funds (the "Trust"), an open-end,
management investment company. The investment objective of the Fund is to seek
capital appreciation by investing primarily in a portfolio of common stock and
securities convertible into common stock. Shares of the Fund are offered to
investors without any sales charge, but the Fund may bear certain of its
distribution expenses.
This Prospectus sets forth concisely the information concerning the Fund and the
Trust that a prospective investor should know before investing. The Trust has
filed with the Securities and Exchange Commission a Statement of Additional
Information dated September 1, 1996, which contains more detailed information
about the Fund and the Trust and which is hereby incorporated into this
Prospectus by reference. An investor may obtain a copy of the Statement of
Additional Information without charge by contacting Shareholder Servicing at the
address or phone number listed above.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
September 1, 1996
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1. PROSPECTUS SUMMARY
SUMMARY OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks capital appreciation by investing primarily in a portfolio of
common stock and securities convertible into common stock. The Fund invests
primarily in issuers based in the United States, Europe, Japan and the Pacific
Basin. See "Investment Objective and Policies."
MANAGEMENT
Austin Investment Management, Inc. (the "Adviser") is the Fund's investment
adviser and makes investment decisions for the Fund. Forum Financial
Services, Inc., distributes the Fund's shares and administers the Fund. See
"Management." The Fund may bear certain expenses in connection with the sale
of its shares. See "Management - Distribution."
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at the next-determined net asset value without a
sales charge to investors who plan to invest a minimum of $10,000 in the Fund.
Shares of the Fund may be redeemed from the Fund without charge at their next-
determined net asset value. See "Purchases and Redemptions of Shares."
DIVIDENDS
Dividends representing the net investment income of the Fund are declared and
paid at least annually. Net capital gains realized by the Fund, if any, also
will be distributed annually. 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."
CERTAIN RISK FACTORS
There can be no assurance that the Fund will achieve its investment objective,
and the Fund's net asset value will fluctuate based upon changes in the value of
its portfolio securities. The foreign securities and related transactions in
which the Fund may invest entail certain risks not associated with investment in
domestic securities. See "Foreign Securities." In addition, the hedging
strategies in which the Fund may engage entail additional risks. See "Hedging
Strategies." The Fund is not intended to provide a complete or balanced
investment program for all investors.
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. There are no transaction expenses associated with purchases,
redemptions or exchanges of Fund shares.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Advisory Fees (after fee waivers) 0.00%
12b-1 Fees 0.00%
Other Expenses (after expense reimbursements) 0.00%
----
Total Fund Operating Expenses 0.00%
The amounts of expenses are based on actual amounts incurred during the Fund's
most recent fiscal year ending June 30, 1996. Absent certain expense
reimbursements and fee waivers during the most recent fiscal year, the
Investment Advisory Fees, Other Expenses, and Total Operating Expenses of the
Fund would have been ____%, ____% and ____%, respectively. For a further
description of the various costs and expenses incurred in the Fund's operation,
see "Management."
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Example
The following is a hypothetical example that indicates the dollar amount of
expenses an investor would pay assuming a $1,000 investment, a 5% annual return,
reinvestment of all dividends and distributions and full redemption at the end
of each period:
1 Year 3 Years 5 Years 10 Years
$ $ $ $
The example is based on the expenses listed in the "Annual Fund Operating
Expenses" table above. The 5% annual return is not a prediction of and does not
represent the Fund's projected returns; rather, it is required by government
regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN INDICATED.
2. FINANCIAL HIGHLIGHTS
The following represents selected data for a single share outstanding of the
Fund for the period indicated. The information for the periods ending June 30,
1996, 1995 and 1994 was audited in connection with an audit of the Trust's
financial statements by [ ], independent auditors. The financial statements
and auditors' report thereon are contained in the Annual Report which is
incorporated by reference into the Statement of Additional Information. Further
information about the Fund's performance is contained in the Annual Report,
which may be obtained without charge.
Period
Ended
June 30 June 30 June 30
1996 1995 1994(a)
------- ------- -------
Beginning Net Asset Value per Share $9.80 $10.00
Net Investment Income (Loss) 0.04(c) (0.03)
Net Realized and Unrealized
Investment Gain (Loss) on Investments 1.76 (0.17)
Distributions from Net Realized Gains --- ---
------ ------ -----
Ending Net Asset Value per Share $11.60 $9.80
------ -----
------ -----
Ratios to Average Net Assets:
Expenses(b) 2.50% 2.36%(d)
Net Investment Income 0.41% (0.83%)(d)
Total Return 18.37% (3.57%)(d)
Portfolio Turnover Rate 35.31% 2.49%
Net Assets at the End of Period
(000's Omitted) $8,474 $7,646
(a) For the period December 8, 1993 (commencement of operations) through June
30,1994.
(b) During the period, various fees and expenses were waived and reimbursed,
respectively. Had such waiver and reimbursement not occurred, the ratio of
expenses to average net assets would have been:
Expenses ____% 3.19% 4.18%(d)
(c) Calculated using weighted average number of shares outstanding.
(d) Annualized.
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. There can be, of course, no assurance that the Fund will
achieve its investment objective.
2
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INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing primarily in the
securities of issuers based in the United States, Europe, Japan and the Pacific
Basin, but it is anticipated that the Fund will generally invest more of its
assets in United States issuers than the issuers of any other country. During
periods of normal market conditions the Fund will have at least 65% of its total
assets invested in securities issued by companies based in three or more
countries and 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, in the view of the
Adviser, possess above average growth potential or attractive valuations. In
addition, the Adviser seeks to invest in companies which, in the Adviser's
opinion, are improving but whose improvement has not been fully recognized by
the investment community. In making these investments, the Adviser analyses
various characteristics of the issuers, which may vary from company to company.
The Fund may purchase the shares of small companies whose stock is less actively
traded and which have greater appreciation potential and a correspondingly
higher level of price volatility than larger companies whose shares are actively
traded. Consequently, the Adviser anticipates that the Fund's portfolio will
exhibit a high degree of price fluctuation or volatility when compared to the
market averages. In seeking these investments, the Adviser relies primarily on
analysis of individual companies and analysis of industries and economic trends.
The Fund intends to invest up to 25% of assets in equity securities of companies
in the telecommunications industry. Investments in such companies may be
expected to benefit from global economic growth, scientific developments and
advances in technologies, such as frequency spectrum utilization, satellite
systems, fiber optics, electronic communication, software and others. The Fund
may invest in the securities of issuers in any industry, but the Adviser
emphasizes investments in those industries for which the Adviser believes the
economic cycle is improving. The Fund will not, however, invest more than 25%
of its total assets in any one industry. The securities in which the Fund
invests may be traded on securities exchanges or in the over-the-counter
markets.
CONVERTIBLE SECURITIES. The Fund may invest up to 35% of its assets in
convertible securities, including convertible debt and convertible preferred
stock. Convertible securities are fixed income securities which may be
converted at a stated price within a specific amount of time into a specified
number of shares of common stock. These securities are usually senior to common
stock in a corporation'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 convertible securities, however, are also influenced by the value
of the underlying common stock.
The Fund will invest only in convertible debt that is rated B or higher by
Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's Corporation
("S&P") and in preferred stock that is rated b or higher by Moody's or B or
higher by S&P. Under normal circumstances, the Fund will not invest 10% or more
of its assets in securities rated below BBB or bbb. The Fund may purchase
unrated convertible securities if the Adviser 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. Securities in the
lowest permissible rating categories are characterized by Moody's as generally
lacking characteristics of the desirable investment and by S&P as being
predominantly speculative. The Fund may retain securities whose rating has been
lowered below the lowest permissible rating category (or that are unrated and
determined by the Adviser to be of comparable quality) if the Adviser determines
that retaining such security is in the best interests of the Fund. A further
description of the various rating categories is included in the Statement of
Additional Information.
3
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FOREIGN SECURITIES. The Fund's investments in foreign securities involve
certain risks, such as exchange rate fluctuations, political or economic
instability of the issuer or the country of issue and the possible imposition of
exchange controls, withholding taxes on dividends or interest payments,
confiscatory taxes or expropriation. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations
denominated in U.S. dollars. Foreign securities and their markets may not be as
liquid as domestic securities and their markets, and foreign brokerage
commissions and custody fees are generally higher than those in the United
States. In addition, less information may be publicly available about a foreign
company than about a domestic company, and foreign companies may not be subject
to uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. With respect to its permitted
investments in foreign securities, the Fund does not limit the amount of its
assets that may be invested in one country or denominated in one currency.
The 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.
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 Fund may utilize foreign currency forward contracts in order to hedge
against uncertainty in the level of future foreign exchange rates. The Fund
will not enter into these contracts for speculative purposes. These contracts
involve an obligation to purchase or sell a specific currency at a specified
future date, usually less than one year from the date of the contract, at a
specified price. The Fund may enter into foreign currency forward contracts to
manage currency risks and to facilitate transactions in foreign securities.
These contracts involve a risk of loss if the Adviser fails to predict currency
values correctly and also involve similar risks to those described under
"Hedging Strategies." The Fund may also buy and sell foreign currency options,
foreign currency futures contracts and options on those futures contracts. See
"Hedging Strategies."
ADDITIONAL INVESTMENT POLICIES
The Fund's investment objective and certain investment limitations that are
deemed to be fundamental, as described in the Statement of Additional
Information, may not be changed without approval of the holders of a majority of
the Fund's outstanding voting securities. A majority of the Fund's outstanding
voting securities means the lesser of 67% of the shares of the Fund present or
represented at a meeting at which the holders of more than 50% of the
outstanding shares of the Fund are present or represented or more than 50% of
the outstanding shares of the Fund. Except as otherwise indicated, investment
policies of the Fund are not deemed to be fundamental and may be changed by the
Board of Directors of the Trust (the "Board") without shareholder approval.
BORROWING. As a fundamental policy, the Fund may borrow money for temporary or
emergency purposes (including the meeting of redemption requests), but not in
excess of 33 1/3% of the value of the Fund's total assets. Borrowing for
purposes other than meeting redemption requests will not exceed 5% of the
value of the Fund's total assets.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. The Fund may seek
additional income by entering into repurchase agreeements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy
or similar proceedings were commenced agaist a counterparty in these
transactions 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 Adviser monitors the creditworthiness of counterparties to
these transactions and intends to enter these transactions only when it
believes the counterparties present minimal credit risks and the income to be
earned from the transaction justifies the attendant risks.
Repurchase agreements are transactions in which the Fund purchases a security
and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not
related to the coupon rate or maturity of the purchased security. Securities
loans must be continuously secured by cash or securities issued or guaranteed
as to principal and interest by the United States Government or by any of its
agencies and instrumentalities ("U.S. Government Securities") with a market
value, determined daily, at least equal to the value of the Fund's securities
loaned. When the Fund lends a security it receives interest from the
borrower or from investing cash collateral. The Trust's custodian maintains
possession of the purchased securities and any underlying collateral in these
transactions, the total market value of which on a continuous basis is at
least equal to the repurchase price or value of securities loaned, plus
accrued interest and which consists of the types of securities in which the
Fund may invest directly. The Fund may pay fees to arrange securities loans.
The Fund will not lend portfolio securities in excess of 33 1/3% of the value
of the Fund's total assets.
WARRANTS.
The 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
4
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security at the time of the warrant's issuance) and usually during a specified
period of time. Warrants are usually issued by the issuer of the security to
which they relate. While warrants may be traded, there is often no secondary
market for them and the prices of warrants do not necessarily correlate with the
prices of the underlying securities. Holders of warrants have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer. The Fund will limit its purchases of warrants to not more than 5% of
the value of its total assets.
HEDGING STRATEGIES. The Fund may in the future seek to hedge against a decline
in the value of securities owned by it or an increase in the price of securities
which it plans to purchase through the writing and purchase of exchange-traded
and over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. The Fund may write (sell) covered put and
call options and may buy put and call options on equity securities, foreign
currencies and stock indices, such as the Standard & Poor's 500 Stock Index. In
addition, the Fund may buy or sell stock index and foreign currency futures
contracts and may write covered options and buy options on those contracts.
Definitions of these instruments may be found in the Appendix to this
Prospectus. 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 Fund will not hedge more than 25% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, the Fund
will not buy futures contracts or write put options whose underlying value
exceeds 25% 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.
The Fund's use of options and futures contracts would subject the Fund to
certain investment risks and transactions cost 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 or currencies and
fluctuations in the general securities or currency markets; (2) imperfect
correlation between movements in the prices of options, futures contracts or
related options and movements in the price of the securities or currencies
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 Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time; (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. 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.
5
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TEMPORARY DEFENSIVE POSITION. When the Adviser believes that business or
financial conditions warrant, the Fund may assume a temporary defensive
position. For temporary defensive purposes, the Fund may invest without limit
in cash or in investment grade cash equivalents, including (i) short-term U.S.
Government Securities, (ii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks, (iii) prime quality
commercial paper, and (iv) repurchase agreements covering any of the securities
in which the Fund may invest directly, and, subject to the limits of the
Investment Company Act of 1940 (the "Investment Company Act"), in money market
mutual funds. During periods when and to the extent that the Fund has assumed a
temporary defensive position, it will not be pursuing its investment objective.
PORTFOLIO TRANSACTIONS. From time to time the Fund may engage in active short-
term trading to take advantage of price movements affecting individual issues,
groups of issues or markets. This will increase the Fund's rate of turnover and
will result in higher total brokerage costs for the Fund. The Adviser
anticipates that the annual turnover in the Fund could be in excess of 50% in
future years (but is not expected to equal or exceed 100%). An annual turnover
rate of 100% would occur, for example, if all of the securities in the Fund were
replaced once in a period of one year.
The Fund has no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. Consistent with its policy of obtaining
the best net results, the Fund may conduct brokerage transactions through
certain affiliates of the Adviser. The Board has adopted policies to ensure
that these transactions are reasonable and fair and that the commissions charged
are comparable to those charged by non-affiliated qualified broker-dealers.
4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Directors. The Board formulates the general policies of the Fund and generally
meets quarterly to review the results of the Fund, monitor investment activities
and practices and discuss other matters affecting the Fund and the Trust.
INVESTMENT ADVISER
Pursuant to an investment advisory agreement with the Trust, Austin Investment
Management, Inc. serves as investment adviser of the Fund. Subject to the
general control of the Board, the Adviser makes investment decisions for the
Fund. For its services, the Adviser receives an advisory fee that is accrued
daily and paid monthly at an annual rate of 1.5% of the average daily net assets
of the Fund.
The Adviser, which is located at 375 Park Avenue, New York, New York 10152, is a
registered investment adviser and provides investment management services to
pension plans, endowment funds, institutional and individual accounts. As of
the date of this Prospectus, the Adviser had in excess of $___ million of assets
under management and was controlled by Peter Vlachos, president and chief
portfolio manager of the Adviser since its organization in 1989.
Mr. Vlachos has been portfolio manager of the Fund since the Fund's inception
and, as such, is responsible for the day-to-day management of the Fund's
portfolio. Prior to his establishment of the Adviser, Mr. Vlachos was a
portfolio manager at Neuberger & Berman, Inc. Prior thereto, Mr. Vlachos held
various positions at Dreyfus Corp., including president and vice president of
two investment companies managed by Dreyfus with over $2 billion in combined
assets for which he was portfolio manager.
ADMINISTRATION
On behalf of the Fund, the Trust has entered into an Administration and
Distribution Agreement with Forum Financial Services, Inc. ("Forum"). As
provided in this agreement, Forum is responsible for the supervision of the
overall management of the Trust (including the Trust's receipt of services which
the Trust is obligated to pay for), providing the Trust with general office
facilities and providing persons satisfactory to the Board of Directors to serve
as officers of the Trust. For these services, Forum receives a
6
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fee computed and paid monthly at an annual rate of 0.25% of the average daily
net assets of the Fund. Like the Adviser, Forum, in its sole discretion, may
waive all or any portion of its fees.
Forum, which is located at Two Portland Square, Portland, Maine 04101, was
incorporated under the laws of the State of Delaware on February 7, 1986 and as
of the date of this Prospectus provided management and administrative services
to registered investment companies and collective investment funds with assets
of approximately $18 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 was controlled by
John Y. Keffer, President and Chairman.
DISTRIBUTION
Pursuant to the Administration and Distribution Agreement, Forum acts as the
distributor of the Fund's shares. Under a distribution plan (the "Plan")
adopted by the Board, the Fund may reimburse Forum for the distribution expenses
incurred by Forum on behalf of the Fund. These expenses may include the cost of
advertising and promotional materials, providing prospective shareholders with
the Fund's prospectus, statement of additional information and shareholder
reports, reimbursing the Adviser for its distribution expenses and compensating
others who may provide assistance in distributing shares of the Fund. These
expenses may include costs of Forum's offices such as rent, communications
equipment, employee salaries and overhead costs. The Fund will not reimburse
Forum for any expenses in any fiscal year of the Fund in excess of 0.25% of the
Fund's average daily net assets. During the period in which the Plan and the
related Administration and Distribution Agreement are in effect, the Board will
from time to time determine the amount of distribution expense reimbursement to
be paid. It is anticipated that no distribution fees will be approved by the
Board for the Fund's current fiscal year. Unreimbursed expenses of the
Distributor incurred during a fiscal year of the Trust may not be reimbursed by
the Trust in future years or after the termination of the Plan or the
Administration and Distribution Agreement.
TRANSFER AGENT The Trust has entered into a Transfer Agency Agreement with
Forum Financial Corp. (the "Transfer Agent") pursuant to which the Transfer
Agent acts as the Fund's transfer agent and dividend disbursing agent. The
Transfer Agent maintains for each shareholder of record, an account (unless
such accounts are maintained by sub-transfer agents) to which all shares
purchased are credited, together with all distributions that are reinvested
in additional shares. The Transfer Agent also performs other transfer agency
functions and acts as dividend disbursing agent for the Trust. In addition,
under a separate agreement the Transfer Agent performs portfolio accounting
services for the Fund, including determination of the Fund's net asset value.
EXPENSES OF THE TRUST
The Fund's expenses comprise Trust expenses attributable to the Fund, which are
charged to the Fund, and those not attributable to a particular fund of the
Trust, which are allocated among the Fund and all other funds of the Trust in
proportion to their average net assets. The Trust is responsible for all of its
expenses, including: 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 directors;
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, the Administration and Distribution Agreement; and any fees and
expenses payable pursuant to the Plan. The Adviser has agreed to reimburse the
Trust for certain of the Fund's operating expenses which in any year exceed the
limits prescribed by any state in which the Fund's shares are qualified for
sale.
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5. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL
PURCHASES. Shares of the Fund may be purchased without a sales charge at their
net asset value on any weekday except customary national business holidays and
Good Friday ("Fund Business Day"). See "Other Information - Determination of
Net Asset Value."
Shares of the Fund are issued at a price equal to the net asset value per share
next determined after an order in proper form is accepted by the Transfer Agent.
The Fund's net asset value is calculated at 4:00 p.m., Eastern time on each Fund
Business Day. Fund shares become entitled to receive dividends on the next Fund
Business Day after the acceptance of an order.
The Fund reserves the right to reject any subscription for the purchase of its
shares. Stock certificates are issued only to shareholders of record upon their
written request, and no certificates are issued for fractional shares.
REDEMPTIONS. There is no redemption charge, no minimum period of investment,
and no restriction on frequency of redemptions. The date of payment of
redemption proceeds may not be postponed for more than seven days after shares
are tendered to the Transfer Agent for redemption by a shareholder of record.
The right of redemption may not be suspended except in accordance with the
Investment Company Act.
Redemptions are effected at a price equal to the net asset value per share next
determined 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 participate in dividends declared
after the day on which a redemption becomes effective.
Redemption requests will not be effected unless any check used for investment
has been cleared by the shareholder's bank, which may take up to 15 calendar
days. This delay may be avoided by investing in the Fund through wire
transfers. Normally redemption proceeds are paid immediately following any
redemption, but in no event later than seven days after redemption, by check
mailed to the shareholder of record at his record address. Shareholders that
wish to redeem shares by Telephone or by Bank Wire must elect these options by
properly completing the appropriate sections of their account application.
