As filed with the Securities and Exchange Commission on December 31, 1997
File No. 2-67052
File No. 811-3023
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 56
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 58
----------------------------------
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
---------------------------------------------------------------
Max Berueffy, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel 1200 G Street,
N.W.
Washington, D.C. 20005
-------------------------
It is proposed that this filing will become effective:
__X__ 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)
_____ 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, 1997, on May
29, 1997.
1
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(Prospectus offering Shares of Investors High Grade Bond Fund, Investors Bond
Fund and TaxSaver Bond Fund)
<TABLE>
<S> <C> <C>
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
</TABLE>
2
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART A
(All other Prospectuses)
Not Applicable in this Filing
3
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART B
(SAI offering Shares of Investors High Grade Bond Fund, Investors Bond Fund,
TaxSaver Bond Fund Maine Municipal Bond Fund and New Hampshire Bond Fund)
<TABLE>
<S> <C> <C>
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 Information
Item 13. Investment Objectives and
Policies: Investment Policies; Investment Limitations
Item 14. Management of the Registrant: Management
Item 15. Control Persons and
Principal Holders of
Securities: Other Information
Item 16. Investment Advisory
and Other Services: Management; Other Information - Custodian, Counsel,
Auditors
Item 17. Brokerage Allocation
and Other Practices: Portfolio Transactions
Item 18. Capital Stock and
Other Securities: Determination of Net Asset Value
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered: Determination of Net Asset Value; Additional Purchase
and Redemption Information
Item 20. Tax Status: Taxation
Item 21. Underwriters: Management
Item 22. Calculation of
Performance Data: Performance Data
Item 23. Financial Statements: Not Applicable
</TABLE>
4
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 404(A))
PART B
(All other SAIs)
Not Applicable in this Filing
5
<PAGE>
FORUM FUNDS
INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
PROSPECTUS
January 1, 1998
- --------------------------------------------------------------------------------
This Prospectus offers shares of Investors High Grade Bond Fund, Investors Bond
Fund and TaxSaver Bond Fund (the "Funds"), each a series of Forum Funds (the
"Trust"), an open-end, management investment company.
INVESTORS HIGH GRADE BOND FUND seeks to provide as high a level of
current income as is consistent with capital preservation and prudent
investment risk. The Fund invests primarily in obligations issued or
guaranteed as to principal and interest by the United States Government
or by any of its agencies or instrumentalities ("U.S. Government
Securities") and high grade debt securities, which are debt securities
rated in one of the three highest rating categories by a nationally
recognized statistical rating organization ("NRSRO").
INVESTORS BOND FUND seeks to provide as high a level of current income
as is consistent with capital preservation and prudent investment risk.
The Fund invests primarily in a portfolio of investment grade debt
securities.
TAXSAVER BOND FUND seeks to provide shareholders with a high level of
current income exempt from Federal income tax. The Fund invests
principally in investment grade debt obligations issued by the states,
territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities.
Shares of the Funds are offered to investors at a price equal to the next
determined net asset value plus a maximum sales charge of 3.75% of the total
public offering price (3.90% of the net amount invested).
This Prospectus sets forth concisely the information concerning the Trust and
the Funds that a prospective investor should know before investing. The Trust
has filed with the Securities and Exchange Commission ("SEC") a Statement of
Additional Information dated January 1, 1998, as may be amended from time to
time (the "SAI"), which contains more detailed information about the Trust and
the Funds and which is incorporated into this Prospectus by reference. The SAI
is available without charge by contacting the Trust's transfer agent, Forum
Financial Corp. at P.O. Box 446, Portland, Maine, 04112, (207) 879-0001 or (800)
94FORUM.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C>
Page Page
1. Prospectus Summary.............................2 5. Additional Investment Policies...........15
2. Financial Highlights...........................4 6. Management...............................19
3. Investment Objective and Policies..............6 7. Purchases and Redemptions of Shares......20
Investors Bond Fund and 8. Dividends and Tax Matters................27
Investors High Grade Bond Fund.................6 9. Other Information........................29
TaxSaver Bond Fund............................12
4. Certain Risk Factors..........................14 Account Application
</TABLE>
FUND SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY
OTHER FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
6
<PAGE>
1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
INVESTMENT OBJECTIVES
INVESTORS HIGH GRADE BOND FUND. The investment objective of the Fund is
to provide as high a level of current income as is consistent with capital
preservation and prudent investment risk. The Fund invests primarily in U.S.
Government Securities and high grade debt securities, which are debt securities
rated in one of the three highest rating categories by an NRSRO.
INVESTORS BOND FUND. The investment objective of the Fund is to provide
as high a level of current income as is consistent with capital preservation and
prudent investment risk. The Fund invests primarily in a portfolio of investment
grade debt securities.
TAXSAVER BOND FUND. The investment objective of the Fund is to provide
shareholders with a high level of current income exempt from Federal income tax.
The Fund invests principally in investment grade debt obligations issued by the
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities. See "Investment Objectives and
Policies."
FUND MANAGEMENT
The Funds' investment adviser is Forum Investment Advisors, LLC (the
"Adviser"). The manager of the Trust is Forum Administrative Services, LLC
("FAS") and the distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Financial Corp. (the "Transfer Agent") serves as the Trust's
transfer agent, dividend disbursing agent and shareholder servicing agent. Each
of the Adviser, FAS, FFSI and the Transfer Agent are located at Two Portland
Square, Portland, Maine 04101. See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Funds are offered at the next-determined net asset value
per share plus any applicable sales charge. The minimum initial investment is
$5,000 ($2,000 for IRAs; $2,500 for exchanges) and the minimum subsequent
investment is $500. Shares may be redeemed without charge. See "Purchases and
Redemptions of Shares."
EXCHANGE PROGRAM
Shareholders of the Funds may exchange their shares without charge for
the shares of certain other funds. See "Purchases and Redemptions of Shares -
Exchanges."
DIVIDENDS
Dividends of net investment income are declared daily and paid monthly
by each Fund and are reinvested in Fund shares unless a shareholder elects to
have them paid in cash. It is anticipated that substantially all of the
dividends paid by TaxSaver Bond Fund will be exempt from Federal income taxes,
including the Federal alternative minimum tax. See "Dividends and Tax Matters."
7
<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that any Fund will achieve its investment
objective, and a Fund's net asset value and total return will fluctuate based
upon changes in the value of its portfolio securities. Normally, the value of a
Fund's investments varies inversely with changes in interest rates. Upon
redemption, an investment in a Fund may be worth more or less than its original
value.
All investments made by the Funds entail some risk. The market value of
interest-bearing debt securities held by the Funds will be affected by changes
in interest rates. There is normally an inverse relationship between the market
value of securities sensitive to prevailing interest rates and actual changes in
interest rates. The Funds' investments also are subject to "credit risk"
relating to the financial condition of the issuers of the securities that each
Fund holds. Investments in non-investment grade debt securities by Investors
Bond Fund and TaxSaver Bond Fund and each of the Funds' investment techniques,
however, entail certain additional risks, such as the potential use of leverage
by a Fund through borrowings, securities lending, swap transactions and other
investment techniques. See "Additional Investment Policies." Similarly, a Fund's
use of mortgage- and asset-backed securities entails certain risks. See
"Investment Objective and Policies - Investors High Grade Bond Fund and
Investors Bond Fund - Mortgage-Backed Securities" and "- Asset-Backed
Securities." Investors Bond Fund and TaxSaver Bond Fund are non-diversified and,
therefore, have greater freedom to concentrate their investments than if they
were diversified funds. See "Certain Risk Factors."
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in
understanding the various expenses that an investor in a Fund will bear directly
or indirectly.
<TABLE>
<S> <C> <C> <C>
INVESTORS HIGH INVESTORS TAXSAVER
GRADE BOND FUND BOND FUND BOND FUND
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of public offering price) (1)............. 3.75% 3.75% 3.75%
Exchange Fee............................................ None None None
Annual Fund Operating Expenses (2) (as a percentage of
average net assets after applicable expense reimbursements
and fee waivers)
Management Fees (after fee waivers) (3)................. 0.40% 0.40% 0.40%
12b-1 Fees.............................................. None None None
Other Expenses (after expense reimbursements) (4)....... 0.30% 0.30% 0.20%
Total Fund Operating Expenses (4)....................... 0.70% 0.70% 0.60%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares - Reduced Sales Charges."
(2) The Annual Fund Operating Expenses for Investors Bond Fund and TaxSaver
Bond Fund are based on amounts incurred by each Fund during the Fund's most
recent fiscal year ended March 31, 1997. The Annual Fund Operating Expenses for
Investors High Grade Bond Fund are based on estimated expenses and assets during
the Fund's initial period of operations ending March 31, 1998.
(3) Management Fees include all investment advisory fees and administration
fees incurred by the Funds. Management has voluntarily agreed to waive all or a
portion of its fees with respect to Investor High Grade Bond Fund and assume
certain expenses of the Fund through at least March 31, 1998 in order to limit
the Total Fund Operating Expenses to 0.70% of the Fund's average daily net
assets. Absent waivers (including estimated waivers in the case of Investors
High Grade Bond Fund), "Management Fees" for each Fund would be 0.70%. Fee
waivers are voluntary and may be reduced or eliminated at any time
8
<PAGE>
(4) Absent expense reimbursements and fee waivers (including estimated
expense reimbursements and fee waivers in the case of Investors High Grade Bond
Fund), "Other Expenses" and "Total Fund Operating Expenses" would be 0.75% and
1.45%, respectively in the case of Investors High Grade Bond Fund, 0.75% and
1.45% respectively, in the case of Investors Bond Fund, and 0.83% and 1.53%,
respectively, in the case of TaxSaver Bond Fund. Expense reimbursements and fee
waivers are voluntary and may be reduced or eliminated at any time. For a
further description of the various expenses incurred in the operation of the
Fund, see "Management."
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in the Fund would pay assuming a $1,000 investment in
the Fund, a 5% annual return, the reinvestment of all dividends and
distributions and redemption at the end of each period and payment of the
maximum initial sales charge:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Investors High Grade Bond Fund.............................. $44 $59 -- --
Investors Bond Fund......................................... $44 $59 $75 $121
TaxSaver Bond Fund.......................................... $43 $56 $70 $110
</TABLE>
The example is based on the expenses listed in the table. The five
percent annual return is not predictive of and does not represent the Funds'
projected returns; rather, it is required by government regulation. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN.
ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED.
9
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of Investors Bond Fund and TaxSaver Bond Fund. The information for
each year has been audited by Deloitte & Touche LLP, independent auditors. The
information for the six month period ended September 30, 1997, is unaudited.
Further information about the Funds' performance is contained in the Funds'
annual report to shareholders, which may be obtained from the Trust without
charge. As of the date hereof, Investors High Grade Bond Fund had not commenced
operations.
<TABLE>
INVESTORS BOND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six Year Ended March 31,
Months
Ended
September
-----------------------------------------------------------------------------------------------
30, 1997 1997 1996 1995 1994 1993 1992 1991 1990(a)
-------- ---- ---- ---- ---- ---- ---- ---- -------
Net Asset Value,
Beginning of Period $10.19 $10.21 $10.00 $10.38 $10.71 $10.43 $10.09 $9.82 $10.00
---------- ---------- --------- --------- ---------- ---------- --------- -------- ---------
Investment Operations:
Net Investment Income 0.37 0.71 0.74 0.82 0.81 0.82 0.83 0.84 0.42
Net Realized and
Unrealized Gain
(Loss) on 0.17 -- 0.21 (0.38) (0.30) 0.53 0.44 0.27 (0.14)
Investments ---------- --------- --------- ---------- ---------- --------- ---------- --------- ---------
Total from Investment
Operations 0.54 0.71 0.95 0.44 0.51 1.35 1.27 1.11 0.28
---------- --------- --------- ---------- ---------- --------- --------- --------- ---------
Distributions From:
Net Investment Income (0.37) (0.71) (0.74) (0.82) (0.81) (0.82) (0.83) (0.84) (0.42)
Net Realized Gain
on Investments -- (0.02) -- -- (0.03) (0.25) (0.10) -- (0.04)
---------- ---------- --------- --------- ---------- ---------- --------- --------- ----------
Total Distributions (0.37) (0.73) (0.74) (0.82) (0.84) (1.07) (0.93) (0.84) (0.46)
---------- ---------- --------- --------- ---------- ---------- --------- --------- ----------
Net Asset Value, End
of Period $10.36 $10.19 $10.21 $10.00 $10.38 $10.71 $10.43 $10.09 $9.82
========== ========= ========= ========== ========== ========= ========== ======== ==========
Total Return (b) 5.39% 7.18% 9.84% 4.55% 4.70% 13.53% 12.91% 11.76% 5.79%(c)
Ratio/Supplementary
Data:
Net Assets at End of
Period (000's $21,178 $22,190 $25,676 $25,890 $26,083 $26,832 $24,336 $19,132 $19,400
omitted)
Ratios to Average Net
Assets:
Expenses Including
Reimbursement/Waiver 0.70%(c) 0.70% 0.43% 0.75% 0.75% 0.75% 0.70% 0.64% 0.41%(c)
Expenses Excluding
Reimbursement/Waiver 1.41%(c) 1.45% 1.36% 1.33% 1.31% 1.40% 1.51% 1.68% 1.52%(c)
Net Investment
Income Including
Reimbursement/Waiver 7.18%(c) 6.94% 7.29% 8.19% 7.49% 7.71% 7.93% 8.44% 8.51%(c)
Portfolio Turnover 44.38% 79.42% 42.89% 48.17% 41.41% 193.21% 221.39% 73.32% 93.08%
Rate
(a) The Fund commenced operations on October 2, 1989.
(b) Total return calculations do not include sales charge.
(c) Annualized.
</TABLE>
10
<PAGE>
<TABLE>
TAXSAVER BOND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six Year Ended March 31,
Months
Ended
September
------------------------------------------------------------------------------------------------
30, 1997 1997 1996 1995 1994 1993 1992 1991 1990(a)
-------- ---- ---- ---- ---- ---- ---- ---- -------
Net Asset Value,
Beginning of Period $10.49 $10.57 $10.39 $10.35 $10.63 $10.26 $10.10 $9.97 $10.00
--------- ---------- --------- --------- ---------- --------- -------- -------- ---------
Investment Operations:
Net Investment Income 0.27 0.56 0.57 0.57 0.57 0.63 0.68 0.67 0.33
Net Realized and
Unrealized Gain
(Loss) on 0.24 (0.03) 0.18 0.04 (0.01) 0.49 0.20 0.13 (0.03)
Investments --------- ---------- --------- --------- ---------- --------- -------- -------- ---------
Total from Investment
Operations 0.51 0.53 0.75 0.61 0.56 1.12 0.88 0.80 0.30
--------- ---------- --------- --------- ---------- --------- -------- -------- ---------
Distributions From:
Net Investment Income (0.27) (0.56) (0.57) (0.57) (0.57) (0.63) (0.68) (0.67) (0.33)
Net Realized Gain
on Investments -- (0.05) -- -- (0.27) (0.12) (0.04) -- --
--------- ---------- --------- --------- ---------- --------- -------- -------- ---------
Total Distributions (0.27) (0.61) (0.57) (0.57) (0.84) (0.75) (0.72) (0.67) (0.33)
--------- ---------- --------- --------- ---------- --------- -------- -------- ---------
Net Asset Value, End
of Period $10.73 $10.49 $10.57 $10.39 $10.35 $10.63 $10.26 $10.10 $9.97
========= ========= ========== ========= ========= ========== ========= ======== =========
Total Return (b) 4.94% 5.15% 7.36% 6.18% 5.24% 11.28% 8.95% 8.29% 6.16%(c)
Ratio/Supplementary
Data:
Net Assets at End of
Period (000's $20,057 $17,757 $17,915 $16,018 $16,518 $16,580 $11,207 $9,998 $9,546
omitted)
Ratios to Average Net
Assets:
Expenses Including
Reimbursement/Waiver 0.60%(c) 0.60% 0.60% 0.60% 0.60% 0.60% 0.55% 0.49% 0.22%(c)
Expenses Excluding
Reimbursement/Waiver 1.45%(c) 1.53% 1.48% 1.45% 1.50% 1.56% 1.66% 1.86% 1.66%(c)
Net Investment
Income Including
Reimbursement/ 5.12%(c) 5.28% 5.35% 5.62% 5.27% 5.98% 6.64% 6.69% 6.54%(c)
Waiver
Portfolio Turnover 15.42% 34.19% 61.61% 63.85% 141.80% 240.36% 104.29% 54.62% 13.25%
Rate
</TABLE>
(a) The Fund commenced operations on October 2, 1989.
(b) Total return calculations do not include sales charge.
(c) Annualized.
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTORS HIGH GRADE BOND FUND AND INVESTORS BOND FUND
INVESTMENT OBJECTIVE
The investment objective of each of Investors High Grade Bond Fund and
Investors Bond Fund is to provide as high a level of current income as is
consistent with capital preservation and prudent investment risk. By seeking
capital preservation, each Fund attempts to control the risk of default and the
risk of capital losses in periods of falling prices for debt securities. There
can be no assurance that either Fund will achieve its investment objective.
INVESTMENT POLICIES
INVESTORS HIGH GRADE BOND FUND seeks to attain its investment objective
by investing in a portfolio consisting of obligations issued or guaranteed as to
principal and interest by the United States Government or by any of its agencies
or instrumentalities ("U.S. Government Securities") and high grade debt
securities, which are securities
11
<PAGE>
rated in one of the three highest rating categories by an NRSRO such as Moody's
Investors Service ("Moody's") or Standard & Poor's ("S&P"). See SAI
- -"Description of Securities Ratings." Under normal circumstances, the Fund
intends to invest at least 70% of its assets in U.S. Government Securities. The
Fund intends to invest at least 40% of its assets in U.S. Government Securities
that are direct obligations of the U.S. Treasury (such as Treasury bills and
notes). The Fund will not invest more than 30% of its assets in obligations
including mortgage-backed securities, adjustable rate mortgage-backed securities
and asset-backed securities subject to the rating category specifications and
percent limitations described below. See "Mortgage-Backed Securities,"
"Adjustable Rate Mortgage-Backed Securities" and "Asset-Backed Securities."
INVESTORS BOND FUND seeks to attain its investment objective by
investing primarily in a portfolio consisting of investment grade debt
securities. Under normal circumstances, the Fund intends to invest at least 65%
of its assets in debt securities, U.S. Government Securities, and
mortgage-backed and asset-backed securities.
The securities in which Investors Bond Fund invests will include debt
securities which are rated in one of the four highest rating categories by an
NRSRO such as Moody's or S&P. See SAI -"Description of Securities Ratings," U.S.
Government Securities and mortgage-backed and asset backed securities rated in
one of the two highest rating categories by a NRSRO.
THE FUNDS also may invest in commercial paper and other money market
instruments rated in one of the two highest rating categories by an NRSRO, and
banker's acceptances or negotiable certificates of deposit issued by the
commercial banks doing business in the United States that have, at the time of
investment, total assets in excess of one billion dollars and that are insured
by the Federal Deposit Insurance Corporation.
Each Fund may from time to time lend securities from its portfolio to
brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. The Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. The Funds may pay
fees to arrange the loans. Each Fund will, as a fundamental policy, limit
securities lending to not more than 10% of the value of its total assets.
Each Fund will invest, as a fundamental policy, at least 90% of the
value of its total assets at the time of investment in the above types of
securities or in repurchase agreements covering those securities.
Investors Bond Fund may also invest up to 10% of the value of its total
assets at the time of investment in:
(1) debt securities which are rated in the fifth highest rating
category by an NRSRO (for example, BB by S&P). Bonds rated BB 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.
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.
(2) preferred stock which is rated in one of the five highest rating
categories by an NRSRO (for example, ba or above by Moody's). An issue rated ba
is considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
(3) options and futures contracts.
12
<PAGE>
Securities in the four highest rating categories are generally
considered to be investment grade, although Moody's indicates that securities
rated Baa have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds. Debt
securities and preferred stock rated in the fifth highest rating category by
Moody's and by S&P are not considered to be investment grade, are high risk,
have predominantly speculative characteristics and are commonly known as "Junk
Bonds." See "Certain Risk Factors." Investors High Grade Bond Fund will not
invest in any debt security or preferred stock rated below the third highest
rating category by an NRSRO (for example, A or above by Moody's).
With respect to debt issued by banks, bank holding companies, non-bank
banks, thrifts, broker-dealers and broker-dealers' parent companies, the Funds
may invest in securities rated by Thomson BankWatch in the categories specified
by their investment policies. The Adviser assigns the higher rating to
securities with different ratings from NRSROs. See Appendix A to the SAI for a
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs.
Investors Bond Fund may purchase unrated securities which the Adviser
believes to be of comparable quality to the rated securities in which the Fund
may invest. Unrated securities may not be as actively traded as rated
securities. An unrated security will be considered for investment by the Fund
when the Adviser believes that the financial condition of the issuer of the
obligation and the protection afforded by the terms of the obligation itself
limit the risk to the Fund to a degree comparable to that of rated securities in
which the Fund may invest.
During its last fiscal year, Investors Bond Fund had 61.83% of its
average annual assets in securities rated by Moody's or S&P and 37.12% of its
average annual assets in unrated investments, including cash and cash
equivalents. For that year the Fund had the following percentages of its average
annual net assets invested in rated securities: Aaa/AAA - 14.16%, Aa/AA - 2.09%,
A/A - 18.65%, Baa/BBB - 17.66%, Ba/BB - 4.50% and B/B - 4.77%. Securities with
different ratings from Moody's and S&P were assigned the higher rating. This
information reflects the average month end composition of the assets for the
Fund's last fiscal year and is not necessarily representative of the Fund as of
the end of last year, the current fiscal year or any other time.
As of December 1, 1997, $3,550,165 of Investors Bond Fund's $27,088,197
in net assets were invested in Citfed Bancorp, Inc., an issuer of unrated
securities that, at the time of investment, the Adviser believed to be of
quality comparable to the rated securities in which the Fund may invest. These
securities subsequently received a B rating from each of S&P and Moody's and a
rating of BB+ (the fifth highest rating category) from Thomson BankWatch. These
securities remained in Investors Bond Fund's portfolio because the Adviser
believed that the investment was and would continue to be in the best interests
of the Fund. On September 10, 1997, Thomson BankWatch upgraded its rating of
Citfed Bancorp, Inc. to BBB-, the fourth highest rating category.
In general, the longer the maturity of a security, the higher the rate
of interest it pays. However, a longer average maturity is generally associated
with a higher level of volatility in the market value of a security. The average
maturity of each Fund's portfolio will vary depending on anticipated market
conditions. It is anticipated that Investors Bond Fund will invest in debt
obligations with maturities ranging from short-term (including overnight) to 30
years. It is also anticipated that Investor Bond Fund's portfolio of securities
will have a weighted average maturity of between five and 20 years. It is
anticipated that Investors High Grade Bond Fund will invest in debt obligations
with maturities ranging from short-term (including overnight) to 30 years and
that it will invest no more than 25% of it assets in debt obligations with
maturities greater than 10 years. Investors High Grade Bond Fund's portfolio of
securities will have a weighted average maturity of no greater than 7 years.
CORPORATE DEBT SECURITIES AND FOREIGN SECURITIES. In selecting
corporate debt securities for a Fund, the Adviser reviews and monitors the
creditworthiness of each issuer and issue. Interest rate trends and specific
developments which may affect individual issuers will also be analyzed. In
addition to the debt securities of domestic corporations, each Fund may invest
in debt securities registered and sold in the United States by foreign issuers
(Yankee Bonds) and those sold outside the United States by foreign or U.S.
issuers (Eurobonds). Each Fund restricts its
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purchases of these securities to issues denominated and payable in United States
dollars. All obligations of non-U.S. issuers purchased by a Fund will be issued
or guaranteed by a sovereign government, by a supranational agency whose members
are sovereign governments, or by a U.S. issuer in whose debt securities the Fund
could invest.
U.S. GOVERNMENT SECURITIES. The U.S. Government Securities in which a
Fund may invest include direct obligations of the U.S. Treasury (such as
Treasury bills and notes) and other securities backed by the full faith and
credit of the U.S. Government, such as those issued by the Government National
Mortgage Association ("GNMA"). Each Fund may also invest in U.S. Government
Securities that have lesser degrees of government backing. For instance, a Fund
may purchase obligations of the of the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC") (which are
supported by the right of the issuer to borrow from the Treasury under certain
circumstances) and obligations of the Student Loan Marketing Association and the
Federal Home Loan Banks (which are supported only by the credit of the agency or
instrumentality). There is no guarantee that the U.S. Government will support
securities not backed by its full faith and credit and, accordingly, these
securities may involve more risk than other U.S. Government Securities.
MORTGAGE-BACKED SECURITIES. The Adviser anticipates that up to 50% of
the value of the Investors Bond Fund's total assets may be invested in
mortgage-backed securities. Mortgage-backed securities represent an interest in
a pool of mortgages originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-backed securities may be
issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by banks, savings associations,
private mortgage insurance companies or mortgage bankers. Investors High Grade
Bond Fund may invest up to 30% of its assets in mortgage-backed securities
issued by governmental or government-related entities and rated in at least the
second highest rating category of an NRSRO, but will not invest in privately
issued mortgage-backed securities.