PURCHASE AND REDEMPTION PROCEDURES
Investors may obtain the account application necessary to open an account by
writing the Transfer Agent at one of the addresses listed on the cover page to
this prospectus.
There is a $10,000 minimum for initial investments in the Fund and a $2,500
minimum for subsequent purchases, except for individual retirement accounts (See
"Purchases and redemptions of Shares - Individual Retirement Accounts").
Shareholders will receive from the Trust periodic statements listing account
activity during the statement period.
The Fund sells and redeems its shares on a continuing basis at the net asset
value of the shares next determined following the receipt by the Transfer Agent
of a purchase or redemption order in proper form including, in the case of
purchases, Federal Funds. An investor's funds will not be accepted or invested
by the Fund during the period before the Fund's receipt of Federal Funds.
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<PAGE>
INITIAL PURCHASE OF SHARES
MAIL. Investors may send a check made payable to the Trust along with a
completed account application to the Transfer Agent at:
Austin Global Equity Fund
P.O. Box 446
Portland, Maine 04112
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.
BANK WIRE. To make an initial investment in the Fund using the fed wire system
for transmittal of money among banks, an investor should first telephone the
Transfer Agent at (207) 879-0001 to obtain an account number for an initial
investment. The investor should then instruct a member commercial bank to wire
his money immediately to:
The First National Bank of Boston
Boston, Massachusetts
ABA # 011000390
For Credit to: Forum Financial Corp.
Account # 541-54171
Austin Global Equity Fund
(Investor's Name)
(Investor's Account Number)
The investor should then promptly complete and mail the account application.
Any investor planning to wire funds should instruct his bank early in the day so
the wire transfer can be accomplished the same day. There may be a charge by
the investor's bank for transmitting the money by bank wire, and there also may
be a charge for use of Federal Funds. The Trust does not charge investors for
the receipt of wire transfers.
THROUGH BROKERS. Shares may be purchased and redeemed through brokers and other
financial institutions that have entered into sales agreements with Forum.
These institutions may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Trust. The Trust is not responsible for the failure of any institution to
promptly forward these requests.
Investors who purchase shares will be subject to the procedures of their
institution, which may include charges, limitations, investment minimums, cutoff
times and restrictions in addition to, or different from, those applicable to
shareholders who invest in the Fund directly. These investors should acquaint
themselves with their institution's procedures and should read this Prospectus
in conjunction with any materials and information provided by their institution.
Customers who purchase Fund shares in this manner may or may not be the
shareholder of record and, subject to their institution's and the Fund's
procedures, may have Fund shares transferred into their name. There is
typically a one to five day settlement period for purchases and redemptions
through broker-dealers.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases may be made by mailing a check, by sending a bank wire or
through a broker as indicated above. Shareholders using the wire system for
subsequent purchases should first telephone the
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<PAGE>
Transfer Agent at (207) 879-8909 to notify it of the wire transfer. All
payments should clearly indicate the shareholder's name and account number.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by bank wire must elect these options by properly completing the
appropriate sections of their account application. These privileges may not be
available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone.
REDEMPTION 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 certificates submitted for
redemption must be endorsed by the shareholder with signature guaranteed and all
written requests for redemption must be signed by the shareholder with signature
guaranteed.
TELEPHONE REDEMPTION. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at (207) 879-8909. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, the Trust and the Transfer Agent will employ
reasonable procedures to confirm that such instructions are genuine.
Shareholders must provide the Transfer Agent with the shareholder's account
number, the exact name in which the shares are registered and some additional
form of identification such as a password. The Trust or the Transfer Agent may
employ other procedures such as recording certain transactions. If such
procedures are followed, neither the Transfer Agent nor the Trust will be liable
for any losses due to unauthorized or fraudulent redemption requests.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption
privilege may be difficult to implement. 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. Shares for which certificates have been issued may not be redeemed by
telephone.
BANK WIRE REDEMPTION. With respect to any redemption of more than $10,000, a
shareholder may request the Fund to transmit the proceeds by Federal Funds wire
to a bank account designated in writing. To request bank wire redemptions by
telephone, the shareholder must have elected to be able to redeem shares by
telephone.
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, each person required to sign for the account must have
his signature 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.
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 $10,000. The
Fund will not redeem accounts that fall below this amount solely as a result of
a reduction in net asset value.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be a suitable investment vehicle for part or all of the assets held
in individual retirement accounts ("IRAs"). The minimum initial investment for
investors opening an IRA or investing through their own IRA is $2,000, and the
minimum subsequent investment is $1,000. Individuals may make tax-
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<PAGE>
deductible IRA contributions of up to a maximum of $2,000 annually. However,
the deduction will be reduced if the individual or, in the case of a married
individual filing jointly, either the individual or the individual's spouse is
an active participant in an employer-sponsored retirement plan and has adjusted
gross income above certain levels.
6. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are declared and paid annually.
Net capital gains realized by the Fund, if any, also will be distributed
annually.
Shareholders may choose either to have all dividends reinvested in additional
shares of the Fund or received in cash or to have dividends of net capital gain
reinvested in additional shares of the Fund and dividends of net investment
income paid in cash. All dividends are treated in the same manner for Federal
income tax purposes whether received in cash or reinvested in shares of the
Fund.
Income dividends will be reinvested at the Fund's net asset value as of the last
day of the period with respect to which the dividends are paid. Capital gain
dividends will be reinvested at the net asset value of the Fund on the payment
date for the dividend. All dividends are reinvested unless another option is
selected. All dividends not reinvested will be paid to the shareholder in cash
and may be made more than seven days following the date on which dividends would
otherwise be reinvested.
TAXES
TAXATION OF THE FUND. The Fund intends to qualify for each fiscal year to be
taxed as a "regulated investment company" under the Internal Revenue Code of
1986 (the "Code"). As such, the Fund will not be liable for Federal income and
excise taxes on the net investment income and capital gains distributed to its
shareholders in accordance with the applicable provisions of the Code. The Fund
intends to distribute all of its net income and net capital gains each year.
Accordingly, the Fund should thereby avoid all Federal income and excise taxes.
SHAREHOLDER TAX MATTERS. Dividends paid by the Fund out of its net investment
income (including realized net short term capital gains) are taxable to the
shareholders of the Fund as ordinary income. Distributions of net long-term
capital gain, if any, realized by the Fund are taxable to the shareholders as
long-term capital gain, regardless of the length of time the shareholder may
have held his shares in the Fund at the time of distribution. A portion of the
Fund's dividends may qualify for the dividends received deduction available to
corporations.
If a shareholder holds shares for six months or less and during that period
receives a distribution taxable to the shareholder as a long-term capital gain,
any loss realized on the sale of the shareholder's shares during that six-month
period would be deemed a long-term loss to the extent of the distribution.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of the shareholder's shares
by the amount of the dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of shares by a shareholder,
although in effect a return of capital to that particular shareholder, would be
taxable to the shareholder as described above.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income or other taxes. Under certain circumstances,
shareholders will be notified of their share of these taxes and will be required
to include that amount as income. In that event, the shareholder may be
entitled to claim a credit or deduction for those taxes.
GENERAL. The Fund is required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions and
redemptions) paid to a non-corporate shareholder unless
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<PAGE>
such shareholder certifies in writing that the social security or tax
identification number provided is correct and that the shareholder is not
subject to backup withholding for prior underreporting to the Internal Revenue
Service.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by the Fund will
be mailed to shareholders shortly after the close of each year.
7. OTHER INFORMATION
Prior to August 30, 1996, the Fund was a separate portfolio named Austin
Global Equity Fund of Stone Bridge Funds, Inc., a Maryland corporation.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00 p.m.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's net
assets (I.E., the value of its securities and other assets less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the number of shares outstanding at the time the determination is made.
Securities owned by the Fund for which market quotations are readily available
are valued at current market value, or, in their absence, at fair value as
determined by the Board. Purchases and redemptions will be effected at the time
of determination of net asset value next following the receipt of any purchase
or redemption order as described under "Purchases and Redemptions of Shares."
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.
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or total
return. Both types of performance are based on historical results and are not
intended to indicate future performance. The
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Fund's yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. To calculate yield, the
Fund takes the interest income it earned from its portfolio of investments for a
30 day period (net of expenses), divides it by the average number of shares
entitled to receive dividends, and expresses the result as an annualized
percentage rate based on the Fund's share price at the beginning of the 30 day
period. The Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's distributions are reinvested.
A cumulative total return reflects the Fund's performance over a stated period
of time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the Fund's performance had been constant over the entire period. Because
average annual returns tend to smooth out variations in the Fund's returns,
shareholders should recognize that they are not the same as actual year-by-year
results. To illustrate the components of overall performance, the Fund may
separate its cumulative and average annual returns into income results and
capital gain or loss.
The Fund's advertisements may refer to ratings and rankings among similar funds
by independent evaluators such as Morningstar, Lipper Analytical Services, Inc.
or CDA/Wiesenberger. In addition, the performance of the Fund may be compared
to recognized indices of market performance. The comparative material found in
the Fund's advertisements, sales literature or reports to shareholders may
contain performance ratings. These are not to be considered representative or
indicative of future performance.
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APPENDIX
OPTIONS ON EQUITY SECURITIES (sometimes referred to as stock options) - A call
option is a short-term 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.
OPTIONS ON STOCK INDEXES - A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index 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.
FOREIGN CURRENCY OPTIONS - A foreign currency option operates in the same manner
as an option on securities. Options on foreign currencies are primarily traded
in the over-the-counter market.
STOCK INDEX FUTURES CONTRACTS - A stock index futures contract is a bilateral
agreement 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 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
stocks comprising the index is made. Generally contracts are closed out prior
to the expiration date of the contract.
FOREIGN CURRENCY FUTURES CONTRACTS - A foreign currency futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of a quantity of a foreign currency called for in a contract at a specified
future time and at a specific price. Although these contracts call for delivery
of or acceptance of the foreign currency, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery.
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
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<PAGE>
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 STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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<PAGE>
OAK HALL-REGISTERED TRADEMARK- EQUITY FUND
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
(207) 879-0001
This Prospectus offers shares of the Oak Hall-Registered Trademark- Equity
Fund (the "Fund"), which is a diversified portfolio of Forum Funds (the
"Trust"), an open-end, management investment company. The investment
objective of the Fund is to seek capital appreciation by investing primarily
in a portfolio of common stock and securities convertible into common stock.
Shares of the Fund are offered to investors without any sales charge, but the
Fund may bear certain of its distribution expenses.
This Prospectus sets forth concisely the information concerning the Fund and the
Trust that a prospective investor should know before investing. The Trust has
filed with the Securities and Exchange Commission a Statement of Additional
Information dated September 1, 1996, which contains more detailed information
about the Fund and the Trust and which is hereby incorporated into this
Prospectus by reference. An investor may obtain a copy of the Statement of
Additional Information without charge by contacting Shareholder Servicing at the
address or phone number listed above.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
September 1, 1996
<PAGE>
1. PROSPECTUS SUMMARY
SUMMARY OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. The Fund also may invest up to 30% of its assets in the
securities of foreign companies and may use certain investment techniques, all
of which may entail special risks. See "Investment Objective, Policies and
Limitations."
MANAGEMENT. Oak Hall-Registered Trademark- Capital Advisors, L.P. (the
"Adviser") is the Fund's investment adviser and makes investment decisions
for the Fund. Forum Financial Services, Inc., distributes the Fund's shares
and adminisers the Fund. See "Management." The Fund bears certain expenses
in connection with the sale of its shares. See "Management - Distribution."
PURCHASES AND REDEMPTIONS. Shares of the Fund are offered at the next-
determined net asset value without a sales charge to investors who plan to
invest a minimum of $10,000 in the Fund. Shares of the Fund may be redeemed
from the Fund at their next-determined net asset value on any Fund Business Day.
See "Purchases and Redemptions of Shares."
DIVIDENDS. Dividends representing the net investment income of the Fund are
declared and paid at least annually. Net capital gains realized by the Fund, if
any, also will be distributed annually. 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."
RISK FACTORS. There can be no assurance that the Fund will achieve its
investment objective and the Fund's net asset value will fluctuate based upon
changes in the value of its portfolio securities. Certain investments and
investment techniques of the Fund may entail additional risks or have
speculative characteristics. These include investments in small companies whose
securities are not actively traded, investments in debt securities rated below
investment grade, and investments in securities of foreign issuers. See
"Investment Objective, Policies and Limitations." The Fund is not intended to
provide a complete or balanced investment program for all investors.
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. There are no transaction charges associated with purchases and
redemptions.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after fee waivers). . . . . . . . . . . . . . . . 0.00 %
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 %
Other Expenses (after expense reimbursements). . . . . . . . . . 0.00 %
----
Total Fund Operating Expenses . . . . . . . . . . . . . . . . . .0.00 %
The amounts of expenses are based on actual amounts incurred during the Fund's
most recent fiscal year ended June 30, 1996. Absent certain expense
reimbursements and fee waivers, during the most recent fiscal year, the
Investment Advisory Fees, Other Expenses, and Total Operating Expenses of the
Fund would have been ____%, ____%, and ____%, respectively. For a further
description of the various costs and expenses incurred in the Fund's operation,
see "Management."
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EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses an investor would pay assuming a $1,000 investment, a 5% annual return,
reinvestment of all dividends and distributions and full redemption at the end
of each period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$ $ $ $
The example is based on the expenses listed in the "Annual Fund Operating
Expenses" table above. The 5% annual return is not a prediction of and does not
represent the Fund's projected returns; rather it is required by government
regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN THOSE INDICATED.
2. FINANCIAL HIGHLIGHTS
The following represents selected data for a single share outstanding of the
Fund for the periods indicated. The information for the periods ending June 30,
1996, 1995 and 1994 was audited in connection with an audit of the Trust's
financial statements by [ ], independent auditors. The financial statements
and auditors' report thereon are contained in the Annual Report which is
incorporated by reference into the Statement of Additional Information. The
information for the period ending June 30, 1993 was audited by other independent
auditors. Further information about the Fund's performance is contained in the
Annual Report, which may be obtained without charge.
Year Ended June 30
1996 1995 1994 1993(a)
---- ---- ---- -------
Beginning Net Asset Value per Share $12.55 $14.30 $10.00
Net Investment Income (Loss) (0.03) (0.09) -
Net Realized and Unrealized
Investment Gain (Loss) on Investments (0.10) (0.52) 4.31
Distributions from Net Realized Gains (1.09) (1.14) (0.01)
------ ------ ------
Ending Net Asset Value per Share $11.33 $12.55 $14.30
------ ------ ------
------ ------ ------
Ratios to Average Net Assets:
Expenses(b) 2.00% 2.01% 1.23%(d)
Net Investment Loss (0.23)%(c) (0.96%) (0.07%)(d)
Total Return (1.07)% (5.14%) 45.12%(d)
Portfolio Turnover Rate 115.33% 168.61% 187.94%
Net Assets at the End of Period
(000's Omitted) $16,339 $35,470 $12,581
(a) For the period July 13, 1992 (commencement of operations) through June 30,
1993.
(b) During the periods, various fees and expenses were waived and reimbursed,
respectively. Had these waivers and reimbursements not occurred, the ratio
of expenses to average net assets would have been:
Expenses 2.00% 2.17% 5.91%(d)
(c) Calculated using the weighted average shares outstanding.
(d) Annualized.
3. INVESTMENT OBJECTIVE, POLICIES, AND LIMITATIONS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. Except during periods when the Fund assumes a temporary
defensive position, the Fund will have at least 65% of its total assets invested
in
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common stock and securities convertible into common stock. There can be, of
course, no assurance that the Fund will achieve its investment objective.
The Fund intends to invest principally in companies that, in the view of the
Adviser, possess above average growth potential or attractive valuations. The
Adviser seeks to identify and invest in companies it believes have a minimum of
downside risk and whose stock is selling at a discount from previous peak
prices. In addition, the Adviser seeks to invest in companies whose fundamental
attributes, in the Adviser's opinion, are improving but whose improvement has
not been fully recognized by the investment community. Consequently, the
Adviser anticipates that the Fund's portfolio will exhibit a high degree of
volatility or price fluctuation when compared to the market averages. In
seeking these investments, the Adviser relies primarily on a company by company
analysis (rather than on broader analysis of industry or economic trends). The
Fund may invest in the securities of issuers in any industry, but the Adviser
emphasizes investments in those industries for which the Adviser believes the
economic cycle is improving. The Fund may purchase the shares of small
companies whose stock is less actively traded and which have greater
appreciation potential and a correspondingly higher level of risk than larger
companies whose shares are actively traded. The securities in which the Fund
invests may be traded on securities exchanges or in the over-the-counter
markets.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities,
including convertible debt and convertible preferred stock. The Fund will
invest only in convertible debt that is rated B or higher by Moody's Investors
Service, Inc. ("Moody's") or by Standard & Poor's Corporation ("S&P") and in
preferred stock that is rated b or higher by Moody's or B or higher by S&P. The
Fund may purchase unrated convertible securities if the Adviser 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.
Securities in the lowest permissible rating categories are characterized by
Moody's as generally lacking characteristics of the desirable investment and by
S&P as being predominantly speculative. In addition, securities in these
categories may involve the same type of risks as the "Debt Securities" described
below, although to a lesser degree. The Fund may retain securities whose rating
has been lowered below the lowest permissible rating category (or that are
unrated and determined by the Adviser to be of comparable quality) if the
Adviser determines that retaining such security is in the best interests of the
Fund.
A further description of the various rating categories is included in the
Statement of Additional Information.
DEBT SECURITIES. The Fund may invest up to 25% of the value of its total assets
in heavily discounted non-investment grade, high risk, corporate debt securities
(commonly referred to as "junk bonds") rated in any category by Moody's or S&P,
or unrated, as an alternative to investing in equity securities. In these
instances, investment selection is based upon the independent research activity
of the Adviser and ratings of generally recognized bond rating agencies, such as
Moody's or S&P. Bonds rated in Moody's lowest rating category, C, are
characterized as having extremely poor prospects of ever attaining any real
investment standing. Bonds rated in S&P's lowest rating category, D, are
characterized as being in default.
Non-investment grade, high risk securities provide poor protection for payment
of principal and interest but have greater potential for capital appreciation
than do higher quality securities. These lower rated securities involve greater
risk of default or price changes due to changes in the issuer's creditworthiness
than do higher quality securities. The market for these securities may be
thinner and less active than that for higher quality securities, which may
affect the price at which the lower rated securities can be sold. In addition,
the market prices of lower rated securities may fluctuate more than the market
prices of higher quality securities and may decline significantly in periods of
general economic difficulty or rising interest rates.
A further description of the various rating categories is included in the
Statement of Additional Information.
ADDITIONAL INVESTMENT POLICIES
FOREIGN SECURITIES. The Fund may invest up to 30% of the value of its total
assets in securities of foreign issuers, in American Depository Receipts
("ADRs") and in securities denominated in foreign currencies (collectively,
"foreign securities"). Investments in foreign securities involve certain risks,
such as exchange rate fluctuations, political or economic instability of the
issuer or the country of issue and the possible imposition of exchange controls,
withholding taxes on dividends or interest payments,
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<PAGE>
confiscatory taxes or expropriation. Foreign securities may also be subject to
greater fluctuations in price than securities of domestic corporations
denominated in U.S. dollars. Foreign securities and their markets may not be as
liquid as domestic securities and their markets, and foreign brokerage
commissions and custody fees are generally higher than those in the United
States. In addition, less information may be publicly available about a foreign
company than about a domestic company, and foreign companies may not be subject
to uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. With respect to its permitted
investments in foreign securities, the Fund does not limit the amount of its
assets that may be invested in one country or denominated in one currency.