Mortgage-backed securities differ from other forms of debt securities,
which normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. In contrast,
mortgage-backed securities provide monthly payments which consist of interest
and, in most cases, principal. In effect, these payments are a "pass-through" of
the monthly payments made by the individual borrowers on their mortgage loans,
net of any fees paid to the issuer or guarantor of the securities or a mortgage
loan servicer. Additional payments to holders of these securities are caused by
prepayments resulting from the sale or foreclosure of the underlying property or
refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage
loans or participations in mortgage loans. The majority of these loans are made
to purchasers of 1-4 family homes, but may be made to purchasers of mobile homes
or other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, a Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities
has expanded considerably in recent years. The size of the primary issuance
market and active participation in the secondary market by securities dealers
and many types of investors make government and government-related pass-through
pools highly liquid. The recently introduced private conventional pools of
mortgages (pooled by commercial banks, savings and loan institutions and others,
with no relationship with government and government-related entities) have also
achieved broad market acceptance and consequently an active secondary market has
emerged. However, the market for conventional pools is smaller and less liquid
than the market for government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's terms may be shortened by unscheduled or early payments of principal
and interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to the Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of
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interest rates, general economic conditions, the location and age of the
mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically
quoted by investment dealers based on the maturity of the underlying instruments
and the associated average life assumption. In periods of falling interest
rates, the rate of prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgages. Conversely, in periods of rising rates, the
rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. Actual prepayment experience may cause the yield to differ
from the assumed average life yield. Reinvestment of prepayments may occur at
higher or lower interest rates than the original investment, thus affecting the
yield of the Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government
guarantor of mortgage-backed securities is the Government National Mortgage
Association ("GNMA"), a wholly-owned United States Government corporation within
the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the United States Government, the
timely payment of principal and interest on securities issued by institutions
approved by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages.
The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller-servicers.
The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate
instrumentality of the United States Government that was created by Congress in
1970 for the purpose of increasing the availability of mortgage credit for
residential housing. Its stock is owned by the twelve Federal Home Loan Banks.
FHLMC issues Participation Certificates ("PCs") which represent interests in
mortgages from FHLMC's national portfolio. FNMA and FHLMC each guarantee the
payment of principal and interest on the securities they issue. These
securities, however, are not backed by the full faith and credit of the United
States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Investors Bond Fund may
invest in mortgage-backed securities offered by private issuers including
pass-through securities comprised of pools of conventional mortgage loans;
mortgage-backed bonds which are considered to be debt obligations of the
institution issuing the bonds and which are collateralized by mortgage loans;
and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer
a higher rate of interest than securities issued by government issuers because
of the absence of direct or indirect government guarantees of payment. Many
non-governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Investors Bond Fund may
invest in adjustable rate mortgage-backed securities ("ARMs"), which are
securities that have interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate.
Although the rate adjustment feature may act as a buffer to reduce sharp changes
in the value of adjustable rate securities, these securities are still subject
to changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. Because of the resetting of interest rates,
adjustable rate securities are less likely than non-adjustable rate securities
of comparable quality and maturity to increase significantly in value when
market interest rates fall. Also, most adjustable rate securities (or the
underlying mortgages) are subject to caps or floors. "Caps" limit the maximum
amount by which the interest rate paid
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by the borrower may change at each reset date or over the life of the loan and,
accordingly, fluctuation in interest rates above these levels could cause such
mortgage securities to "cap out" and to behave more like long-term, fixed-rate
debt securities.
ARMs may have less risk of a decline in value during periods of rapidly
rising rates, but they may also have less potential for capital appreciation
than other debt securities of comparable maturities due to the periodic
adjustment of the interest rate on the underlying mortgages and due to the
likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to the Fund will
decrease as the coupon rate resets to reflect the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in a slightly lower net value until the interest rate
resets to market rates. Thus, investors could suffer some principal loss if they
sold Fund Shares before the interest rates on the underlying mortgages were
adjusted to reflect current market rates. Investors High Grade Bond Fund may
invest up to 10% of its asset value in ARMs rated in the highest category of an
NRSRO.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage
Obligations ("CMOs") are debt obligations that are collateralized by mortgages
or mortgage pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Investors High Grade Bond Fund will invest only in CMOs
that are U.S. Government Securities and will not invest in privately issued
CMOs. Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs on the same schedule as they are received,
although, certain classes (often referred to as tranches) of CMOs have priority
over other classes with respect to the receipt of payments. Multi-class mortgage
pass-through securities are interests in trusts that hold Mortgage Assets and
that have multiple classes similar to those of CMOs. Unless the context
indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide funds to pay debt service on the CMOs or to make scheduled distributions
on the multi-class mortgage pass-through securities. Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as with
other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. Planned amortization class
mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO. PAC
Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities. See
"Investment Policies - Investors High Grade Bond Fund and Investors Bond Fund -
Mortgage-Related Securities" in the SAI.
STRIPPED MORTGAGE-BACKED SECURITIES. Investors Bond Fund may invest in
stripped mortgage-backed securities, which are classes of mortgage-backed
securities that receive different proportions of the interest and
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principal distributions from the underlying Mortgage Assets. They may be may be
privately issued or U.S. Government Securities. In the most extreme case, one
class will be entitled to receive all or a portion of the interest but none of
the principal from the Mortgage Assets (the interest-only or "IO" class) and one
class will be entitled to receive all or a portion of the principal, but none of
the interest (the "PO" class). Investors High Grade Bond Fund will not invest in
stripped mortgage-backed securities.
ASSET-BACKED SECURITIES. The Adviser anticipates that up to 15% of the
value of Investors Bond Fund's total assets may be invested in asset-backed
securities. Investors High Grade Bond Fund may invest up to 10% of its total
asset value in asset-backed securities rated in the highest category of an
NRSRO. Asset-backed securities represent direct or indirect participations in,
or are secured by and payable from, assets other than mortgage-backed assets
such as motor vehicle installment sales contracts, installment loan contracts,
leases of various types of real and personal property and receivables from
revolving credit (credit card) agreements. Asset-backed securities, including
adjustable rate asset-backed securities, have yield characteristics similar to
those of mortgage-backed securities and, accordingly, are subject to many of the
same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
TAXSAVER BOND FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders with a
high level of current income exempt from Federal income tax. Although the Fund
will attempt to invest 100% of its assets in municipal securities the interest
on which is exempt from all Federal income tax, including the Federal
alternative minimum tax ("AMT"), the Fund reserves the right to invest up to 20%
of the value of its net assets in securities on which the interest income is
subject to Federal income taxation. In addition, the Fund may assume a temporary
defensive position and invest without limit in cash and cash equivalents that
may be taxable. There can be no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in investment
grade debt obligations issued by the states, territories and possessions of the
United States and their political subdivisions, agencies and instrumentalities.
These securities are generally known as "municipal securities" and include
municipal bonds, notes and leases. It is anticipated that under normal
circumstances substantially all of the Fund's total assets will be invested in
municipal securities the interest income from which is exempt from Federal
income taxes, including the Federal AMT.
In general, the longer the maturity of a municipal security, the higher
the rate of interest it pays. However, a longer average maturity is generally
associated with a higher level of volatility in the market value of a municipal
security. The average maturity of the Fund's portfolio will vary depending on
anticipated market conditions. It is anticipated, however, that the average
weighted maturity of all municipal securities in the Fund's portfolio will
normally range between five and 15 years.
Some municipal securities are related in such a way that an economic,
business or political development affecting one municipal security would have a
similar effect on another municipal security. For example, the repayment of
different obligations may depend on similar types of projects. While the Fund
may invest more than 25% of its total
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assets in private activity bonds ("PABs"), under normal circumstances no single
type of revenue bond (for example, electric revenue bonds or housing revenue
bonds) will constitute more than 25% of the Fund's total assets. In addition,
under normal circumstances no more than 25% of the Fund's total assets may be
invested in issuers located in any one state, territory or possession.
Under current Federal tax law, interest on certain municipal securities
issued after August 7, 1986 to finance "private activities" will be a "tax
preference item" for purposes of the Federal AMT applicable to certain
individuals and corporations. The interest on these securities generally is
fully tax-exempt for regular Federal income tax purposes. The Fund may from time
to time purchase certain municipal securities the interest on which constitutes
a "tax preference item" for purposes of the Federal AMT.
LENDING OF PORTFOLIO SECURITIES. The Fund may from time to time lend
securities from its portfolio to brokers, dealers and other financial
institutions. Securities loans must be continuously secured by cash or U.S.
Government Securities with a market value, determined daily, at least equal to
the value of the Fund's securities loaned, including accrued interest. The Fund
receives interest in respect of securities loans from the borrower or from
investing cash collateral. The Fund may pay fees to arrange the loans. The Fund
will, as a fundamental policy, limit securities lending to not more than 10% of
the value of its total assets.
CREDIT MATTERS. Normally, at least 65% of the Fund's total assets will
be invested in municipal bonds rated at the time of purchase within the four
highest grades assigned by an NRSRO such as Moody's (Aaa, Aa, A and Baa) or S&P
(AAA, AA, A and BBB) or which are unrated and determined by the Adviser to be of
comparable quality. Securities in these ratings generally are considered to be
investment grade securities, although Moody's indicates that municipal
securities rated Baa have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
by the issuer to make principal and interest payments with respect to debt rated
in that category than is the case with higher grade debt. Unrated securities may
not be as actively traded as rated securities. A further description of the
ratings used by Moody's, S&P and other NRSROs is included in the SAI.
The tax-free yields sought by the Fund are generally obtainable from
securities rated within the four highest rating categories by NRSROs. The Fund
may, however, invest up to 25% of its total assets in municipal bonds rated in
the fifth highest rating category by any NRSRO or which are unrated and
determined by the Adviser to be of comparable quality. These securities are not
considered to be investment grade and have speculative or predominantly
speculative characteristics and are commonly known as "Junk Bonds." See "Certain
Risk Factors." The Fund only will invest in municipal notes and other short-term
municipal obligations in the two highest rating categories assigned by an NRSRO
or which are unrated and determined by the Adviser to be of comparable quality.
The Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the Adviser
to be of comparable quality) only if the Adviser determines that retaining the
security is in the best interests of the Fund.
An unrated municipal security will be considered for investment by the
Fund when the Adviser believes that the financial condition of the issuer of
such obligation and the protection afforded by the terms of the obligation limit
the risk to the Fund to a degree comparable to that of rated securities in which
the Fund may invest. During its last fiscal year, the Fund had 79.08% of its
average annual assets in municipal securities rated by Moody's or S&P and 19.16%
of its average annual assets in unrated investments, including cash and cash
equivalents. For that year the Fund had the following percentages of its average
annual net assets invested in rated securities: Aaa/AAA - 25.32%, Aa/AA - 5.05%,
A/A - 14.12% and Baa/BBB - 34.59%. Securities with different ratings from
Moody's and S&P were assigned the higher rating. This information reflects the
average composition of the Fund's assets for the Fund's last fiscal year and is
not necessarily representative of the Fund as of the end of last year, the
current fiscal year or any other time.
MUNICIPAL BONDS. Municipal bonds, which are intended to meet longer
term capital needs of the issuer, can be classified as either "general
obligation" or "revenue" bonds. General obligation bonds are secured by a
municipality's pledge of its full faith, credit and taxing power for the payment
of principal and interest. Revenue bonds are generally payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise or other tax, but not from general
tax revenues. Municipal bonds also include PABs, which are bonds issued by or on
behalf of public authorities to finance various privately operated facilities.
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PABs are in most cases revenue bonds and generally do not have the pledge of the
full faith, credit and taxing power of the municipality issuer. The payment of
the principal and interest on these bonds is dependent solely on the ability of
an initial or subsequent user of the facilities financed by the bonds to meet
its financial obligations and the pledge, if any, of real and personal property
financed by the bond as security for payment. The Fund will acquire only PABs
whose interest payments, in the opinion of the issuer's counsel, are exempt from
Federal income taxation (other than the AMT).
MUNICIPAL NOTES AND LEASES. Municipal notes, which may be either
"general obligation" or "revenue" securities, are intended to fulfill the
short-term capital needs of the issuer and generally have original maturities of
397 days or less. They include tax anticipation notes, revenue anticipation
notes, bond anticipation notes, construction loan notes and tax-exempt
commercial paper. Municipal leases and installment purchase or conditional sale
contracts (which normally provide for title to the leased assets to pass
eventually to the government issuer) are a means for governmental issuers to
acquire property and equipment without meeting the constitutional and statutory
requirements for the issuance of long-term debt. Municipal leases frequently
have special risks not normally associated with general obligation or revenue
bonds or notes as described in the SAI.
PARTICIPATION INTERESTS. The Fund may purchase participation interests
in municipal securities (which may be fixed, floating or variable rate
securities) that are owned by banks or other financial institutions.
Participation interests carry a demand feature backed by a letter of credit or
guarantee of the bank or institution permitting the holder to tender them back
to the bank or other institution. The Fund will only purchase participation
interests from Federal Deposit Insurance Corporation insured banks having total
assets of more than one billion dollars or from other financial institutions
whose long-term debt securities are rated within the four highest rating
categories by an NRSRO or which are unrated and determined by the Adviser to be
of comparable quality. Prior to purchasing any participation interest, the Fund
will obtain appropriate assurances from counsel retained by the Trust that the
interest earned by the Fund from the obligations in which it holds participation
interests is exempt from Federal income tax.
STAND-BY COMMITMENTS. The Fund may purchase municipal securities
together with the right to resell them to the seller at an agreed upon price or
yield within specified periods prior to their maturity dates. These rights to
resell are commonly known as "stand-by commitments." The aggregate price which
the Fund pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. The primary purpose of this practice is to
permit the Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. The Fund will enter into stand-by commitments only with banks or
municipal securities dealers that in the opinion of the Adviser present minimal
credit risks. The value of a stand-by commitment is dependent on the ability of
the writer to meet its repurchase obligation.
4. CERTAIN RISK FACTORS
DIVERSIFICATION MATTERS. Investors High Grade Bond Fund is a
diversified fund. Thus, the Fund may not 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 with respect to 75% of
the Fund's total assets and does not apply to U.S.
Government Securities.
Investors Bond Fund and TaxSaver Bond Fund are non-diversified, which
means that they have greater latitude than a diversified fund with respect to
the investment of its assets in the securities of a relatively few issuers. As
non-diversified portfolios, the Funds may present greater risks than diversified
funds. Each Fund's diversification requirements provide that, as of the last day
of each fiscal quarter, with respect to 50% of its assets, the Fund may not own
the securities of a single issuer, other than a U.S. Government security, with a
value of more than 5% of the Fund's total assets. Except for U.S. Government
Securities, no more than 25% of the total assets of a Fund may be invested in
securities of any one issuer. These limitations do not apply to securities of an
issuer payable solely from the proceeds of escrowed U.S. Government Securities.
A Fund will be subject to a greater risk of loss if an issuer in which the Fund
invests a substantial amount of its assets is unable to make interest or
principal payments or if the market value of securities declines.
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NON-INVESTMENT GRADE DEBT SECURITIES. Investors Bond Fund and TaxSaver
Bond Fund may invest in non-investment grade, high risk securities (securities
rated lower than the fourth highest rating category by an NRSRO), which provide
poor protection for payment of principal and interest. These lower rated
securities (often referred to as "junk bonds") involve greater risk of default
or price changes due to changes in the issuer's creditworthiness than do higher
quality securities. The market for these securities may be thinner and less
active than that for higher quality securities, which may affect the price at
which the lower rated securities can be sold. These risks may be magnified in
the case of unrated junk bonds. In addition, the market prices of lower rated
securities may fluctuate more than the market prices of higher quality
securities and may decline significantly in periods of general economic
difficulty or rising interest rates. Further information concerning these
investments is contained in the SAI.
5. ADDITIONAL INVESTMENT POLICIES
All investment policies of a Fund that are designated as fundamental,
and each Fund's investment objective, may not be changed without approval of the
holders of a majority of that Fund's outstanding voting securities. A majority
of a Fund's outstanding voting securities means the lesser of 67% of the shares
of that Fund present or represented at a shareholders' meeting at which the
holders of more than 50% of the shares are present or represented, or more than
50% of the outstanding shares of the Fund. Except as otherwise indicated,
investment policies of the Funds are not fundamental and may be changed by the
Board of Trustees of the Trust (the "Board") without shareholder approval. A
further description of the Funds' investment policies is contained in the SAI.
The Funds may borrow money for temporary or emergency purposes
(including the meeting of redemption requests), but, as a fundamental policy,
not in excess of 33 1/3% of the value of a Fund's total assets. Borrowing for
purposes other than meeting redemption requests will not exceed 10% of the value
of a Fund's total assets. No Fund may invest more than 15% of its net assets in
illiquid securities, including repurchase agreements not entitling the Fund to
the payment of principal within seven days. Although they have no current
intention, each Fund may in the future seek to hedge against a decline in the
value of securities it owns or an increase in the price of securities which it
plans to purchase through the writing and purchase of exchange-traded and
over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. In order to avoid maintaining idle cash, the
Funds may invest up to 10% of their total assets in money market mutual funds
that, in the case of TaxSaver Bond Fund, invest in municipal securities exempt
from Federal income taxes.
TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging by Investors Bond Fund and TaxSaver Bond Fund
involves special risks and may involve speculative investment techniques. These
Funds may borrow for other than temporary or emergency purposes, lend their
securities, enter into reverse repurchase agreements, and purchase securities on
a when issued or forward commitment basis. Each of these transactions involve
the use of "leverage" when cash made available to a Fund through the investment
technique is used to make additional portfolio investments. In addition, the use
of swap and related agreements may involve leverage. A Fund uses these
investment techniques only when the Adviser believes that the leveraging and the
returns available to the Fund from investing the cash will provide shareholders
a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital
base that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the net asset
value of the Fund's shares and the relatively greater effect on the net asset
value of the shares caused by favorable or adverse market movements or changes
in the cost of cash obtained by leveraging and the yield obtained from investing
the cash. So long as a Fund is able to realize a net return on its investment
portfolio that is higher than interest expense incurred, if any, leverage will
result in higher current net investment income being realized by the Fund than
if the Fund were not leveraged. On the other hand, interest rates change from
time to time as does their relationship to each other depending upon such
factors as supply and demand, monetary and tax policies and investor
expectations. Changes in such factors could cause the relationship between the
cost of leveraging and the yield to change so that rates involved in the
leveraging arrangement may
20
<PAGE>
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to shareholders,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share than if the Fund were
not leveraged. In an extreme case, if the Fund's current investment income were
not sufficient to meet the interest expense of leveraging, it could be necessary
for the Fund to liquidate certain of its investments at an inappropriate time.
The use of leverage may be considered speculative.
SEGREGATED ACCOUNT. In order to limit the risks involved in various
transactions involving leverage, the Trust's custodian will set aside and
maintain in a segregated account liquid assets in accordance with SEC
guidelines. The account's value, which is marked to market daily, will be at
least equal to a Fund's commitments under these transactions. A Fund's
commitments may include (i) the Fund's obligations to repurchase securities
under a reverse repurchase agreement, settle when-issued and forward commitment
transactions and make payments under a cap or floor, see "Swap Agreements" and
(ii) the greater of the market value of securities sold short or the value of
the securities at the time of the short sale (reduced by any margin deposit).
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each interest rate swap will be calculated on a
daily basis and an amount at least equal to the accrued excess will be
maintained in the segregated account. If the Fund enters into an interest rate
swap on other than a net basis, the Fund will maintain the full amount accrued
on a daily basis of the Fund's obligations with respect to the swap in their
segregated account. The use of a segregated account in connection with leveraged
transactions may result in a Fund's portfolio being 100 percent leveraged.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES. Each Fund
may seek additional income by entering into repurchase agreements or by lending
securities from its portfolio to brokers, dealers and other financial
institutions. These investments may entail certain risks not associated with
direct investments in securities. For instance, in the event that bankruptcy or
similar proceedings were commenced against a counterparty in these transactions
or a counterparty defaulted on its obligations, a Fund might suffer a loss. The
Adviser monitors the creditworthiness of counterparties to these transactions
and intends to enter into these transactions only when it believes the
counterparties present minimal credit risks and the income to be earned from the
transaction justifies the attendant risks.
Repurchase agreements are transactions in which a Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not related
to the coupon rate or maturity of the purchased security. When a Fund lends a
security it receives interest from the borrower or from investing cash
collateral. The Trust maintains possession of the purchased securities and any
underlying collateral in these transactions, the total market value of which on
a continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When these transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within two months after the
transaction. The Funds purchase securities on a when-issued or forward
commitment basis only with the intention of actually receiving or delivering the
securities, as the case may be. When-issued securities may include bonds
purchased on a "when, as and if issued" basis under which the issuance of the
securities depends upon the occurrence of a subsequent event, such as approval
of a proposed financing by appropriate municipal authorities.
During the period between a commitment and settlement, no payment is
made for the securities purchased and, thus, no dividends or interest accrues to
the purchaser from the transaction. However, at the time a Fund makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver or pay for a security purchased or sold by the Fund may result in a
loss or a missed opportunity to make an alternative investment. Any significant
commitment of a Fund's assets committed to the purchase of securities on a
when-issued or forward commitment basis may increase the volatility of its net
asset value.
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<PAGE>
The use of when-issued transactions and forward commitments may enable
a Fund to hedge against anticipated changes in interest rates and prices. If the
Adviser were to forecast incorrectly the direction of interest rate movements,
however, the Fund might be required to complete these transactions at prices
inferior to the current market values. No when-issued or forward commitment
transactions will be entered into by a Fund if, as a result, more than 15% of
the value of the Fund's total assets would be committed to such transactions.
DEBT SECURITIES
The market value of debt securities (including municipal securities)
depends on, among other things, conditions in the market for the security and
the fixed income markets generally, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The market value of the
interest-bearing debt securities held by the Funds will be affected by changes
in interest rates. There is normally an inverse relationship between the market
value of securities sensitive to prevailing interest rates and actual changes in
interest rates. In other words, a decline in interest rates produces an increase
in market value, while an increase in interest rates produces a decrease in
market value. Moreover, the longer the remaining maturity of a security, the
greater will be the effect of interest rate changes on the market value of that
security. Changes in the ability of an issuer to make payments of interest and
principal and in the market's perception of an issuer's creditworthiness will
also affect the market value of the debt securities of that issuer. Obligations
of issuers of debt securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. The
possibility exists, therefore, that, as a result of litigation or other
conditions, the ability of any issuer to pay, when due, the principal of and
interest on its debt securities may be materially impaired.
RATING MATTERS
The Funds will invest in securities rated in the categories specified
by their investment policies. Investors Bond Fund and TaxSaver Bond Fund may
purchase unrated 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. The Funds may
retain a security whose rating has been lowered below the Fund's lowest
permissible rating category (or that is unrated and determined by the Adviser to
be of comparable quality to a security whose rating has been lowered below the
Fund's lowest permissible rating category) if the Adviser determines that
retaining the security is in the best interests of the Fund.
The Fund's investments are subject to "credit risk" relating to the
financial condition of the issuers of the securities that the Funds hold. A
further description of the rating categories of certain NRSROs is contained in
the SAI.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Investors Bond Fund and TaxSaver Bond Fund
invest may have variable or floating rates of interest. These securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of a Fund to maintain a
stable net asset value. Similar to fixed rate debt instruments, variable and
floating rate instruments are subject to changes in value based on changes in
market interest rates or changes in the issuer's creditworthiness. The rate of
interest on securities purchased by a Fund may be tied to various rates of
interest or indices.
There may not be an active secondary market for certain floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of an instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. The Fund could, for this or other reasons, suffer a
loss with respect to an instrument. The Adviser monitors the liquidity of the
Funds' investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist. Investors High Grade Bond
Fund will not invest in variable and floating rate securities.
22
<PAGE>
SWAP AGREEMENTS
To manage its exposure to different types of investments, a Fund may
enter into interest rate, currency and mortgage (or other asset) swap agreements
and may purchase and sell interest rate "caps," "floors" and "collars." In a
typical interest rate swap agreement, one party agrees to make regular payments
equal to a floating interest rate on a specified amount (the "notional principal
amount") in return for payments equal to a fixed interest rate on the same
amount for a specified period. If a swap agreement provides for payment in
different currencies, the parties may also agree to exchange the notional
principal amount. Mortgage swap agreements are similar to interest rate swap
agreements, except that the notional principal amount is tied to a reference
pool of mortgages. In a cap or floor, one party agrees, usually in return for a
fee, to make payments under particular circumstances. For example, the purchaser
of an interest rate cap has the right to receive payments to the extent a
specified interest rate exceeds an agreed upon level; the purchaser of an
interest rate floor has the right to receive payments to the extent a specified
interest rate falls below an agreed upon level. A collar entitles the purchaser
to receive payments to the extent a specified interest rate falls outside an
agreed upon range.
Swap agreements may involve leverage and may be highly volatile;
depending on how they are used, they may have a considerable impact on the
Fund's performance. See "Techniques Involving Leverage." Swap agreements involve
risks depending upon the counterparty's creditworthiness and ability to perform
as well as the Fund's ability to terminate its swap agreements or reduce its
exposure through offsetting transactions. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when it believes the counterparties present minimal
credit risks and the income expected to be earned from the transaction justifies
the attendant risks.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, for example, when issues
of sufficient quality and liquidity are not available, a Fund may assume a
temporary defensive position and invest all or part of its assets in cash or
prime quality cash equivalents, including (i) short-term U.S. Government
securities, (ii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States, (iii) commercial paper, (iv) repurchase agreements covering any
of the securities in which the Fund may invest directly and (v) to the extent
permitted by the Investment Company Act of 1940, money market mutual funds.
During periods when and to the extent that a Fund has assumed a temporary
defensive position, it will not be pursuing its investment objective.
CORE AND GATEWAY(R)
Each Fund reserves the right to seek to achieve its investment
objective by converting to a Core and Gateway structure. Each Fund, upon future
action by the Board of Trustees and notice to shareholders, may convert to this
structure, in which the Fund would hold as its only investment securities the
shares of another investment company having substantially the same investment
objective and policies as the Fund. The Board of Trustees will not authorize
conversion to a Core and Gateway structure if it would materially increase costs
to a Fund's shareholders.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of each Fund (the portfolio
turnover rate) will vary from year to year depending on market conditions. From
time to time the Funds may engage in active short-term trading to benefit from
yield disparities among different issues of debt securities, to seek short-term
profits during periods of fluctuating interest rates, or for other reasons. This
type of trading will increase the Funds' portfolio turnover rate and transaction
costs and may increase the Funds' short-term capital gain, which is taxable as
ordinary income. The Adviser weighs the anticipated benefits of short-term
investments against these consequences. Investors Bond Fund's and TaxSaver Bond
Fund's portfolio turnover rates are reported under "Financial Highlights." For
the fiscal year ending March 31, 1998, the Investors High Grade Bond Fund's
portfolio turnover rate is not expected to exceed 100%.
23
<PAGE>
6. MANAGEMENT
The business of the Trust is managed under the direction of the Board
of Trustees. The Board formulates the general policies of the Funds and meets
periodically to review the results of the Funds, monitor investment activities
and practices and discuss other matters affecting the Funds and the Trust.
ADMINISTRATOR
Subject to the supervision of the Board, FAS supervises the overall
management of the Funds. FAS, FFSI, the Adviser, the Transfer Agent and Forum
Accounting Services, LLC ("FAcS"), the Funds' portfolio accountant, are members
of the Forum Financial Group of companies and together provide a full range of
services to the investment company and financial services industry. As of the
date of this Prospectus, FAS and FFSI acted as manager and distributor of
registered investment companies and collective trust funds with assets of
approximately $30 billion and FAS, FFSI, the Adviser, the Transfer Agent and
FAcS were controlled by John Y. Keffer, President and Chairman of the Trust.
Under its administration agreement with the Trust, FAS supervises all
aspects of the Funds' operations, including the receipt of services for which
the Trust is obligated to pay, provides the Trust with general office facilities
and provides, at the Trust's expense, the services of persons necessary to
perform such supervisory, administrative and clerical functions as are needed to
effectively operate the Trust. Those officers, as well as certain other
employees and Trustees of the Trust, may be directors, officers or employees of
(and persons providing services to the Trust may include) FAS and its
affiliates. For these services and facilities, FAS receives with respect to each
Fund a management fee at an annual rate of 0.20% of each Fund's average daily
net assets. Pursuant to an agreement with the Trust, FAcS performs portfolio
accounting services for the Funds, including determination of the Funds' net
asset value and receives a fee for its services.
DISTRIBUTOR
FFSI acts as the distributor of shares of the Funds pursuant to a
Distribution Agreement with the Trust. FFSI receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of the Funds'
shares. See "Purchases and Redemptions of Shares - Sales Charges." FFSI is a
registered broker-dealer and investment adviser and is a member of the National
Association of Securities Dealers, Inc.
ADVISER
Forum Investment Advisors, LLC serves as the investment adviser of each
Fund. Subject to the general supervision of the Board, the Adviser makes
investment decisions for the Funds. For its services, the Adviser receives an
advisory fee at an annual rate of 0.40% of each Fund's average daily net assets.
The Adviser was organized under the laws of Delaware in 1997 and is registered
under the Investment Advisers Act of 1940.
Les C. Berthy, Managing Director of the Adviser and its predecessor
Forum Advisors, Inc., since 1989, is primarily responsible for the day-to-day
management of the Funds' portfolios and has been since the Funds' inception.
Prior to his association with the Adviser and Forum Advisors, Inc., Mr. Berthy
was Managing Director and Co-Chief Executive Officer of Irwin Union Capital
Corp., an affiliate of Irwin Union Bank & Trust Co.
SHAREHOLDER SERVICING
Shareholder inquiries and communications concerning each Fund may be
directed to the Transfer Agent. The Transfer Agent also acts as the Funds'
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 any distributions that
are reinvested in additional shares and also performs other transfer agency
functions. For its services, the Transfer Agent receives a fee at an annual rate
of 0.25% of each Fund's average daily net assets plus $12,000 and certain
shareholder account fees.
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<PAGE>
The Transfer Agent is authorized to subcontract any or all of its
functions to one or more qualified sub-transfer agents or processing agents,
which may be processing organizations (as described under "Purchases and
Redemptions of Shares - Purchases and Redemptions through Financial
Institutions"), FAS or affiliates of FAS, who agree to comply with the terms of
the Transfer Agency Agreement. The Transfer Agent may pay those agents for their
services, but no such payment will increase the Transfer Agent's compensation
from the Trust.
EXPENSES OF THE TRUST
Each Fund's expenses comprise Trust expenses attributable to a Fund,
which are charged to the Fund, and expenses 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. Subject to the obligations of
the Adviser to reimburse the Trust for excess expenses of the Funds, the Trust
pays for all of its expenses. The Adviser and other service providers, in their
sole discretion, may waive all or any portion of their respective fees, which
are accrued daily and paid monthly. Any such waiver, which could be discontinued
at any time, would have the effect of increasing a Fund's performance for the
period during which the waiver was in effect and would not be recouped at a
later date.
7. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL INFORMATION
Investments in a Fund may be made either by an investor directly or
through certain brokers or financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through the Transfer
Agent, which accepts orders for purchases and redemptions from shareholders of
record and new investors. Shareholders of record will receive from the Trust
periodic statements listing all account activity during the statement period.
The Trust reserves the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders and may charge a
fee for certain shareholder services, although no such fees are currently
contemplated.
PURCHASES. Fund Shares are sold at a price equal to their net asset
value next-determined after acceptance of an order, plus any applicable sales
charge on all weekdays except days when the New York Stock Exchange is closed,
normally, New Year's Day, Martin Luther King Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas ("Fund Business Day"), see "Sales Charges" below. Fund shares are
issued immediately after an order for the shares in proper form is accepted by
the Transfer Agent. Each Fund's net asset value is calculated at 4:00 p.m.,
Eastern time on each Fund Business Day. Fund shares become entitled to receive
dividends on the next Fund Business Day after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase
of their shares. Stock certificates are issued only to shareholders of record
upon their written request and no certificates are issued for fractional shares.
REDEMPTIONS. Fund shares may be redeemed without charge at their net
asset value on any Fund Business Day. There is no minimum period of investment
and no restriction on the frequency of redemptions. Fund shares are redeemed as
of the next determination of the Fund's net asset value following acceptance by
the Transfer Agent of the redemption order in proper form (and any supporting
documentation which the Transfer Agent may require). Shares redeemed are not
entitled to receive dividends declared after the day on which the redemption
becomes effective.
Normally, redemption proceeds are paid immediately, but in no event
later than seven days, following acceptance of a redemption order. Proceeds of
redemption requests (and exchanges), however, will not be paid unless any check
used to purchase the shares has been cleared by the shareholder's bank, which
may take up to 15 calendar days. This delay may be avoided by investing through
wire transfers. Unless otherwise indicated, redemption proceeds normally are
paid by check mailed to the shareholder's record address. The right of
redemption may not be suspended nor the payment dates postponed for more than
seven days after the tender of the shares to the Fund except when the
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<PAGE>
New York Stock Exchange is closed (or when trading thereon is restricted) for
any reason other than its customary weekend or holiday closings or under any
emergency or other circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments
may be made wholly or partially in portfolio securities if the Board determines
that payment in cash would be detrimental to the best interests of the Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders
are genuine (which include recording certain transactions and the use of
shareholder security codes). If the Trust did not employ such procedures, it
could be liable for any losses due to unauthorized or fraudulent telephone
instructions. Shareholders should verify the accuracy of telephone instructions
immediately upon receipt of confirmation statements. During times of drastic
economic or market changes, telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach the
Transfer Agent by telephone, requests may be mailed or hand-delivered to the
Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder
services apply to investors who invest in the Funds directly. These investors
may open an account by submitting a fully completed Account Application Form at
the back of this Prospectus or by contacting the Transfer Agent at the address
on the first page of this prospectus. For those shareholder services not
referenced on the Account Application and to change information regarding a
shareholder's account (such as addresses), investors should request an Optional
Services Form from the Transfer Agent. Accounts submitted without a correct,
certified taxpayer identification number will be subject to backup withholding.
See the Account Application, "Taxpayer Identification Number Certification."
Shares also may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of the Transfer Agent. See "Purchases and Redemptions
Through Financial Institutions" below.
INITIAL PURCHASE OF SHARES
There is a $5,000 minimum for initial investments in each Fund ($2,000
for individual retirement accounts see "Individual Retirement Accounts" below).
BY MAIL. Investors may send a check made payable to the Trust along
with a completed account application to the Fund at the address listed on the
cover page of this Prospectus. Checks are accepted at full value subject to
collection. If a check does not clear, the purchase order will be canceled and
the investor will be liable for any losses or fees incurred by the Trust, the
Transfer Agent or Forum.
BY BANK WIRE. To make an initial investment in a Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Trust at 800-94FORUM (800-943-6786) or (207) 879-0001 to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
BankBoston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Financial Corp.
Account #: 541-54171
Re: [Name of Fund]
Account #:________________
Account Name:__________________
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<PAGE>
The investor should then promptly complete and mail the account
application. Any investor planning to wire funds should instruct a bank early in
the day so the wire transfer can be accomplished the same day. There may be a
charge imposed by the bank for transmitting payment by wire, and there also may
be a charge for the use of Federal Funds.
SUBSEQUENT PURCHASES OF SHARES
BY MAIL OR BANK WIRE. There is a $500 minimum for subsequent purchases.
Subsequent purchases may be made by mailing a check or by sending a bank wire as
indicated above. Shareholders using the wire system for purchase should first
telephone the Trust at 800-94FORUM (800-943-6786) or (207) 879-0001 to notify it
of the wire transfer. All payments should clearly indicate the shareholder's
name and account number.
AUTOMATIC PURCHASES. Shareholders may purchase Fund shares at regular,
preselected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an Automated Clearing House member. Under the program, existing
shareholders may authorize amounts of $250 or more to be debited from their bank
account and invested in a Fund monthly or quarterly. Shareholders may terminate
their automatic investments or change the amount to be invested at any time by
written notification to the Transfer Agent.
REDEMPTION OF SHARES
Shareholders who wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application. These privileges may not
be available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone.
BY MAIL. Shareholders may make a redemption in any amount by sending a
written request to the Transfer Agent accompanied by any stock certificate that
may have been issued to the shareholder. All written requests for redemption
must be signed by the shareholder with signature guaranteed and all certificates
submitted for redemption must be endorsed by the shareholder with signature
guaranteed.
BY TELEPHONE. A shareholder who has elected telephone redemption
privileges may make a telephone redemption request by calling the Transfer Agent
at 800-94FORUM (800-943-6786) or (207) 879-0001 and providing the shareholder's
account number, the exact name in which the shareholder's shares are registered
and the shareholder's social security or taxpayer identification number. In
response to the telephone redemption instruction, the Fund will mail a check to
the shareholder's record address or, if the shareholder has elected wire
redemption privileges, wire the proceeds.
BY BANK WIRE. For redemptions of more than $5,000, a shareholder that
has elected wire redemption privileges may request a Fund to transmit the
redemption proceeds by Federal Funds wire to a bank account designated on the
shareholder's account application. To request bank wire redemptions by
telephone, the shareholder also must have elected the telephone redemption
privilege. Redemption proceeds are transmitted by wire on the day after the
redemption request in proper form is received by the Transfer Agent.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds will be sent either by check or by
automatic transfer to a designated bank account maintained with a United States
banking institution which is an Automated Clearing House member. Under this
program, shareholders may authorize the redemption of shares in amounts of $250
or more from their account monthly, twice a month or quarterly. Shareholders may
terminate their automatic redemptions or change the amount to be redeemed at any
time by written notification to the Transfer Agent.
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<PAGE>
OTHER REDEMPTION MATTERS. A signature guarantee is required for any
written redemption request and for any endorsement on a stock certificate. A
signature guarantee also is required for instructions to change a shareholder's
record name or address, designated bank account for wire redemptions or
automatic investment or redemption, dividend election, telephone redemption or
exchange option election or any other option election in connection with the
shareholder's account. Signature guarantees may be provided by any eligible
institution, including a bank, a broker, a dealer, a national securities
exchange, a credit union, or a savings association that is authorized to
guarantee signatures, acceptable to the Transfer Agent. Whenever a signature
guarantee is required, the signature of each person required to sign for the
account must be guaranteed.
The Transfer Agent will deem a shareholder's account "lost" if
correspondence to the shareholder's address of record is returned for six
months, unless the Transfer Agent determines the shareholder's new address. When
an account is deemed lost all distributions on the account will be reinvested in
additional shares of the Fund. In addition, the amount of any outstanding
(unpaid for six months or more) checks for distributions that have been returned
to the Transfer Agent will be reinvested and the checks will be canceled.
SALES CHARGES
The public offering price for shares of a Fund is the sum of the net
asset value of the shares being purchased plus any applicable sales charge. No
sales charge is assessed on the reinvestment of dividends or other
distributions. The sales charge is assessed as follows (net asset value
percentages are rounded to the nearest one-hundredth percent):
<TABLE>
<S> <C> <C> <C>
Sales Charge
as % of
-----------------------------
Public
Offering Net Asset Dealers'
Amount of Purchase Price Value Reallowance
------------------ ----- ----- -----------
less than $100,000 3.75% 3.90% 3.25%
$100,000 but less than $200,000 3.25 3.36 2.85
$200,000 but less than $400,000 2.50 2.56 2.20
$400,000 but less than $600,000 2.00 2.04 1.75
$600,000 but less than $800,000 1.50 1.52 1.25
$800,000 but less than $1,000,000 1.00 1.01 0.75
$1,000,000 and up 0.50 0.50 0.40
</TABLE>
FFSI's commission is the sales charge shown above less any applicable
discount reallowed to selected brokers and dealers (including banks and bank
affiliates purchasing shares as principal or agent). Normally, FFSI will reallow
discounts to selected brokers and dealers in the amounts indicated in the table
above. From time to time, however, FFSI may elect to reallow the entire sales
charge to selected brokers or dealers for all sales with respect to which orders
are placed with FFSI during a particular period. The dealers' reallowance may be
changed from time to time.
In addition, from time to time and at its own expense, FFSI may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (i) the provision of travel arrangements and lodging,
(ii) tickets for entertainment events and (iii) merchandise.
No sales charge will be assessed on purchases made for investment
purposes by: (a) any bank, trust company, savings association or similar
institution with whom FFSI has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or other
employee benefit trust created pursuant to a qualified retirement plan); (b) any
registered investment adviser with whom FFSI has entered into a share purchase
agreement and which is acting on behalf of its fiduciary customer accounts; (c)
any broker-dealer with whom FFSI has entered into a Selected Dealer Agreement
and a Fee-Based or Wrap Account Agreement and which is acting on behalf of its
fee-based program clients; (d) directors and officers of the Trust; directors,
officers and full-time employees of the Adviser, FFSI, any of their affiliates
or any
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organization with which FFSI has entered into a selected dealer or processing
agent agreement; the spouse, sibling, direct ancestor or direct descendent
(collectively, "relatives") of any such person; any trust or individual
retirement account or self-employed retirement plan for the benefit of any such
person or relative; or the estate of any such person or relative; (e) any person
who has, within the preceding 90 days, redeemed Fund shares (but only on
purchases in amounts not exceeding the redeemed amounts) and completes a
reinstatement form upon investment; (f) persons who exchange into a Fund from a
mutual fund other than a fund of the Trust that participates in the Trust's
exchange program, see "Purchases and Redemptions of Shares - Exchange Program;"
and (g) employee benefit plans qualified under Section 401 of the Internal
Revenue Code of 1986. The Trust may require appropriate documentation from an
investor concerning that investor's eligibility to purchase Fund shares without
a sales charge. Any shares so purchased may not be resold except to the Fund.
REDUCED SALES CHARGES
For an investor to qualify for a reduced sales charge as described
below, the investor must notify the Transfer Agent at the time of purchase.
Programs for reduced sales charges may be modified or terminated at any time and
are subject to confirmation of an investor's holdings.
RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of
a Fund may qualify for rights of accumulation ("ROA") wherein the applicable
sales charge will be based on the total of the investor's current purchase and
the net asset value (at the end of the previous Fund Business Day) of shares of
that Fund held by the investor. For example, if an investor owned shares of a
Fund worth $400,000 at the then current net asset value and purchased shares of
the Fund worth an additional $50,000, the sales charge for the $50,000 purchase
would be at the 2% rate applicable to a single $450,000 purchase, rather than at
the 3.75% rate. To qualify for ROA on a purchase, the investor must inform the
Transfer Agent and supply sufficient information to verify that each purchase
qualifies for the privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based
on cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of a Fund. Each purchase of shares under a LOI will be made
at the public offering price applicable at the time of the purchase to a single
transaction of the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the
full amount indicated. Shares purchased with the first 5% of the amount
indicated in the LOI will be held subject to a registered pledge (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased within 13 months. Pledged shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the shares will be released from
pledge. Share certificates are not issued for shares purchased under an LOI.
Investors wishing to enter into an LOI can obtain a form of LOI from their
broker or financial institution or by contacting the Transfer Agent.
EXCHANGES
Fund shareholders are entitled to exchange their shares for shares of
the other Funds, any other fund of the Trust or any other fund that participates
in the exchange program (currently, Sound Shore Fund, Inc.) and whose shares are
eligible for sale in the shareholder's state of residence. Exchanges may only be
made between accounts registered in the same name. The minimum amount to open an
account in a Fund through an exchange from another fund is $2,500. A completed
account application must be submitted to open a new account in a Fund through an
exchange if the shareholder requests any shareholder privilege not associated
with the existing account. Exchanges are subject to the fees charged by, and the
restrictions listed in the prospectus for, the fund into which a shareholder is
exchanging, including minimum investment requirements. The Funds do not charge
for the exchange privilege and there is currently no limit on the number of
exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of
the shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
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<PAGE>
two funds as next determined following receipt of proper instructions and all
necessary supporting documents by the fund whose shares are being exchanged.
If a shareholder exchanges into a fund that imposes a sales charge, the
shareholder is required to pay the difference between that fund's sales charge
and any sales charge the shareholder has previously paid in connection with the
shares being exchanged. For example, if a shareholder paid a 2% sales charge in
connection with the purchase of the shares of a fund and then exchanged those
shares into another fund with a 3% sales charge, that shareholder would pay an
additional 1% sales charge on the exchange. Shares acquired through the
reinvestment of dividends and distributions are deemed to have been acquired
with a sales charge rate equal to that paid on the shares on which the dividend
or distribution was paid. The exchange privilege may be modified materially or
terminated by the Trust at any time upon 60 days' notice to shareholders.
BY MAIL. Exchanges may be accomplished by written instruction to the
Transfer Agent accompanied by any stock certificate that may have been issued to
the shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.
BY TELEPHONE. Exchanges may be accomplished by telephone by any
shareholder who has elected telephone exchange privileges by calling the
Transfer Agent at 800-94FORUM (800-943-6786) or (207) 879-0001 and providing the
shareholder's account number, the exact name in which the shareholder's shares
are registered and the shareholder's social security or taxpayer identification
number.
INDIVIDUAL RETIREMENT ACCOUNTS
Neither Investors High Grade Bond Fund nor Investors Bond Fund should
be considered as a complete investment vehicle for the assets held in individual
retirement accounts ("IRAs"). The minimum initial investment for an IRA is
$2,000 and the minimum subsequent investment is $500. There are limits on the
amount of tax-deductible contributions individuals may make into the various
types of IRAs. Individuals should consult their tax advisers with respect to
their specific tax situations as well as with respect to state and local taxes
and read any materials supplied by the Fund concerning Fund sponsored IRAs.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers,
banks, trust companies and their affiliates, and other financial institutions,
including affiliates of the Transfer Agent ("Processing Organizations").
Processing Organizations may receive as a dealer's reallowance a portion of the
sales charge paid by their customers who purchase Fund shares. In addition,
Processing Organizations may charge their customers a fee for their services and
are responsible for promptly transmitting purchase, redemption and other
requests to the Fund. The Trust is not responsible for the failure of any
Processing Organization to promptly forward these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in the Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Investors who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and the Fund's procedures, may have Fund shares
transferred into their name. Under their arrangements with the Trust,
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several
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<PAGE>
business days after a purchase order has been received by a Fund. Certain other
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who
have purchased shares through a Processing Organization. These shareholders
should contact their Processing Organization for further information. The Trust
may confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
8. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of each Fund's net investment income are declared daily and
paid monthly. Distributions of net capital gain, if any, realized by a Fund are
distributed annually.
Shareholders may choose either to have all dividends reinvested in
additional shares of the Fund that paid the dividend or received in cash. In
addition, shareholders may have dividends of net capital gain reinvested in
shares of each of the Funds and dividends of net investment income paid in cash.
All dividends are treated in the same manner for Federal income tax purposes
whether received in cash or reinvested in shares of the Funds.
All dividends will be reinvested at the Fund's net asset value as of
the payment date of the dividend. All dividends are reinvested unless another
option is selected. All dividends not reinvested will be paid to the shareholder
in cash. Cash payments may be paid more than seven days following the date on
which dividends would otherwise be reinvested.
TAXES
Each Fund intends to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Funds will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to their shareholders.
Because the Funds intend to distribute all of their net investment income and
net capital gain each year, the Funds should avoid all Federal income and excise
taxes.
INVESTORS BOND FUND AND INVESTORS HIGH GRADE BOND FUND. Dividends paid
by each Fund out of its net investment income (including any realized net
short-term capital gain) are taxable to shareholders as ordinary income.
TAXSAVER BOND FUND. Shareholders of the Fund generally will not be
subject to Federal income tax on dividends paid by the Fund out of tax-exempt
interest income earned by the Fund ("exempt-interest dividends"), assuming
certain requirements are met. Substantially all of the dividends paid by the
Fund are anticipated to be exempt-interest dividends. Any dividends paid by the
Fund out of its taxable net investment income (including any realized net
short-term capital gain) are taxable to shareholders as ordinary income.
Persons who are "substantial users" or "related persons" thereof of
facilities financed by private activity bonds held by the Fund may be subject to
Federal income tax on their pro rata share of the interest income from these
bonds and should consult their tax advisors before purchasing shares of the
Fund. Under current Federal tax law, interest on certain private activity bonds
is treated as an item of tax preference for purposes of the Federal AMT imposed
on individuals and corporations. In addition, interest on all tax-exempt
obligations is included in the "adjusted current earnings" of corporations for
Federal AMT purposes.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund generally is not deductible for Federal income tax purposes.
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<PAGE>
The exemption for Federal income tax purposes of dividends derived from
interest on municipal securities does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
Shareholders of the Fund may be exempt from state and local taxes on exempt
interest dividends derived from obligations of the state and/or municipalities
of the state in which they reside. Shareholders may, however, be subject to tax
on income derived from the municipal securities of jurisdictions other than
those in which they reside. Shareholders are advised to consult with their tax
advisors concerning the application of state and local taxes to investments in
the Fund which may differ from the Federal income tax consequences described
above.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares.
Shortly after the close of each year, a statement is sent to each
shareholder of the Fund advising the shareholder of the portion of total
dividends paid into the shareholder's account that is exempt from Federal income
tax and that is derived from the municipal securities of each state and from
other sources. These portions are determined for the entire year and on a
monthly basis and, thus, are an annual or monthly average, rather than a
day-by-day determination for each shareholder.
GENERAL. Distributions paid by a Fund out of its net investment income
(including any realized net short-term capital gain) are taxable to shareholders
as ordinary income. Two different tax rates apply to net capital gain -- that
is, the excess of net gain from capital assets held for more than one year over
net losses from capital assets held for not more than one year. One rate
(generally 28%) applies to net gain on capital assets held for more than one
year but not more than 18 months and a second rate (generally 20%) applies to
the balance of such net capital gains. Distributions of net capital gain will be
taxable to shareholders as such, regardless of how long a shareholder has held
shares in the Fund. If Fund shares are sold at a loss after being held for six
months or less, the loss will be treated as long-term capital loss to the extent
of any distribution of net capital gains received on those shares.
Any capital gain distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the distribution. To
the extent that capital gain was accrued by a Fund before the shareholder
purchased the shares, the distribution would be in effect a return of capital to
the shareholder. Capital gain distributions, including those that operate as a
return of capital, however, are taxable to the shareholder receiving them.
The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include taxable dividends, capital gain distributions and
redemption proceeds) paid to individuals and certain other non-corporate
shareholders. Withholding is not required if a shareholder certifies that the
shareholder's social security or tax identification number provided to the Funds
is correct and that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Funds will be mailed to shareholders shortly after the close of each year.
TAX-EXEMPT INCOME VS. TAXABLE INCOME
The table below shows approximate equivalent taxable and tax-free
yields at various approximate marginal Federal tax bracket rates. For example,
an investor in the 31% tax bracket for 1997 whose investments earn a 5% tax-free
yield would have to earn a 7.2% taxable yield to receive the same benefit.
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<PAGE>
1997 FEDERAL TAXABLE VS. TAX-FREE YIELDS
A Tax Free Yield of
------------------------------------------------------------------
4.0% 4.5% 5.0% 5.5%
Federal
Tax Bracket equals a taxable yield of approximately
----------- ---------------------------------------
39.6% 6.6% 7.5% 8.3% 9.2%
36.0% 6.3% 7.0% 7.8% 8.6%
31.0% 5.8% 6.5% 7.2% 8.0%
28.0% 5.6% 6.3% 6.9% 7.6%
The yields listed are for illustration only and are not necessarily
representative of TaxSaver Bond Fund's yield. Although the Fund primarily
invests in securities the interest from which is exempt from Federal income
taxes, some of the Fund's investments may generate taxable income. An investor's
tax bracket will depend upon the investor's taxable income. The figures set
forth above do not reflect the Federal alternative minimum taxes or any state or
local income taxes.