The Fund may invest in sponsored and unsponsored ADRs, which are receipts issued
by an American bank or trust company evidencing ownership of underlying
securities issued by a foreign issuer. Unsponsored ADRs may be created without
the participation of the foreign issuer. Holders of these ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
The Fund may utilize foreign currency forward contracts in order to hedge
against uncertainty in the level of future foreign exchange rates. The Fund
will not enter into these contracts for speculative purposes. These contracts
involve an obligation to purchase or sell a specific currency at a specified
future date, usually less than one year from the date of the contract, at a
specified price. The Fund may enter into foreign currency forward contracts to
manage currency risks and to facilitate transactions in foreign securities.
These contracts involve a risk of loss if the Adviser fails to predict currency
values correctly and also involve similar risks to those described under
"Hedging Strategies." The Fund may also buy and sell foreign currency options
and other derivatives, foreign currency futures contracts and options on those
futures contracts. See "Hedging Strategies."
WARRANTS. The 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. Warrants are
usually issued by the issuer of the security to which they relate. While
warrants may be traded, there is often no secondary market for them and the
prices of warrants do not necessarily correlate with the prices of the
underlying securities. Holders of warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer. The Fund
will limit its purchases of warrants to not more than 5% of the value of its
total assets.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. The Fund may seek
additional income by entering into repurchase agreements or by lending
portfolio securities (principally brokers-dealers, except the Adviser's
affiliates, or to institutional investors). These investments may entail
certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty in these transactions or a counterparty defaulted on
its obligations, 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 Adviser monitors the creditworthiness
of counterparties to these transactions and intends to enter into these
transactions only when it believes the counterparties present minimal credit
risks and the income to be earned from the transaction justifies the
attendant risks.
Repurchase agreements are transactions in which the Fund purchases a security
and simultaneously commits to resell that security to the seller at an
agreed-upon price on future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. Securities loans must be
continously secured by cash or securities issued or guaranteed as to
principal and interest by the United States Government or by any of its
agencies and instrumentalities ("U.S. Governemnt Securities") with a market
value, determined daily, at least equal to the value of the Fund's securities
loaned. When the Fund lends a security it receives interest from the
borrower or from investing cash collateral. The Trust's custodian maintains
possession of the purchased securities and any underlying collateral in these
transactions, the total market value of which on a continuous basis is at
least equal to the repurchase price or value of securities loaned, plus
accrued interest and which consists of the types of securities in which the
Fund may invest directly. The Fund will limit securitiies lending to not
more than 10% of the value of its total assets.
HEDGING STRATEGIES. The Fund may in the future seek to hedge against a decline
in the value of securities owned by it or an increase in the price of securities
which it plans to purchase through the writing and purchase of exchange-traded
and over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. The Fund may write (sell) covered put and
call options and may buy put and call options on equity securities, foreign
currencies and stock indices, such as the Standard & Poor's 500 Stock Index. In
addition, the Fund may buy or sell stock index and foreign currency futures
contracts and may write covered options and buy options on those contracts.
Definitions of these instruments may be found in the Appendix to this
Prospectus. 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. A further
description of these investment techniques, including the limitations on their
use, is contained in the Statement of Additional Information.
The Fund's use of options and futures contracts would subject the Fund to
certain investment risks and transactions cost 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 or currencies and
fluctuations
4
<PAGE>
in the general securities or currency markets; (2) imperfect correlation between
movements in the prices of options, futures contracts or related options and
movements in the price of the securities or currencies 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 Fund
invests; (4) lack of assurance that a liquid secondary market will exist for any
particular instrument at any particular time; (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. 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.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When such transactions are negotiated, the
price or yield is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. The use of when-issued
transactions and forward commitments enables the Fund to hedge against
anticipated changes in interest rates and prices. If the Adviser were to
forecast incorrectly the direction of interest rate movements, the Fund might be
required to complete its when-issued or forward commitment transactions at
prices below current market values. In other words, the Fund may have paid more
for the securities than the securities are worth on the date the Fund fulfills
its commitment.
TEMPORARY DEFENSIVE POSITION. When the Adviser believes that business or
financial conditions warrant, the Fund may assume a temporary defensive
position. For temporary defensive purposes, the Fund may invest without limit
in cash or in investment grade cash equivalents, including (i) short-term
obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities ("U.S. Government Securities"), (ii) prime quality
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States, (iii) prime
quality commercial paper, and (iv) repurchase agreements covering any of the
securities in which the Fund may invest directly, and, subject to the limits of
the Investment Company Act of 1940 (the "Investment Company Act,") money market
mutual funds. During periods when and to the extent that the Fund has assumed a
temporary defensive position, it will not be pursuing its investment objective.
GENERAL
PORTFOLIO TRANSACTIONS. The frequency of portfolio transactions (the portfolio
turnover rate) will vary from year to year depending on market conditions. From
time to time the Fund may engage in active short-term trading to take advantage
of price movements affecting individual issues, groups of issues or markets.
This will increase the Fund's rate of turnover and will result in higher total
brokerage costs for the Fund. An annual turnover rate of 100% would occur, for
example, if all of the securities in the Fund were replaced once in a period of
one year. The Adviser weighs the anticipated benefits of short-term investments
against these consequences.
The Fund has no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. Consistent with its policy of obtaining
the best net results, the Fund may conduct brokerage transactions through
certain affiliates of the Adviser. The Board of Directors of the Trust has
adopted
5
<PAGE>
policies, as required by the Investment Company Act, to ensure that these
transactions are reasonable and fair and that the commissions charged are
comparable to those charged by non-affiliated qualified broker-dealers.
CHANGES IN INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the
Fund is a fundamental policy of the Fund and, along with any other policies of
the Fund that are deemed to be fundamental, may not be changed without approval
of the holders of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act. Except as otherwise indicated,
investment policies of the Fund are not deemed to be fundamental and may be
changed by the Board of Directors without share-holder approval.
INVESTMENT LIMITATIONS. The Fund has adopted the following investment
limitations which, except for (5), are fundamental policies of the Fund.
Additional limitations are listed in the Statement of Additional Information.
The Fund may not:
(1) Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests which might require the untimely disposition of
securities). Total borrowings may not exceed 33 1/3% of the Fund's total
assets. Borrowing for purposes other than meeting redemptions may not exceed 5%
of the value of the Fund's total assets at the time the borrowing is made.
Outstanding borrowings in excess of 5% of the value of the Fund's total assets
must be repaid before any subsequent investments are made by the Fund.
(2) Make loans to other persons except for loans of portfolio securities,
through the use of repurchase agreements, and through the purchase of debt
securities that are otherwise permitted investments.
(3) Purchase the securities of issuers (other than U.S. Government Securities)
conducting their business activity in the same industry if, immediately after
such purchase, the value of investments in such industry would comprise 25% or
more of the value of the Fund's total assets.
(4) Purchase a security if, as a result (a) more than 5% of the Fund's total
assets would be invested in the securities of a single issuer, or (b) the Fund
would own more than 10% of the outstanding voting securities of a single issuer.
This limitation applies only with respect to 75% of the Fund's total assets and
does not apply to U.S. Government Securities.
(5) Invest more than 15% of its net assets in securities that are not readily
marketable, including repurchase agreements maturing in more than seven days.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from a change in the market values of the Fund's assets or
redemptions of Fund shares will not be considered a violation of the limitation.
4. MANAGEMENT
The business of the Trust is managed under the direction of the Board of
Directors.
INVESTMENT ADVISER
Oak Hall-Registered Trademark- Capital Advisors, L.P. is the investment
adviser of the Fund pursuant to an Investment Advisory Agreement with the
Trust. Subject to the general control of the Board of Directors, the Adviser
makes investment decisions for the Fund. For its services under the Advisory
Agreement, the Adviser receives an advisory fee at an annual rate of 0.75% of
the average daily net assets of the Fund. The Adviser's fees are accrued
daily and paid monthly. The Adviser, in its sole discretion, may waive all or
any portion of its advisory fee. Any waiver would have the effect of
increasing the Fund's yield for the period during which the waiver was in
effect and would not be recouped by the Adviser at a later date.
John C. Hathaway, President and Chief Investment Officer of the Adviser, has
been the Fund's portfolio manager since inception of the Fund. Prior to his
association with the Adviser in May of 1989, Mr. Hathaway was a principal at
Hudson Capital Advisors. Mr. Hathaway has approximately 20 years experience in
the investment management business.
The Adviser, which is located at 24th Floor, 122 East 42nd Street, New York, New
York 10168, is a registered investment adviser and provides investment
management services to pension plans, endowment funds, institutional and
individual accounts. As of the date of this Prospectus, the Adviser had in
excess of $___ million of assets under management. The Adviser was incorporated
under the laws of the State of
6
<PAGE>
New York in 1984 and is a wholly owned subsidiary of American Securities Holding
Corporation ("ASHC"). ASHC is wholly owned by a trust, the beneficiaries of
which are members of the William Rosenwald family.
ADMINISTRATION
On behalf of the Fund, the Trust has entered into an Administration and
Distribution Agreement with Forum Financial Services, Inc. ("Forum"). As
provided in this agreement, Forum is responsible for the supervision of the
overall management of the Trust (including the Trust's receipt of services which
the Trust is obligated to pay for), providing the Trust with general office
facilities and providing persons satisfactory to the Board of Directors to serve
as officers of the Trust. For these services, Forum receives a fee computed and
paid monthly at an annual rate of 0.25% of the average daily net assets of the
Fund. Like the Adviser, Forum, in its sole discretion, may waive all or any
portion of its fees. Forum, which is located at Two Portland Square, Portland,
Maine 04101, was incorporated under the laws of the State of Delaware on
February 7, 1986 and as of the date hereof provided management and
administrative services to registered investment companies and collective
investment funds with assets of approximately $18 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 was controlled by John Y. Keffer, President and Chairman.
DISTRIBUTION
Pursuant to the Administration and Distribution Agreement, Forum acts as the
distributor of the Fund's shares. Under a distribution plan (the "Plan")
adopted by the Board of Directors, the Fund may reimburse Forum for the
distribution expenses incurred by Forum on behalf of the Fund. These expenses
may include the cost of advertising and promotional materials, providing
prospective shareholders with the Fund's prospectus, statement of additional
information and shareholder reports, reimbursing the Adviser for its
distribution expenses and compensating others who may provide assistance in
distributing shares of the Fund. These expenses may include costs of Forum's
offices such as rent, communications equipment, employee salaries and overhead
costs. The Fund will not reimburse Forum for any expenses in any fiscal year of
the Fund in excess of 0.20% of the Fund's average daily net assets. During the
period in which the Plan and the related Administration and Distribution
Agreement are in effect, the Board of Directors will from time to time determine
the amount of distribution expense reimbursement to be paid. Unreimbursed
expenses of the Distributor incurred during a fiscal year of the Trust may not
be reimbursed by the Trust in future years or after the termination of the Plan
or the Administration and Distribution Agreement.
TRANSFER AGENT The Trust has entered into a Transfer Agency Agreement with
Forum Financial Corp. (the "Transfer Agent") pursuant to which the Transfer
Agent acts as the Fund's transfer agent and dividend disbursing agent. The
Transfer Agent maintains for each shareholder of record, an account (unless
such accounts are maintained by sub-transfer agents) to which all shares
purchased are credited, together with all distributions that are reinvested
in additional shares. The Transfer Agent also performs other transfer agency
functions and acts as dividend disbursing agent for the Trust. In addition,
the Transfer Agent performs portfolio accounting services for the Fund,
including determination of the Fund's net asset value.
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 has confirmed its obligation to pay
all the Trust's other expenses.
5. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL
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PURCHASES. Fund shares may be purchased without a sales charge at their net
asset value on any weekday except customary national business holidays and Good
Friday ("Fund Business Day"). See "Determination of Net Asset Value."
Fund shares are issued at a price equal to the net asset value per share next
determined after an order in proper form, accompanied by funds on deposit at a
Federal Reserve Bank ("Federal Funds"), is received by the Transfer Agent. An
investor's funds will not be accepted or invested by the Fund during the period
before the Fund's receipt of Federal Funds. The Fund's net asset value is
calculated at 4:00 p.m., Eastern time on each Fund Business Day. Fund shares
become entitled to receive dividends on the day after the shares are issued to
an investor.
The Fund reserves the right to reject any subscription for the purchase of its
shares and may, in the Adviser's discretion, accept portfolio securities in lieu
of cash as payment for Fund shares. Stock certificates are issued only to
shareholders of record upon their written request, and no certificates are
issued for fractional shares.
REDEMPTIONS. There is no redemption charge, no minimum period of investment,
and no restriction on frequency of redemptions. The date of payment of
redemption proceeds may not be postponed for more than seven days after shares
are tendered to the Transfer Agent for redemption by a shareholder of record.
The right of redemption may not be suspended except in accordance with the
Investment Company Act.
Redemptions are effected at a price equal to the net asset value per share next
determined following acceptance by the Transfer Agent of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). The Fund's net asset value is calculated at 4:00 p.m., Eastern time on
each Fund Business Day. Shares redeemed are not entitled to participate in
dividends declared after the day on which a redemption becomes effective.
PURCHASE AND REDEMPTION PROCEDURES
Investors may obtain the account application necessary to open an account by
writing the Transfer Agent at the following address:
Oak Hall-Registered Trademark- Equity Fund
P.O. Box 446
Portland, Maine 04112
There is a $10,000 minimum for initial investments in the Fund and a $5,000
minimum for subsequent purchases, except for individual retirement accounts (See
"Individual Retirement Accounts"). Shareholders will receive from the Trust
periodic statements listing account activity during the statement period.
The Fund sells and redeems its shares on a continuing basis at their net asset
value next determined following the receipt by the Transfer Agent of a purchase
or redemption order in proper form including, in the case of purchases, Federal
Funds. An investor's funds will not be accepted or invested by the Fund during
the period before the Fund's receipt of Federal Funds.
INITIAL PURCHASE OF SHARES
MAIL. Investors may send a check made payable to the Trust along with a
completed account application to the Transfer Agent at the following address;
Oak Hall-Registered Trademark- Equity Fund
P.O. Box 446
Portland, Maine 04112
Checks are accepted at full value subject to collection. Payment by a check
drawn on any member of the Federal Reserve System can normally be converted into
Federal Funds within two business days after receipt of the check. Checks drawn
on some non-member banks may take longer.
BANK WIRE. To make an initial investment in the Fund using the fedwire system
for transmittal of money among banks, an investor should first telephone the
Transfer Agent at 207-879-0001 to obtain an account number for an initial
investment. The investor should then instruct a member commercial bank to wire
his money immediately to:
The First National Bank of Boston
Boston, Massachusetts
ABA # 011000390
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For Credit to: Forum Financial Corp.
Account # 541-54171
Oak Hall Equity Fund
(Investor's Name)
(Investor's Account Number)
The investor should then promptly complete and mail the account application.
Any investor planning to wire funds should instruct his bank early in the day so
the wire transfer can be accomplished the same day. There may be a charge by
the investor's bank for transmitting the money by bank wire, and there also may
be a charge for use of Federal Funds. The Trust does not charge investors for
the receipt of wire transfers. Payment in the form of a bank wire received
prior to 4:00 p.m., Eastern time on a Fund Business Day will be treated as a
Federal Funds payment received before that time.
THROUGH BROKERS. Shares may be purchased and redeemed through brokers and other
financial institutions that have entered into sales agreements with Forum.
These institutions may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Trust. The Trust is not responsible for the failure of any institution to
promptly forward these requests.
Investors who purchase shares will be subject to the procedures of their
institution, which may include charges, limitations, investment minimums, cutoff
times and restrictions in addition to, or different from, those applicable to
shareholders who invest in the Fund directly. These investors should acquaint
themselves with their institution's procedures and should read this Prospectus
in conjunction with any materials and information provided by their institution.
Customers who purchase Fund shares in this manner may or may not be the
shareholder of record and, subject to their institution's and the Fund's
procedures, may have Fund shares transferred into their name. There is
typically a one to five day settlement period for purchases and redemptions
through broker-dealers.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases may be made by mailing a check or by sending a bank wire as
indicated above. Shareholders using the wire system for subsequent purchases
should first telephone the Transfer Agent at 207-879-0001 to notify it of the
wire transfer. All payments should clearly indicate the shareholder's name and
account number.
REDEMPTION OF SHARES
Redemption requests will not be effected unless any check used for investment
has been cleared by the shareholder's bank, which may take up to 15 calendar
days. This delay may be avoided by investing in the Fund through wire
transfers. Normally redemption proceeds are paid immediately following any
redemption, but in no event later than seven days after redemption, by check
mailed to the shareholder of record at his record address. Shareholders that
wish to redeem shares by Telephone or by Bank Wire must elect these options by
properly completing the appropriate sections of their account application. These
privilege may be modified or terminated by the Trust at any time.
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 $10,000 ($2,000
for IRAs). The Fund will not redeem accounts that fall below these amounts
solely as a result of a reduction in net asset value.
REDEMPTION 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 certificates submitted for
redemption must be endorsed by the shareholder with signature guaranteed and all
written requests for redemption must be signed by the shareholder with signature
guaranteed.
When a signature guarantee is called for, including any instruction to change
the record name or address, the designated bank account, the dividend election,
or the telephone redemption option election on an account, the shareholder
should have "Signature Guaranteed" stamped under his signature and signed by a
commercial bank or trust company, a broker, dealer or securities exchange, a
credit union or a savings association that is authorized to guarantee
signatures.
TELEPHONE REDEMPTION. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at 207-879-0001. In an effort to prevent
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unauthorized or fraudulent redemption requests by telephone, the Trust and the
Transfer Agent will employ reasonable procedures to confirm that such
instructions are genuine. Shareholders must provide the Transfer Agent with the
shareholder's account number, the exact name in which the shares are registered
and some additional form of identification such as a password. The Trust or the
Transfer Agent may employ other procedures such as recording certain
transactions. If such procedures are followed, neither the Transfer Agent nor
the Trust will be liable for any losses due to unauthorized or fraudulent
redemption requests. Shareholders should verify the accuracy of telephone
instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption
privilege may be difficult to implement. 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. Shares for which certificates have been issued may not be redeemed by
telephone.
BANK WIRE REDEMPTION. With respect to any redemption of more than $10,000, a
shareholder that has elected wire redemption privileges may request the Fund to
transmit the 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 to be able to redeem shares by
telephone.
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.
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund may be a suitable investment vehicle for part or all of the assets held
in individual retirement accounts ("IRAs"). The minimum initial investment for
investors opening an IRA or investing through their own IRA is $2,000, and the
minimum subsequent investment is $250. Individuals may make tax-deductible IRA
contributions of up to a maximum of $2,000 annually. However, the deduction
will be reduced if the individual or, in the case of a married individual filing
jointly, either the individual or the individual's spouse is an active
participant in an employer-sponsored retirement plan and has adjusted gross
income above certain levels.
6. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are declared and paid annually.
Net capital gains realized by the Fund, if any, also will be distributed
annually.
Shareholders may choose either to have all dividends reinvested in additional
shares of the Fund or received in cash or to have dividends of net capital gain
reinvested in additional shares of the Fund and dividends of net investment
income paid in cash. All dividends are treated in the same manner for Federal
income tax purposes whether received in cash or reinvested in shares of the
Fund. All dividends are reinvested unless another option is selected.
Income dividends will be reinvested at the Fund's net asset value as of the last
day of the period with respect to which the dividends are paid and capital gains
dividends will be reinvested at the net asset value of the Fund on the payment
date for the dividend. Cash payments may be made more than seven days following
the date on which dividends would otherwise be reinvested.
TAXES
The Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986 (the "Code"). As
such, the Fund will not be liable for Federal income and excise taxes on the net
investment income and capital gains distributed to its shareholders in
accordance with the applicable provisions of the Code. The Fund intends to
distribute all of its net income and net capital gains each year. Accordingly,
the Fund should thereby avoid all Federal income and excise taxes.
Dividends paid by the Fund out of its net investment income (including realized
net short term capital gains) are taxable to the shareholders of the Fund as
ordinary income notwithstanding that such dividends are reinvested in additional
shares of the Fund. Distributions of net long-term capital gains, if any,
realized by the Fund are taxable to the shareholders as long-term capital gains,
regardless of the length of time the shareholder may have held his shares in the
Fund at the time of distribution. A portion of the Fund's dividends may qualify
for the dividends received deduction available to corporations.
If a shareholder holds shares for six months or less and during that period
receives a distribution taxable to him as a long-term capital gain, any loss
realized on the sale of his shares during that six-month period
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would be a long-term loss to the extent of the distribution. Distributions to
shareholders will be treated in the same manner for Federal income tax purposes
whether received in cash or reinvested in additional shares of the Fund.
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of his shares by the amount
of the dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him as
described above.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions and redemptions) paid
to a non-corporate shareholder unless such shareholder certifies in writing that
the social security or tax identification number provided is correct and that
the shareholder is not subject to backup withholding for prior underreporting to
the Internal Revenue Service.
Reports containing appropriate information with respect to the Federal income
tax status of dividends and distributions paid during the year by the Fund will
be mailed to shareholders shortly after the close of each year.
7. OTHER INFORMATION
Prior to August 30, 1996, the Fund was a separate portfolio named Oak
Hall-Registered Trademark- Equity Fund of Stone Bridge Funds, Inc., a
Maryland corporation.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00 P.M.,
Eastern time, on each Fund Business Day by dividing the value of the Fund's net
assets (I.E., the value of its securities and other assets less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the number of shares outstanding at the time the determination is made.
Securities owned by the Fund for which market quotations are readily available
are valued at current market value, or, in their absence, at fair value as
determined by the Board of Directors. Purchases and redemptions will be
effected at the time of determination of net asset value next following the
receipt of any purchase or redemption order as described under "Purchases and
Redemptions of Shares."
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.
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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.
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or total
return. Both types of performance are based on historical results and are not
intended to indicate future performance. The Fund's yield is a way of showing
the rate of income the Fund earns on its investments as a percentage of the
Fund's share price. To calculate yield, the Fund takes the interest income it
earned from its portfolio of investments for a 30 day period (net of expenses),
divides it by the average number of shares entitled to receive dividends, and
expresses the result as an annualized percentage rate based on the Fund's share
price at the beginning of the 30 day period. The Fund's total return shows its
overall change in value, including changes in share price and assuming all the
Fund's distributions are reinvested. A cumulative total return reflects the
Fund's performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in the Fund's returns, shareholders should recognize that they are
not the same as actual year-by-year results. To illustrate the components of
overall performance, the Fund may separate its cumulative and average annual
returns into income results and capital gain or loss.
The Fund's advertisements may refer to ratings and rankings among similar funds
by independent evaluators such as Morningstar, Lipper Analytical Services, Inc.
or CDA/Weisenberger. In addition, the performance of the Fund may be compared to
recognized indices or market performance. The comparative material found in the
Fund's advertisements, sales literature or reports to shareholders may contain
performance ratings. These are not to be considered representative or indicative
of future performance.
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APPENDIX
OPTIONS ON EQUITY SECURITIES - (sometimes referred to as stock options)-A call
option is a short-term 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.
OPTIONS ON STOCK INDEXES - A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index 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.
FOREIGN CURRENCY OPTIONS - A foreign currency option operates in the same manner
as an option on securities. Options on foreign currencies are primarily traded
in the over-the-counter market.
STOCK INDEX FUTURES CONTRACTS - A stock index futures contract is a bilateral
agreement 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 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
stocks comprising the index is made. Generally contracts are closed out prior
to the expiration date of the contract.
FOREIGN CURRENCY FUTURES CONTRACTS - A foreign currency futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of a quantity of a foreign currency called for in a contract at a specified
future time and at a specific price. Although these contracts call for delivery
of or acceptance of the foreign currency, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery.
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
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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 STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR
TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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AUSTIN GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Investment Advisor: Account Information and
Austin Investment Management, Inc. Shareholder Servicing:
375 Park Avenue Forum Financial Corp.
New York, New York 10152 Two Portland Square
(212) 888-9292 Portland, Maine 04101
207-879-0001
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1996
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectus offering shares
of the Austin Global Equity Fund (the "Fund") and should be read only in
conjunction with the Prospectus, a copy of which may be obtained by without
charge by contacting shareholder servicing at the address listed above.
TABLE OF CONTENTS
Page
----
1. Investment Policies and Limitations. . . . . . . . . . . . .
2. Performance Data . . . . . . . . . . . . . . . . . . . . . .
3. Management . . . . . . . . . . . . . . . . . . . . . . . . .
4. Determination of Net Asset Value . . . . . . . . . . . . . .
5. Portfolio Transactions . . . . . . . . . . . . . . . . . . .
6. Custodian. . . . . . . . . . . . . . . . . . . . . . . . . .
7. Additional Purchase and Redemption Information . . . . . . .
8. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . .
9. Other Matters. . . . . . . . . . . . . . . . . . . . . . . .
Appendix A - Description of Securities Ratings
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT POLICIES AND LIMITATIONS
The Fund's investment adviser, Austin Investment Management, Inc. (the
"Adviser"), in determining the composition of the Fund's portfolio, seeks to
distribute investments among various countries, including the United States, and
various geographic regions. In making investment decisions, the Adviser
considers many factors, including: prospects for economic growth among the
various countries; relative amounts of capital invested in foreign countries;
expected levels of inflation; government policies influencing business
conditions; outlooks for future currency relationships; and the range of
investment opportunities available.
INVESTMENT IN FOREIGN SECURITIES
The Fund invests primarily in issuers based in the United States, Europe, Japan
and the Pacific Basin. The European and Pacific Basin countries in which
issuers will be based are primarily those of Western Europe, such as the United
Kingdom, Germany, France, Italy and the Scandinavian countries, and South Korea,
Australia and New Zealand.
Foreign securities are generally purchased in over-the-counter markets or on
stock exchanges located in the countries in which the respective principal
offices of the issuers of the various securities are located, if that is the
best available market. Foreign securities markets are generally not as
developed or efficient as those in the United States, and securities of foreign
companies may be less liquid and more volatile than securities of comparable
United States companies. Fixed commissions on foreign stock exchanges are
generally higher than negotiated commissions on United States exchanges,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies than in the United
States. Foreign countries may possibly place limitations on the removal of
funds or other assets of the Fund, and diplomatic developments could affect
United States investments in those countries. Moreover, individual foreign
economies may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, self-sufficiency of natural resources and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund's shareholders. A
shareholder otherwise subject to United States federal income taxes may, subject
to certain limitations, be entitled to claim a credit or deduction for U.S.
federal income tax purposes for the shareholder's proportionate share of foreign
taxes paid by the Fund. (See "Tax Matters.")
Although the Fund values its assets daily in terms of U.S. dollars, it will not
normally convert its holdings of foreign currencies into U.S. dollars on a daily
basis. It will do so from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (commonly
known as the "spread") between the price at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Investors should understand that the expense ratio of the Fund can be expected
to be higher than that of other investment companies investing solely in
domestic securities due to, among other things, the greater cost of maintaining
the custody of foreign securities and higher transaction charges, such as stamp
duties and turnover taxes that may be associated with the purchase and sale of
portfolio securities.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P") are private services that provide ratings of the credit quality of debt
obligations, including convertible securities. A description of the range of
ratings assigned to corporate bonds, including convertible securities by Moody's
and S&P is included in
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Appendix A to this Statement of Additional Information. The Fund may use these
ratings in determining 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. Subsequent to its purchase by the
Fund, an issue of securities may cease to be rated or its rating may be reduced.
The Adviser will consider such an event in determining whether the Fund should
continue to hold the obligation. 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 in response to subsequent events, so that an issuer's current
financial condition may be better or worse than the rating indicates.
CONVERTIBLE SECURITIES
The Fund 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. Although no securities investment is without some risk, investment in
convertible securities generally entails less risk than in the issuer's common
stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The 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 the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
WARRANTS
The 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. To the
extent that the market value of the security that may be purchased upon exercise
of the warrant rises above the exercise price, the value of the warrant will
tend to rise. To the extent that the exercise price equals or exceeds the
market value of such security, the warrants will have little or no market value.
If a warrant is not exercised within the specified time period, it will become
worthless and the Fund will lose the purchase price paid for the warrant and the
right to purchase the underlying security.
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<PAGE>
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve currencies of foreign
countries. In addition, the Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs. Accordingly,
the value of the assets of the Fund as measured in United States dollars may be
affected by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into foreign currency forward
contracts ("forward contracts") to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers and involve the risk that the other party to the contract may
fail to deliver currency when due, which could result in losses to the Fund. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Foreign exchange dealers realize a profit
based on the difference between the price at which they buy and sell various
currencies.
The Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, the Fund may enter into forward currency contracts in connection with
existing portfolio positions. For example, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward contracts involve the risk
of inaccurate predictions of currency price movements, which may cause the Fund
to incur losses on these contracts and transaction costs. The Adviser does not
intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such contracts or the 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.
At or before the settlement of a forward currency contract, the Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency.
The Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
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<PAGE>
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a global,
around-the-clock market.
When required by applicable regulatory guidelines, the Fund will set aside cash,
U.S. Government Securities (as defined in the Prospectus) or other liquid, high-
grade debt securities in a segregated account with its custodian in the
prescribed amount.
HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser may engage in certain options and
futures strategies to attempt to hedge the Fund's portfolio. The instruments in
which the Fund may invest include (i) options on securities, stock indexes and
foreign currencies, (ii) stock index and foreign currency futures contracts
("futures contracts"), and (iii) options on futures contracts. Use of these
instruments is subject to regulation by the Securities and Exchange Commission
("SEC"), the several options and futures exchanges upon which options and
futures are traded, and the Commodities Futures Trading Commission ("CFTC").
The various strategies referred to herein and in the Fund's Prospectus are
intended to illustrate the type of strategies that are available to, and may be
used by, the Adviser in managing the Fund's portfolio. No assurance can be
given, however, that any strategies will succeed.
The Fund will not use leverage in its hedging strategies. In the case of
transactions entered into as a hedge, the Fund will hold securities, currencies
or other options or futures positions whose values are expected to offset
("cover") its obligations thereunder. The Fund will not enter into a hedging
strategy that exposes the Fund to an obligation to another party unless it owns
either (1) an offsetting ("covered") position or (2) cash, U.S. Government
Securities or other liquid, high-grade debt securities with a value sufficient
at all times to cover its potential obligations. When required by applicable
regulatory guidelines, the Fund will set aside cash, U.S. Government Securities
or other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount. Any assets used for cover or held in a
segregated account cannot be sold or closed out while the hedging strategy is
outstanding, unless they are replaced with similar assets. As a result, there
is a possibility that the use of cover or segregation involving a large
percentage of a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
The Fund is subject to the following restrictions in its use of options and
futures contracts. The Fund will not (i) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the Fund's
total assets would be hedged through the use of options or futures contracts,
(ii) purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets, or (iii) purchase call
options if, as a result, the current value of options premiums for options
purchased would exceed 5% of the Fund's total assets.
OPTIONS STRATEGIES
The Fund may purchase put and call options written by others and write (sell)
put and call options covering specified securities, stock index-related amounts
or currencies. A put option (sometimes called a "standby commitment") gives the
buyer of the option, upon payment of a premium, the right to deliver a specified
amount of a security or currency to the writer of the option on or before a
fixed date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. The Fund may buy or sell both exchange-traded
and over-the-counter ("OTC") options. The Fund will purchase or write an option
only if that option is traded on a recognized U.S. options exchange or if the
Adviser believes that a liquid secondary market for the option exists. When the
Fund purchases an OTC option, it
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relies on the dealer from which it has purchased the OTC option to make or take
delivery of the securities or currency underlying the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Fund as well
as the loss of the expected benefit of the transaction. OTC options and the
securities underlying these options currently are treated as illiquid
securities.
The Fund may purchase call options on equity securities that the Adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. The Fund may similarly purchase put
options in order to hedge against a decline in market value of securities held
in its portfolio. The put enables the Fund to sell the underlying security at
the predetermined exercise price; thus the potential for loss to the Fund is
limited to the option premium paid. If the market price of the underlying
security is lower than the exercise price of the put, any profit the Fund
realizes on the sale of the security would be reduced by the premium paid for
the put option less any amount for which the put may be sold.
The Fund may write covered call options. The Adviser may write call options
when it believes that the market value of the underlying security will not rise
to a value greater than the exercise price plus the premium received. Call
options may also be written to provide limited protection against a decrease in
the market price of a security, in an amount equal to the call premium received
less any transaction costs. The Fund may write covered put options only to
effect closing transactions.
The Fund may purchase and write put and call options on stock indexes in much
the same manner as the equity security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
The Fund may take positions in options on foreign currencies in order to hedge
against the risk of foreign exchange fluctuation on foreign securities the Fund
holds in its portfolio or which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Options Strategies" above
and "Foreign Currency Forward Transactions" which influence foreign exchange
sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, the Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
The Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
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under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of a stock index option, fluctuations in the
market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by the Fund
is exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, the Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by the Fund may result in material losses to
the Fund.
(4) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, securities or currencies
as called for in the contract at a specified future date and at a specified
price. For stock index futures contracts, delivery is of an amount of cash
equal to a specified dollar amount times the difference between the stock index
value at the time of the contract and the close of trading of the contract.
The Fund may sell stock index futures contracts in anticipation of a general
market or market sector decline that may adversely affect the market values of
the Fund's securities. To the extent that the Fund's portfolio correlates with
a given stock index, the sale of futures contracts on that index could reduce
the risks associated with a market decline and thus provide an alternative to
the liquidation of securities positions. The Fund may purchase a stock index
futures contract if a significant market or market sector advance is
anticipated. These purchases would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in the future.
The Fund may purchase call options on a stock index future as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. The Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Fund may write covered call options on
stock index futures contracts as a partial hedge against a decline in the prices
of stocks held in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, the Fund may sell foreign currency futures contracts when
the Adviser anticipates a general weakening of foreign currency exchange rates
that could adversely affect the
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market values of the Fund's foreign securities holdings. The Fund may purchase
a foreign currency futures contract to hedge against an anticipated foreign
exchange rate increase pending completion of anticipated transactions. Such a
purchase would serve as a temporary measure to protect the Fund against such
increase. The Fund may also purchase call or put options on foreign currency
futures contracts to obtain a fixed foreign exchange rate at limited risk. The
Fund may write call options on foreign currency futures contracts as a partial
hedge against the effects of declining foreign exchange rates on the value of
foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts, rather, the Fund is
required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash or U.S. Government Securities generally
equal to 5% or less of the contract value. This amount is known as initial
margin. Subsequent payments, called variation margin, to and from the broker,
would be made on a daily basis as the value of the futures position varies.
When writing a call on a futures contract, variation margin must be deposited in
accordance with applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts. For example, futures contracts on broad-based stock
indexes can currently be entered into with respect to the Standard & Poor's 500
Stock Index on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange, the Value Line Composite
Stock Index on the Kansas City Board of Trade and the Major Market Index of the
Chicago Board of Trade.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In such event, it may not be possible for the Fund to close a
position, and in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin. In addition:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying securities or currencies which causes
this situation to occur. As a result, a correct forecast of general market
trends may still not result in successful hedging through the use of futures
contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited life.
The Fund will not trade options on futures contracts on any exchange or board of
trade unless and until, in the Adviser's opinion, the market for such
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options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. In addition, settlement of foreign currency
futures contracts must occur within the country issuing that currency. Thus,
the Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Fund may
be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
The Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. The Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however that in addition,
with respect to positions in commodity futures and option contracts not for bona
fide hedging purposes the Fund represents that the aggregate initial margin and
premiums required to establish these positions (subject to certain exclusions)
will not exceed 5% of the liquidation value of the Fund's assets after taking
into account unrealized profits and losses on any such contract the Fund has
entered into.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When 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 and, thus, no
interest accrues to the purchaser from the transaction. However, at the time
the Fund makes a commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction as a purchase and
thereafter reflect the value each day of such securities in determining its net
asset value.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. For instance,
in periods of rising interest rates and falling bond prices, the Fund might sell
securities which it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices,
the Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices inferior to the
current market values.
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When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. If the Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. The Fund will establish and maintain with its custodian a separate
account with cash, U.S. Government Securities or other liquid, high-grade debt
securities in an amount at least equal to such commitments. No when-issued or
forward commitments will be made by the Fund if, as a result, more than 10% of
the value of the Fund's total assets would be committed to such transactions.
INVESTMENT COMPANY SECURITIES
In connection with managing its cash positions, the Fund may invest in the
securities of other investment companies that are money market funds within the
limits proscribed by the Investment Company Act of 1940 ("1940 Act"). The Fund
may invest less up to 10% of the value of its net assets in the securities of
money market funds. 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).
TEMPORARY DEFENSIVE POSITION
The cash or cash equivalents in which the Fund may invest include (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 are members of the Federal Deposit Insurance Corporation and
whose short term ratings are rated in one of the two highest rating categories
by S&P or Moody's or, if not rated by those agencies, determined by the Adviser
to be of comparable quality, (iii) commercial paper of prime quality rated A-2
or higher by S&P or Prime-2 or higher by Moody's or, if not rated by those
agencies, determined by the Adviser to be of comparable quality, and (iv)
repurchase agreements covering any of the securities in which the Fund may
invest directly.
FUNDAMENTAL POLICIES
Those policies of the Fund which are deemed to be fundamental may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. A majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act, means the lesser of: (i) 67% of the
shares of the Fund present or represented at a shareholders meeting at which the
holders of more than 50% of the shares are present or represented or (ii) more
than 50% of the outstanding shares of the Fund.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations which are
in addition to those contained in the Fund's Prospectus and which may not be
changed without shareholder approval. The Fund may not:
(1) Borrow money (including entering into reverse repurchase agreements);
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
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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
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.
(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 to extent permitted by the 1940 Act.
The Fund has adopted the following nonfundamental investment limitations that
may be changed by the Trust's Board of Directors (the "Board of Directors")
without shareholder approval. The Fund may not:
(a) Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the
writing of put and call options, collateralized loans of securities and
collateral arrangements with respect to margin for futures contracts are not
deemed to be pledges or hypothecations for this purpose.
(b) Invest in securities of another registered investment company, except
in connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest in money market funds and privately-issued
mortgage related securities to the extent permitted by the 1940 Act.
(c) Purchase securities on margin, or make short sales of securities
(except short sales against the box), 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 to the Fund's knowledge
officers and directors of the Trust or the Fund's investment adviser,
individually owning beneficially more than 1/2 of 1% of the securities of the
issuer, in the aggregate own more than 5% of the issuer's securities.
(f) Purchase securities for investment while any borrowing equaling 5% or
more of the Fund's total assets is outstanding or borrow money, except for
temporary or emergency purposes (including the meeting of redemption requests),
in an amount exceeding 5% of the value of the Fund's total assets.
(g) Acquire securities or invest in repurchase agreements with respect to
any securities if, as a result, more than (i) 15% of the Fund's net assets
(taken at current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days and in securities
which are not readily marketable, including securities that are illiquid by
virtue of restrictions on the sale of such securities to the public without
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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 interests in oil or gas or interests in other mineral
exploration or development programs.
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.
2. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's net asset value, yield and total return
will fluctuate in response to market conditions and other factors, and the value
of Fund shares when redeemed may be more or less than their original cost.
For the period beginning December 8, 1993 (the commencement of public
operations) to June 30, 1995, the Fund's average annual total return was
(9.95%).
In performance advertising each Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). Each Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index, the
Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Funds may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Funds may refer in
such materials to mutual fund performance rankings and other data published by
Fund Tracking Companies. Performance advertising may also refer to discussions
of the Funds and comparative mutual fund data and ratings reported in
independent periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Fund may advertise total return. Total returns quoted in advertising
reflect all aspects of the Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the Fund's net asset
value per share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. For example, a
cumulative return of 100% over ten years would produce an average annual return
of 7.18%, which is the steady annual rate that would equal 100% growth on a
compounded basis in ten years. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that the
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual year-
to-year performance of the Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
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 total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains 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.