The foregoing is only a summary of some of the important Federal and
state tax considerations generally affecting the Funds and their shareholders.
There may be other Federal, state or local tax considerations applicable to a
particular investor. Prospective investors are urged to consult their tax
advisors.
9. OTHER INFORMATION
PERFORMANCE INFORMATION
Each Funds' performance may be quoted in advertising in terms of yield
or total return. Both types are based on historical results and are not intended
to indicate future performance. A Fund's yield is a way of showing the rate of
income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. TaxSaver Bond Fund may also quote tax equivalent
yields, which show the taxable yields a shareholder would have to earn to equal
the Fund's tax-free yields after taxes. A tax equivalent yield is calculated by
dividing the Fund's tax-free yield by one minus a stated Federal, state or
combined Federal and state tax rate. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period.
Each of the Funds also may advertise its total return over different periods of
time on a before-tax, after-tax or taxable-equivalent basis or by means of
aggregate, average, year by year, or other types of total return figures.
Because average annual returns tend to smooth out variations in the Funds'
returns, shareholders should recognize that they are not the same as actual
year-by-year results. A Fund's advertised yield and total return may or may not
reflect the maximum sales load applicable to the Fund. A computation of yield or
total return that does not take into account the sales load paid by an investor
will be higher than a computation based on the public offering price of the
shares purchased that does take into account payment of a sales load.
The Funds' advertisements may reference ratings and rankings among
similar funds by independent evaluators such as Morningstar, Lipper Analytical
Services, Inc. or IBC/Donoghue, Inc. In addition, the performance of the Funds
may be compared to recognized indices of market performance. The comparative
material found in a Fund's advertisements, sales literature or reports to
shareholders may contain performance ratings. These are not to be considered
representative or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate
to purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FAS would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them
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<PAGE>
would be sought. It is not expected that shareholders would suffer adverse
financial consequences as a result of any changes in bank or bank affiliate
service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the each Fund as
of 4:00 p.m., Eastern time, on each Fund Business Day by dividing the value of
the Fund's net assets (I.E., the value of its portfolio securities and other
assets less its liabilities) by the number of that Fund's shares outstanding at
the time the determination is made. Securities owned by a Fund for which market
quotations are readily available are valued at current market value, or, in
their absence, at fair value as determined by the Board.
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and
assumed the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996,
Forum Funds, Inc. was reorganized as a Delaware business trust. The Trust has an
unlimited number of authorized shares of beneficial interest. The Board may,
without shareholder approval, divide the authorized shares into an unlimited
number of separate portfolios or series (such as the Fund) and may in the future
divide portfolios or series into two or more classes of shares (such as Investor
and Institutional Shares). Currently the authorized shares of the Trust are
divided into 15 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of a 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
(and Trustees) 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.
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>
INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
MAINE MUNICIPAL BOND FUND
NEW HAMPSHIRE BOND FUND
- --------------------------------------------------------------------------------
Account Information and
Shareholder Servicing: Distributor:
Forum Financial Corp. Forum Financial Services, Inc.
P.O. Box 446 Two Portland Square
Portland, Maine 04112 Portland, Maine 04101
207-879-0001 207-879-1900
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1998
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectuses dated January
1, 1998 offering shares of the Investors High Grade Bond Fund, Investors Bond
Fund and TaxSaver Bond Fund, and the Prospectuses dated August 1, 1997 offering
shares of Maine Municipal Bond Fund and New Hampshire Bond Fund (collectively
the "Funds" and individually a "Fund") and should be read only in conjunction
with the Prospectus, a copy of which may be obtained without charge by
contacting the Trust's Shareholder Servicing agent at the address listed above.
TABLE OF CONTENTS
PAGE
1. General......................................................
2. Investment Policies..........................................
3. Investment Limitations.......................................
4. Performance Data.............................................
5. Management...................................................
6. Determination of Net Asset Value.............................
7. Portfolio Transactions.......................................
8. Additional Purchase and
Redemption Information.......................................
9. Taxation.....................................................
10. Other Information............................................
Appendix A - Description of Securities Ratings
Appendix B - Description of Municipal Securities
Appendix C - Hedging Strategies - Investors Bond Fund
and TaxSaver Bond Fund
Appendix D - Hedging Strategies - Maine Municipal Bond
Fund
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.
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<PAGE>
1. GENERAL
THE TRUST. The Trust is registered with the U.S. Securities and Exchange
Commission as an open-end, management investment company and was organized as a
business trust under the laws of the State of Delaware on August 29, 1995. On
January 5, 1996 the Trust succeeded to the assets and liabilities of Forum
Funds, Inc. Forum Funds, Inc. was incorporated on March 24, 1980 and assumed the
name of Forum Funds, Inc. on March 16, 1987. The Board has the authority to
issue an unlimited number of shares of beneficial interest of separate series
with no par value per share and to create separate classes of shares within each
series. The Trust currently offers shares of twenty-four series. The series of
the Trust are as follows:
<TABLE>
<S> <C> <C>
Daily Assets Treasury Fund Austin Global Equity Fund
Daily Assets Treasury Obligations Fund Oak Hall Equity Fund
Daily Assets Government Fund
Daily Assets Cash Fund Quadra Limited Maturity Treasury Fund
Daily Assets Tax-Exempt Fund Quadra Value Equity Fund
Quadra Growth Fund
Investors High Grade Bond Fund Quadra International Equity Fund
Investors Bond Fund Quadra Opportunistic Bond Fund
TaxSaver Bond Fund
Maine Municipal Bond Fund S&P 500 Index Fund
New Hampshire Bond Fund Investors Growth Fund
Investors Equity Fund
Payson Value Fund International Equity Fund
Payson Balanced Fund. Emerging Markets Fund
</TABLE>
DEFINITIONS. As used in this Statement of Additional Information, he following
terms shall have the meanings listed:
"Adviser" means Forum Investment Advisors, LLC.
"Board" means the Board of Trustees of Forum Funds.
"FAS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FFC" means Forum Financial Corp.
"FFSI" means Forum Financial Services, Inc.
"Fund" means Investors High Grade Bond Fund, Investors Bond Fund, Taxsaver Bond
Fund, Maine Municipal Bond Fund and New Hampshire Bond Fund
"Fund Business Day" has the meaning ascribed thereto in the current Prospectuses
of the Funds.
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<PAGE>
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" has the meaning ascribed thereto by the current
Prospectuses of the Funds.
"1940 Act" means the Investment Company Act of 1940, as amended.
37
<PAGE>
2. INVESTMENT POLICIES
GENERAL
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and other nationally recognized statistical rating organizations
("NRSROs") are private services that provide ratings of the credit quality of
debt obligations, including convertible securities. A description of the range
of ratings assigned to various types of bonds and other securities by several
NRSROs is included in Appendix A to this Statement of Additional Information.
The Funds may use these ratings to determine whether to purchase, sell or hold a
security. However, ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices. If an issue of securities ceases to be
rated or if its rating is reduced after it is purchased by a Fund, the
investment adviser of the Fund will determine 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. An issuer's current financial condition may be better or worse than a
rating indicates.
Each Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the
investment adviser to be of comparable quality) if the investment adviser
determines that retaining such security is in the best interests of the Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but settlements delayed beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, a Fund might sell
securities which it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices, a
Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the investment adviser to a Fund were
to forecast incorrectly the direction of interest rate movements, the Fund might
be required to complete such when-issued or forward commitment transactions at
prices inferior to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds enter into when-issued and forward commitment
transactions only with the intention of actually receiving or delivering the
securities, as the case may be. If a Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or to dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss. When-issued securities may include bonds purchased on a "when, as
and if issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Any significant commitment of a Fund's assets
to the purchase of securities on a "when, as and if issued" basis may increase
the volatility of its net asset value.
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<PAGE>
Each Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities (as defined in the Prospectus) and other liquid
high-grade debt securities in an amount at least equal to its commitments to
purchase securities on a when-issued or delayed delivery basis.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Trust's Board of Directors ("Board") has the ultimate responsibility for
determining whether specific securities are liquid or illiquid. The Board has
delegated the function of making day-to-day determinations of liquidity to the
investment adviser of each Fund, pursuant to guidelines approved by the Board.
The investment adviser takes into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
and quotations for the security; (2) the number of dealers willing to purchase
or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
The investment adviser monitors the liquidity of the securities in each Fund's
portfolio and reports periodically on such decisions to the Board.
REPURCHASE AGREEMENTS
The Funds may seek additional income by entering into repurchase agreements.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. The Trust's custodian
maintains possession of the underlying collateral, which is maintained at not
less than 100% of the repurchase price, and which consists of the types of
securities in which the Fund may invest directly.
LENDING OF PORTFOLIO SECURITIES
Each Fund may from time to time lend securities from its portfolio to brokers,
dealers and other financial institutions. Securities loans must be continuously
secured by cash or U.S. Government Securities with a market value, determined
daily, at least equal to the value of the Fund's securities loaned, including
accrued interest. The Fund receives interest in respect of securities loans from
the borrower or from investing cash collateral. The Funds may pay fees to
arrange the loans. Each Fund will, as a fundamental policy, limit securities
lending to not more than 10% of the value of its total assets.
TEMPORARY DEFENSIVE POSITION
When a Fund assumes a temporary defensive position it may invest without limit
in (i) short-term U.S. Government Securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States that have, at the time of investment, total
assets in excess of one billion dollars and that are insured by the Federal
Deposit Insurance Corporation, (iii) commercial paper of prime quality rated
Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the adviser to be of comparable quality, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) money market mutual funds.
OTHER INVESTMENT COMPANIES
The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. Under normal circumstances, each Fund intends
to invest less than 5% of the value of its net assets in the securities of other
investment companies. In addition to the Fund's expenses (including the various
fees), as a shareholder in
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another investment company, a Fund would bear its pro rata portion of the other
investment company's expenses (including fees).
INVESTORS HIGH GRADE BOND FUND, INVESTORS BOND FUND AND TAXSAVER BOND FUND
FUTURES CONTRACTS AND OPTIONS
Currently Investors High Grade Bond Fund and TaxSaver Bond Fund do not invest in
futures contracts and options. Investors Bond Fund (and, in the future, each
other Fund) may in the future seek to hedge against a decline in the value of
securities it owns or an increase in the price of securities which it plans to
purchase through the writing and purchase of exchange-traded and
over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. TaxSaver Bond Fund may buy or sell municipal
bond index futures contracts and both Funds may buy or sell futures contracts on
Treasury bills, Treasury bonds and other financial instruments. The Funds may
write covered options and buy options on the futures contracts in which they may
invest.
If the Adviser anticipates that interest rates will rise, a Fund may sell
futures contracts as a hedge against a decrease in the value of the Fund's
portfolio securities. Conversely, if the Adviser anticipates a decline in
interest rates, a Fund may purchase futures contracts to protect itself against
an increase in the price of the debt securities that the Fund might wish to
purchase.
In addition, each Fund may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid assets in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option.
The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options, futures contracts or related options and movements in the
price of the securities hedged or used for cover; (3) the fact that skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Funds invest; (4) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time; and (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences. Other risks include the inability of the Fund, as the writer of
covered call options, to benefit from the appreciation of the underlying
securities above the exercise price and the possible loss of the entire premium
paid for options purchased by the Fund. In addition, options and futures
contracts do not pay interest, but may produce taxable capital gains.
Each Fund will not hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, each Fund
will not buy futures contracts or write put options whose underlying value
exceeds 5% of the Fund's total assets and will not purchase call options if the
value of purchased call options would exceed 5% of the Fund's total assets. A
Fund will not enter into futures contracts and options thereon if immediately
thereafter more than 5% of the value of the Fund's total assets would be
invested in these options or committed to margin on futures contracts.
A Fund will only invest in futures and options contracts after providing notice
to its shareholders, filing a notice of eligibility (if required) and otherwise
complying with the requirements of the Commodity Futures Trading Commission
("CFTC"). The CFTC's rules provide that the Funds are permitted to purchase
futures or options contracts subject to CFTC jurisdiction only (1) for bona fide
hedging purposes within the meaning of the rules of the CFTC; provided, however,
that in the alternative with respect to each long position in a futures or
options
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contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, cash proceeds from existing
Fund investments due in 30 days and accrued profit on the contract held with a
futures commissions merchant; and (2) subject to certain limitations.
INVESTORS HIGH GRADE BOND FUND AND INVESTORS BOND FUND
MORTGAGE-RELATED SECURITIES. As described in the Prospectus, Investors High
Grade Bond Fund and Investors Bond Fund and Investors High Grade Bond Fund may
invest in mortgage-related securities, including Collateralized Mortgage
Obligations ("CMOs"). CMOs are typically structured with a number of classes or
series (often referred to as tranches) that have different maturities and are
generally retired in sequence. Each class of bonds receives periodic interest
payments according to the coupon rate on the bonds. However, all monthly
principal payments and any prepayments from the collateral pool are paid first
to the "Class 1" bondholders. The principal payments are such that the Class 1
bonds will be completely repaid no later than, for example, five years after the
offering date. Thereafter, all payments of principal are allocated to the next
most senior class of bonds until that class of bonds has been fully repaid.
Although full payoff of each class of bonds is contractually required by a
certain date, any or all classes of bonds may be paid off sooner than expected
because of an acceleration in prepayments of the obligations comprising the
collateral pool.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a Z-tranche). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Fund distributes all of its net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss. The
Adviser's analyses of particular CMO issues and estimates of future economic
indicators (such as interest rates) become more important to the performance of
a Fund as the securities become more complicated.
ASSET-BACKED SECURITIES. As described in the Prospectus, Investors High Grade
Bond Fund and Investors Bond Fund may invest in asset-backed securities, which
have structural characteristics similar to mortgage-backed securities but have
underlying assets that are not mortgage loans or interests in mortgage loans.
Asset-backed securities are securities that represent direct or indirect
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts and special purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-related debt securities or other securities in which Investors Bond
Fund may invest. Primarily, these securities do not always have the benefit of a
security interest in comparable collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and Federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a
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typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in the underlying automobiles. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities. Because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of the market cycle has
not been tested.
TAXSAVER BOND FUND, MAINE MUNICIPAL BOND FUND
AND NEW HAMPSHIRE BOND FUND
MUNICIPAL SECURITIES
The term "municipal securities," as used in the Prospectus and this Statement of
Additional Information means obligations of the type described in Appendix B
issued by or on behalf of states, territories, and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from Federal income tax. The municipal securities in
which the Funds invest are limited to those obligations which at the time of
purchase: (i) in the case of TaxSaver Bond Fund, are backed by the full faith
and credit of the United States; (ii) are municipal notes rated in the two
highest rating categories by an NRSRO, or, if not rated, are of comparable
quality as determined by the Adviser; (iii) are municipal bonds rated in the six
highest rating categories by an NRSRO or, if not rated, are of comparable
quality as determined by the Fund's investment adviser; or (iv) are other types
of municipal securities, provided that such obligations are of comparable
quality, as determined by the Adviser, to instruments in which the Fund may
invest.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill short-term capital needs and
generally have original maturities of 397 days or less. They include tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
construction loan notes and tax-exempt commercial paper.
MUNICIPAL LEASES. Municipal leases frequently have special risks not normally
associated with general obligation or revenue bonds or notes. Lease and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. To reduce this risk, TaxSaver Bond
Fund will only purchase municipal leases subject to a non-appropriation clause
when the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit or guarantee of a bank or other entity that has
long term outstanding debt securities rated in one of the top two rating
categories by an NRSRO.
VARIABLE AND FLOATING RATE OBLIGATIONS. The interest rates payable on certain
municipal securities, including municipal leases, in which a Fund may invest are
not fixed and may fluctuate based upon changes in market rates. These securities
are referred to as variable rate or floating rate obligations. Other features of
these obligations may include the right whereby the Fund may demand prepayment
of the principal amount of the obligation prior to its stated maturity and the
right of the issuer to prepay the principal amount prior to maturity. The main
benefit of a variable or floating rate municipal security is that the interest
rate adjustment minimizes changes in the market value of the obligation. As a
result, the purchase of these municipal securities enhances the ability of each
Fund to sell an obligation prior to maturity at a price approximating the full
principal amount of the obligation. The payment of principal and interest by
issuers of certain municipal securities purchased by a Fund may be guaranteed by
letters of credit or other credit facilities offered by banks or other financial
institutions. Such guarantees will be considered in determining whether a
municipal security meets the Fund's investment quality requirements. The
investment adviser will monitor the pricing, quality and liquidity of variable
rate and floating rate demand obligations held by each Fund on the basis of
published financial information, rating agency reports and other research
services to which a Fund or the Adviser may subscribe.
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PARTICIPATION INTERESTS. Each Fund may purchase participation interests in
municipal bonds, including private activity bonds and floating and variable rate
securities that are owned by banks or other financial institutions. A
participation interest gives a Fund an undivided interest in a municipal
security owned by a bank or other financial institution. These instruments carry
a demand feature permitting the holder to tender them back to the bank or other
institution and are generally backed by an irrevocable letter of credit or
guarantee of the bank or institution. The Fund can exercise the right, on not
more than thirty days' notice, to sell such an instrument back to the bank or
institution from which it purchased the instrument and draw on the letter of
credit for all or any part of the principal amount of the Fund's participation
interest in the instrument, plus accrued interest. Generally, a Fund will do so
only (i) as required to provide liquidity to the Fund, (ii) to maintain a high
quality investment portfolio, or (iii) upon a default under the terms of the
demand instrument. Banks and other financial institutions retain portions of the
interest paid on such participation interests as their fees for servicing such
instruments and the issuance of related letters of credit, guarantees and
repurchase commitments. Exposure to credit losses arising from the possible
financial difficulties of borrowers might affect the bank's or other
institution's ability to meet its obligations under its letter of credit or
other guarantee.
No Fund will purchase participation interests unless it is advised by counsel or
receives a ruling of the Internal Revenue Service that interest earned by the
Fund from the obligations in which it holds participation interests is exempt
from Federal income tax. The Internal Revenue Service has announced that it
ordinarily will not issue advance rulings on certain of the Federal income tax
consequences applicable to securities, or participation interests therein,
subject to a put. The Adviser will monitor the pricing, quality and liquidity of
participation interests held by each Fund on the basis of published financial
information, rating agency reports and other research services to which the
Funds or the Adviser may subscribe.
STAND-BY COMMITMENTS. Each Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Since the value of a stand-by commitment is dependent on the
ability of the stand-by commitment writer to meet its obligation to repurchase,
each Fund's policy is to enter into stand-by commitment transactions only with
municipal securities dealers which in the opinion of the Adviser present minimal
credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities which continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by a
Fund are valued at zero in determining net asset value. When a Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of a Fund's
portfolio of securities.
GENERAL. Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the money market and of the municipal bond
and municipal note markets, the size of a particular offering, the maturity of
the obligation and the rating of the issue. Municipal securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. An increase in
interest rates will generally reduce the market value of portfolio investments,
and a decline in interest rates will generally increase the value of portfolio
investments.
There can be no assurance that a Fund's objective will be achieved. The
achievement of a Fund's investment objective is dependent in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due. Municipal securities historically have not been subject to registration
with the Securities and Exchange Commission, although there have been proposals
which would require registration in the future.
The obligations of municipal securities issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. There is also the possibility
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that, as a result of litigation or other conditions, the ability of any issuer
to pay, when due, the principal of and interest on its municipal securities may
be materially affected.
CERTAIN INFORMATION CONCERNING THE STATE OF MAINE
Material in this section has been compiled from numerous sources including "The
Maine Economy: Year-End Review and Outlook, 1996," and "Maine Counties, Selected
Economic Measures, History and Forecasts - May 1997" prepared and published by
the Economics Division of the Maine State Planning Office. In addition, certain
information was obtained from the Official Statement of the State of Maine
published in connection with the issuance of $42,700,000 general obligation
bonds dated May 1, 1997. Other information concerning Maine budgetary matters
was obtained from official legislative documents, the Office of the Commissioner
of the Maine Department of Administrative and Financial Services, the Office of
the Treasurer of the State of Maine, the Bureau of the Budget of the Maine
Department of Administrative and Financial Services, the Office of Fiscal and
Program Review of the Maine Legislature, the Maine Department of Human Services,
the Maine Department of Labor, and the Maine State Retirement System. The most
recent information concerning credit ratings on debt issued by or on behalf of
the State of Maine and its subordinate agencies was obtained from credit reports
for the State of Maine published by S&P on September 23, 1996 and May 12, 1997,
by Moody's on May 13, 1997, and by Fitch Investors Service, Inc. ("Fitch"), on
May 9, 1997.
Although the information derived from the above sources is believed to be
accurate, none of the information obtained from these sources has been verified
independently. While the following summarizes the most current information
available from the above sources, it does not reflect economic conditions or
developments which may have occurred or trends which may have materialized since
the dates indicated.
The State of Maine, which includes nearly one-half of the total land area of the
six New England states, currently has a population of approximately 1,242,000.
The structure of the Maine economy is similar to that of the nation as a whole,
except that the Maine economy historically has had more activity in
manufacturing, defense-related activities, and tourism, and less activity in
finance and services. Recently, however, the manufacturing and defense-related
sectors of Maine's economy have decreased significantly, and the service
industry, retail, and financial services sectors of Maine's economy have
increased significantly.
During the 1980's, Maine's economy surpassed national averages in virtually all
significant measures of economic growth. During this ten-year period, Maine real
economic growth was 40% as measured by the Maine Economic Growth Index ("EGI"),
a broad-based measure of economic growth which is corrected for inflation. This
economic growth compares to national real economic growth during the 1980's of
26% and 29%, measured by the United States Economic Growth Index and real Gross
National Product respectively. During this time period, resident employment in
Maine increased by 21%, while resident employment nationally increased by 19%.
Inflation-adjusted retail sales in Maine during this period increased by 72%, as
opposed to a 32% increase in such retail sales nationally. During the 1980's,
per capita personal income in Maine rose from 44th in the nation in 1979, to
26th in the nation in 1989, or from 81% to 92% of the national average of per
capita personal income.
Beginning in the fourth quarter of 1989, however, the Maine economy experienced
a substantial temporary decline. For example, the Maine economy sustained only
0.8% real growth in 1989, and experienced real growth of -1.1% in 1990 and -2.6%
in 1991. Data show that the Maine economy began a sustained decline during the
fourth quarter of 1989, and the second quarter of 1991 saw the seventh
consecutive quarterly decline in the Maine EGI. The third and fourth quarters of
1991 showed barely positive economic growth of 0.9% and 0.2% respectively.
Economic recovery in Maine also has been hindered by significant losses in
defense-related jobs, with the State losing since 1990 approximately 20% of its
defense-dependent employment which peaked at 63,000 jobs in 1989. During the
1989-1991 period also, the State lost 6% of its entire job base.
Since 1991 the Maine economy has experienced a modest and sustained recovery,
and this recovery has continued slowly through the end of calendar year 1996. In
the words of the Economics Division of the Maine State Planning Office, "Maine
economic performance in 1996 was mixed, with the major indicators, on balance,
describing continued slow growth." In addition, the growth of Maine's economy in
1996 also continued to lag behind that of the nation as a whole, with real
growth in the Maine economy during 1996 of 2.1% compared to real growth in the
national Gross Domestic Product
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("GDP") during 1996 of 2.4%. Of the 17 major Maine economic indicators tracked
by the Maine State Planning Office in calendar year 1996, eight were positive,
eight were negative, and one (building permits) showed no significant change.
On the positive side, after five full years of slow economic recovery, the Maine
economy in 1996 finally regained its pre-recession job count of 545,000. In
addition, at the end of 1996, Maine's labor participation rate (the number of
persons employed as a percentage of the number of persons in the working age
population, ages 16 through 64) was very close to the record high 69% measured
in 1989, at the peak of the 1980's economic boom. Also, during 1996 unemployment
rates in Maine dropped significantly and consistently throughout the State. In
1996, every county in Maine experienced a significant drop in its unemployment
rate. In November of 1996, seasonally unadjusted unemployment rates in all 16
Maine counties were significantly lower than in November 1995; most counties
experienced a typical 1.2 - 1.5% drop over the previous November's unemployment
rate; five Maine counties recorded seasonally unadjusted unemployment rates well
below 4%; and one county (Cumberland) recorded a seasonally unadjusted
unemployment rate below 3%, at 2.3%. In November 1996, the seasonally unadjusted
unemployment rate for Maine as a whole dropped to 4.4% from 5.7% during November
1995. This trend has continued through the Spring of 1997. The latest seasonally
unadjusted unemployment rates available (May 1997) show Maine's seasonally
unadjusted unemployment rate for May 1997 at 4.6% vs. 5.1% for May 1996. The
unemployment rates in some Maine counties are approaching levels that economists
traditionally have viewed as incompressible. In the words of the Economics
Division of the Maine State Planning Office, currently in Maine "there are few
people left who want jobs and don't have them."
Also, on the positive side, in contrast to calendar year 1995 and the first half
of 1996, numerous Maine employers announced, or are proceeding with, plans for
significant business expansions in the State. For example, National
Semiconductor Corporation is proceeding with construction of a $830 million
wafer chip manufacturing facility in South Portland, which is expected to add
800 new jobs to the greater Portland area. MBNA America Bank, N.A., the second
largest issuer of credit cards in the nation, recently has invested $37 million
in new facilities in five Maine communities and has created 1,700 skilled and
semi-skilled jobs in Maine. In addition, MBNA is expected to add 2,000 more jobs
to its Maine payrolls in the next 2 1/2 years. Guilford of Maine, Inc. has
recently completed construction of a $30 million textile factory, reputed to be
the worlds' most modern, in Piscataquis County, and is actively training new
employees in cooperation with local secondary schools. John J. Nissen Baking
Company has announced plans to invest $40 million to build the world's largest
bakery in Biddeford, Maine. Finally, Tambrands, Inc. is investing $36 million to
consolidate all of its manufacturing activities in Auburn, Maine.