3. 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)
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.
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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.
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. Miles 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.
THE INVESTMENT ADVISER
The Fund's investment adviser, Austin Investment Management, Inc. (the
"Adviser") furnishes at its own expense all services, facilities and personnel
necessary in connection with managing the Fund's investments and effecting
portfolio transactions for the Fund. The Advisory Agreement will remain in
effect for a period of twelve months from the date of its effectiveness and will
continue in effect thereafter only if its continuance is specifically approved
at least annually by the Board of Directors or by vote of the shareholders, and
in either case by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party, at a meeting called
for the purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty by the Trust with respect
to the Fund on 60 days' written notice when authorized either by vote of its
shareholders or by a vote of a majority of the Board of Directors, or by the
Adviser on 60 days' written notice to the Trust, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to the 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
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misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the Advisory
Agreement.
The Advisory Agreement provides that the Adviser may render services to others.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in the Fund. In some instances the Adviser may elect
to credit against any investment management fee received from a client who is
also a shareholder in the Fund an amount equal to all or a portion of the fees
received by the Adviser or any affiliate of the Adviser from the Fund with
respect to the client's assets invested in the Fund.
The Adviser has agreed to reimburse the Trust for certain of the Fund's
operating expenses 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 obligations of the Adviser to reimburse the Trust for
its excess expenses, the Trust has, under the Advisory Agreement, confirmed its
obligation to pay all its other expenses. The Fund 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 asset, 2% of the next $70 million of
its average net assets and 1-1/2% of its average net assets in excess of $100
million. For the fiscal years ended June 30, 1996, 1995 and 1994, the fees
payable under the Advisory Agreement were $_______, $123,067 and $39,923,
respectively; $______, $56,735 and $39,923 of which, respectively, were waived
by the Adviser.
ADMINISTRATION AND DISTRIBUTION
Forum Financial Services, Inc. ("Forum") supervises the overall management of
the Trust (which includes, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent, fund accountant and custodian and arranging for maintenance of
books and records of the Trust) pursuant to an Administration and Distribution
Agreement. Forum also provides persons satisfactory to the Board of Directors
to serve as officers of the Trust. Those officers, as well as certain other
employees and Directors of the Trust, may be directors, officers or employees of
(and persons providing services to the Trust may include) Forum, the Adviser or
their respective non-banking affiliates. In addition, under the Agreement,
Forum is directly responsible for managing the Trust's regulatory and legal
compliance and overseeing the preparation of its registration statement.
The Administration and Distribution Agreement will remain in effect for a period
of twelve months from the date of its effectiveness and will continue in effect
thereafter only if its continuance is specifically approved at least annually by
the Board of Directors or by the shareholders and, in either case, by a majority
of the Directors who are not parties to the agreement or interested persons of
any such party and do not have any direct or indirect financial interest in the
agreement.
The Administration and Distribution 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 to the agreement on 60 days'
written notice to the Trust. The agreement also provides that Forum shall not
be liable for any error of judgment or mistake of law or for any act or omission
in the administration or management of the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
agreement.
Forum also acts as distributor of the Fund's shares pursuant to the
Administration and Distribution Agreement. In accordance with Rule 12b-1
adopted by the Securities and Exchange Commission, the Trust has adopted a
distribution plan ("Plan"), which provides that all written agreements relating
to the Plan must be in a form satisfactory to the Board of Directors. In
addition, the Plan requires the Trust and Forum to prepare, at least quarterly,
written reports setting forth all amounts expended for distribution purposes by
Forum pursuant to the Plan and identifying the distribution activities for which
those expenditures were made.
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The Plan provides that it will remain in effect for one year from the date of
its adoption and thereafter may continue in effect for successive annual periods
provided it is approved by the shareholders or by the Board of Directors,
including a majority of directors who are not interested persons of the Trust
and who have no direct or indirect interest in the operation of the Plan or in
any agreement related to the Plan. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments of the Plan must be approved by the directors in the manner
described in the preceding sentence. The Plan may be terminated at any time by
a vote of the Board of Directors or, with respect to the Fund, by the Fund's
shareholders.
Until May 31, 1994, Stone Bridge Trust Company ("SBTC"), as administrator, and
Forum, as sub-administrator, supervised the overall management of the Company,
including the administrative duties described above, pursuant to a Co-
Administration Agreement and a Distribution and Administration Agreement,
respectively. Effective June 1, 1994, the Company entered into the current
Administration and Distribution Agreement with Forum under which Forum continues
to provide the administration and distribution services it has provided since
the Fund's inception and assumed the administrative responsibilities formerly
performed by Stone Bridge Trust Company.
For the fiscal year ending June 30, 1994, the administration fees under the
previous Co-Administration Agreement were $3,049, all of which were waived by
SBTC. The fees under the previous Distribution and Administration Agreement,
and the current Administration and Distribution Agreement, were $3605, all of
which were waived by Forum. For the fiscal years ending June 30, 1996 and 1995,
the fees under the Administration and Distribution Agreement were $______ and
$23,558, respectively.
TRANSFER AGENT
Forum Financial Corp. (the "Transfer Agent") acts as transfer agent and dividend
disbursing agent of the Trust pursuant to a Transfer Agency Agreement. For its
services, the Transfer Agent receives with respect to the Fund an annual fee of
$12,000 plus $25 per shareholder account. Pursuant to a Fund Accounting
Agreement, the Transfer Agent also provides the Fund with portfolio accounting,
including the calculation of the Fund's net asset value. For these services,
the Transfer Agent receives with respect to the Fund an annual fee ranging from
$36,000 to $60,000 depending upon the amount and type of the Fund's portfolio
transactions and positions.
Both the Transfer Agency Agreement and Fund Accounting Agreement were approved
by the Board of Directors, including a majority of the Directors who are not
parties to the respective agreements or interested persons of any such party, at
a meeting called for the purpose of voting on the respective agreement. Each of
these agreements will remain in effect for a period of one year and will
continue in effect thereafter only if its continuance is specifically approved
at least annually by the Board of Directors or by a vote of the shareholders and
in either case by a majority of the Directors who are not parties to the
respective agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the respective agreement.
OTHER INFORMATION
As of July __, 1996, the officers and directors of the Trust owned as a group
less than 1% of the outstanding shares of the Fund. Also as of that date, the
following persons owned of record 5% or more of the outstanding shares of the
Fund: Bear Stearns Securities Corp., One Metrotech Center, Brooklyn, New York
11201-3859 - _____%.
4. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00 P.M.,
Eastern time, on Fund Business Days (as defined in the Prospectus), by dividing
the value of the Fund's net assets (i.e., the value of its securities and other
assets less its liabilities, including expenses payable or accrued) by the
number of shares outstanding at the time the
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determination is made. 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.
Securities listed or traded on United States or foreign securities exchanges are
valued at the last quoted sales prices on such exchanges prior to the time when
assets are valued. Securities listed or traded on certain foreign exchanges
whose operations are similar to the United States over-the-counter market are
valued at the price within the limits of the latest available current bid and
asked prices deemed best to reflect market value. Listed securities that are
not traded on a particular day, and securities regularly traded in the over-the-
counter market, are valued at the price within the limits of the latest
available current bid and asked prices deemed best to reflect market value. In
instances where market quotations are not readily available, the security is
valued in a manner intended to reflect its fair value. All other securities and
assets are valued in a manner determined to reflect their fair value. For
purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by any major bank.
Trading in securities on European and Far Eastern securities exchanges and over-
the-counter markets is normally completed well before the close of business of
each Fund Business Day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place
in Japanese markets on certain Saturdays and in various foreign markets on days
which are not Fund Business Days in New York and on which the Fund's net asset
value is not calculated. Calculation of the net asset value per share of the
Fund does not take place contemporaneously with the determination of the prices
of the majority of the portfolio securities used in such calculation. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of the New York Stock Exchange, Inc. will
not be reflected in the Fund's calculation of net asset value unless the it is
deemed that the particular event would materially affect net asset value, in
which case an adjustment will be made.
5. PORTFOLIO TRANSACTIONS
The Fund generally will effect purchases and sales through brokers who charge
commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.
Transactions on stock exchanges involve the payment of brokerage commissions.
In transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on foreign stock exchanges these commissions are generally
fixed. In the case of securities traded in the foreign and domestic over-the-
counter markets, there is generally no stated commission, but the price usually
includes an undisclosed commission or markup. In underwritten offerings, the
price includes a disclosed fixed commission or discount. Where transactions are
executed in the over-the-counter market, the Fund will seek to deal with the
primary market makers; but when necessary in order to obtain best execution, it
will utilize the services of others. In all cases the Fund will attempt to
negotiate best execution.
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commission, including certain dealer spreads, paid
in connection with Fund transactions, the Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Adviser may also take into account
payments made by brokers effecting transactions for the Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
In addition, the Adviser may give consideration to research services furnished
by brokers to the Adviser for its use and may cause the Fund to pay these
brokers a higher amount of commission than may be charged by other brokers.
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Such research and analysis may be used by the Adviser in connection with
services to clients other than the Fund, and the Adviser's fee is not reduced by
reason of the Adviser's receipt of the research services.
Investment decisions for the Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, the Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by the Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for the Fund and for other investment companies and accounts
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
The Fund contemplates that, consistent with the policy of obtaining best net
results, brokerage transactions may be conducted through the Adviser's
affiliates, affiliates of those persons or Forum. The Advisory Agreement
authorizes the Adviser to so execute trades. The Board of Directors has adopted
procedures in conformity with applicable rules under the Investment Company Act
to ensure that all brokerage commissions paid to these persons are reasonable
and fair. For the fiscal years ended June 30, 1996, 1995 and 1994 the aggregate
brokerage commissions incurred by the Fund were $______, $20,667 and $2,287, of
which 0.0% ($0.00) was paid in each year to American Securities Corporation, an
affiliate of the Adviser. During those periods, approximately 0.0% of the total
dollar amount of transactions by the Fund involving the payment of commissions
were effected through American Securities Corporation.
6. CUSTODIAN
Pursuant to a Custodian Agreement (the "Custodian Agreement"), The First
National Bank of Boston, P.O. Box 1959, Boston, Massachusetts, 02105, acts as
the custodian of the Funds' assets. The custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, determining income
and collecting interest on Fund investments. The Fund's custodian employs
foreign subcustodians to provide custody of the Fund's foreign assets in
accordance with applicable regulations. The custodian is paid a fee at an
annual rate of 0.02% of the first $100 million of the average daily net assets
of the Fund, 0.015% on the next $100 million of the average daily net assets of
the Fund and .001% of the average daily net assets over $200 million, and
certain transaction fees.
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value without any sales charge. As of July 30, 1996, the Fund's net asset
value was $_____.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partly in portfolio securities if the Board of Directors
determines economic conditions exist which would make payment in cash
detrimental to the best interests of the Fund. If payment for shares redeemed
is made wholly or partly in portfolio securities, brokerage costs may be
incurred by the shareholder in converting the securities to cash. The Trust has
filed an election with the Securities and Exchange Commission pursuant to which
the Fund may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily to reimburse
the Fund for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to the Fund's shares as provided in the Prospectus from time to
time.
Shareholders' rights of redemption may not be suspended, except (i) for any
period during which the New York Stock Exchange, Inc. is closed (other than
customary weekend and holiday closings) or during which the Securities
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and Exchange Commission determines that trading thereon is restricted, (ii) for
any period during which an emergency (as determined by the Securities and
Exchange Commission) exists as a result of which disposal by the Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (iii) for such other period as the Securities and Exchange Commission
may by order permit for the protection of the shareholders of the Fund.
8. TAX MATTERS
FOREIGN INCOME TAXES
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The United States
has entered into tax treaties with many foreign countries which entitle the Fund
to a reduced rate of such taxes or exemption from taxes on such income. It is
impossible to know the effective rate of foreign tax in advance since the amount
of the Fund's assets to be invested within various countries cannot be
determined.
U.S. FEDERAL INCOME TAXES
Income received by the Fund from sources within various foreign countries may be
subject to foreign income tax. If more than 50% of the value of the Fund's
total assets at the close of its taxable year consists of the stock or
securities of foreign corporations, the Fund may elect to "pass through" to the
Fund's shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to that election, shareholders would be required: (i) to include in
gross income, even though not actually received, their respective pro-rata share
of foreign taxes paid by the Fund; and (ii) either to deduct their pro-rata
share of foreign taxes in computing their taxable income, or to use it as a
foreign tax credit against federal income taxes (but not both). No deduction
for foreign taxes could be claimed by a shareholder who does not itemize
deductions.
The Fund may or may not meet the requirements of the Code to "pass through" to
its shareholders foreign income taxes paid. Each shareholder will be notified
after the close of each taxable year of the Fund whether the foreign taxes paid
by the Fund will "pass through" for that year, and, if so, the amount of each
shareholder's pro-rata share (by country) of (i) the foreign taxes paid, and
(ii) the Fund's gross income from foreign sources. Shareholders who are not
liable for Federal income taxes, such as retirement plans qualified under
Section 401 of the Code, will not be affected by any "pass through" of foreign
taxes.
The Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment Trust" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements the
Fund must meet to qualify for such treatment.
The use of certain hedging strategies such as writing and purchasing options,
futures contracts and options on futures contracts and entering into foreign
currency forward contracts and other foreign instruments, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of income received by the Fund in connection therewith.
Dividends out of net ordinary income and distributions of net short-term capital
gain are eligible, in the case of corporate shareholders, for the dividends-
received deduction, subject to proportionate reduction of the amount eligible
for deduction if the aggregate qualifying dividends received by the Fund from
domestic corporations in any year are less than 100% of its gross income
(excluding long-term capital gain from securities transactions). A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund more than 45 days. Furthermore, provisions
of the tax law disallow the dividends-received deduction to the extent a
corporation's investment in shares of the Fund is financed with indebtedness.
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9. OTHER MATTERS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by Seward & Kissel, One Battery Park Plaza, New
York, New York 10004
[ ], Two World Financial Center, New York, New York, 10281, independent
auditors, have been selected 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, 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 July __, 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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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE DEBT)
(b) 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 sometime 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 of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
(b) STANDARD & POOR'S CORPORATION ("S&P")
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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 payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated 'CCC' have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of 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.
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 'C' is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated 'D' are in payment default. 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. The 'D' rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
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.
PREFERRED STOCK
(a) MOODY'S
Moody's rates preferred stock issues as follows:
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An issue which is rated aaa is a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend impairment among
preferred stock issues.
An issue which is rated "aa" is 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 which is rated "a" is 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 which is rated "baa" is a medium-grade preferred stock, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
An issue which is rated "ba" has speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very moderate and
not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of
the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated "ca" is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor prospects
of ever attaining any real investment standing. This is the lowest rated class
of preferred or preference stock.
(b) STANDARD & POOR'S
Standard & Poor's rates preferred stock issues 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 if 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.
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A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from "AA" to "B" may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
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OAK HALL EQUITY FUND
- --------------------------------------------------------------------------------
Investment Advisor: Account Information and
Oak Hall Capital Advisors, L.P. Shareholder Servicing:
122 East 42nd Street Forum Financial Corp.
New York, New York 10005 Two Portland Square
(212) 622-1996 Portland, Maine 04101
800-625-4255
207-879-0001
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
September 1, 1996
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectus offering shares
of the Oak Hall Equity Fund (the "Fund") and should be read only in conjunction
with the Prospectus, a copy of which may be obtained by an investor without
charge by contacting shareholder servicing at the address listed above.
TABLE OF CONTENTS
Page
----
1. Investment Policies and Limitations. . . . . . . . . . . . .
2. Performance Data . . . . . . . . . . . . . . . . . . . . . .
3. Management . . . . . . . . . . . . . . . . . . . . . . . . .
4. Determination of Net Asset Value . . . . . . . . . . . . . .
5. Portfolio Transactions . . . . . . . . . . . . . . . . . . .
6. Custodian. . . . . . . . . . . . . . . . . . . . . . . . . .
7. Additional Purchase and Redemption Information . . . . . . .
8. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Other Matters. . . . . . . . . . . . . . . . . . . . . . . .
Appendix A - Description of Securities Ratings
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT POLICIES AND LIMITATIONS
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P") are private services that provide ratings of the credit quality of debt
obligations, including convertible securities. A description of the range of
ratings assigned to corporate bonds, including convertible securities by Moody's
and S&P is included in Appendix A to this Statement of Additional Information.
The Fund may use these ratings in determining 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. Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced. Oak Hall Capital Advisors, L.P. (the "Adviser") will
consider such an event in determining whether the Fund should continue to hold
the obligation. 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 in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
LOWER RATED DEBT SECURITIES
The Fund may invest up to 25% of its total assets in heavily discounted non-
investment grade, high risk, corporate debt securities (commonly referred to as
junk bonds). While the market for these high yield debt securities has been in
existence for many years and has weathered previous economic downturns, the
market in recent years has experienced a dramatic increase in the large-scale
use of these securities to fund highly leveraged corporate acquisitions and
restructurings. Accordingly, past experience may not provide an accurate
indication of future performance of the high yield bond market, especially
during periods of economic recession.
The market for lower rated debt securities may be thinner and less active than
that for higher quality securities, which can adversely affect the price at
which these securities can be sold. If market quotations are not available,
these lower rated securities will be valued in accordance with procedures
established by the Trust's Board of Directors, including the use of outside
pricing services. Judgment plays a greater role in valuing high yield corporate
debt securities than is the case for securities for which more external sources
for quotations last-sale information are available. Adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
used by the Fund to value its portfolio securities, and the Fund's ability to
dispose of these lower-rated securities.
The market prices of lower rated securities may fluctuate more than the prices
of higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During
an economic downturn or a prolonged period of rising interest rates, the ability
of issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
CONVERTIBLE SECURITIES
The Fund 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
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<PAGE>
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. Convertible
securities have unique investment characteristics in that they generally (1)
have higher yields than common stocks, but lower yields than comparable non-
convertible securities, (2) are less subject to fluctuation in value than the
underlying stocks since they have fixed income characteristics and (3) provide
the potential for capital appreciation if the market price of the underlying
common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
Convertible securities which are rated b by Moody's generally lack
characteristics of the desirable investment. Convertible securities which are
rated B by S&P 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.
WARRANTS
The 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. To the
extent that the market value of the security that may be purchased upon exercise
of the warrant rises above the exercise price, the value of the warrant will
tend to rise. To the extent that the exercise price equals or exceeds the
market value of such security, the warrants will have little or no market value.
If a warrant is not exercised within the specified time period, it will become
worthless and the Fund will lose the purchase price paid for the warrant and the
right to purchase the underlying security. The Fund may not invest more than 2%
of its net assets in warrants not traded on the American or New York Stock
Exchange.
TEMPORARY DEFENSIVE POSITION
When the Adviser believes that business or financial conditions warrant, the
Fund may assume a temporary defensive position. For temporary defensive
purposes, the Fund may invest in cash or in investment grade cash equivalents,
including (i) short-term obligations of the U.S. Government and its agencies or
instrumentalities, (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 (or the equivalent in other currencies) and that are members
of the Federal Deposit Insurance Corporation, (iii) commercial paper of prime
quality rated A-2 or higher by S&P or Prime-2 or higher by Moody's or, if not
rated, determined by the Adviser to be of comparable quality, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) money market mutual funds.
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<PAGE>
FOREIGN CURRENCY FORWARD CONTRACTS
Investments in foreign companies will usually involve currencies of foreign
countries. In addition, the Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs. Accordingly,
the value of the assets of the Fund as measured in United States dollars may be
affected by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into foreign currency forward
contracts ("forward contracts") to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers and involve the risk that the other party to the contract may
fail to deliver currency when due, which could result in losses to the Fund. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Foreign exchange dealers realize a profit
based on the difference between the price at which they buy and sell various
currencies.
The Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, the Fund may enter into forward currency contracts in connection with
existing portfolio positions. For example, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward contracts involve the risk
of inaccurate predictions of currency price movements, which may cause the Fund
to incur losses on these contracts and transaction costs. The Adviser does not
intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such contracts or the 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.
At or before the settlement of a forward currency contract, the Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency.
The Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
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<PAGE>
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a global,
around-the-clock market.
Under normal circumstances, consideration of the prospect for currency parities
will be incorporated in a longer term investment decision made with regard to
overall diversification strategies. When required by applicable regulatory
guidelines, the Fund will set aside cash, U.S. Government securities or other
liquid, high-grade debt securities in a segregated account with its custodian in
the prescribed amount.
HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser may engage in certain options and
futures strategies to attempt to hedge the Fund's portfolio. The instruments in
which the Fund may invest include (i) options on securities, stock indexes and
foreign currencies, (ii) stock index and foreign currency futures contracts
("futures contracts"), and (iii) options on futures contracts. Use of these
instruments is subject to regulation by the Securities and Exchange Commission
("SEC"), the several options and futures exchanges upon which options and
futures are traded, and the Commodities Futures Trading Commission ("CFTC").
The various strategies referred to herein and in the Fund's Prospectus are
intended to illustrate the type of strategies that are available to, and may be
used by, the Adviser in managing the Fund's portfolio. No assurance can be
given, however, that any strategies will succeed.
The Fund will not use leverage in its hedging strategies. In the case of
transactions entered into as a hedge, the Fund will hold securities, currencies
or other options or futures positions whose values are expected to offset
("cover") its obligations thereunder. The Fund will not enter into a hedging
strategy that exposes the Fund to an obligation to another party unless it owns
either (1) an offsetting ("covered") position or (2) cash, U.S. Government
securities or other liquid, high-grade debt securities with a value sufficient
at all times to cover its potential obligations. When required by applicable
regulatory guidelines, the Fund will set aside cash, U.S. Government securities
or other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount. Any assets used for cover or held in a
segregated account cannot be sold or closed out while the hedging strategy is
outstanding, unless they are replaced with similar assets. As a result, there
is a possibility that the use of cover or segregation involving a large
percentage of a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
The Fund is subject to the following restrictions in its use of options and
futures contracts. The Fund will not (i) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the Fund's
total assets would be hedged through the use of options or futures contracts,
(ii) purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets, or (iii) purchase call
options if, as a result, the current value of options premiums for options
purchased would exceed 5% of the Fund's total assets.
OPTIONS STRATEGIES. The Fund may purchase put and call options written by
others and write (sell) put and call options covering specified securities,
stock index-related amounts or currencies. A put option (sometimes called a
"standby commitment") gives the buyer of the option, upon payment of a premium,
the right to deliver a specified amount of a security or currency to the writer
of the option on or before a fixed date at a predetermined price. A call option
(sometimes called a "reverse standby commitment") gives the purchaser of the
option, upon payment of a premium, the right to call upon the writer to deliver
a specified amount of a security or currency on or before a fixed date, at a
predetermined price. The predetermined prices may be higher or lower than the
market value of the underlying currency or security. The Fund may buy or sell
both exchange-traded and over-the-counter ("OTC") options. The Fund will
purchase or write an option only if that option is traded on a recognized U.S.
options exchange or if the Adviser believes that a liquid secondary market for
the option exists. When the Fund purchases an OTC option, it relies on the
dealer from which it has purchased the OTC option to make or take delivery of
the
4
<PAGE>
securities or currency underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction. OTC options and the securities
underlying these options, currently are treated as illiquid securities.
The Fund may purchase call options on equity securities that the Adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. The Fund may similarly purchase put
options in order to hedge against a decline in market value of securities held
in its portfolio. The put enables the Fund to sell the underlying security at
the predetermined exercise price; thus the potential for loss to the Fund is
limited to the option premium paid. If the market price of the underlying
security is higher than the exercise price of the put, any profit the Fund
realizes on the sale of the security would be reduced by the premium paid for
the put option less any amount for which the put may be sold.
The Fund may write covered call options. The Adviser may write call options
when it believes that the market value of the underlying security will not rise
to a value greater than the exercise price plus the premium received. Call
options may also be written to provide limited protection against a decrease in
the market price of a security, in an amount equal to the call premium received
less any transaction costs. The Fund may write covered put options only to
effect closing transactions.
The Fund may purchase and write put and call options on stock indexes in much
the same manner as the equity security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may take positions in
options on foreign currencies in order to hedge against the risk of foreign
exchange fluctuation on foreign securities the Fund holds in its portfolio or
which it intends to purchase. Options on foreign currencies are affected by the
factors discussed in "Foreign Currency Forward Transactions" which influence
foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and have no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring
in the interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, the Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may effectively
terminate its right or obligation under an option contract by entering into a
closing transaction. For instance, if the Fund wished to terminate its
potential obligation to sell securities or currencies under a call option it had
written, a call option of the same type would be purchased by the Fund. Closing
transactions essentially permit the Fund to realize profits or limit losses on
its options positions prior to the exercise or expiration of the option. In
addition:
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<PAGE>
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of a stock index option, fluctuations in the
market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by the Fund
is exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, the Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by the Fund may result in material losses to
the Fund.
(4) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. A futures contract is a bilateral agreement wherein one
party agrees to accept, and the other party agrees to make, delivery of cash,
securities or currencies as called for in the contract at a specified future
date and at a specified price. For stock index futures contracts, delivery is
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the time of the contract and the close of
trading of the contract.
The Fund may sell stock index futures contracts in anticipation of a general
market or market sector decline that may adversely affect the market values of
the Fund's securities. To the extent that the Fund's portfolio correlates with
a given stock index, the sale of futures contracts on that index could reduce
the risks associated with a market decline and thus provide an alternative to
the liquidation of securities positions. The Fund may purchase a stock index
futures contract if a significant market or market sector advance is
anticipated. These purchases would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in the future.
The Fund may purchase call options on a stock index future as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. The Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Fund may write covered call options on
stock index futures contracts as a partial hedge against a decline in the prices
of stocks held in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, the Fund may sell foreign currency futures contracts when
the Adviser anticipates a general weakening of foreign currency exchange rates
that could adversely affect the market values of the Fund's foreign securities
holdings. The Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. The Fund may write call options on foreign currency
futures contracts as a partial hedge against the effects of declining foreign
exchange rates on the value of foreign securities.
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<PAGE>
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING. No
price is paid upon entering into futures contracts, rather, the Fund is required
to deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash or U.S. Government securities generally equal to 5% or
less of the contract value. This amount is known as initial margin. Subsequent
payments, called variation margin, to and from the broker, would be made on a
daily basis as the value of the futures position varies. When writing a call on
a futures contract, variation margin must be deposited in accordance with
applicable exchange rules. The initial margin in futures transactions is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts. For example, futures contracts on broad-based stock
indexes can currently be entered into with respect to the Standard & Poor's 500
Stock Index on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange, the Value Line Composite
Stock Index on the Kansas City Board of Trade and the Major Market Index of the
Chicago Board of Trade.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In such event, it may not be possible for the Fund to close a
position, and in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin. In addition:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying securities or currencies which causes
this situation to occur. As a result, a correct forecast of general market
trends may still not result in successful hedging through the use of future
contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited life.
The Fund will not trade options on futures contracts on any exchange or board of
trade unless and until, in the Adviser's opinion, the market for such options
has developed sufficiently that the risks in connection with options on futures
transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
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(6) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. In addition, settlement of foreign currency
futures contracts must occur within the country issuing that currency. Thus,
the Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents, and the Fund may
be required to pay any fees, taxes or charges associated with such delivery
which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
The Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. The Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however that in addition,
with respect to positions in commodity futures and option contracts not for bona
fide hedging purposes the Fund represents that the aggregate initial margin and
premiums required to establish these positions (subject to certain exclusions)
will not exceed 5% of the liquidation value of the Fund's assets after taking
into account unrealized profits and losses on any such contract the Fund has
entered into.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When 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 and, thus, no
interest accrues to the purchaser from the transaction. However, at the time
the Fund makes a commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction as a purchase and
thereafter reflect the value each day of such securities in determining its net
asset value.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. For instance,
in periods of rising interest rates and falling bond prices, the Fund might sell
securities which it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices, 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 Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices inferior to the
current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. If the Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. The Fund will establish and maintain with its custodian a separate
account with cash, U.S. Government securities or other liquid, high-grade debt
securities in an amount at least equal to such commitments. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends
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upon the occurrence of a subsequent event, such as approval of a proposed
financing by appropriate municipal authorities. Any significant commitment of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. No when-
issued or forward commitments will be made by the Fund if, as a result, more
than 10% of the value of the Fund's total assets would be committed to such
transactions.
The Fund will make commitments for such when-issued transactions only when it
has the intention of actually acquiring the securities. To facilitate such
acquisitions, the Fund will maintain with its custodian a separate account with
cash, U.S. Government securities and other liquid, high-grade debt securities in
an amount at least equal to such commitments. If the Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, incur a gain or loss
due to market fluctuation. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, the Fund will
record the transaction as a purchase and thereafter reflect the value each day
of such securities in determining its net asset value.
INVESTMENT LIMITATIONS
The Fund has adopted the following additional investment limitations which are
fundamental policies of the Fund and may not be changed without shareholder
approval. The Fund may not:
(1) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted to be incurred by the Fund. The deposit in escrow
of securities in connection with the writing of put and call options,
collateralized loans of securities and collateral arrangements with respect
to margin for futures contracts are not deemed to be pledges or
hypothecations for this purpose.
(2) 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 purpose of the Securities
Act of 1933.
(3) 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.
(4) Invest in commodities or in commodity contracts, except that, as
described herein and in the Prospectus, the Fund may enter into certain
options, futures contracts and options on those futures contracts.
(5) 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 and
options on futures.
(6) Invest in securities of another registered investment company, except
in connection with a merger, consolidation, acquisition or reorganization;
and except that the Fund may invest in money market funds to the extent
permitted by the Investment Company Act of 1940 ("Investment Company Act").
(7) Invest for the purpose of exercising control over or management of any
company.
(8) Issue senior securities except pursuant to Section 18 of the Investment
Company Act and except that the Fund may borrow money subject to its
investment limitation on borrowing.
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(9) 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.
(10) 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.
(11) (i) make investments for the purpose of exercising control over any
issuer or other person or (ii) invest in interests in oil or gas or
interests in other mineral exploration or development programs.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from a change in the market values of the Fund's assets or
redemptions of Fund shares will not be considered a violation of the limitation.
If the Fund were to invest in money market funds as described in limitation (6),
it would indirectly incur its proportionate share of the advisory and other
expenses of the money market fund.
FUNDAMENTAL POLICIES
Those policies of the Fund which are deemed to be fundamental may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. A majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act means the lesser of: (i) 67% of the shares
of the Fund present or represented at a shareholders meeting at which the
holders of more than 50% of the shares are present or represented or (ii) more
than 50% of the outstanding shares of the Fund.
2. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's net asset value, yield and total return
will fluctuate in response to market conditions and other factors, and the value
of Fund shares when redeemed may be more or less than their original cost.
The Fund's total return for the fiscal year ended June 30, 1996 was ____%. For
the period beginning July 13, 1992 (the commencement of public operations) to
June 30, 1996, the Fund's average annual total return was _____%.
In performance advertising the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). The Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index, the
Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Fund may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of
the Fund and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Fund may advertise total return. Total returns quoted in advertising
reflect all aspects of the Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the Fund's net asset
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value per share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. For example, a
cumulative return of 100% over ten years would produce an average annual return
of 7.18%, which is the steady annual rate that would equal 100% growth on a
compounded basis in ten years. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that the
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual year-
to-year performance of the Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
n
P(1+T) = ERV; where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 payment made at the
beginning of the applicable period.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains 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.
3. 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)
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.
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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.
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. Miles 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.
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<PAGE>
THE INVESTMENT ADVISER
The Fund's investment adviser, Oak Hall Capital Advisors, L.P. (the "Adviser")
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Fund's investments and effecting portfolio
transactions for the Fund. The Advisory Agreement will remain in effect for a
period of twelve months from the date of its effectiveness and will continue in
effect thereafter only if its continuance is specifically approved at least
annually by the Board of Directors or by vote of the shareholders, and in either
case by a majority of the Directors who are not parties to the Advisory
Agreement or interested persons of any such party, at a meeting called for the
purpose of voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty by the Trust with respect
to the Fund on 60 days' written notice when authorized either by vote of its
shareholders or by a vote of a majority of the Board of Directors, or by the
Adviser on 60 days' written notice to the Trust, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to the 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 its duties or by reason of reckless disregard
of its obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to others.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in the Fund. In some instances the Adviser may elect
to credit against any investment management fee received from a client who is
also a shareholder in the Fund an amount equal to all or a portion of the fees
received by the Adviser or any affiliate of the Adviser from the Fund with
respect to the client's assets invested in the Fund.
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between the Fund and Oak Hall Capital Advisors, L.P., the
amount of fee that was waived by the Adviser, if any, and the actual fee
received by the Adviser. The data is for the past three fiscal years or shorter
period if the Fund has been in operation for a shorter period.
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
------- ------ --------
Oak Hall Equity Fund
Year Ended June 30, 1996
Year Ended June 30, 1995 194,367 0 194,367
Year Ended June 30, 1994 198,598 29,624 168,974
ADMINISTRATION AND DISTRIBUTION
Forum Financial Services, Inc. ("Forum") supervises the overall management of
the Trust (which includes, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent, fund accountant and custodian and arranging for maintenance of
books and records of the Trust) pursuant to an Administration and Distribution
Agreement. Forum also provides persons satisfactory to the Board of Directors
to serve as officers of the Trust. Those officers, as well as certain other
employees and Directors of the Trust, may be directors, officers or employees of
(and persons providing services to the Trust may include) Forum or the Adviser.
In addition, under the Administration and Distribution Agreement, Forum is
directly responsible for managing the Trust's regulatory and legal compliance
and overseeing the preparation of its registration statement.
The Administration and Distribution Agreement will remain in effect for a period
of twelve months from the date of its effectiveness and will continue in effect
thereafter only if its continuance is specifically approved at least annually by
the Board of Directors or by the shareholders and, in either case, by a majority
of the Directors who are
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<PAGE>
not parties to the agreement or interested persons of any such party and do not
have any direct or indirect financial interest in the agreement.
The Administration and Distribution 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 Forum on 60 days' written notice to the Trust.
The agreement also provides that Forum shall not be liable for any error of
judgment or mistake of law or for any act or omission in the administration or
management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement.
Prior to November 1, 1993, WSC Investment Services, Inc. ("WSC") served as the
Fund's administrator and Forum served as sub-administrator. From November 1,
1993 until May 31, 1994, Stone Bridge Trust Company ("SBTC") served as the
Fund's administrator, and Forum continued to serve as sub-administrator.
Effective June 1, 1994, the Trust entered into the current Administration and
Distribution Agreement with Forum under which Forum continues to provide the
administration and distribution services it has provided since the Fund's
inception and assumed the administrative responsibilities formerly performed by
Stone Bridge Trust Company and WSC before that.
Under the previous Administration Agreement with WSC, the fees for the fiscal
year ending June 30, 1993 were $6,342, all of which were waived by WSC. Under
the Co-Administration Agreement with SBTC in effect until May 31, 1994, the fees
for the fiscal year ending June 30, 1994, were $3,049, all of which was waived
by SBTC. Under the previous Distribution and Administration Agreement, and the
current Administration and Distribution Agreement, with Forum, the fees for the
fiscal years ending June 30, 1996, 1995 and 1994, respectively, were $______,
$75,871 and $3,604. The fees for the fiscal years ended June 30, 1994 and 1993
were waived by Forum.
Forum also acts as distributor of the Fund's shares pursuant to the Distribution
and Sub-Administration Agreement. In accordance with Rule 12b-1 adopted by the
Securities and Exchange Commission, the Trust has adopted a distribution plan
("Plan"), which provides that all written agreements relating to the Plan must
be in a form satisfactory to the Board of Directors. In addition, the Plan
requires the Trust and Forum to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by Forum pursuant
to the Plan and identifying the distribution activities for which those
expenditures were made.
The Plan provides that it will remain in effect for one year from the date of
its adoption and thereafter may continue in effect for successive annual periods
provided it is approved by the shareholders or by the Board of Directors,
including a majority of directors who are not interested persons of the Trust
and who have no direct or indirect interest in the operation of the Plan or in
any agreement related to the Plan. The Plan further provides that it may not be
amended to increase materially the costs which may be borne by the Trust for
distribution pursuant to the Plan without shareholder approval and that other
material amendments of the Plan must be approved by the directors in the manner
described in the preceding sentence. The Plan may be terminated at any time by
a vote of the Board of Directors or, with respect to the Fund, by the Fund's
shareholders.
TRANSFER AGENT
Forum Financial Corp. (the "Transfer Agent") acts as transfer agent and dividend
disbursing agent of the Trust pursuant to a Transfer Agency Agreement. For its
services, the Transfer Agent receives with respect to the Fund an annual fee of
$12,000 plus $25 per shareholder account. Pursuant to a Fund Accounting
Agreement, the Transfer Agent also provides the Fund with portfolio accounting,
including the calculation of the Fund's net asset value. For these services,
the Transfer Agent receives with respect to the Fund an annual fee ranging from
$36,000 to $60,000 depending upon the amount and type of the Fund's portfolio
transactions and positions.
Both the Transfer Agency Agreement and Fund Accounting Agreement were approved
by the Board of Directors, including a majority of the Directors who are not
parties to the respective agreements or interested persons of any such party, at
a meeting called for the purpose of voting on the respective agreement. Each of
these agreements will remain in effect for a period of one year and will
continue in effect thereafter only if its continuance is specifically
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<PAGE>
approved at least annually by the Board of Directors or by a vote of the
shareholders and in either case by a majority of the Directors who are not
parties to the respective agreement or interested persons of any such party, at
a meeting called for the purpose of voting on the respective agreement.
EXPENSES
Subject to the obligations of the Adviser to reimburse the Trust for its excess
expenses as described in the Prospectus, the Trust has, under the Advisory
Agreement, confirmed its obligation to pay all its other expenses. The Fund
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 asset, 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 directors;
compensation of the Trust's officers and employees who are not employees of the
Adviser, SBTC, 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, the Administration Agreement and the Distribution and Sub-
Administration Agreement; and any fees and expenses payable pursuant to the
Plan.
OTHER INFORMATION
As of July 30, 1996, the officers and directors of the Trust owned as a group
____% of the outstanding shares of the Fund. Also as of that date, the
following persons owned of record 5% or more of the outstanding shares of the
Fund:
[SHAREHOLDER RECORD TABLE]
4. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00 P.M.,
Eastern time, on Fund Business Days (as defined in the Prospectus), by dividing
the value of the Fund's net assets (i.e., the value of its securities and other
assets less its liabilities, including expenses payable or accrued) by the
number of shares outstanding at the time the determination is made. 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.
5. PORTFOLIO TRANSACTIONS
The Fund generally will effect purchases and sales through brokers who charge
commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.
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<PAGE>
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commission, including certain dealer spreads, paid
in connection with Fund transactions, the Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Adviser may also take into account
payments made by brokers effecting transactions for the Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
In addition, the Adviser may give consideration to research services furnished
by brokers to the Adviser for its use and may cause the Fund to pay these
brokers a higher amount of commission than may be charged by other brokers.
Such research and analysis may be used by the Adviser in connection with
services to clients other than the Fund, and the Adviser's fee is not reduced by
reason of the Adviser's receipt of the research services.
Investment decisions for the Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, the Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by the Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for the Fund and for other investment companies and accounts
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
The Fund contemplates that, consistent with the policy of obtaining best net
results, brokerage transactions may be conducted through the Adviser's
affiliates, affiliates of those persons or Forum. The Advisory Agreement
authorizes the Adviser to so execute trades. The Board of Directors has adopted
procedures in conformity with applicable rules under the Investment Company Act
to ensure that all brokerage commissions paid to these persons are reasonable
and fair. For the Trust's fiscal years ended June 30, 1996, 1995 and 1994 the
aggregate brokerage commissions incurred by the Fund were $_______, $450,930 and
$405,443, respectively, of which _____%, 11.37% and 10.64% ($______, $51,250 and
$43,141), respectively, was paid to American Securities Corporation, an
affiliate of the Adviser. During those periods, approximately ____%, 5.66% and
16.59% respectively, of the total dollar amount of transactions by the Fund
involving the payment of commissions were effected through American Securities
Corporation.