A further positive factor in the growth of Maine's economy is that Maine
employers recently have experienced a substantial decrease in workers'
compensation costs. For many years, Maine possessed the highest workers'
compensation insurance rates in the country. The issue was so devisive that it
caused a shutdown of State government in 1992. Since that time, however, the
Maine Legislature has created the Maine Employers' Mutual Insurance Co. and has
passed numerous reforms in Maine's workers' compensation laws. As a result,
workers' compensation insurance rates in Maine have dropped 34% since 1994.
Another positive step concerning workers' compensation insurance rates in Maine
was taken in May of this year when the Maine Legislature, at the request of the
Governor, refused to accede to a effort by organized labor to roll back many of
the reforms in Maine's workers' compensation laws enacted since 1992.
An additional positive indicator for the Maine economy is that Maine taxable
consumer retail sales were up 5.3% for the first ten months of 1996 compared to
the same period in 1995. This is a noteworthy improvement over 1995, when sales
were only up only 1.7% over 1994. These consumer retail sales data (including
among other items taxable retail sales related to the tourist industry) are
particularly significant for State of Maine credit purposes. Since roughly
one-third of Maine State government general fund revenues are derived from a 6%
retail sales tax, the performance of taxable retail sales in Maine is directly
related to the ability of Maine State government to fund necessary governmental
expenditures. Additionally on the positive side during 1996, unit sales of homes
in Maine increased 5% over 1995, the average sales price of a home in Maine
increased to over $113,000, and the average time on the market prior to sale for
homes in Maine declined.
On the negative side, Maine's economic recovery as a whole continues to lag
behind the national and New England averages. For example, between the second
quarter of 1995 and the second quarter of 1996 personal income in Maine
increased by only 3.5%. By comparison, for the same period national personal
income increased by 5.5% and personal income in New England as a whole increased
by 4.8%. Similarly, during 1996 Maine payroll employment growth (people
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on payrolls, not including the self-employed) was very slow. Such Maine payroll
employment growth grew only 0.4% during 1996 compared to 1.9% and 2.3% in 1995
and 1994 respectively. These statistics only underscore the fact that employment
growth at the national level continues to far outpace New England and Maine
employment growth. Since the trough of the recession in 1991, national
employment has increased a full 12%, or approximately 2% annually. By
comparison, New England employment growth for the same period has been only 7%,
and Maine employment growth for the same period has been only 6%, or 1/2 the
national average. In addition, despite very low unemployment rates and what the
Economics Division of the State Planning Office has alluded to as "tight labor
market conditions" in many of the most populous counties of the State,
bankruptcy filings, predominantly filings by individual debtors rather
businesses, have in the words of the State Planning Office, "skyrocketed through
1996." Such bankruptcy filings reached a level of 2,954 filings in 1996, or 30%
higher on an annual basis than was experienced in the depths of the recent
economic recession. In addition, the number of Maine residents receiving food
stamps has remained at very high levels, rising nearly 80% during the economic
recession, and dropping only 10% through the present when virtually all of the
jobs lost in the recession have been recovered. In addition, through most of
1996, construction contract awards in Maine were down 5% from the previous year.
These statistics show a very mixed picture for the performance of the Maine
economy during 1996, and in some instances during the first six months of 1997,
and they pose a continuing management challenge for those legislators and State
officials responsible for State fiscal policy.
The fiscal policies of the State of Maine are very conservative, and the State
is required by its Constitution to operate on a balanced budget. The Maine
Constitution does this by prohibiting the Legislature, by itself, from issuing
any debt by or on behalf of the State which exceeds $2,000,000 "except to
suppress insurrection, to repel invasion, or for purposes of war, and except for
temporary loans to be paid out of money raised by taxation during the fiscal
year in which they are made." The Maine Constitution also provides for the
prohibition of debt issued by or on behalf of the State to fund "current
expenditures." The Maine Constitution allows the issuance of long-term debt when
two-thirds of both houses of the Legislature pass a law authorizing the issuance
of such debt, and when the voters of the State ratify and enact such a law at a
general or special statewide election. Amendments to the Maine Constitution also
have been adopted to permit the Legislature to authorize the issuance of bonds
to insure payment of up to: (i) $6,000,000 of revenue bonds of the Maine School
Building Authority; (ii) $4,000,000 of loans to Maine students attending
institutions of higher education; (iii) $1,000,000 of mortgage loans for Indian
housing; (iv) $4,000,000 of mortgage loans to resident Maine veterans including
businesses owned by resident Maine veterans; and (v) $90,000,000 of mortgage
loans for industrial, manufacturing, fishing, agricultural and recreational
enterprises. The Maine Constitution provides that if the Legislature fails to
appropriate sufficient funds to pay principal and interest on general obligation
bonds of the State, the State Treasurer is required to set aside sufficient
funds from the first General Fund revenues received thereafter by the State to
make such payments.
In recent years, Maine State government has skirted the Maine constitutional
balanced budget requirement by annually issuing significant amounts of tax
anticipation notes ("TANs") during the first few days after the July 1 beginning
of each new fiscal year and leaving such TANs outstanding until almost the
beginning of the next fiscal year. For example, on June 26, 1996 the State
issued $150,000,000 in TANs due June 27, 1997. Both the size of these issues and
fiscal legitimacy for them, however, have recently been criticized, and the
State is becoming more conservative with regard to what amounts to a former
practice of maintaining almost permanent TANS of significant size. This has been
made possible largely by the continued imposition of tightly conservative State
fiscal policies that allowed the State to end fiscal year 1997 solidly in the
black with an estimated approximate $50 million surplus. No TAN was issued
immediately following the July 1 start of the 1997 fiscal year, and its issuance
was put off at least until August 1997. Recently, the State has been considering
further putting off the issuance of any TAN for State cash flow purposes,
because the need for such an issuance has not yet legitimately presented itself.
As of March 31, 1997, there were outstanding general obligation bonds of the
State in the principal amount of $444,157,945. On June 5, 1997, the State issued
$42,700,000 general obligation bonds dated May 1, 1997. On June 27, 1997,
$150,000,000 outstanding tax anticipation notes of the State matured, and after
the start of the new fiscal year on July 1, 1997 the State did not issue new
TANs to roll over this debt. Various other Maine governmental agencies and
quasi-governmental agencies including, but not limited to, the Maine Municipal
Bond Bank, the Maine Court Facilities Authority, the Maine Health and Higher
Educational Facilities Authority, Maine Turnpike Authority, the Maine State
Housing Authority, the Maine Public Utility Financing Bank, and the Maine
Educational Loan Authority, issue debt for Maine governmental purposes, but this
debt does not pledge the credit of the State.
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The strength of Maine's economy during the 1980's enabled the State to
accumulate relatively large unappropriated surpluses of general fund revenues.
During the economic recession of 1989 through 1992, however, Maine State
government repeatedly reduced its expenditures in order to comply with the
requirement of the Maine Constitution that State government operate on a
balanced budget. More recently, Maine State government has continued to downsize
and restructure its operations as part of an overall effort to improve the
management of numerous governmental programs. For example, recently the Maine
Legislature created a Productivity Realization Task Force and charged it with
identifying more than $45,000,000 of savings in State General Fund expenditures
during the 1996-1997 fiscal biennium. The Task Force, in fact, completed the
identification of $45.28 million in cuts to General Fund expenditures and passed
legislation to implement those cuts during the 1996-1997 biennium. The work of
the Task Force also will result in additional ongoing cuts of $60.1 million in
General Fund expenditures during the 1998-1999 biennium, and the permanent
elimination of approximately 1352 State jobs. Such cuts in General Fund
expenditures, other fiscal cost reductions, and a continuing policy by the
Governor not to allow the creation of significant new State governmental
programs or the taxes to fund such programs, allowed the Governor, on March 26,
1997, to sign a balanced budget for fiscal years 1998 and 1999 which provides:
(i) for fiscal year 1998, General Fund expenditures of $1,825,047,780 and
Highway Fund expenditures of $217,416,987; and (ii) for fiscal year 1999,
General Fund Expenditures of $1,984,859,413 and Highway Fund Expenditures of
$218,026,687.
During the First Regular Session of the 118th Maine Legislature which adjourned
on March 27, 1997, and the First Special Session of the 118th Maine Legislature
which adjourned on June 1, 1997, the Governor and the Legislature also took
several steps to improve the State's fiscal condition. First, the Legislature
passed and the Governor signed into law a repeal of an across the board State
income tax cap that was enacted in 1995 and scheduled to go into effect on July
1, 1997. If this State income tax cap had not been repealed, income tax revenues
expendable by the State beginning in fiscal year 1998 would have been restricted
to $676,230,000. Second, the Legislature and the Governor refused to eliminate
prior to its scheduled elimination on June 30, 1998, an excise tax on the value
of gross hospital patient service revenue, and increased this tax for hospital
payment years that end in fiscal year 1998 from 3.56% to 5.27%. Third, the
Legislature and the Governor enacted into law a "Tax Relief Fund for Maine
Residents" which requires, according to a formula, that 75% of General Fund
Revenues which exceed officially accepted estimates be used to increase the
personal exemption amount of the Maine Individual Income Tax up to the personal
exemption amount of the Federal Individual Income Tax. Also according to the
formula provided by the tax-relief statute, 25% of General Fund revenues which
exceed accepted estimates must be used to reduce the unfunded liability of the
Maine State Retirement System. As of the close of State's fiscal year on June
30, 1997, Maine General Fund Revenues exceeded accepted estimates by
approximately $50 million. This means that 75% of such excess General Fund
revenues, or an estimated $37.5 million, will be allocated to tax relief for
Maine residents, and 25% of such excess General Fund revenues, or an estimated
$12.5 million will be allocated to reduce the unfunded liability of the Maine
State Retirement System. The State also maintains a "Rainy Day Fund" to be used
for significant unforeseen capital and operational expenditures. To the extent
that General Fund revenues which exceed accepted estimates are diverted to the
purposes of tax relief for Maine residents and reduction of the unfunded
liability of the Maine State Retirement System, lesser amounts of such excess
General Fund Revenues will be available to fund the Rainy Day Fund.
As of July 14, 1997 the balance in the State's Rainy Day Fund was $45,497,470.
There can be no assurance that the budget acts for fiscal years 1998 and 1999,
and the various other statutes passed by the Maine Legislature which affect the
State's fiscal position, will not be amended by the Legislature from time to
time.
The unfunded liability of the Maine State Retirement System is a significant
problem for Maine State government. This unfunded liability currently is
certified by the State's independent actuaries to be approximately $2.9 billion.
Because of this, the State has adopted a constitutional amendment (Me. Const.
art. IX, ss.18-B) that requires the Maine Legislature, beginning in fiscal year
1997, annually to appropriate funds that will retire in 31 years or less the
System's unfunded liability attributable to State employees and teachers. The
State has also adopted a separate constitutional amendment (Me. Const. art. IX,
ss.18-A) that requires the Maine Legislature, beginning in fiscal year 1997,
annually to appropriate monies to fund the System on an actuarily sound basis.
Under Article IX, ss.18-B of the Maine Constitution, unfunded liabilities
henceforth may not be created for the System except those resulting from
experience losses, and such unfunded liabilities resulting from experience
losses must be retired over a period not exceeding 10 years.
Because of Maine's conservative debt policies and its constitutional requirement
that the State government operate under a balanced budget, Maine general
obligation bonds had been rated AAA by S&P and Aa1 by Moody's for many years.
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On June 6, 1991, however, S&P lowered its credit rating for Maine general
obligation bonds from AAA to AA+, and at the same time lowered its credit rating
on bonds issued by the Maine Municipal Bond Bank and the Maine Court Facilities
Authority, and on State of Maine Certificates of Participation for highway
equipment, from AA to A+. In taking this action, S&P said, "The rating action is
a result of declines in key financial indicators, and continued softness in the
state economy. The new rating continues to reflect the low debt burden of the
state, an economic base that has gained greater income levels and diversity over
the 1980's, and a legislative history of dealing effectively with financial
difficulties." These ratings have remained unchanged since June 6, 1991. Because
of slow but continuing improvements in the State of Maine economy, S&P currently
views the State's financial outlook as "stable," stating in its most recent May
12, 1997 credit report: "The outlook reflects the state's manageable budget
estimates and careful monitoring of revenues and expenditures. Economic growth
should continue at a slow, sustainable pace."
On August 24, 1993, citing the "effects of protracted economic slowdown and the
expectation that Maine's economy will not soon return to the pattern of robust
growth evident in the mid-1980's," Moody's lowered its State of Maine general
obligation bond rating from Aa1 to Aa. At the same time, Moody's lowered from
Aa1 to Aa the ratings assigned to state-guaranteed bonds of the Maine School
Building Authority and the Finance Authority of Maine, and confirmed at A1 the
ratings assigned to the bonds of the Maine Court Facilities Authority and State
of Maine Certificates of Participation. These ratings remained unchanged until
the current year. In its most recent credit report for the State of Maine, dated
May 13, 1997, Moody's "confirmed and refined from Aa to Aa3" the State's general
obligation bond rating. Moody's refinement of the State's bond rating on May 13,
1997 was part of a general redefinition by Moody's of its bond rating symbols
published on January 13, 1997. In its May 13, 1997 credit report, Moody's said:
"Among the factors contributing to the high grade rating are the state's sound
debt profile, with a moderate level of borrowing scheduled for rapid retirement,
and an improving financial trend, reflecting economic gains of recent years and
a fiscal policy aimed at achieving budgetary balance through steady government
cost-cutting and reduced reliance on one-time measures." In this same credit
report, however, Moody's also recognized specific negative factors which
affected the rating, saying: "The rating also recognizes the state's lagging
recovery from the recession of the early 1990s and continuing, though reduced,
exposure to potential defense contracting cutbacks; its narrow General Fund
position, whether measured on a GAAP or a cash basis; and its substantial
unfunded pension obligation which, by a variety of measures, is several times
the size of its direct debt."
For its June 5, 1997 general obligation bond issue dated May 1, 1997, Maine also
received a credit report from Fitch. In this credit report dated May 9, 1997
Fitch assigned a rating of AA to Maine general obligation bonds, saying:
"Maine's general obligations are well secured, with strength in the low burden
that debt places on resources and in the unusually rapid rate of amortization.
The economy continues to recover from the severity of the recession and
financial operations have regained normality. Institutionalization of financial
reforms, including accounting, the revenue estimation process and debt control
will be of benefit and the reserve is reasonably funded."
CERTAIN INFORMATION CONCERNING THE STATE OF NEW HAMPSHIRE
Material in this section has been abstracted from the State of New Hampshire
Official Statement dated May 28, 1997, which is compiled by the Treasurer of the
State of New Hampshire and which is provided to prospective purchasers of debt
securities offered by the State. While information in the Official Statement is
believed to be accurate, none of that information has been independently
verified. Also, it does not reflect economic conditions or developments that may
have occurred or trends that may have materialized since the date of the
Official Statement. Additionally, economic and fiscal conditions in individual
municipalities within the State may vary from general economic and fiscal
conditions.
New Hampshire is located in the New England Region and is bordered by the states
of Maine, Massachusetts, and Vermont and the Province of Quebec, Canada. New
Hampshire's geographic area is 9,304 square miles and its 1996 population was
1,163,000, representing a 1.3% increase from 1995 levels. New Hampshire's
population had increased by more than 25% in the 1980-1996 period.
New Hampshire's per capita personal income increased by 106.4% between 1980 and
1990. In 1991 it continued to grow faster than the New England region as a whole
and in 1992 and 1993 it grew at a slightly lower rate than the
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region, resuming faster growth relative to the region in 1994 and 1995. New
Hampshire's per capita personal income in 1996 was 109% of the national level,
ranking 8th in the United States.
In 1996, New Hampshire's largest employment sector was the service sector (28.8%
of employment), followed by retail and wholesale trade (25.8% of employment).
Manufacturing was the third largest sector (18.9% of employment).
Non-agricultural employment levels have remained fairly stable. The unemployment
rate declined to 4.2% in 1996, less than the national average, and preliminary
data for the month of March 1997 (seasonally adjusted) show New Hampshire's
unemployment rate at 2.1%, compared to a national average of 5.2%.
After a significant growth in residential building activity in the period
1980-86 (data based on residential building permits), New Hampshire's
residential building activity declined beginning in 1987, and declined below
1980 levels in 1990, 1991 and 1992. In 1993, residential building activity
surpassed 1980 levels and activity in 1994, 1995 and 1996 surpassed 1993.
New Hampshire finances the operations of state government through specialized
taxes, user charges and revenues received from the State liquor sales and
distribution system. There is no general tax on sales or earned income. The two
highest revenue-producing taxes are the Meals and Rooms Tax and the Business
Profits Tax. In 1992, State and local taxes amounted to $98.10 per $1,000 of
personal income, which was the fourth lowest in the United States. However,
because local property taxes are the principal source of funding for municipal
operations and primary and secondary education, New Hampshire was highest among
all states in local property tax collections per $1,000 of personal income.
New Hampshire State government's budget is enacted to cover a biennial period
through a series of legislative bills that establish appropriations and
estimated revenues for each sub-unit of State government, along with
supplemental and special legislation. By statute, the budget process is
initiated by the Governor, who is required to submit operating and capital
budget proposals to the Legislature by February 15 in each odd-numbered year.
While the Governor is required to state the means through which all expenditures
will be financed, there is no constitutional or statutory requirement that the
Governor propose or the Legislature adopt a budget without resorting to
borrowing. There is no line item veto.
State government funds include the General Fund, four special purpose funds and
three enterprise funds, as well as certain "fiduciary" funds. All obligations of
the State are paid from the State Treasury, and must be authorized by a warrant
signed by the Governor and approved by the Executive Council, except for
payments of debt obligations, which are paid by the State Treasurer under
statutory authority.
By statute, at the close of each fiscal year, any General Fund operating surplus
up to 5% of General Fund unrestricted revenue must be deposited in a Revenue
Stabilization Reserve Account ("Rainy Day Fund"). With approval of the
Legislative Fiscal Committee, the Governor and the Executive Council, the Rainy
Day Fund is available to defray operating deficits in ensuing years if there is
a shortfall in forecast revenue. By statute, the Rainy Day Fund may not be used
for any other purpose except by special appropriation approved by two-thirds of
each Legislative chamber and the Governor. As of June 30, 1996 there was a
designated balance of $20 million in the Rainy Day Fund.
The Department of Administrative Services is responsible for maintenance of
State government's accounting system, annual reports and general budget
oversight. Expenditures are controlled against appropriations through an
integrated accounting system which compares the amount of an appropriation to
expenditures and encumbrances previously charged against that appropriation
before creating an expenditure. By law, with certain exceptions unexpended and
unencumbered balances of appropriations lapse to surplus in the applicable fund
at the end of each fiscal year, along with unappropriated revenues in excess of
legislative estimates. Legislative financial controls involve the Office of
Legislative Budget Assistant ("LBA") which acts under supervision of the
Legislative Fiscal Committee and Joint Legislative Capital Budget Overview
Committee. LBA conducts overall post-audit and review of the budgetary process.
State government financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") and are independently audited annually.
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During the 1992-1993 biennium, State revenues began recovering from the decline
that had characterized the recession years of 1989, 1990 and 1991. The General
Fund undesignated fund balance at June 30, 1992 was $43.1 Million, with
accumulated undesignated fund balance of $18.6 Million; at June 30, 1993, the
General Fund undesignated fund balance was $31.5 Million and at June 30, 1994,
$12.0 Million. For the fiscal year ended June 30, 1995, the General Fund
undesignated fund balance was zero, after transferring $35.1 Million from the
Healthcare Transition Fund to offset a delay in receipt of federal funds from
disproportionate share expenditures under the Medicaid program. At June 30,
1996, the General Fund undesignated fund balance was ($44.2 Million) after a net
transfer to the Healthcare Transition Fund of $21.9 Million, and is projected at
($25.8 Million) at June 30, 1997.
There is no constitutional limit on the State's power to issue obligations or
incur indebtedness, and no constitutional requirement for referendum to
authorize incurrence of indebtedness by the State. Authorization and issuance of
debt is governed entirely by statute. New Hampshire pursues a debt management
program designed to minimize use of short-term debt for operating purposes and
to coordinate issuance of tax-exempt securities by the State and its agencies.
State-guaranteed bonded indebtedness is authorized not only for general purposes
of State government, but also for the New Hampshire Turnpike System, University
System of New Hampshire, water supply and pollution control, water resources
acquisition and construction, School Building Authority, Pease Development
Authority, Business Finance Authority, Municipal Bond Bank and cleanup of
municipal Super Fund sites and landfills. In addition, the Housing Finance
Authority and Higher Education and Health Facilities Authority are authorized to
issue bonds that do not constitute debts or obligations of the State.
Procedure for incurrence of bonded indebtedness by individual municipalities is
governed by State statutes, which prescribe actions that must be pursued by
municipalities in incurring bonded indebtedness and limitations on the amount of
such indebtedness. In general, incurrence of bonded indebtedness by a
municipality must be for a statutorily authorized purpose and requires a
two-thirds majority vote of the municipality's legislative body.
On December 30, 1993, the New Hampshire Supreme Court reinstated and remanded
for trial a lawsuit challenging the constitutionality of the State's system of
financing public schools primarily through local property taxes. The Court ruled
that the New Hampshire Constitution imposes an enforceable duty on the State to
provide an "adequate" education to every educable child and to guarantee
adequate funding. However, the Court did not determine the adequacy of the
State's current education programs or current funding levels, leaving those
matters to the Legislative and Executive branches to determine in the first
instance. The lawsuit was tried in the Spring of 1996, resulting in a decision
by the trial court denying any relief to the plaintiffs. The decision is
currently under appeal to the New Hampshire Supreme Court. The potential impact,
if any, of this litigation on the State's finances cannot presently be
determined.
2. INVESTMENT LIMITATIONS
Investors High Grade Bond Fund, Investors Bond Fund, TaxSaver Bond Fund and
Maine Municipal Bond Fund have adopted the following fundamental investment
limitations which are in addition to those contained in the Funds' Prospectus
and which may not be changed without shareholder approval. No Fund may:
(1) Borrow money, except for temporary or emergency purposes
(including the meeting of redemption requests) and except for
entering into reverse repurchase agreements, and provided that
borrowings do not exceed 33 1/3% of the Fund's total assets
(computed immediately after the borrowing).
(2) 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.
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(3) Make loans to other persons except for loans of portfolio
securities and except through the use of repurchase agreements
and through the purchase of commercial paper or debt
securities which are otherwise permissible investments.
(4) 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.
(5) 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.
(6) Issue senior securities except pursuant to Section 18 of the
Investment Company Act of 1940 ("1940 Act") and except that
the Fund may borrow money subject to investment limitations
specified in the Fund's Prospectus.
(7) Invest in interests in oil or gas or interests in other
mineral exploration or development programs.
In addition to the foregoing, Investors Bond Fund and TaxSaver Bond Fund have
adopted the following fundamental investment limitations concerning
diversification and industry concentration. The Funds may not:
(1) Purchase securities, other than U.S. Government Securities, of
any one issuer, if (a) more than 5% of the Fund's total assets
taken at market value would at the time of purchase be
invested in the securities of that issuer, or (b) such
purchase would at the time of purchase cause the Fund to hold
more than 10% of the outstanding voting securities of that
issuer. Up to 50% of the Fund's total assets may be invested
without regard to this limitation.
(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.
Investors High Grade Bond Fund has adopted the following fundamental investment
limitations concerning diversification and industry concentration. The Fund may
not:
(1) With respect to 75% of its assets, purchase securities, other
than U.S. Government Securities, of any one issuer, if (a)
more than 5% of the Fund's total assets taken at market value
would at the time of purchase be invested in the securities of
that issuer, or (b) such purchase would at the time of
purchase cause the Fund to hold more than 10% of the
outstanding voting securities of that issuer.
(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.
Maine Municipal Bond Fund has adopted the following fundamental investment
limitations concerning investment in securities of issuers in the same industry
and investment in securities having voting rights. The Fund may not:
(1) Purchase securities, other than U.S. Government Securities,
if, immediately after each purchase, more than 25% of the
Fund's total assets taken at market value would be invested in
securities of issuers conducting their principal business
activity in the same industry. For this purpose, consumer
finance companies, industrial finance companies, and gas,
electric, water and telephone utility companies are each
considered to be separate industries.
(2) Purchase securities having voting rights except securities of
other investment companies.
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Investors Bond Fund, Investors High Grade Bond Fund, TaxSaver Bond Fund and
Maine Municipal Bond Fund have adopted the following nonfundamental investment
limitations that may be changed by the Board without shareholder approval. No
Fund may:
(a) Pledge, mortgage or hypothecate its assets, except to secure
permitted indebtedness. The deposit in escrow of securities in
connection with the writing of put and call options,
collateralized loans of securities and collateral arrangements
with respect to margin for futures contracts are not deemed to
be pledges or hypothecations for this purpose.
(b) Invest in securities of another registered investment company,
except in connection with a merger, consolidation, acquisition
or reorganization; and except that the Fund may invest in
money market funds and privately-issued mortgage related
securities to the extent permitted by the 1940 Act.
(c) Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary
for the clearance of purchases and sales of portfolio
securities, except that the Fund may make margin deposits in
connection with permitted transactions in options, futures
contracts and options on futures contracts.