6. CUSTODIAN
Pursuant to a Custodian Agreement (the "Custodian Agreement"), The First
National Bank of Boston, P.O. Box 1959, Boston, Massachusetts, 02105, acts as
the custodian of the Funds' assets. The custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, determining income
and collecting interest on Fund investments. The Fund's custodian employs
foreign subcustodians to provide custody of the Fund's foreign assets in
accordance with applicable regulations. The custodian is paid a fee at an
annual rate of 0.02% of the first $100 million of the average daily net assets
of the Fund, 0.015% on the next $100 million of the average daily net assets of
the Fund and .001% of the average daily net assets over $200 million, and
certain transaction fees.
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value without any sales charge. As of June 30, 1996, the Fund's net asset
value was $____.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partly in portfolio securities if the Board of Directors
determines economic conditions exist which would make payment in cash
detrimental to the best interests of the Fund. If payment for shares redeemed
is made wholly or partly in portfolio securities, brokerage costs may be
incurred by the shareholder in converting the securities to cash. The Trust has
filed an election with the Securities and Exchange Commission pursuant to which
the Fund may only effect a
16
<PAGE>
redemption in portfolio securities if the particular shareholder is redeeming
more than $250,000 or 1% of the Fund's total net assets, whichever is less,
during any 90-day period.
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily to reimburse
the Fund for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to the Fund's shares as provided in the Prospectus from time to
time.
Shareholders' rights of redemption may not be suspended, except (i) for any
period during which the New York Stock Exchange, Inc. is closed (other than
customary weekend and holiday closings) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, (ii) for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by the Fund of its securities
is not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(iii) for such other period as the Securities and Exchange Commission may by
order permit for the protection of the shareholders of the Fund.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that (i) are not restricted as to transfer either by law
or liquidity of market and (ii) have a value which is readily ascertainable (and
not established only by valuation procedures).
8. TAXATION
The Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements the
Fund must meet to qualify for such treatment. The information set forth in the
Prospectus and the following discussion relate solely to Federal income taxes on
dividends and distributions by the Fund and assumes that the Fund qualifies as a
regulated investment company. Investors should consult their own counsel for
further details and for the application of state and local tax laws to his or
her particular situation.
A portion of the Fund's net investment income may be eligible for the dividends
received deduction allowed to corporations.
For Federal income tax purposes, when put and call options which the Fund has
purchased expire unexercised, the premiums paid by the Fund give rise to short
or long-term capital losses at the time of expiration (depending on the length
of the exercise period of the put or call). When put and call options written
by the Fund expire unexercised, the premiums received by the Fund give rise to
short-term capital gains at the time of expiration. When the Fund exercises a
call, the purchase price of the security purchased is increased by the amount of
the premium paid by the Fund. When the Fund exercises a put, the proceeds from
the sale of the related security are decreased by the premium paid. When a put
or call written by the Fund is exercised, the purchase price (selling price in
the case of a call) of the security is decreased (increased in the case of a
call) for tax purposes by the premium received. There may be short or long term
gains and losses associated with closing purchase or sale transactions.
In addition, the use of certain hedging strategies such as writing and
purchasing options, futures contracts and options on futures contracts and
entering into foreign currency forward contracts and other foreign instruments,
involves complex rules that will determine for income tax purposes the character
and timing of recognition of income received in connection therewith.
17
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9. OTHER MATTERS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Trust
are passed upon by Seward & Kissel, One Battery Park Plaza, New York, New York
10004.
[ ], Two World Financial Center, New York, New York, 10281, independent
auditors, have been selected as auditors for the Trust.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended June 30,
1995 (which are included in the Annual Report to Shareholders), which are
delivered along with this Statement of Additional Information, are incorporated
herein by reference.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE DEBT)
(a) 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 sometime 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 of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
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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.
(b) STANDARD & 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 payments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
Bonds rated 'CCC' have currently identifiable vulnerability to default, and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of 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.
The 'C' rating may be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued. The rating 'Cl' is
reserved for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has
filed for bankruptcy. Bonds rated 'D' are in payment default. 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. The 'D' rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
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.
PREFERRED STOCK
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(a) MOODY'S
Moody's rates preferred stock issues as follows:
An issue which is rated aaa is a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend impairment among
preferred stock issues.
An issue which is rated "aa" is 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 which is rated "a" is 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 which is rated "baa" is a medium-grade preferred stock, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
An issue which is rated "ba" has speculative elements and its future cannot
be considered well assured. Earnings and asset protection may be very moderate
and not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor
prospects of ever attaining any real investment standing. This is the lowest
rated class of preferred or preference stock.
(b) STANDARD & POOR'S
Standard & Poor's rates preferred stock issues 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 if 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.
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Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC"
the highest degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
To provide more detailed indications of preferred stock quality, the
ratings from "AA" to "B" may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
22
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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
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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 herewith).
(b) Investment Subadvisory Agreement between Westwood Ventures,
Ltd. and Forum Advisors, Inc. relating to Sportsfund (filed
herewith).
(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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(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).
(27) Financial Data Schedules
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 JULY [ ], 1996
Title of Class Number of Holders
-------------- -----------------
Investors Stock Fund 0
Investors Bond Fund
TaxSaver Bond Fund
Daily Assets Cash Fund
Daily Assets Treasury Fund
Daily Assets Government Fund
Daily Assets TaxSaver Fund 0
Payson Value Fund
Payson Balanced Fund
Maine Municipal Bond Fund
New Hampshire Bond Fund
Sportsfund
Austin Global Equity Fund
Oak Hall Equity Fund
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;
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"(ii) The words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
"(b) No indemnification shall be provided hereunder to a Covered
Person:
"(i) Who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
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
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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, 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
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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. 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
C-6
<PAGE>
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 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 Maine
Tax-Free Money Fund, the New Hampshire Bond Fund and Sportsfund,
constituting certain of Parts A and B, respectively, of the Registration
Statement are incorporated by reference herein.
C-7
<PAGE>
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.
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.
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, 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 - Adviser" 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
C-8
<PAGE>
David P. Steinmann, Executive Vice President, Secretary and Treasurer.
Administrator, WR Family Associates and Secretary and Treasurer of
American Securities Corporation.
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 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.
C-9
<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 10th day
of June, 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 10th day of June, 1996.
Signatures Title
---------- -----
(a) Principal Executive Officer
/s/ John Y. Keffer President
---------------------------- and Chairman
John Y. Keffer
(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*
<PAGE>
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT PAGE NUMBER
- ------- -----------
5(a) Investment Advisory Agreement between Registrant
and Westwood Ventures, Ltd.
5(b) Investment Subadvisory Agreement between Westwood
Ventures, Ltd. and Forum Advisers, Inc. relating
to Sportsfund.
(27) Financial Data Schedules
<PAGE>
EXHIBIT 5(a)
<PAGE>
FORUM FUNDS
INVESTMENT ADVISORY AGREEMENT
June 14,1996
AGREEMENT made this 14th day of June, 1996, between Forum Funds (the
"Trust"), a business trust organized under the laws of the State of Delaware
with its principal place of business at Two Portland Square, Portland, Maine
04101 and Westwood Ventures, Ltd. (the "Adviser"), a corporation incorporated
under the laws of the State of New York with its principal place of business at
450 Seventh Avenue, Suite 3304, New York, New York 10123.
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended, (the "Act") as an open-end management investment company and is
authorized to issue interests (as defined in the Trust's Trust Instrument), in
separate series;
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for each series of the Trust as listed in Appendix A hereto (each a
"Fund" and collectively the "Funds"), and the Adviser is willing to provide
those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, the Trust and the Adviser agree as follows:
SECTION 1. THE TRUST; DELIVERY OF DOCUMENTS
The Trust is engaged in the business of investing and reinvesting its
assets in securities of the type and in accordance with the limitations
specified in its Trust Instrument, By-Laws and Registration Statement filed with
the Securities and Exchange Commission (the "Commission") under the Act and the
Securities Act of 1933 (the "Securities Act"), including any representations
made in the prospectus and statement of additional information relating to the
Funds contained therein and as may be supplemented from time to time, all in
such manner and to such extent as may from time to time be authorized by the
Trust's Board of Trustees (the "Board"). The Trust is currently authorized to
issue thirteen series of shares and the Board is authorized to issue any
unissued shares in any number of additional classes or series. The Trust has
delivered copies of the documents listed in this Section 1 and will from time to
time furnish Adviser with any amendments thereof.
SECTION 2. INVESTMENT ADVISER; APPOINTMENT
The Trust hereby employs Adviser, subject to the direction and control of
the Board, to manage the investment and reinvestment of the assets in each Fund
and, without limiting the generality of the foregoing, to provide other services
specified in Section 3 hereof.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in each Fund. To carry out such
decisions, the Adviser is hereby authorized, as agent and attorney-in-fact for
the Trust, for the account of, at the risk of and in the name of the Trust, to
place orders and issue instructions with respect to those transactions of the
Funds. In all purchases, sales and other transactions in securities for the
Funds, the Adviser is authorized to exercise full discretion and act for the
Trust in the same manner and with the same force and effect as the Trust might
or could do with respect to such purchases, sales or other transactions, as well
as with respect to all other things necessary or incidental to the furtherance
or conduct of such purchases, sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in each Fund since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Funds and
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<PAGE>
the Adviser, and on its own initiative, will furnish the Board from time to time
with such information as the Adviser may believe appropriate for this purpose,
whether concerning the individual companies whose securities are included in the
Funds' holdings, the industries in which they engage, or the economic, social or
political conditions prevailing in each country in which the Funds maintain
investments. The Adviser will also furnish the Board with such statistical and
analytical information with respect to securities in the Funds as the Adviser
may believe appropriate or as the Board reasonably may request. In making
purchases and sales of securities for the Funds, the Adviser will bear in mind
the policies set from time to time by the Board as well as the limitations
imposed by the Trust's Trust Instrument, By-Laws and Registration Statement
under the Act and the Securities Act, the limitations in the Act and in the
Internal Revenue Code of 1986, as amended in respect of regulated investment
companies and the investment objectives, policies and restrictions of the Funds.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on
the Trust's behalf in any such respect.
(d) The Adviser shall maintain records relating to portfolio transactions
and the placing and allocation of brokerage orders as are required to be
maintained by the Trust under the Act. The Adviser shall prepare and maintain,
or cause to be prepared and maintained, in such form, for such periods and in
such locations as may be required by applicable law, all documents and records
relating to the services provided by the Adviser pursuant to this Agreement
required to be prepared and maintained by the Trust pursuant to the rules and
regulations of any national, state, or local government entity with jurisdiction
over the Trust, including the Securities and Exchange Commission and the
Internal Revenue Service. The books and records pertaining to the Trust which
are in possession of the Adviser shall be the property of the Trust. The Trust,
or the Trust's authorized representatives, shall have access to such books and
records at all times during the Adviser's normal business hours. Upon the
reasonable request of the Trust, copies of any such books and records shall be
provided promptly by the Adviser to the Trust or the Trust's authorized
representatives.
(e) The Adviser shall have no duties or obligations pursuant to this
Agreement, including any obligation to reimburse Fund expenses pursuant to
Section 4 hereof, during any period in which the Fund invests all (or
substantially all) of its investment assets in a registered, open-end management
investment company, or separate series thereof, in accordance with Section
12(d)(1)(E) under the Act.
SECTION 4. EXPENSES
The Adviser shall be responsible for that portion of the net expenses of
each Fund (except interest, taxes, brokerage, fees and other expenses paid by
the fund in accordance with an effective plan pursuant to Rule 12b-1 under the
Act and organization expenses, all to the extent such exceptions are permitted
by applicable state law and regulation) incurred by the Fund during each of the
Fund's fiscal years or portion thereof that this Agreement is in effect which,
as to the Fund, in any such year exceeds the limits applicable to the Fund under
the laws or regulations of any state in which shares of the Fund are qualified
for sale (reduced pro rata for any portion of less than a year) and which is not
assumed by Forum Financial Services, Inc., the Trust's manager and distributor,
or any other person.
The Trust hereby confirms that, subject to the foregoing, the Trust shall
be responsible and shall assume the obligation for payment of all the Trust's
other expenses, including: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Trust's custodian, transfer agent and dividend disbursing agent;
telecommunications expenses; auditing, legal and compliance expenses; costs of
the Trust's formation and maintaining its existence; costs of preparing and
printing the Trust's prospectuses, statements of additional information, account
application forms and shareholder reports and delivering them to existing and
prospective shareholders; costs of maintaining books of original entry for
portfolio and fund accounting and other required books and accounts and of
calculating the net asset value of shares in the Trust; costs of reproduction,
stationery and supplies; compensation of the Trust's trustees, officers,
employees and other personnel performing services for the Trust who are not the
Adviser's employees or employees of Forum Financial Services, Inc. or affiliated
persons of either; costs of corporate meetings; registration fees and related
expenses for registration
2
<PAGE>
with the Commission and the securities regulatory authorities of other countries
in which the Trust's shares are sold; state securities law registration fees and
related expenses; fees and out-of-pocket expenses payable to Forum Financial
Services, Inc. under any distribution, management or similar agreement; and all
other fees and expenses paid by the Trust pursuant to any distribution or
shareholder service plan adopted pursuant to Rule 12b-1 under the Act.
SECTION 5. STANDARD OF CARE
The Trust shall expect of the Adviser, and the Adviser will give the Trust
the benefit of, the Adviser's best judgment and efforts in rendering its
services to the Trust, and as an inducement to the Adviser's undertaking these
services the Adviser shall not be liable hereunder for any mistake of judgment
or in any event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Adviser against
any liability to the Trust or to the Trust's security holders to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of the Adviser's duties hereunder, or by
reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
SECTION 6. COMPENSATION
(a) In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to each of the Funds, a fee at an annual rate as listed in Appendix
A hereto. Such fees shall be accrued by the Trust daily and shall be payable
monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. The Adviser's
reimbursement, if any, of a Fund's expenses as provided in Section 4 hereof,
shall be estimated and paid to the Trust monthly in arrears, at the same time as
the Trust's payment to the Adviser for such month. Payment of the advisory fee
will be reduced or postponed, if necessary, with any adjustments made after the
end of the year.
(b) For purposes of calculating a Fund's daily net assets in determining
the fees payable hereunder there shall be excluded all holdings (and liabilities
related to the purchase of holdings) in any registered open-end management
investment company for which the Adviser acts as investment adviser. No fee
shall be payable hereunder with respect to a Fund during any period in which the
Fund invests all (or substantially all) of its investment assets in a
registered, open-end management investment company, or separate series thereof,
in accordance with Section 12(d)(1)(E) under the Act.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon approval by a majority of the outstanding voting securities of
that Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of one year from the date of its effectiveness and shall continue in
effect for successive twelve-month periods (computed from each anniversary date
of the approval) with respect to the Fund; provided that such continuance is
specifically approved at least annually (i) by the Board or by the vote of a
majority of the outstanding voting securities of the Fund, and, in either case,
(ii) by a majority of the Trust's trustees who are not parties to this Agreement
or interested persons of any such party (other than as trustees of the Trust);
provided further, however, that if this Agreement or the continuation of this
Agreement is not approved as to a Fund, the Adviser may continue to render to
that Fund the services described herein in the manner and to the extent
permitted by the Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any time,
without the payment of any penalty, (i) by the Board or by a vote of a majority
of the outstanding voting securities of the Fund on 60 days' written notice to
the Adviser or (ii) by the Adviser on 60 days' written notice to the Trust.
This agreement shall terminate upon assignment.
3
<PAGE>
SECTION 8. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors or employees who may also be a
trustee, officer or employee of the Trust, or persons otherwise affiliated
persons of the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
SECTION 9. SUBADVISERS
At its own expense, the Adviser may carry out any of its obligations under
this agreement by employing, subject to your supervision, one or more persons
who are registered as investment advisers pursuant to the Investment Advisers
Act of 1940, as amended, or who are exempt from registration thereunder
("Subadvisers"). Each Subadviser's employment will be evidenced by a separate
written agreement approved by the Board and, if required, by the shareholders of
the applicable Fund. The Adviser shall not be liable hereunder for any act or
omission of any Subadviser, except to exercise good faith in the employment of
the Subadviser and except with respect to matters as to which the Adviser
assumes responsibility in writing.
SECTION 10. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the interest holders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Adviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Adviser's rights or claims relate in settlement of such rights
or claims, and not to the Trustees of the Trust or the interest holders of the
Funds.
SECTION 11. "FORUM" NAME
If the Adviser ceases to act as investment adviser to the Trust or any Fund
whose name includes the word "Forum," or if the Adviser requests in writing, the
Trust shall take prompt action to change the name of the Trust any such Fund to
a name that does not include the word "Forum." The Adviser may from time to
time make available without charge to the Trust for the Trust's use any marks or
symbols owned by the adviser, including marks or symbols containing the word
"Forum" or any variation thereof, as the Adviser deems appropriate. Upon the
Adviser's request in writing, the Trust shall cease to use any such mark or
symbol at any time. The Trust acknowledges that any rights in or to the word
"Forum" and any such marks or symbols which may exist on the date of this
Agreement or arise hereafter are, and under any and all circumstances shall
continue to be, the sole property of the Adviser. The Adviser may permit other
parties, including other investment companies, to use the word "Forum" in their
names without the consent of the Trust. The Trust shall not use the word
"Forum" in conducting any business other than that of an investment company
registered under the Act without the permission of the Adviser.
SECTION 12. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the Act, by a vote of a majority of the
outstanding voting securities of any Fund thereby affected. No amendment to
this Agreement or the termination of this Agreement with respect to a Fund shall
effect this Agreement as it pertains to any other Fund, nor shall any such
amendment require the vote of any of the Fund's shareholders.
(b) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
4
<PAGE>
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware.
(d) The terms "vote of a majority of the outstanding voting securities",
"interested person", "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
FORUM FUNDS
__________________________
John Y. Keffer
President
WESTWOOD VENTURES, LTD.
________________________
Gary Miller
President
5
<PAGE>
FORUM FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
Fee as a % of
the Annual Average Daily
Funds of the Trust Net Assets of the Fund
- ------------------ ------------------------
Sportsfund 1.50%
6
<PAGE>
EXHIBIT 5(b)
<PAGE>
WESTWOOD VENTURES, LTD.
SUB-ADVISORY AGREEMENT
AGREEMENT made the 14th day of June, 1996, between Westwood Ventures, Ltd.
("Westwood"), a company incorporated under the laws of the State of New York
with its principal place of business at 450 Seventh Avenue, Suite 3304, New
York, New York 10123, and Forum Advisors, Inc. (the "Sub-Adviser "), a
corporation organized under the laws of the State of Delaware with its principal
place of business at Two Portland Square, Portland, Maine 04101.
WHEREAS, Westwood has entered into an Investment Advisory Agreement dated
as of the 14th day of June, 1996 ("Advisory Agreement") with Forum Funds (the
"Trust"), a business trust organized under the laws of the State of Delaware
with its principal place of business at Two Portland Square, Portland, Maine
04101; and,
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended, (the "Act") as an open-end management investment company and is
authorized to issue its shares in separate series and classes;
WHEREAS, pursuant to the Advisory Agreement, and subject to the direction
and control of the Board of Trustees of the Trust ("Board"), Westwood manages
the investment and reinvestment of the assets of the investment portfolio or
portfolios of the Trust listed on Schedule A hereto (the "Fund" or "Funds"),
each a separate series of the Trust and provides certain management and other
services specified in the Advisory Agreement; and,
WHEREAS, Sub-Adviser is engaged in the business of rendering investment
advice and is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended ("Adviser Act"); and
WHEREAS, Westwood desires to retain Sub-Adviser to perform investment
advisory services for the Fund and Sub-Adviser is willing to provide those
services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, Westwood and Sub-Adviser agree as follows:
SECTION 1. APPOINTMENT AND DELIVERY OF DOCUMENTS
(a) Adviser hereby appoints Sub-Adviser as investment sub-adviser for the
Funds for the period and on the terms set forth in this Agreement. Sub-Adviser
accepts this appointment and agrees to render its services as investment sub-
adviser for the compensation set forth herein.