(d) Invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted
continuous operations for less than three years, including the
operations of predecessors, unless guaranteed as to principal
and interest by an issuer in whose securities the Fund could
invest, if as a result, more than 5% of the value of the
Fund's total assets would be so invested.
(e) Invest in or hold securities of any issuer if officers and
directors of the Trust or the 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 10% or more of the Fund's total assets is outstanding
or borrow for purposes other than meeting redemptions in an
amount exceeding 10% of the value of the Fund's total assets.
(g) Acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (i) 15%
of the Fund's net assets (taken at current value) would be
invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in securities which
are not readily marketable, including securities that are
illiquid by virtue of restrictions on the sale of such
securities to the public without registration under the
Securities Act of 1933 ("Restricted Securities") or (ii) 10%
of the Fund's total assets would be invested in Restricted
Securities.
(h) Purchase or sell real property leases (including limited
partnership interests, but excluding readily marketable
interests in real estate investment trusts or readily
marketable securities of companies which invest in real
estate.)
In addition to the foregoing, Investors Bond Fund, Investors High Grade Bond
Fund and TaxSaver Bond Fund have adopted the following nonfundamental investment
limitation concerning investment in securities having voting rights. The Funds
may not:
(a) Purchase securities having voting rights except securities of
other investment companies.
Maine Municipal Bond Fund has adopted the following nonfundamental investment
limitation. The Fund may not:
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(a) Invest in oil, gas or other mineral exploration or development
programs, or leases, provided that the Fund may invest in
securities issued by companies engaged in such activities.
The New Hampshire Bond Fund has adopted the following fundamental investment
limitations that cannot be changed without the affirmative vote of a majority of
the Fund's outstanding voting securities. The Fund may not:
(1) With respect to 50% of its assets, purchase a security other
than a U.S. Government Security of any one issuer if, as a
result, more than 5% of the Fund's total assets would be
invested in the securities of that issuer or the Fund would
own more than 10% of the outstanding voting securities of that
issuer.
(2) Purchase securities if, immediately after the purchase, more
than 25% of the value of the Fund's total assets would be
invested in the securities of issuers having their principal
business activities in the same industry, provided there is no
limit on investments in U.S. Government Securities, municipal
securities or in the securities of domestic financial
institutions (not including their foreign branches). For this
purpose, consumer finance companies, industrial finance
companies, and gas, electric, water and telephone utility
companies are each considered to be separate industries.
(3) Underwrite securities of other issuers, except to the extent
that the Fund may be considered to be acting as an underwriter
in connection with the disposition of portfolio securities.
(4) Purchase or sell real estate or any interest therein, except
that the Fund may invest in debt obligations secured by real
estate or interests therein or issued by companies that invest
in real estate or interests therein.
(5) Invest in commodities or in commodity contracts, except that,
to the extent the Fund is otherwise permitted, the Fund may
enter into financial futures contracts and options on those
futures contracts and may invest in currencies and
currency-related contracts.
(6) Borrow money, except for temporary or emergency purposes
(including the meeting of redemption requests) and except for
entering into reverse repurchase agreements, provided that
borrowings do not exceed 33 1/3% of the Fund's net assets.
(7) Issue senior securities except as appropriate to evidence
indebtedness that the Fund is permitted to incur, and provided
that the Fund may issue shares of additional series or classes
that the Board may establish.
(8) Make loans except for loans of portfolio securities, through
the use of repurchase agreements, and through the purchase of
debt securities that are otherwise permitted investments.
The New Hampshire Bond Fund has adopted the following nonfundamental investment
limitations that may be changed by the Board without shareholder approval. The
Fund may not:
(a) Purchase securities for investment while any borrowing
equaling 10% or more of the Fund's total assets is
outstanding; and if at any time the Fund's borrowings exceed
the Fund's investment limitations due to a decline in net
assets, such borrowings will be promptly (within three days)
reduced to the extent necessary to comply with the
limitations.
(b) Purchase securities that have voting rights, except the Fund
may invest in securities of other investment companies to the
extent permitted by the Investment Company Act of 1940 (the
"1940 Act").
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(c) Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary
for the clearance of purchases and sales of portfolio
securities.
(d) Invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted
continuous operations for less than three years, including the
operations of predecessors (unless guaranteed as to principal
and interest by an issuer in whose securities the Fund could
invest) if as a result, more than 5% of the value of the
Fund's total assets would be so invested.
(e) Invest in or hold securities of any issuer other than the Fund
if, to the Fund's knowledge, those directors and officers of
the 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) Invest in oil, gas or other mineral exploration or development
programs, or leases, provided that the Fund may invest in
securities issued by companies engaged in such activities.
(g) Acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (i) 15%
of the Fund's net assets (taken at current value) would be
invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in securities which
are not readily marketable or (ii) 10% of the Fund's total
assets would be invested in securities that are illiquid by
virtue of restrictions on the sale of such securities to the
public without registration under the Securities Act of 1933.
(h) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of
companies which invest in real estate.)
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of the
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
For purposes of the limitation set forth above with respect to TaxSaver Bond
Fund, which relates to the diversification of the Fund's assets, the District of
Columbia, each state, each political subdivision, agency, instrumentality and
authority thereof, and each multi-state agency of which a state is a member is
deemed to be a separate "issuer." When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from the
government creating the subdivision and the security is backed only by the
assets and revenues of the subdivision, such subdivision would be deemed to be
the sole issuer. Similarly, in the case of private activity bonds, if the bond
is backed only by the assets and revenues of the nongovernmental user, then such
nongovernmental user would be deemed to be the sole issuer. However, if in
either case, the creating government or some other agency guarantees a security,
that guarantee would be considered a separate security and would be treated as
an issue of such government or other agency.
No more than 25% of a Fund's total assets may be invested in the securities of
one issuer. However, this limitation does not apply to securities of an issuer
payable solely from the proceeds of U.S. Government Securities.
3. PERFORMANCE DATA
The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
indicate future returns. The Funds' net asset value, yield and total return
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
Standardized SEC yield and total return information as of March 31, 1997 is set
forthin the following tables:
54
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
30 Day
30 Day Annualized Total Return
Annualized Tax Equivalent Total Return Total Return Since
Yield Yield 1 Year 5 Year Inception
----- ----- ------ ------ ---------
INVESTORS BOND
FUND 7.49% N/A 7.18% 7.91% 8.92%
TAXSAVER BOND FUND
4.74% 7.85% 5.15% 7.02% 7.38%
MAINE MUNICIPAL
BOND FUND 4.19% 7.58% 4.98% 6.73% 6.64%
NEW HAMPSHIRE
BOND FUND 4.34% 7.57% 4.56% N/A 5.73%
</TABLE>
Tax-equivalent yield for TaxSaver Bond Fund is based on a Federal income tax
rate of 39.6%. The tax equivalent yield for Maine Municipal Bond Fund is based
on a combined Federal and Maine state income tax rate of 48.1% (Federal 39.6%
and State of Maine 8.5%). The tax equivalent yield for New Hampshire Bond Fund
is based on a combined Federal and New Hampshire state income tax rate of 44.6%
(Federal 39.6% and State of New Hampshire 5.0%).
Investors Bond Fund and TaxSaver Bond Fund commenced operations on October 2,
1989. Maine Municipal Bond Fund and New Hampshire Bond Fund commenced operations
on December 5, 1991 and December 31, 1992, respectively.
In advertising performance 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 indices,
including but not limited to the Municipal Bond Buyers Indices, the Salomon
Brothers Bond Index, the Shearson Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, U.S. Treasury
bonds, bills or notes and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Funds may refer to general market
performances over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook"). In
addition, the Funds may refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussions of the Funds and comparative mutual
fund data and ratings reported in independent periodicals, such as newspapers
and financial magazines.
For example, the Funds may advertise the historical advantages, based on assumed
investments made on particular dates, in long term corporate bonds or in the S&P
500 Composite Stock Index against U.S. Treasury bills, as published by the
companies listed above.
YIELD CALCULATIONS
Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30 days or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced with
respect to bonds purchased at a premium over their par value by subtracting a
portion of the premium
55
<PAGE>
from income on a daily basis, and is increased with respect to bonds purchased
at a discount by adding a portion of the discount to daily income. Capital gain
and loss generally are excluded from these calculations.
Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
The tax equivalent yield for TaxSaver Bond Fund is the rate an investor would
have to earn from a fully taxable investment in order to equal the Fund's yield
after taxes. Tax equivalent yields are calculated by dividing the Fund's yield
by one minus the stated Federal or combined Federal and state tax rate. If only
a portion of the Fund's yield is tax-exempt, only that portion is adjusted in
the calculation.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. Also, Processing Organizations (as defined
in the Prospectuses) may charge their customers direct fees in connection with
an investment in a Fund, which will have the effect of reducing the Fund's net
yield to those shareholders. The yields of each Fund are not fixed or
guaranteed, and an investment in a Fund is not insured or guaranteed.
Accordingly, yield information may not necessarily be used to compare shares of
a Fund with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. Also, it may not be appropriate
to compare a Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
TOTAL RETURN CALCULATIONS
Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value.
ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gain and changes in share price) in order
to illustrate the
56
<PAGE>
relationship of these factors and their contributions to total return. Total
returns, yields and other performance information may be quoted numerically or
in a table, graph or similar illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in
average annual total return above.
4. MANAGEMENT
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Chairman and President (age 55)
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, LLC (a mutual fund
administrator), 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 Administrative Services, LLC serves as manager or
administrator and 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 53)
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 54)
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 53)
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
41)
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.
57
<PAGE>
Robert Campbell, Treasurer (age 36)
Director of Fund Accounting, Forum Financial Corp., with which he has
been associated since April 1997. Prior thereto, Mr. Campbell was the
Vice President of Domestic Operations for State Street Fund Services
in Toronto, Ontario, and prior to that, Mr. Cambell served as
Assistant Vice President/Fund Manager of Mutual Fund, State Street
Bank & Trust in Boston, Massachusetts. Mr. Campbell is also treasurer
of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
David I. Goldstein, Secretary (age 35)
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 Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
Max Berueffy, Assistant Secretary (age 46)
Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto, Mr. Berueffy was on the staff of
the U.S. Securities and Exchange Commission for seven years, first in
the appellate branch of the Office of the General Counsel, then as a
counsel to Commissioner Grundfest and finally as a senior special
counsel in the Division of Investment Management. Mr. Berueffy is also
Secretary or Assistant Secretary of various registered investment
companies for which Forum Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. His address is Two Portland Square, Portland, Maine
04101.
Cheryl O. Tumlin, Assistant Secretary (age 31)
Assistant Counsel, Forum Financial Services, Inc., with which she has
been associated since July 1996. Prior thereto, Ms. Tumlin was on the
staff of the U.S. Securities and Exchange Commission as an attorney in
the Division of Market Regulation and prior thereto Ms. Tumlin was an
associate with the law firm of Robinson Silverman Pearce Aronsohn &
Berman in New York, New York. Ms. Tumlin is also Assistant Secretary
of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. Her address is Two
Portland Square, Portland, Maine 04101.
M. Paige Turney, Assistant Secretary (age 28).
Fund Administrator, Forum Financial Services, Inc., with which she has
been associated since 1995. Ms. Turney was employed from 1992 as a
Senior Fund Accountant with First Data Corporation in Boston,
Massachusetts. Prior thereto she was a student at Montana State
University. Ms. Turney is also Assistant Secretary of various
registered investment companies for which Forum Administrative
Services, LLC or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. Her address is Two Portland Square,
Portland, Maine 04101.
TRUSTEE COMPENSATION. Each Trustee of the Trust (other than John Y. Keffer, who
is an interested person of the Trust) is paid $1,000 for each Board meeting
attended (whether in person or by electronic communication) and is paid $1,000
for each committee meeting attended on a date when a Board meeting is not held.
As of March 31, 1997, in addition to $1,000 for each Board meeting attended,
each Trustee receives $100 per active portfolio of the Trust. To the extent a
meeting relates to only certain portfolios of the Trust, Trustees are paid the
$100 fee only with respect to those portfolios. Trustees are also reimbursed for
travel and related expenses incurred in attending meetings of the Board. No
officer of the Trust is compensated by the Trust.
58
<PAGE>
The following table provides the aggregate compensation paid to each Trustee.
The Trust has not adopted any form of retirement plan covering Trustees or
officers. Information is presented for the fiscal year ended March 31, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C>
Accrued Annual
Aggregate Pension Benefits Upon Total
Trustee Compensation Benefits Retirement Compensation
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $4,000 None None $4,000
Mr. Cheng $4,000 None None $4,000
Mr. Parish $4,000 None None $4,000
</TABLE>
ADVISER
Pursuant to an Advisory Agreement with the Trust (the "Investment Advisory
Agreement"), the Funds' investment adviser, Forum Advisors, Inc. (the "Adviser")
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing each Fund's investments and effecting portfolio
transactions for the respective Fund. The Investment Advisory Agreement provides
for an initial term of two years from its effective date with respect to a Fund
and for its continuance in effect for successive twelve-month periods
thereafter, provided the agreement is specifically approved at least annually by
the Board or by vote of the shareholders of the Fund, and in either case by a
majority of the directors who are not parties to the Investment Advisory
Agreement or interested persons of any such party.
The Investment 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, or by the
Adviser on not more than 60 days' nor less than 30 days' written notice, and
will automatically terminate in the event of its assignment. The Investment
Advisory Agreement also provides that, with respect to a Fund, the Adviser shall
not be liable for any error of judgment or mistake of law or for any act or
omission in the performance of its duties to the Fund, except for willful
misfeasance, bad faith or gross negligence in the performance of the Adviser's
duties or by reason of reckless disregard of its obligations and duties under
the Investment Advisory Agreement. The Investment Advisory Agreement provides
that the Adviser may render services to others.
For its services under the Investment Advisory Agreement, the Advisor receives
with respect to each Fund a fee at an annual rate of 0.40% of the Fund's average
daily net assets. Fees payable under the Investment Advisory Agreement with
respect to the each Fund are set forth in the following tables:
<TABLE>
INVESTORS BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $100,163 $0 $100,163
1996 $107,061 $48,250 $58,811
1995 $100,098 $9,407 $90,691
TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $70,634 $0 $70,634
1996 $69,544 $0 $69,544
1995 $65,238 $59,238 $6,000
59
<PAGE>
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $101,549 $0 $101,549
1996 $105,104 $0 105,104
1995 $105,063 $91,930 $13,133
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $31,774 $0 $31,774
1996 $23,870 $0 $23,870
1995 $17,826 $17,826 $0
</TABLE>
In addition to receiving its advisory fee from the Funds, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in the Funds. In some instances the Adviser may elect
to credit against any investment management fee received from a client who is
also a shareholder in the Fund an amount equal to all or a portion of the fees
received by the Adviser or any affiliate of the Adviser from the Fund with
respect to the client's assets invested in the Fund.
The Adviser has agreed to reimburse the Trust for certain of each Fund's
operating expenses (exclusive of interest, taxes, brokerage, fees and
organization expenses, all to the extent permitted by applicable state law or
regulation) which in any year exceed the limits prescribed by any state in which
a Fund's shares are qualified for sale. The Trust may elect not to qualify its
shares for sale in every state. The manager and distributor believe that
currently the most restrictive expense ratio limitation imposed by any state is
2-1/2% of the first $30 million of each Fund's average net assets, 2% of the
next $70 million of its average net assets and 1-1/2% of its average net assets
in excess of $100 million. For the purpose of this obligation to reimburse
expenses, the Fund's annual expenses are estimated and accrued daily, and any
appropriate estimated payments will be made by the Adviser or the manager and
distributor monthly.
Subject to the above obligations to reimburse the Trust for its excess expenses,
the Trust has confirmed its obligation to pay all its other expenses, including:
interest charges, taxes, brokerage fees and commissions; certain insurance
premiums; fees, interest charges and expenses of the custodian, transfer agent
and dividend disbursing agent; telecommunications expenses; auditing, legal and
compliance expenses; costs of forming the corporation and maintaining corporate
existence; costs of preparing and printing the 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 of the
Trust; costs of reproduction, stationery and supplies; compensation of
directors, officers and employees of the Trust and costs of other personnel
performing services for the Trust who are not officers of the Adviser, the
manager and distributor or their respective affiliates; costs of corporate
meetings; Securities and Exchange Commission registration fees and related
expenses; expenses incurred pursuant to state securities laws; and fees payable
to the Adviser under the Investment Advisory Agreement.
ADMINISTRATION
Pursuant to an Administration Agreement approved by the Board of Trustees on
June 19, 1997 (the "Administration Agreement"), FAS 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 and custodian and arranging for maintenance of
books and records of the Trust) and provides the Trust with general
60
<PAGE>
office facilities. The Administration Agreement may be terminated by either
party without penalty on 60 days' written notice and may not be assigned except
upon written consent by both parties. The Administration Agreement also provides
that FAS 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 FAS's
duties or by reason of reckless disregard of its obligations and duties under
the Administration Agreement. Prior to June 19, 1997, FFSI provided
administration and distribution services to the Trust pursuant to a Managment
Agreement (the "Management Agreement")
FAS provides persons satisfactory to the Board to serve as officers of the
Trust. Those officers, as well as certain other employees and Trustees of the
Trust, may be directors, officers or employees of (and persons providing
services to the Trust may include) FAS, its affiliates or certain affiliates of
the Adviser.
DISTRIBUTION
FFSI was incorporated under the laws of the State of Delaware on February 7,
1986 and serves as distributor of shares of the Portfolio pursuant to a
Distribution Agreement between FFSI and the Trust (the "Distribution
Agreement"). The Distribution Agreement provides, with respect to each Fund, for
an initial term of one year from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or by the shareholders of
the Fund, and in either case by a majority of the Trustees who are not parties
to the Distribution Agreement or interested persons of any such party.
The Distribution Agreement terminates automatically if it is assigned and may be
terminated without penalty with respect to each Fund by vote of the Fund's
shareholders or by either party on 60 days' written notice. The Distribution
Agreement also provides that FFSI shall not be liable for any error of judgment
or mistake of law or for any act or omission in the performances of its services
to the Trust, except for willful misfeasance, bad faith or gross negligence in
the performance of FFSI's duties or by reason of reckless disregard of its
obligations and duties under the Distribution Agreement. Pursuant to the
Distribution Agreement, FFSI receives, and may reallow to certain financial
institutions, the sales charge paid by the purchasers of each Fund's shares. The
aggregate sales charges payable to FFSI with respect to each Fund are outlined
in the following tables:
<TABLE>
INVESTORS BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31 AGGREGATE
SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
1997 $1,951 $274 $1,677
1996 $6,252 $829 $5,423
1995 $1,706 $243 $1,463
TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE
SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
1997 $16 $2 $14
1996 $13,336 $1,317 $12,019
1995 $7,701 $1,012 $6,689
61
<PAGE>
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE
SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
1997 $117,032 $10,264 $106,768
1996 $106,683 $13,941 $92,742
1995 $133,896 $17,656 $116,239
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE
SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
1997 $54,094 $4,557 $49,537
1996 $24,865 $3,309 $21,556
1995 $33,166 $4,429 $28,737
</TABLE>
For its services under the Management Agreement, FFSI received with respect to
each Fund a fee at an annual rate of 0.30% of the average daily net assets of
each Fund. Fees payable under the Management Agreement with respect to each Fund
are outlined in the following tables:
<TABLE>
INVESTORS BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $75,122 $75,122 $0
1996 $80,296 $80,296 $0
1995 $75,074 $75,074 $0
TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $52,975 $52,975 $0
1996 $52,158 $52,158 $0
1995 $48,928 $48,928 $0
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $76,162 $76,162 $0
1996 $78,828 $78,828 $0
1995 $78,797 $78,797 $0
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $23,831 $23,831 $0
1996 $17,902 $17,902 $0
1995 $13,369 $13,369 $0
</TABLE>
62
<PAGE>
TRANSFER AGENT
Forum Financial Corp. (the "Transfer Agent") acts as transfer agent of the Trust
pursuant to a transfer agency agreement (the "Transfer Agency Agreement"). The
Transfer Agency Agreement provides, with respect to each Fund, for an initial
term of two years from its effective date and for its continuance in effect for
successive twelve-month periods thereafter, provided that the agreement is
specifically approved at least annually by the Board or, with respect to a Fund,
by a vote of the shareholders of that Fund, and in either case by a majority of
the directors who are not parties to the Transfer Agency Agreement or interested
persons of any such party at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of the Transfer Agent as agent for the Trust are: (1)
answering customer inquiries regarding account status and history, the manner in
which purchases and redemptions of shares of the Funds may be effected and
certain other matters pertaining to the Funds; (2) assisting shareholders in
initiating and changing account designations and addresses; (3) providing
necessary personnel and facilities to establish and maintain shareholder
accounts and records, assisting in processing purchase and redemption
transactions and receiving wired funds; (4) transmitting and receiving funds in
connection with customer orders to purchase or redeem shares; (5) verifying
shareholder signatures in connection with changes in the registration of
shareholder accounts; (6) furnishing periodic statements and confirmations of
purchases and redemptions; (7) arranging for the transmission of proxy
statements, annual reports, prospectuses and other communications from the Trust
to its shareholders; (8) arranging for the receipt, tabulation and transmission
to the Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Funds. The Transfer Agent or any sub-transfer
agent or other processing agent may elect to credit against the fees payable to
it by its clients or customers all or a portion of any fee received from the
Trust or from the Transfer Agent with respect to assets of those customers or
clients invested in the Fund. The Transfer Agent, the Manager or sub-transfer
agents or processing agents retained by the Transfer Agent may be Processing
Organizations (as defined in the Prospectus) and, in the case of sub-transfer
agents or processing agents, may also be affiliated persons of the Transfer
Agent or the Manager.
For its services under the Transfer Agency Agreement, the Transfer Agent
receives, with respect to each Fund: (i) a fee at an annual rate of 0.25 percent
of the average daily net assets of each Fund (ii) a fee of $12,000 per year;
such amounts to be computed and paid monthly in arrears by the Fund; and (iii)
Annual Shareholder Account Fees of $18.00 per shareholder account; such fees to
be computed as of the last business day of the prior month. Fees payable under
the Transfer Agency Agreement with respect to each Fund are set forth in the
following tables:
<TABLE>
INVESTORS BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $76,562 $58,271 $18,291
1996 $80,320 $60,882 $19,438
1995 $62,562 $49,813 $12,749
TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $57,010 $40,248 $16,762
1996 $56,344 $38,888 $17,456
1995 $40,794 $28,091 $12,703
63
<PAGE>
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $82,456 $39,581 $42,875
1996 $84,962 $41,754 $43,208
1995 $65,664 $49,488 $16,176
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $33,317 $6,539 $26,778
1996 $28,488 $645 $27,843
1995 $11,141 $8,715 $2,426
</TABLE>
The Transfer Agent or any sub-transfer agent or processing agent may also act
and receive compensation for acting as custodian, investment manager, nominee,
agent or fiduciary for its customers or clients who are shareholders of the Fund
with respect to assets invested in the Fund.
Pursuant to a Fund Accounting Agreement, the Transfer Agent also provides the
Fund with portfolio accounting, including the calculation of the Fund's net
asset value. For these services, the Transfer Agent receives an annual fee
ranging from $36,000 to $60,000 depending upon the amount and type of the Fund's
portfolio transactions and positions. Fees payable under the Fund Accounting
Agreement with respect to fund accounting services for the Fund are set forth in
the following table:
<TABLE>
INVESTORS BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $41,000 $0 $41,000
1996 $38,000 $0 $38,000
1995 $36,000 $0 $36,000
TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $36,000 $0 $36,000
1996 $39,000 $0 $39,000
1995 $36,000 $0 $36,000
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MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $48,000 $0 $48,000
1996 $48,000 $0 $48,000
1995 $48,000 $0 $48,000
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED MARCH 31
GROSS FEE WAIVED FEE NET FEE
1997 $37,000 $0 $37,000
1996 $37,000 $0 $37,000
1995 $36,000 $0 $36,000
</TABLE>
5. DETERMINATION OF NET ASSET VALUE
The Trust does not determine net asset value on the following holidays: New
Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Purchases
and redemptions are effected at the time of the next determination of net asset
value following the receipt of any purchase or redemption order.
6. PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities for the Funds usually are principal
transactions. Portfolio securities for these Funds are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually are no brokerage commissions paid for such purchases.
Purchases from underwriters of portfolio securities include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked prices.
The Funds may effect purchases and sales through brokers who charge commissions.
Allocations of transactions to brokers and dealers and the frequency of
transactions are determined by the Adviser in its best judgment and in a manner
deemed to be in the best interest of shareholders of the Funds rather than by
any formula. The primary consideration is prompt execution of orders in an
effective manner and at the most favorable price available to the Funds. For the
fiscal years ended March 31, 1997, 1996, and 1995, the Funds did not pay any
brokerage commissions.
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with Fund transactions, the Adviser 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 a Fund (i) to the Fund or (ii) to
other persons on behalf of the Fund for services provided to it for which it
would be obligated to pay.
In addition, the Adviser may give consideration to research and investment
analysis services furnished by brokers or dealers to the Adviser for its use and
may cause a Fund to pay these brokers a higher amount of commission than may be
charged by other brokers. Such research and analysis is of the types described
in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended, and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. The Adviser may use the research and analysis in connection with
services to clients other than a Fund, and the Adviser's fee is not reduced by
reason of the Adviser's receipt of the research services.
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Investment decisions for each Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, a Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by a Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for a Fund and for other investment companies and accounts managed
by the Adviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
No portfolio transactions are executed with the Adviser, the Manager or any of
their affiliates.
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor.