(b) The Adviser has delivered copies of each of the following documents
and will from time to time furnish Sub-Adviser with any supplements or
amendments to such documents:
(i) the Trust Instrument of the Trust, as filed with the Secretary of
State of the State of Delaware, as in effect on the date hereof and as amended
from time to time ("Trust Instrument");
(ii) the Bylaws of the Trust as in effect on the date hereof and as
amended from time to time ("Bylaws");
(iii) the Registration Statement under the Act and, if applicable, the
Securities Act of 1933 (the "Securities Act"), as filed with the Securities and
Exchange Commission (the "Commission"), relating to the Fund and its shares and
all amendments thereto ("Registration Statement");
(iv) the prospectus and statement of additional information relating
to the Fund ("Prospectus"); and,
1
<PAGE>
(v) all proxy statements, reports to shareholders, advertising or
other materials prepared for distribution to shareholders of the Fund or the
public, that refer to Sub-Adviser or its clients.
The Adviser shall furnish Sub-Adviser with any further documents, materials
or information that Sub-Adviser may reasonably request to enable it to perform
its duties pursuant to this Agreement.
SECTION 2. DUTIES OF SUB-ADVISER
(a) Subject to the direction, control and supervision of the Board and
Westwood, Sub-Adviser shall direct the investments of the Funds and shall make
decisions with respect to all purchases and sales of securities and other
investment assets in the Funds. To carry out such decisions, Sub-Adviser is
hereby authorized, as agent and attorney-in-fact for the Trust, for the account
of, and in the name of the Trust, to place orders and issue instructions with
respect to those transactions of the Funds. In all purchases, sales and other
transactions in securities for the Funds, Sub-Adviser is authorized to exercise
full discretion and act for the Trust in the same manner and with the same force
and effect as the Trust might or could do with respect to such purchases, sales
or other transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions.
(b) Sub-Adviser will provide to the Board, Westwood, or both, as
appropriate, such information, reports, evaluations, analyses and opinions prior
to or at each meeting of the Board and as the parties may mutually agree upon
from time to time. On its own initiative, Sub-Adviser shall provide the Board,
Westwood, or both, from time to time information that Sub-Adviser believes
appropriate, including, but not limited to, information concerning the
individual companies whose securities are included in the Funds' holdings, the
industries in which they engage, or the economic, social or political conditions
prevailing in each country in which the Funds maintain investments. Sub-Adviser
shall also advise the Board, Westwood, or both, as appropriate, of important
developments affecting the Trust, the Fund and Sub-Adviser.
(c) In making purchases and sales of securities for the Funds, and
otherwise performing its duties hereunder, Sub-Adviser will comply with the Act
and the rules and regulations thereunder, all other applicable Federal and state
laws and regulations, the policies set from time to time by the Board as well as
the limitations imposed by the Trust Instrument, Bylaws, Registration Statement,
prospectus, and the Internal Revenue Code of 1986, as amended, in respect of
regulated investment companies and the investment objectives, policies and
restrictions of the Funds. Without limiting the foregoing, Sub-Adviser agrees
that, in placing orders with broker-dealers for the purchase or sales of
portfolio securities, it shall attempt to obtain quality execution at favorable
security prices; provided that, consistent with section 28(e) of the Securities
and Exchange Act, the exercise of Sub-Adviser fiduciary duties under its
Investment Advisory agreement with the Trust, and any other applicable law, Sub-
Adviser may allocate brokerage on behalf of the Trust to broker-dealers who
provide research services and may cause the Fund to pay these broker-dealers a
higher amount of commission than may be charged by other broker-dealers.
(d) Sub-Adviser shall prepare and maintain, or cause to be prepared and
maintained, in such form, for such periods and in such locations as may be
required by applicable law, all documents and records relating to the services
provided by Sub-Adviser pursuant to this Agreement required to be prepared and
maintained by the Trust pursuant to the Act and the rules and regulations
thereunder, the rules and regulations of any national, state, or local
government entity with jurisdiction over the Trust, including the Commission and
the Internal Revenue Service, including but not limited to, records relating to
Fund transactions and the placing and allocation of brokerage orders.
(e) The books and records pertaining to the Trust that are in possession
of Sub-Adviser shall be the property of the Trust. The Trust, or the Trust's
authorized representatives, shall have access to such books and records at all
times during Sub-Adviser's normal business hours. Upon the reasonable request
of the Trust, copies of any such books and records shall be provided promptly by
Sub-Adviser to the Trust, its officers, or such other persons as are authorized
in writing by the Trust to obtain its books and records.
2
<PAGE>
(f) Sub-Adviser shall provide the Funds' custodian and fund accountant on
each business day with such information relating to all transactions concerning
the Funds' assets as the custodian and fund accountant may reasonably require.
(g) Sub-Adviser may from time to time employ or associate with such
persons as Sub-Adviser believes to be particularly fitted to assist in the
execution of Sub-Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by Sub-Adviser. No obligation may be incurred on
the Trust's behalf in any such respect.
(h) Sub-Adviser shall authorize and permit any of its trustees, officers
and employees who may be elected as trustees or officers of the Trust to serve
in the capacities in which they are elected.
SECTION 3. EXPENSES
Subject to any expense reimbursement arrangements between Westwood or
others and the Trust, the Trust shall be responsible and shall assume the
obligation for payment of all of the Trust's expenses. Sub-Adviser shall pay
for maintaining its staff and personnel necessary to perform its obligations
under this Agreement and shall, at its own expense, maintain the office space,
facilities, equipment and personnel that are reasonably necessary to carry out
its obligations hereunder.
SECTION 4. STANDARD OF CARE
Sub-Adviser shall use its best judgment and efforts in rendering the
services described in this Agreement. Sub-Adviser shall not be liable to the
Trust or Westwood for any action or inaction of the Sub-Advisor in the absence
of bad faith, willful misconduct or gross negligence or based upon information,
instructions or requests with respect to a Fund made to the Sub-Advisor by a
duly authorized officer of the Trust or Westwood. Sub-Adviser shall not be
responsible or liable for any failure or delay in performance of its obligations
under this Agreement caused by circumstances beyond its reasonable control.
SECTION 5. COMPENSATION
In consideration of the foregoing, Westwood shall pay Sub-Adviser, with
respect to the Fund, a fee at an annual rate as listed in Schedule A to this
Agreement. These fees shall be accrued daily and payable monthly in arrears on
the first day of each calendar month for services performed hereunder during the
prior calendar month.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) With respect to the Fund, this Agreement shall become effective upon
the date first written above; provided that it shall not take effect until
approved by (i) a majority of the Trust's Trustees, including a majority of the
Trustees who are not interested persons of the Trust, and (ii) to the extent
required under section 15(a) of the Act, a majority of the outstanding voting
securities of each Fund to which this Agreement pertains, voting separately by
class.
(b) This Agreement shall remain in effect for a period of twenty four
months from the date of its effectiveness and shall continue in effect for
successive twelve-month periods (computed from each anniversary date of
approval) or for such shorter period as may be specified by the Board in giving
its approval as provided below; provided that such continuance is specifically
approved at least annually (i) by the Board or by the vote of a majority of the
outstanding voting securities of the Fund, and, in either case, (ii) by a
majority of the Trust's Trustees who are not parties to this Agreement or
interested persons of any such party (other than as Trustees of the Trust);
provided further, however, that if this Agreement or the continuation of this
Agreement is not approved, Sub-Adviser may continue to render the services
described herein in the manner and to the extent permitted by the Act and the
rules and regulations thereunder. The annual approvals provided for herein
shall be effective to continue this Agreement from year to year (or such shorter
period referred to above) if given within a period
3
<PAGE>
beginning not more than sixty (60) days prior to such anniversary,
notwithstanding the fact that more than three hundred sixty-five (365) days may
have elapsed since the date on which such approval was last given.
(c) This Agreement may be terminated at any time, without the payment of
any penalty, (i) by Westwood, upon approval of the Board, by the Board, or by a
vote of a majority of the outstanding voting securities of the Fund on 30 days'
written notice to Sub-Adviser or (ii) by Sub-Adviser on 90 days' written notice
to the Trust, with copies to each of the Trust's Trustees at their respective
addresses set forth in the Trust's Registration Statement or at such other
address as such persons may specify to Sub-Adviser and to legal counsel to the
Trust. This agreement shall terminate automatically and immediately upon
assignment.
SECTION 7. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict Sub-Adviser's right, or the
right of any of Sub-Adviser's officers, directors or employees who may also be a
Trustee, officer or employee of the Trust, or persons otherwise affiliated with
the Trust to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
trust, firm, individual or association.
SECTION 8. NOTICES
Any notice or other communication required to be given pursuant to this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to Westwood, at:
Westwood Ventures, Ltd.
450 Seventh Avenue, Suite 3304
New York, New York 10123
Attention: _______________
and if to Sub-Adviser, at:
Forum Advisors, Inc.
Two Portland Square
Portland, Maine 04101
Attention: _______________
SECTION 9. MISCELLANEOUS
(a) No provisions of this Agreement with respect to the Fund may be
amended or modified in any manner except by a written agreement properly
authorized and executed by both parties hereto and, if required by the Act, by a
vote of a majority of the outstanding voting securities of the Fund.
(b) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York.
(d) The terms "vote of a majority of the outstanding voting securities,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the Act.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
WESTWOOD VENTURES, LTD.
________________________
Gary Miller
President
FORUM ADVISORS, INC.
________________________
Mark D. Kaplan
Managing Director
5
<PAGE>
WESTWOOD VENTURES, LTD.
SUB-ADVISORY AGREEMENT
SCHEDULE A
Fee as a % of
the Annual Average Daily
Fund of the Trust Net Assets of the Fund ("ADNA")
- ----------------- -------------------------------
Sportsfund 40% of the fee paid to the
adviser, not to exceed 0.50%
of the average annual net
assets of the fund and
subject to a minimum of
$25,000.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORUM DAILY ASSETS TREASURY FUND DATED
3/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 120
<NAME> DAILY ASSETS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 43,296,823
<INVESTMENTS-AT-VALUE> 43,296,823
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43,296,823
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 193,894
<TOTAL-LIABILITIES> 193,894
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,095,716
<SHARES-COMMON-STOCK> 43,095,716
<SHARES-COMMON-PRIOR> 37,980,607
<ACCUMULATED-NII-CURRENT> 19,454
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12,241)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 43,102,929
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,932,064
<OTHER-INCOME> 223,902
<EXPENSES-NET> 189,889
<NET-INVESTMENT-INCOME> 1,966,077
<REALIZED-GAINS-CURRENT> (12,241)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,953,836
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,967,071
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,226,136
<NUMBER-OF-SHARES-REDEEMED> 76,495,529
<SHARES-REINVESTED> 56,702
<NET-CHANGE-IN-ASSETS> 6,774,074
<ACCUMULATED-NII-PRIOR> 1,320,747
<ACCUMULATED-GAINS-PRIOR> 21,288
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69,466
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 388,318
<AVERAGE-NET-ASSETS> 39,218,726
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION
EXTRACTED FROM FORUM INVESTORS BOND FUND DATED 3/31/96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 030
<NAME> INVESTORS BOND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 24,651,674
<INVESTMENTS-AT-VALUE> 24,762,995
<RECEIVABLES> 283,508
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,811,503
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 135,525
<TOTAL-LIABILITIES> 135,525
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,512,304
<SHARES-COMMON-STOCK> 2,515,659
<SHARES-COMMON-PRIOR> 2,680,506
<ACCUMULATED-NII-CURRENT> 16,544
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 35,809
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 111,321
<NET-ASSETS> 25,675,978
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,074,764
<OTHER-INCOME> 0
<EXPENSES-NET> 114,963
<NET-INVESTMENT-INCOME> 1,959,801
<REALIZED-GAINS-CURRENT> 42,127
<APPREC-INCREASE-CURRENT> 497,162
<NET-CHANGE-FROM-OPS> 2,499,090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,951,033
<DISTRIBUTIONS-OF-GAINS> 11,430
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,032,553
<NUMBER-OF-SHARES-REDEEMED> 6,166,901
<SHARES-REINVESTED> 383,315
<NET-CHANGE-IN-ASSETS> (214,406)
<ACCUMULATED-NII-PRIOR> 2,050,655
<ACCUMULATED-GAINS-PRIOR> 45,903
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 107,061
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365,217
<AVERAGE-NET-ASSETS> 26,765,259
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .74
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORUM MAINE MUNICIPAL BOND FUND DATED
3/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 080
<NAME> MAINE BOND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 25,151,855
<INVESTMENTS-AT-VALUE> 25,637,065
<RECEIVABLES> 496,776
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,133,841
<PAYABLE-FOR-SECURITIES> 31,492
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,482
<TOTAL-LIABILITIES> 89,974
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,626,976
<SHARES-COMMON-STOCK> 2,429,370
<SHARES-COMMON-PRIOR> 2,399,654
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (68,319)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 485,210
<NET-ASSETS> 26,043,867
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,399,481
<OTHER-INCOME> 0
<EXPENSES-NET> 157,243
<NET-INVESTMENT-INCOME> 1,242,238
<REALIZED-GAINS-CURRENT> 71,276
<APPREC-INCREASE-CURRENT> 539,077
<NET-CHANGE-FROM-OPS> 1,852,591
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,242,937
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,875,719
<NUMBER-OF-SHARES-REDEEMED> 4,739,315
<SHARES-REINVESTED> 773,165
<NET-CHANGE-IN-ASSETS> 519,223
<ACCUMULATED-NII-PRIOR> 1,334,004
<ACCUMULATED-GAINS-PRIOR> (139,597)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 105,104
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 387,764
<AVERAGE-NET-ASSETS> 26,276,092
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORUM NEW HAMPSHIRE BOND FUND DATED 3/31/96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 130
<NAME> NEW HAMPSHIRE BOND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 6,766,647
<INVESTMENTS-AT-VALUE> 6,805,703
<RECEIVABLES> 136,222
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,941,925
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,477
<TOTAL-LIABILITIES> 38,477
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,885,448
<SHARES-COMMON-STOCK> 668,354
<SHARES-COMMON-PRIOR> 554,400
<ACCUMULATED-NII-CURRENT> 489
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (21,545)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,056
<NET-ASSETS> 6,903,448
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 313,078
<OTHER-INCOME> 0
<EXPENSES-NET> 35,728
<NET-INVESTMENT-INCOME> 277,350
<REALIZED-GAINS-CURRENT> 36,867
<APPREC-INCREASE-CURRENT> 76,453
<NET-CHANGE-FROM-OPS> 390,670
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 277,495
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,976,778
<NUMBER-OF-SHARES-REDEEMED> 659,492
<SHARES-REINVESTED> 197,211
<NET-CHANGE-IN-ASSETS> 1,627,672
<ACCUMULATED-NII-PRIOR> 220,607
<ACCUMULATED-GAINS-PRIOR> (58,412)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23,870
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134,586
<AVERAGE-NET-ASSETS> 5,967,455
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> .48
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.33
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM PAYSON BALANCED FUND DATED 3/31/96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 070
<NAME> PAYSON BALANCED
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 15,961,662
<INVESTMENTS-AT-VALUE> 17,444,849
<RECEIVABLES> 111,257
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,556,106
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100,629
<TOTAL-LIABILITIES> 100,629
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,666,213
<SHARES-COMMON-STOCK> 1,274,061
<SHARES-COMMON-PRIOR> 1,215,297
<ACCUMULATED-NII-CURRENT> 189
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,035,888
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,753,187
<NET-ASSETS> 17,455,477
<DIVIDEND-INCOME> 284,779
<INTEREST-INCOME> 416,675
<OTHER-INCOME> 0
<EXPENSES-NET> 183,680
<NET-INVESTMENT-INCOME> 517,774
<REALIZED-GAINS-CURRENT> 1,250,859
<APPREC-INCREASE-CURRENT> 1,319,794
<NET-CHANGE-FROM-OPS> 3,088,427
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 528,066
<DISTRIBUTIONS-OF-GAINS> 384,324
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,431,994
<NUMBER-OF-SHARES-REDEEMED> 1,624,872
<SHARES-REINVESTED> 600,277
<NET-CHANGE-IN-ASSETS> 3,583,436
<ACCUMULATED-NII-PRIOR> 489,040
<ACCUMULATED-GAINS-PRIOR> 169,116
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95,588
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 270,945
<AVERAGE-NET-ASSETS> 15,931,443
<PER-SHARE-NAV-BEGIN> 11.90
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> 2.12
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> .32
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.70
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL SUMMARY INFORMATION
EXTRACTED FROM PAYSON VALUE FUND DATED 3/31/96 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 100
<NAME> PAYSON VALUE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 8,315,183
<INVESTMENTS-AT-VALUE> 10,282,048
<RECEIVABLES> 65,585
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,347,633
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,154
<TOTAL-LIABILITIES> 28,154
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,507,825
<SHARES-COMMON-STOCK> 645,218
<SHARES-COMMON-PRIOR> 615,318
<ACCUMULATED-NII-CURRENT> 1,815
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 842,974
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,966,865
<NET-ASSETS> 10,319,479
<DIVIDEND-INCOME> 221,616
<INTEREST-INCOME> 39,951
<OTHER-INCOME> 0
<EXPENSES-NET> 130,164
<NET-INVESTMENT-INCOME> 131,403
<REALIZED-GAINS-CURRENT> 903,175
<APPREC-INCREASE-CURRENT> 1,186,194
<NET-CHANGE-FROM-OPS> 2,220,772
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 135,212
<DISTRIBUTIONS-OF-GAINS> 7,338
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,441,076
<NUMBER-OF-SHARES-REDEEMED> 2,260,146
<SHARES-REINVESTED> 100,673
<NET-CHANGE-IN-ASSETS> 2,359,825
<ACCUMULATED-NII-PRIOR> 102,117
<ACCUMULATED-GAINS-PRIOR> 96,089
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71,662
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 193,185
<AVERAGE-NET-ASSETS> 8,957,749
<PER-SHARE-NAV-BEGIN> 12.71
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> 3.29
<PER-SHARE-DIVIDEND> .21
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.99
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORUM TAXSAVER BOND FUND DATED 3/31/96
AND IS QUALIFIED IN ITS ENIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 050
<NAME> TAXSAVER
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 17,123,631
<INVESTMENTS-AT-VALUE> 17,656,582
<RECEIVABLES> 330,463
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,987,045
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 72,240
<TOTAL-LIABILITIES> 72,240
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,295,866
<SHARES-COMMON-STOCK> 1,694,675
<SHARES-COMMON-PRIOR> 1,660,025
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 85,988
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 532,951
<NET-ASSETS> 17,914,805
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,035,594
<OTHER-INCOME> 0
<EXPENSES-NET> 104,598
<NET-INVESTMENT-INCOME> 930,996
<REALIZED-GAINS-CURRENT> 179,731
<APPREC-INCREASE-CURRENT> 112,851
<NET-CHANGE-FROM-OPS> 1,223,578
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 931,523
<DISTRIBUTIONS-OF-GAINS> 7,448
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,393,277
<NUMBER-OF-SHARES-REDEEMED> 1,030,322
<SHARES-REINVESTED> 249,343
<NET-CHANGE-IN-ASSETS> 1,896,905
<ACCUMULATED-NII-PRIOR> 916,723
<ACCUMULATED-GAINS-PRIOR> (78,499)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 257,237
<AVERAGE-NET-ASSETS> 17,386,030
<PER-SHARE-NAV-BEGIN> 10.39
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> .57
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