Set forth below is an example of the method of computing the offering price of
each Fund's shares. The example assumes a purchase of shares of beneficial
interest aggregating less than $100,000 subject to the schedule of sales charges
set forth in the Prospectuses at a price based on the net asset value per share
of each Fund on March 31, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Investors TaxSaver Maine New Hampshire
Bond Bond Municipal Bond
Fund Fund Bond Fund Fund
---- ---- --------- ----
Net Asset Value Per Share $ 10.19 $ 10.49 10.73 10.31
Sales Charge, 3.75% of offering
price (3.90% of net asset value
per share) $ 0.40 $ 0.41 N/A N/A
Sales Charge, 2.50% of offering
price (2.56% of net asset value
per share) N/A N/A $ 0.27 $ 0.26
Offering to Public $ 10.59 $ 10.90 $11.00 $10.57
</TABLE>
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse a portfolio for any loss sustained by reason of the failure
of a shareholder to make full payment for shares purchased by the shareholder or
to collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to the Fund's shares as provided in the
Prospectus.
The Trust has filed an election with the Securities and Exchange Commission
pursuant to which a Fund will only effect a redemption in portfolio securities
if a shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
The Funds may wire proceeds of redemptions to shareholders that have elected
wire redemption privileges only if the wired amount is greater than $5,000. In
addition, the Funds will only wire redemption proceeds to financial institutions
located in the United States.
By use of telephone redemption and exchange privileges, the shareholder
authorizes the Transfer Agent to act upon the instruction of any person
representing himself either to be, or to have the authority to act on behalf of,
the investor and believed by the Transfer Agent to be genuine. The records of
the Transfer Agent of such instructions
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are binding. Proceeds of an exchange transaction may be invested in another
Participating Fund (as defined below) in the name of the shareholder.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any other fund of the Trust or shares of certain other
portfolios of investment companies which retain FAS or its affiliates as
investment adviser or distributor and which participate in the Trust's exchange
privilege program ("Participating Fund"). For Federal income tax purposes,
exchange transactions are treated as sales on which a purchaser will realize a
capital gain or loss depending on whether the value of the shares redeemed is
more or less than his basis in such shares at the time of the transaction.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge may
be redeemed and the proceeds used to purchase, without a sales charge, shares of
any other Participating Fund otherwise sold with a lesser or the same sales
charge. If the Participating Fund purchased in the exchange transaction imposes
a higher sales charge than was paid originally on the exchanged shares, the
shareholder will be responsible for the difference between the two sales
charges. Shares acquired through the reinvestment of dividends and distributions
are deemed to have been acquired with a sales charge rate equal to that paid on
the shares on which the dividend or distribution was paid.
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Investors Bond Fund and Investors High Grade Bond Fund offer individual
retirement plans (the "IRA") for individuals who wish to use shares of the Funds
as a medium for funding individual retirement savings. Under the IRA,
distributions of net investment income and capital gain will be automatically
reinvested in the IRA established for the investor. The Fund's custodian
furnishes custodial services to the IRAs for a service fee. Shareholders wishing
to establish an IRA to invest in the Fund should contact the Transfer Agent for
further details and information.
8. TAXATION
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, does not involve governmental supervision of management or
investment practices or policies. Investors should consult their own counsel for
a complete understanding of the requirements the Funds must meet to qualify for
such treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by a Fund and assume that each Fund qualifies as a regulated investment company.
Investors should consult their own counsel for further details and for the
application of state and local tax laws to the investor's particular situation.
The Funds expect to derive substantially all of their gross income (exclusive of
capital gain) from sources other than dividends. Accordingly, it is expected
that most of the Funds' dividends or distributions will not qualify for the
dividends-received deduction for corporations.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable
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year. Gain or loss realized by a Fund on section 1256 contracts generally will
be considered 60% long-term and 40% short-term capital gain or loss. A Fund can
elect to exempt its section 1256 contracts which are part of a "mixed straddle"
from the application of section 1256.
With respect to equity or over-the-counter put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the
respective Fund's holding period with respect to such option. However, gain or
loss realized upon the lapse or closing out of such options that are written by
a Fund will be treated as short-term capital gain or loss. In general, if a Fund
exercises an option, or if an option that a Fund has written is exercised, gain
or loss on the option will not be separately recognized but the premium received
or paid will be included in the calculation of gain or loss upon disposition of
the property underlying the option.
Under current federal tax law, if a Fund invests in bonds issued with "original
issue discount", the Fund generally will be required to include in income as
interest each year, in addition to stated interest received on such bonds, a
portion of the excess of the face value of the bonds over their issue price,
even though the Fund does not receive payment with respect to such discount
during the year. With respect to "market discount bonds" (i.e., bonds purchased
by a Fund at a price less than their issue price plus the portion of "original
issue discount" previously accrued thereon), the Fund may likewise elect to
accrue and include in income each year a portion of the market discount with
respect to such bonds. As a result, in order to make the distributions necessary
for a Fund not to be subject to federal income or excise taxes, the Fund may be
required to pay out as an income distribution each year an amount greater than
the total amount of cash which the Fund has actually received as interest during
the year.
9. OTHER INFORMATION
CUSTODIAN
Pursuant to a Custodian Agreement, The First National Bank of Boston, 100
Federal Street, Boston, Massachusetts 02106, acts as the custodian of each
Fund's assets. The custodian's responsibilities include safeguarding and
controlling the Funds' cash and securities, determining income and collecting
interest on Fund investments.
COUNSEL
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, 1200 G Street,
N.W., Washington, D.C. 20005
AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, independent
auditors, act as auditors for the Trust.
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and assumed
the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996, Forum
Funds, Inc. was reorganized as a Delaware business trust. The Trust has an
unlimited number of authorized shares of beneficial interest. The Board may,
without shareholder approval, divide the authorized shares into an unlimited
number of separate portfolios or series (such as the Funds) and may in the
future divide portfolios or series into two or more classes of shares (such as
Investor and Institutional Shares). Currently the authorized shares of the Trust
are divided into 15 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally,
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<PAGE>
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 required by Federal or state
law. Shareholders (and Trustees) 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 September 30, 1997, the officers and Trustees 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.
INVESTORS BOND FUND
PERCENTAGE OF FUND
SHARES OWNED
SHAREHOLDER
SEI Trust Company
c/o Irwin Union Bank & Trust 60.69%
Attn: Mutual Fund Administrator
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Firstrust Company National City Bank Trust Department
227 Main Street 19.48%
Evansville, Indiana 47708
TAXSAVER BOND FUND
PERCENTAGE OF FUND
SHARES OWNED
SHAREHOLDER
SEI Trust Company
c/o Irwin Union Bank & Trust 46.99%
Attn: Mutual Fund Administrator
One Freedom Valley Drive
Oaks, Pennsylvania 19456
Leonore Zusman TTEE
Leonore Zusman Living Trust 10.48%
6439 Woodacre Ct.
Englewood, OH 45322
Lawrence L. Zusman TTEE
Lawrence L. Zusman Living Trust 9.72%
6439 Woodacre Ct.
Englewood, OH 45322
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Firstrust Company National City Bank Trust Department
227 Main Street 8.77%
Evansville, Indiana 47708
Mitchell Singer
5045 North Main Street
Suite 250 5.57%
Dayton, OH 45415-3637
MAINE MUNICIPAL BOND FUND
PERCENTAGE OF FUND
SHARES OWNED
SHAREHOLDER
BARHART Company Nominee
Attn: Trust Department
P.O. Box 218 5.13%
Bar Harbor, ME 04609
Merrill Lynch, Pierce, Fenner & Smith, Inc., For the
Sole Benefit of its Cusotmers Trade House Account 5.02%
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32216
NEW HAMPSHIRE BOND FUND
PERCENTAGE OF FUND
SHARES OWNED
SHAREHOLDER
Independence Trust
Attn: Linda Feliciano 43.95%
200 Bedford Street, 5th Floor
Manchester, NH 03105-0119
FINANCIAL STATEMENTS
The financial statements of each Fund for the year ended March 31, 1997 (which
include a statement of assets and liabilities, a statement of operations, a
statement of changes in net assets, notes to financial statements, financial
highlights, a statement of investments and the auditors' report thereon) are
included in the Annual Report to Shareholders delivered along with this SAI and
are incorporated herein by reference.
The unaudited financial statements for each Fund for the semi-annual period
ended September 30, 1997 (which include a statement of assets and liabilities, a
statement of operations, a statement of changes in net assets, notes to
financial statements, financial highlights, a statement of investments and the
auditors' report thereon) are included in the Forum Funds Semi-Annual Report
delivered along with this SAI and are incorporated herein by reference.
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INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
MAINE MUNICIPAL BOND FUND
NEW HAMPSHIRE BOND FUND
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE AND MUNICIPAL BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
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.
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STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal 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.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
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FITCH INVESTORS SERVICE, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
2. PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
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An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
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The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
3. SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE, INC.
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the MIG-1/VMIG-1 group.
MIG 3/VMIG 3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and, although not
distinctly or predominantly speculative, there is specific risk.
STANDARD AND POOR'S CORPORATION
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SP-3. Speculative capacity to pay principal and interest.
4. OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
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Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH INVESTORS SERVICE, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
5. SHORT-TERM AND LONG-TERM DEBT RATINGS BY THOMSON BANKWATCH
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
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"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
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INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
MAINE MUNICIPAL BOND FUND
NEW HAMPSHIRE BOND FUND
APPENDIX B - DESCRIPTION OF MUNICIPAL SECURITIES
1. MUNICIPAL BONDS
Municipal Bonds which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:
GENERAL OBLIGATION BONDS are issued by such entities as states, counties,
cities, towns, and regional districts. The proceeds of these obligations are
used to fund a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems. The
basic security behind General Obligation Bonds is the issuer's pledge of its
full faith and credit and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount of special assessments.
REVENUE BONDS in recent years have come to include an increasingly wide variety
of types of municipal obligations. As with other kinds of municipal obligations,
the issuers of revenue bonds may consist of virtually any form of state or local
governmental entity, including states, state agencies, cities, counties,
authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide additional
security in the form of a debt service reserve fund to be used to make principal
and interest payments. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Housing authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
In recent years, revenue bonds have been issued in large volumes for projects
that are privately owned and operated as described below.
PRIVATE ACTIVITY BONDS are considered municipal bonds if the interest paid
thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing and health. These bonds are
also used to finance public facilities such as airports, mass transit systems
and ports. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property as security for such
payment.
While, at one time, the pertinent provisions of the Internal Revenue Code (the
"Code") permitted private activity bonds to bear tax-exempt interest in
connection with virtually any type of commercial or industrial project (subject
to various restrictions as to authorized costs, size limitations, state per
capita volume restrictions, and other matters), the types of qualifying projects
under the Code have become increasingly limited, particularly since the
enactment of the Tax Reform Act of 1986. Under current provisions of the Code,
tax-exempt financing remains available, under prescribed conditions, for
owner-occupied housing, certain privately owned and operated rental multi-family
housing facilities, nonprofit hospital and nursing home projects, certain
manufacturing or industrial projects, and solid waste disposal projects, among
others, and for the refunding (that is, the tax-exempt refinancing) of various
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kinds of other private commercial projects originally financed with tax-exempt
bonds. In future years, the types of projects qualifying under the Code for
tax-exempt financing are expected to become increasingly limited.
Because of terminology formerly used in the Code, virtually any form of private
activity bond may still be referred to as an "industrial development bond," but
more and more frequently revenue bonds have become classified according to the
particular type of facility being financed, such as hospital revenue bonds,
nursing home revenue bonds, multifamily housing revenues bonds, single family
housing revenue bonds, industrial development revenue bonds and solid waste
resource recovery revenue bonds.
Tax-exempt bonds are also categorized according to whether the interest is or is
not includible in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying the bonds
are or are not deductible in part by banks and other financial institutions, and
according to other criteria relevant for Federal income tax purposes. Due to the
increasing complexity of Code and related requirements governing the issuance of
tax-exempt bonds, industry practice has uniformly required, as a condition to
the issuance of such bonds, but particularly for revenue bonds, an opinion of
nationally recognized bond counsel as to the tax-exempt status of interest on
the bonds.
2. MUNICIPAL NOTES
Municipal Notes generally are used to provide for short-term capital needs and
usually have maturities of one year or less. They include the following:
TAX ANTICIPATION NOTES are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.
REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other types
of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.
BOND ANTICIPATION NOTES are issued to provide interim financing until long-term
financing can be arranged. In most cases, the long-term bonds then provide the
money for the repayment of the Notes.
CONSTRUCTION LOAN NOTES are sold to provide construction financing. After
successful completion and acceptance, many projects receive permanent financing
through the Federal Housing Administration under the Federal National Mortgage
Association or the Government National Mortgage Association.
TAX-EXEMPT COMMERCIAL PAPER is a short-term obligation with a stated maturity of
365 days or less. It is issued by agencies of state and local governments to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing.
3. MUNICIPAL LEASES
Municipal Leases, which may take the form of a lease or an installment purchase
or conditional sale contract, are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities such as fire
and sanitation vehicles, telecommunications equipment and other capital assets.
Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase municipal
leases subject to
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a non-appropriation clause when the payment of principal and accrued interest is
backed by an unconditional irrevocable letter of credit or guarantee of a bank
or other entity that meets the criteria described in the Prospectus.
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INVESTORS BOND FUND
TAXSAVER BOND FUND
APPENDIX C - HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser to each Fund may engage in certain
options and futures strategies to attempt to hedge a Fund's portfolio. The
instruments in which the Fund may invest include (i) options on securities and
stock indexes, (ii) stock index and interest rate futures contracts ("futures
contracts"), and (iii) options on futures contracts. Use of these instruments is
subject to regulation by the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures are traded,
and the Commodity Futures Trading Commission ("CFTC").
The various hedging and income strategies referred to herein and in each Fund's
Prospectus are intended to illustrate the type of strategies that are available
to, and may be used by, the Adviser in managing a Fund's portfolio. Depending on
prevailing market conditions, use of these strategies may enable the Adviser to
reduce investment risks to which a Fund may be subject. No assurance can be
given, however, that any strategies will succeed.
The Funds will not use leverage in their hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities or other
options or futures positions whose values are expected to offset ("cover") its
obligations thereunder. A Fund will not enter into a hedging strategy that
exposes the Fund to an obligation to another party unless it owns either (1) an
offsetting ("covered") position or (2) cash, U.S. government securities or other
liquid assets with a value sufficient at all times to cover its potential
obligations. Each Fund will comply with guidelines established by the SEC with
respect to coverage and, if the guidelines so require, will set aside cash, U.S.
government securities or other liquid assets in a segregated account with its
custodian in the prescribed amount. Securities, options or futures positions
used for cover and assets held in a segregated account cannot be sold or closed
out while the hedging strategy is outstanding, unless they are replaced with
similar assets. As a result, there is a possibility that the use of cover or
segregation involving a large percentage of a Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
OPTIONS STRATEGIES. The Funds may purchase put and call options written by
others and write (sell) put and call options covering specified securities or
stock index-related amounts. A put option (sometimes called a "standby
commitment") gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security or specified amount of cash
(on stock-index options) to the writer of the option on or before a fixed date
at a predetermined price. A call option (sometimes called a "reverse standby
commitment") gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified amount of a security or
specified amount of cash (on stock-index options) or before a fixed date, at a
predetermined price. The predetermined prices may be higher or lower than the
market value of the underlying currency or security. A Fund may buy or sell both
exchange-traded and over-the-counter ("OTC") options. A Fund will purchase or
write an option only if that option is traded on a recognized U.S. options
exchange or if the Adviser believes that a liquid secondary market for the
option exists. When a Fund purchases an OTC option, it relies on the dealer from
which it has purchased the OTC option to make or take delivery of the securities
or currency underlying the option. Failure by the dealer to do so would result
in the loss of the premium paid by the Fund as well as the loss of the expected
benefit of the transaction. OTC options and the securities underlying these
options are currently treated as illiquid securities.
A Fund may purchase call options on equity securities that the Adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. The Funds may similarly purchase put
options in order to hedge against a
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decline in market value of securities held in its portfolio. The put enables a
Fund to sell the underlying security at the predetermined exercise price; thus
the potential for loss to the Fund is limited to the option premium paid. If the
market price of the underlying security is higher than the exercise price of the
put, any profit the Fund realizes on the sale of the security would be reduced
by the premium paid for the put option less any amount for which the put may be
sold.
A Fund may write covered call options when the Adviser believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs. The
Fund may write covered put options only to effect closing transactions.
A Fund may purchase and write put and call options on stock indices in much the
same manner as the equity and debt security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Funds may effectively
terminate their right or obligation under an option contract by entering into a
closing transaction. For instance, if a Fund wished to terminate its potential
obligation to sell securities under a call option it had written, a call option
of the same series (an identical call option) would be purchased by the Fund.
Closing transactions essentially permit the Funds to realize profits or limit
losses on its options positions prior to the exercise or expiration of the
option. In addition:
(1) The successful use of options as a hedging strategy depends upon the
Adviser's ability to forecast the direction of price fluctuations in the
underlying securities markets, or in the case of a stock index option,
fluctuations in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options that
expire unexercised have no value. Unless an option purchased by a Fund is
exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange listed
options relate to equity securities. Exchange markets for options on debt
securities are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on debt
securities) only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market exists. There is
no assurance that a liquid secondary market will exist for any particular option
at any specific time. If it is not possible to effect a closing transaction, a
Fund would have to exercise the option which it purchased in order to realize
any profit. The inability to effect a closing transaction on an option written
by a Fund may result in material losses to that Fund.
(4) The Funds' activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. Several interest rate futures contracts currently are
traded; these include various futures contracts on Treasury bonds, notes and
bills on the Chicago Board of Trade as well as a 30 Interest Rate contract also
traded on the Chicago Board of Trade. Futures contracts on a municipal bond
index are traded on the Chicago Board of Trade. This index assigns relative
values, which fluctuate in accordance with current market conditions, to the
municipal bonds comprising the index. Options on various of these futures
contracts are also traded.
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A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash or securities as called for
in the contract at a specified future date and at a specified price. For stock
index futures contracts, delivery is of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the time of
the contract and the close of trading of the contract. For interest rate futures
contracts, delivery is of the underlying debt securities.
A Fund may use interest rate futures contracts and options thereon to hedge its
portfolio against changes in the general level of interest rates. A Fund may
purchase an interest rate futures contract when it intends to purchase debt
securities but has not yet done so. This strategy may minimize the effect of all
or part of an increase in the market price of the debt security which the Fund
intended to purchase in the future. A Fund may sell an interest rate futures
contract in order to continue to receive the income from a debt security, while
endeavoring to avoid part or all of the decline in market value of that security
which would accompany an increase in interest rates.
A Fund may purchase a call option on an interest rate futures contract to hedge
against a market advance in debt securities which the Fund planned to acquire at
a future date. The purchase of a call option on an interest rate futures
contracts is analogous to the purchase of a call option on an individual debt
security which can be used as a temporary substitute for a position in the
security itself. A Fund may also write covered call options on interest rate
futures contracts as a partial hedge against a decline in the price of debt
securities held in the Fund's portfolio or purchase put options on interest rate
futures contracts in order to hedge against a decline in the value of debt
securities held in the Fund's portfolio.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING. The
following relate to each Fund's use of futures contracts and options on futures
contracts and, to the extent in the future they were to be permitted, foreign
currency and other options traded on a commodities exchange (collectively,
"futures contracts and related options").
No price is paid upon entering into futures contracts. Instead, upon entering
into a futures contract, a Fund would be required to deposit with its custodian
in a segregated account in the name of the futures broker an amount of cash or
U.S. government securities generally equal to 5% or less of the contract value.
This amount is known as "initial margin." Subsequent payments, called "variation
margin," to and from the broker, would be made on a daily basis as the value of
the futures position varies, a process known as "marking to the market." When
writing a call option on a futures contract, variation margin must be deposited
in accordance with applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Holders and writers of futures and related options can enter into offsetting
closing transactions, similar to closing transactions on options, by selling or
purchasing, respectively, a futures contract or related option with the same
terms as the position held or written. Positions in futures contracts may be
closed only on an exchange providing a secondary market for the futures
contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Futures or options contract prices could move to the daily
limit for several consecutive trading days with little or no trading and thereby
prevent prompt liquidation of positions. In such event, it may not be possible
for a Fund to close a position, and in the event of adverse price movements, a
Fund would have to make daily cash payments of variation margin (except in the
case of purchased options). In addition:
(1) Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict accurately movements in the
direction of the overall securities and interest rate markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
level of the underlying instrument but to the anticipated levels at some point
in the
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future; thus, for example, trading of 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 due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities which cause this situation to occur. As a result, a correct forecast
of general market trends may still not result in successful hedging through the
use of futures contracts over the short term. Activities of large traders in
both the futures and securities markets involving arbitrage and other investment
strategies may result in temporary price distortions.
(3) Although the Funds intend to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures position, and in the event of adverse price movements, the Funds would
continue to be required to make daily cash payments of variation margin.
(4) Like other options, options on futures contracts have a limited life. The
Funds will not trade options on futures contracts unless and until, in the
Adviser's opinion, the market for such options has developed sufficiently that
the risks in connection with options are not greater than the risks in
connection with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at the time
of purchase. This amount and the transaction costs is all that is at risk.
Sellers of options on futures contracts, however, must post an initial margin
and are subject to additional margin calls which could be substantial in the
event of adverse price movements.
(6) Each Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
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MAINE MUNICIPAL BOND FUND
APPENDIX D - HEDGING STRATEGIES
1. BOND INDEX FUTURES
Futures contracts on a municipal bond index (the "Index") are traded on the
Chicago Board of Trade. Maine Municipal Bond Fund may seek to hedge itself
against changes in interest rates by purchasing and selling futures contracts on
the Index or any municipal bond index hereafter approved for trading by the
Commodity Futures Trading Commission. The Index assigns numerical values to the
municipal securities comprising the Index and, based on those values, fluctuates
in accordance with market movements of the municipal bonds comprising the Index.
The purchaser or seller of a futures contract on the Index agrees to take or
make delivery of an amount of cash equal to the difference between a specified
dollar multiple of the value of the Index on the expiration date of the
contract, "current contract value," and the price at which the contract was
originally purchased or sold.
No physical delivery of the municipal bonds underlying the Index is made.
BOND INDEX FUTURES CHARACTERISTICS. Unlike the purchase or sale of a specific
security by the Fund, no price is paid or received by the Fund upon the purchase
or sale of an index futures contract. Initially, the Fund will be required to
deposit with the broker through which such transaction is effected or in a
segregated account with the Fund's custodian an amount of cash or U.S. Treasury
bills equal to a specified dollar amount per contract as of the date thereof.
This amount is known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds to finance
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker will be made on a daily basis as the price of the underlying index
fluctuates, a process known as "marking to the market." For example, when the
Fund has purchased an index futures contract and the price of the futures
contract has risen in response to a rise in the Index, that position will have
increased in value and the Fund will receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Fund has
purchased an index futures contract and the price of the futures contract has
declined in response to a decrease in the Index, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the broker. At any time prior to expiration of the futures contract, the Adviser
may elect to close the position by taking an opposite position which will
operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain.
RISKS OF TRANSACTIONS IN INDEX FUTURES. There are several risks in connection
with the use of index futures by the Fund as a hedging device. One risk arises
because of the imperfect correlation between movements in the price of the index
futures and the hedge. The price of the index futures may move more than or less
than the price of the securities being hedged. If the price of the index futures
moves less than the price of the securities which are the subject of the hedge,
the hedge will not be fully effective but, if the price of the securities being
hedged has moved in an unfavorable direction, the Fund would be in a better
position than if it had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the index future. If the price of the future moves more
than the price of the underlying securities, the Fund will experience either a
loss or gain on the future which will not be completely offset by movements in
the price of the securities which are the subject of the hedge. To compensate
for the imperfect correlation of movements in the price of securities being
hedged and movements in the price of the index futures, the Fund may buy or sell
index futures of a greater contract value than the dollar amount of securities
being hedged if the volatility over a particular time period of the prices of
such securities has been greater than the volatility over such time period of
the Index, or if otherwise deemed to be appropriate by the Adviser. Conversely,
the Fund may buy or sell fewer index futures if the volatility over a particular
time period of the prices of the securities being hedged is less than the
volatility over such time period of the Index, or it is otherwise deemed to be
appropriate by the Adviser. It is also possible that, where the Fund has sold
index futures to hedge its portfolio against a decline in the market, the market
may advance and the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the future
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and also experience a decline in the value of its portfolio securities. However,
over time the value of a diversified portfolio should tend to move in the same
direction as the Index, although there may be deviations arising from
differences between the composition of the Fund's portfolios and the securities
comprising the Index.
When index futures are purchased to hedge against possible increases in the
price of municipal bonds before the Fund is able to invest its cash (or cash
equivalents) in municipal bonds in an orderly fashion, it is possible that the
market may decline instead. If the Fund then determines not to invest in
municipal bonds at that time because of concern as to possible further market
decline or for other reasons, the Fund will realize a loss on the index futures
that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the portion of
the portfolio being hedged, the price of index futures may not correlate
perfectly with movement in the Index due to certain market distortions. Rather
than meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the Index and the index futures markets. Secondly, from the
point of view of speculators, deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the index futures market may also
cause temporary price distortions. Due to the possibility of price distortion in
the index futures market, and because of the imperfect correlation between the
movements in the Index and movements in the price of index futures, a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction over a short time frame.
Positions in futures on the Index may be closed out only on the Chicago Board of
Trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell index futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close an index futures investment position, and in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event index futures have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the index futures. However, as described above, there is no guarantee that the
price of the securities will in fact correlate with the price movements in the
futures markets and thus provide an offset on index futures.
Successful use of index futures by the Fund is also subject to the Adviser's
ability to predict correctly movements in the direction of the municipal bond
markets. For example, if the Fund has hedged against the possibility of a
decline in the municipal bond market and bond prices increase instead, the Fund
will lose part or all of the benefit of the increased value of the portfolio
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. The Fund may have to sell
portfolio securities at a time when it may be disadvantageous to do so.
2. OTHER FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Fund may invest in certain other financial futures contracts ("futures
contracts") and options thereon. The Fund may sell a futures contract or a call
option thereon or purchase a futures contract or a put option thereon as a hedge
against a decrease in the value of the Fund's securities. A futures contract
sale creates an obligation by the Fund, as seller, to deliver the specific type
of instrument called for in the contract at a specified future time for a
specified price. A futures contract purchase creates an obligation by the Fund,
as purchaser, to take delivery of the specific type of financial instrument at a
specified future time at a specified price. The Fund is required to maintain
margin deposits with brokerage firms through which it effects futures contracts
as described under "Bond Index Futures Characteristics."
Although the terms of futures contracts specify actual delivery or receipt of
securities, in most instances the contracts are closed out before the settlement
date without the making or taking of delivery of the securities. Closing
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out of a futures contract is effected by entering into an offsetting purchase or
sale transaction. An offsetting transaction for a futures contract sale is
effected by entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and same delivery date. If
the price in the sale exceeds the price in the offsetting purchase, the Fund is
immediately paid the difference and thus realizes a gain. If the purchase price
of the offsetting transaction exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by the Fund entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Fund realizes a gain, and
if the offsetting sale price is less than the purchase price, the Fund realizes
a loss.
Unlike a futures contract, which requires the parties to buy and sell a security
on a set date, an option on a futures contract entitles its holder to decide on
or before a future date whether to enter into such a contract. If the holder
decides not to enter into the contract, the premium paid for the option is lost.
Since the value of the option is fixed at the point of sale, the holder is not
required to make daily payments of cash to reflect the change in the value of
the underlying contract as would be the case for a purchaser or seller of a
futures contract. The value of the option does change and is reflected in the
net asset value of the Fund.
Currently, futures contracts can be purchased on certain debt securities issued
by the U.S. Treasury, certificates of the Government National Mortgage
Association and bank certificates of deposit. The Fund may invest in futures
contracts covering these types of financial instruments as well as in new types
of such contracts that become available in the future.
Financial futures contracts are traded in an auction environment on the floors
of several exchanges --principally, the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership which is also
responsible for handling daily account of deposit or withdrawals of margin.
Investing in futures contracts involves the risks of imperfect correlations,
secondary market illiquidity and the Adviser's incorrect predictions of market
movements, as described under "Bond Index Futures Characteristics."
Put and call options on financial futures have characteristics similar to those
of other options. For a further description of options, see "Put and Call
Options" below.
In addition to the risks associated with investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop.
The Fund may not enter into futures contracts or related options thereon if
immediately thereafter (i) the amount committed to margin plus the amount paid
for option premiums exceeds 5% of the value of the Fund's total assets or (ii)
the sum of the current contract values of open futures contracts purchased and
sold by the Fund would exceed 30% of the value of the Fund's total assets. In
instances involving the purchase of futures contracts by the Fund, an amount
equal to the market value of the futures contract will be deposited in a
segregated account of cash and cash equivalents to collateralize the position
and thereby insure that the use of such futures contract is unleveraged.
3. PUT AND CALL OPTIONS
The Fund may purchase put and call options written by others and write put and
call options covering the types of securities in which the Fund may invest. A
put option (sometimes called a "standby commitment") gives the buyer of such
option, upon payment of a premium, the right to deliver a specified amount of a
security to the writer of the option on or before a fixed date at a
predetermined price. A call option (sometimes called a "reverse standby
commitment") gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified amount of a security on or
before a fixed date, at a predetermined price. The Fund will not purchase any
option if, immediately thereafter, the aggregate cost of all outstanding options
purchased by the Fund
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would exceed 5% of the value of its total assets; a Fund will not write any
option (other than options on futures contracts) if, immediately thereafter, the
aggregate value of its portfolio securities subject to outstanding options would
exceed 30% of its total assets.
When the Fund writes a put option it maintains in a segregated account cash or
U.S. Government securities in an amount adequate to purchase the underlying
security should the put be exercised. When the Fund writes a call option it must
own at all times during the option period either the underlying securities or an
offsetting call option on the same securities. If a put option written by the
Fund were exercised, the Fund would be obligated to purchase the underlying
security at the exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying security at the
exercise price.
The risk involved in writing a put option is that there could be a decrease in
the market value of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold to the Fund at a higher price than its
current market value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying security caused by
declining interest rates or other factors. If this occurred, the option could be
exercised and the underlying security would then be sold by the Fund at a lower
price than its current market value. These risks could be reduced by entering
into a closing transaction as described below. The Fund retains the premium
received from writing a put or call option whether or not the option is
exercised.
The Fund may dispose of an option which it has purchased by entering into a
"closing sale transaction" with the writer of the option. A closing sale
transaction terminates the obligation of the writer of the option and does not
result in the ownership of an option. The Fund realizes a profit or loss from a
closing sale transaction if the premium received from the transaction is more
than or less than the cost of the option.
The Fund may terminate its obligation to the holder of an option written by the
Fund through a "closing purchase transaction." The Fund may not, however, effect
a closing purchase transaction with respect to such an option after it has been
notified of the exercise of such option. The Fund realizes a profit or loss from
a closing purchase transaction if the cost of the transaction is more or less
than the premium received by the Fund from writing the option.
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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS.
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Audited financial statements for the fiscal year ended March 31, 1997
including Statements of Assets and Liabilities, Statements of
Operations, Statements of Changes in Net Assets, Notes to Financial
Statements, Financial Highlights, Portfolio of Investments and Report
of Independent Auditors were filed with the Securities and Exchange
Commission via EDGAR for Daily Assets Treasury Fund, Investors Bond
Fund, TaxSavers Bond Fund, Maine Municipal Bond Fund, New Hampshire
Bond Fund, Payson Value Fund, and Payson Balanced Fund on June 6, 1997,
accession number 0000912057-97-019701 pursuant to Rule 30b2-1 under the
Investment Company Act of 1940, as amended, and incorporated herein by
reference.
Unaudited financial statements for the period ended September 30, 1997
including Statements of Assets and Liabilities, Statements of
Operations, Statements of Changes in Net Assets, Notes to Financial
Statements, Financial Highlights and Schedule of Investments were
filed with the Securities and Exchange Commission via EDGAR for
Investors Bond Fund, TaxSavers Bond Fund, Maine Municipal Bond Fund,
New Hampshire Bond Fund, Payson Value Fund, and Payson Balanced Fund
on December 2, 1997, accession number 0001047469-97-006494 pursuant to
Rule 30b2-1 under the Investment Company Act of 1940, as amended, and
incorporated herein by reference.
(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 via EDGAR on May 9, 1996,
accession number 0000912057-96-008780).
(2)* Copy of By-Laws of the Registrant (filed as Exhibit (2) to PEA
No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707)
(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
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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
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)* Form of Investment Advisory Agreement between Registrant and
Forum Advisors, Inc. (filed as Exhibit 5(a) to PEA No. 33
via EDGAR on January 5, 1996, accession number
0000912057-96-000216).
(b)* Form of Investment Advisory Agreement between Registrant and
H.M. Payson & Co. relating to the Payson Value Fund and the
Payson Balanced Fund (filed as Exhibit 5(b) to PEA No. 33
via EDGAR on January 5, 1996, accession number
0000912057-96-000216).
(c)* Investment Advisory Agreement between Registrant and Quadra
Capital Partners, L.P. (filed as Exhibit (5)(c) to PEA No.
41 via EDGAR on December 31, 1996, accession number
0000912057-96-030646).
(d)* Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and Anhalt/O'Connell, Inc. (filed as Exhibit
(5)(d) to PEA No. 41 via EDGAR on December 31, 1996,
accession number 0000912057-96-030646).
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(e)* Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and Carl Domino Associates, L.P. (filed as
Exhibit (5)(e) to PEA No. 41 via EDGAR on December 31, 1996,
accession number 0000912057-96-030646).
(f)* Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and McDonald Investment Management, Inc.
(filed as Exhibit (5)(f) to PEA No. 41 via EDGAR on December
31, 1996, accession number 0000912057-96-030646).
(g)* Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and LM Capital Management, Inc. (filed as
Exhibit (5)(g) to PEA No. 41 via EDGAR on December 31, 1996,
accession number 0000912057-96-030646).
(j)* Investment Advisory Agreement between the Registrant and
Austin Investment Management, Inc. (filed as Exhibit (5)(j)
to PEA No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(k)* Investment Advisory Agreement between the Registrant and Oak
Hall Capital Advisors, Inc. (filed as Exhibit (5)(k) to PEA
No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(l)* Investment Advisory Agreement between Norwest Bank
Minnesota, N.A. and Core Trust (Delaware) relating to Index
Portfolio (filed as Exhibit 5(a) to Amendment No. 5 the
Registration Statement of Core Trust (Delarware), File No.
811-8858, via EDGAR on September 30, 1996, accession number
0000912057-96-021568).
(m)* Investment Advisory Agreement between Schroder Capital
Management International, Inc. and Schroder Capital Funds,
relating to Schroder U.S. Smaller Companies Portfolio,
International Equity Fund and Schroder Emerging Markets Fund
Institutional Portfolio (filed as Exhibit 5 to Amendment No.
1 to the Registration Statement of Schroder Capital Funds,
File No. 811-9130, via EDGAR on August 9, 1996, accesssion
number 0000898432-96-000341.
(n)* Form of Investment Advisory Agreement between Core Trust
(Delware) and Forum Investment Advisors, LLC relating to
Treasury Portfolio, Treasury Cash Portfolio, Cash Portfolio,
Government Cash Portfolio and Municipal Cash Portfolio
(filed as Exhibit 5(n) to PEA No. 52 via EDGAR on November
24, 1997, accession number 0001047469-97-005953).
(o)* Investment Advisory Agreement between Core Trust (Delaware)
and Schroder Capital Management International, Inc. relating
to International Portfolio (filed as Exhibit 5(b) to
Amendment No. 5 to the Registration Statement of Core Trust
(Delaware), File No. 811-8858, via EDGAR on September 30,
1996, accession number 0000912057-96-021568).
(p) Investment Advisory Agreement between Registrant and Forum
Investment Advisors, LLC, filed herewith.
(6) (a)* Form of Selected Dealer Agreement between Forum Financial
Services, Inc. and securities brokers (filed as Exhibit 6(c)
to PEA 21).
(b)* Form of Bank Affiliated Selected Dealer Agreement between
Forum Financial Services, Inc. and bank affiliates filed as
Exhibit 6(d) of PEA 21).
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(c)* Distribution Agreement between Registrant and Forum
Financial Services, Inc. (filed as Exhibit 6(f) to PEA No.
43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(7) None.
(8) (a)* Form of Transfer Agency Agreement between Registrant and
Forum Financial Corp. (filed as Exhibit 8(a) to PEA No. 33
via EDGAR on January 5, 1996, accession number
0000912057-96-000216).
(b)* Form of Custodian Agreement between Registrant and the First
National Bank of Boston (filed as Exhibit 8(b) to PEA No. 33
via EDGAR on January 5, 1996, accession number
0000912057-96-000216).
(9) (a) Administration Agreement between Registrant and Forum
Administrative Services, LLC (filed as Exhibit 6(e) to PEA
No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(b) Shareholder Service Plan of Registrant relating to the
Quadra Funds and Form of Shareholder Service Agreement
relating to Quadra Funds (filed as Exhibit 9(b) to PEA No.
49 via EDGAR on November 5, 1997, accession number
0001004402-97-000163).
(c) Form of Shareholder Service Plan of Registrant and Form of
Shareholder Service Agreement relating to the Daily Assets
Treasury Fund, Daily Assets Cash Fund, Daily Assets
Government Fund, Daily Assets Tax-Exempt Fund and Daily
Assets Treasury Obligations Fund (filed as Exhibit 9(c) to
PEA No. 50 via EDGAR on November 12, 1997, accession no.
0001004402-97-000189).
(10)*Opinion of Seward & Kissel dated January 5, 1996 (filed as
Exhibit 10 of PEA No. 33 via EDGAR on January 5, 1996, accession
number 0000912057-96-000216).
(11) Consent of independent auditors.
(12) None.
(13)*Investment Representation letter of Reich & Tang, Inc. as
original purchaser of shares of registrant (filed as Exhibit 13
to Registration Statement).
(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).
(16) Schedule of Sample Performance Calculations (filed as Exhibit 16
to PEA No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
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Other Exhibits*:
Powers of Attorney (filed as Exhibit 99 to PEA No. 34 via
EDGAR on May 9, 1996, accession number
0000912057-96-008780).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF DECEMBER __, 1997
TITLE OF CLASS NUMBER OF HOLDERS
Investors Bond Fund 74
TaxSaver Bond Fund 48
Daily Assets Cash Fund 15
Daily Assets Treasury Fund 73
Daily Assets Government Fund 0
Daily Assets TaxSaver Fund 0
Payson Value Fund 312
Payson Balanced Fund 378
Maine Municipal Bond Fund 387
New Hampshire Bond Fund 78
Austin Global Equity Fund 12
Oak Hall Equity Fund 199
Quadra Limited Maturity Treasury Fund 4
Quadra Value Equity Fund 16
Quadra International Equity Fund 10
Quadra Opportunistic Bond Fund 6
ITEM 27. INDEMNIFICATION.
In accordance with Section 3803 of the Delaware Business Trust Act, SECTION
5.2 of the Registrant's Trust Instrument provides as follows:
"5.2. INDEMNIFICATION.
"(a) Subject to the exceptions and limitations contained in
Section (b) below:
"(i) Every Person who is, or has been, a Trustee or
officer of the Trust (hereinafter referred to as a "Covered
Person") shall be indemnified by the Trust to the fullest
extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of being or having
been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
"(ii) The words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals),
actual or threatened while in 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:
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"(i) Who shall have been adjudicated by a court or
body before which the proceeding was brought (A) to be liable
to the Trust or its Holders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the Covered Person's office
or (B) not to have acted in good faith in the reasonable
belief that Covered Person's action was in the best interest
of the Trust; or
"(ii) In the event of a settlement, unless there has
been a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
the Trustee's or officer's office,
"(A) By the court or other body approving the
settlement;
"(B) By at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily
available facts (as opposed to a full trial-type
inquiry); or
"(C) By written opinion of independent legal counsel
based upon a review of readily available facts (as
opposed to a full trial-type inquiry);
provided, however, that any Holder may, by appropriate legal
proceedings, challenge any such determination by the Trustees
or by independent counsel.
"(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights to
which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such
a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
"(d) Expenses in connection with the preparation and
presentation of a defense to any claim, action, suit or proceeding of
the character described in paragraph (a) of this Section 5.2 may be
paid by the Trust or Series from time to time prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not entitled
to indemnification under this Section 5.2; provided, however, that
either (a) such Covered Person shall have provided appropriate security
for such undertaking, (b) the Trust is insured against losses arising
out of any such advance payments or (c) either a majority of the
Trustees who are neither Interested Persons of the Trust nor parties to
the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as
opposed to a trial-type inquiry or full investigation), that there is
reason to believe that such Covered Person will be found entitled to
indemnification under this Section 5.2.
"(e) Conditional advancing of indemnification monies under
this Section 5.2 for actions based upon the 1940 Act may be made only
on the following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation
of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount
of the advance which exceeds that amount which it is ultimately
determined that he is entitled to receive from the Trust by reason of
indemnification; and (iii) (a) such promise must be secured by a surety
bond, other suitable insurance or an equivalent form of security which
assures that any repayments may be obtained by the Trust without delay
or litigation, 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.
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"(f) In case any Holder or former Holder of any Series shall
be held to be personally liable solely by reason of the Holder or
former Holder being or having been a Holder of that Series and not
because of the Holder or former Holder acts or omissions or for some
other reason, the Holder or former Holder (or the Holder or former
Holder's heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability.
The Trust, on behalf of the affected Series, shall, upon request by the
Holder, assume the defense of any claim made against the Holder for any
act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series."
Paragraph 4 of each Investment Advisory Agreement provides in substance as
follows:
"4. We shall expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we
agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or and to our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Paragraphs 3(f) and (g) and paragraph 5 of the Management and Distribution
Agreement provide as follows:
"(f) We agree to indemnify, defend and hold you, your several officers
and directors, and any person who controls you within the meaning of
Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which you, your
officers and directors or any such controlling person may incur, under
the Securities Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in
our Registration Statement or Prospectus in effect from time to time
under the Securities Act or arising out of or based upon any alleged
omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not
misleading; provided, however, that in no event shall anything
contained in this paragraph 3(f) be so construed as to protect you
against any liability to us or our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of your duties, or by reason of
your reckless disregard of your obligations and duties under this
paragraph. Our agreement to indemnify you, your officers and directors
and any such controlling person as aforesaid is expressly conditioned
upon our being notified of any action brought against you, your
officers and directors or any such controlling person, such
notification to be given by letter or by telegram addressed to us at
our principal office in New York, New York, and sent to us by the
person against whom such action is brought within ten days after the
summons or other first legal process shall have been served. The
failure so to notify us of any such action shall not relieve us from
any liability which we may have to the person against whom such action
is brought by reason of any such alleged untrue statement or omission
otherwise than on account of our indemnity agreement contained in this
paragraph 3(f). We will be entitled to assume the defense of any suit
brought to enforce any such claim, and to retain counsel of good
standing chosen by us and approved by you. In the event we do elect to
assume the defense of any such suit and retain counsel of good standing
approved by you, the defendant or defendants in such suit shall bear
the fees and expenses of any additional counsel retained by any of
them; but in case we do not elect to assume the defense of any such
suit, or in case you do not approve of counsel chosen by us, we will
reimburse you or the controlling person or persons named as defendant
or defendants in such suit, for the fees and expenses of any counsel
retained by you or them. 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
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will inure exclusively to your benefit, to the benefit of your
successors and assigns, and to the benefit of your officers and
directors and any controlling persons and their successors and
assigns. We agree promptly to notify you of the commencement of any
litigation or proceeding against us in connection with the issue and
sale of any shares of our common stock.
"(g) You agree to indemnify, defend and hold us, our several officers
and directors, and person who controls us within the meaning of Section
15 of the Securities Act, free and harmless from and against any and
all claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which we, our
officers or directors, or any such controlling person may incur under
the Act or under common law or otherwise, but only to the extent that
such liability, or expense incurred by us, our officers or directors or
such controlling person resulting from such claims or demands shall
arise out of or be based upon any alleged untrue statement of a
material fact contained in information furnished in writing by you in
your capacity as distributor to us for use in our Registration
Statement or Prospectus in effect from time to time under the Act, or
shall arise out of or be based upon any alleged omission to state a
material fact in connection with such information required to be stated
in the Registration Statement or Prospectus or necessary to make such
information not misleading. Your agreement to indemnify us, our
officers and directors, and any such controlling person as aforesaid is
expressly conditioned upon your being notified of any action brought
against us, our officers or directors or any such controlling person,
such notification to be given by letter or telegram addressed to you at
your principal office in New York, New York, and sent to you by the
person against whom such action is brought, within ten days after the
summons or other first legal process shall have been served. You shall
have a right to control the defense of such action, with counsel of
your own choosing, satisfactory to us, if such action is based solely
upon such alleged misstatement or omission on your part, and in any
other event you and we, our officers or directors or such controlling
person shall each have the right to participate in the defense or
preparation of the defense of any such action. The failure so to notify
you of any such action shall not relieve you from any liability which
you may have to us, to our officers or directors, or to such
controlling person by reason of any such untrue statement or omission
on your part otherwise than on account of your indemnity agreement
contained in this paragraph 3(g).
"5 We shall expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we
agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or to our security holders to which you would
otherwise be subject by reason or willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Section 9(a) of the Distribution Services Agreement provides:
"The Company agrees to indemnify, defend and hold the Underwriter, and
any person who controls the Underwriter within the meaning of Section
15 of the Securities Act, free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Underwriter or
any such controlling person may incur, under the Securities Act or
under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Company's
Registration Statement or the Prospectus or Statement of Additional
Information in effect from time to time under the Securities Act and
relating to the Fund or arising out of or based upon any alleged
omission to state a material fact required to be stated in any thereof
or necessary to make the statements in 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
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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 Investment Advisors, LLC
The description of Forum Investment Advisors, LLC (investment adviser
to each of Daily Assets Treasury Fund, Daily Assets Treasury
Obligations Fund, Daily Assets Government Fund, Daily Assets Cash Fund,
Daily Assets Municipal Fund, Investors High Grade Bond Fund, Investors
Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New Hampshire
Bond Fund and Investors Growth Fund) under the captions "Management "
and "Management - Adviser" in the Prospectuses and Statements of
Additional Information, constituting certain of Parts A and B,
respectively, of this Registration Statement, are incorporated by
reference herein.
The following are the members of Forum Investment Advisors, LLC, Two
Portland Square, Portland, Maine 04101, including their business
connections which are of a substantial nature.
Forum Holdings Corp., Member.
Forum Financial Group, LLC., Member.
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Both Forum Holdings Corp. and Forum Financial Group, LLC are
controlled by John Y. Keffer, Chairman and President of the
Registrant. Mr. Keffer is President of Forum Financial Group, LLC. Mr.
Keffer is also a director and/or officer of various registered
investment companies for which the various Forum Financial Group of
Companies provides services.
The following are the officers of Forum Investment Advisors, LLC,
including their business connections which are of a substantial
nature. Each officer may serve as an officer of various registered
investment companies for which the Forum Financial Group of Companies
provides services.
William J. Lewis, Director.
Director of Forum Investment Advisors, LLC.
Sara M. Morris, Treasurer.
Chief Financial Officer, Forum Financial Group, LLC. Ms.
Morris serves as an officer of several other Forum
affiliated companies.
David I. Goldstein, Secretary.
General Counsel, Forum Financial Group, LLC. Mr. Goldstein
serves as an officer of several other Forum affiliated
companies.
Dana A. Lukens, Assistant Secretary.
Corporate Counsel, Forum Financial Group, LLC. Mr. Lukens
also serves as an officer of several other Forum affiliated
companies.
Margaret J. Fenderson, Assistant Treasurer.
Corporate Accounting Manager, Forum Financial Group, LLC.
Ms. Fenderson also serves as an officer of several other
Forum affiliated companies.
H.M. Payson & Co.
The descriptions of H.M. Payson & Co. under the caption "Management -
Adviser" in the Prospectus and Statement of Additional Information,
with respect to the Payson Value Fund and the Payson Balanced Fund,
constituting certain of Parts A and B, respectively, of this
Registration Statement are incorporated by reference herein.
The following are the directors and principal executive officers of
H.M. Payson & Co., including their business connections which are of a
substantial nature. The address of H.M. Payson & Co. is One Portland
Square, Portland, Maine 04101.
Adrian L. Asherman, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1955, General
Partner from 1964 to 1987 and Managing Director since 1987.
His address is One Portland Square, Portland, Maine 04101.
John C. Downing, Managing Director and Treasurer.
Portfolio Manger of H.M. Payson since 1983 and Managing
Director since 1992. Mr. Downing has been associated with
H.M. Payson since 1983. His address is One Portland Square,
Portland, Maine 04101.
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William A. Macleod, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1984 and
Managing Director since 1989. His address is One Portland
Square, Portland, Maine 04101.
Thomas M. Pierce, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1975, General
Partner from 1981 to 1987 and Managing Director since 1987.
His address is One Portland Square, Portland, Maine 04101.
Peter E. Robbins, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1992, except
for the period from January 1988 to October 1990. During
that period, Mr. Robbins was president of Mariner Capital
Group, a real estate development and non-financial asset
management business. General Partner of H.M. Payson & Co.
from 1986 to 1987, and Managing Director from 1987 to 1988,
and since 1993.
John H. Walker, Managing Director and President.
Portfolio Manager of H.M. Payson & Co. since 1967, General
Partner from 1974 to 1987, and Managing Director since 1987.
Mr. Walker is also a Director of York Holding Company and
York Insurance Company. His address is One Portland Square,
Portland, Maine 04101.
Teresa M. Esposito, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. Her
address is One Portland Square, Portland, Maine 04101.
John C. Knox, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. His
address is One Portland Square, Portland, Maine 04101.
Harold J. Dixon, Managing Director and Secretary.
Managing Director of H.M. Payson & Co. since 1995. His
address is One Portland Square, Portland, Maine 04101.
Laura McDill, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. Her
address is One Portland Square, Portland, Maine 04101.
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 Equity 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 his business connections which are of a substantial nature.
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Peter Vlachos, Director, President Treasurer and Secretary
Oak Hall Capital Advisors, Inc.
The description of Oak Hall Capital Advisors, Inc. under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Oak Hall Equity Fund, constituting part
of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of, Oak
Hall Capital Advisors, Inc. 122 East 42nd Street, New York, New York
10168, including their business connections which are of a substantial
nature.
Alexander G. Anagnos, Director and Portfolio Manager.
Consultant to American Services Corporation and Financial Advisor to
WR Family Associates.
Lewis G. Cole, Director.
Partner, the Law Firm of Strook, Strook & Lavan.
John C. Hathaway, President, director and Portfolio Manager.
John J. Hock, Executive Vice President.
Charles D. Klein, Portfolio Manager.
Director, American Securities Corporation and Financial Advisor to WR
Family Associates.
David P. Steinmann, Executive Vice President, Secretary and Treasurer.
Administrator WR Family Associates and Secretary and Treasurer of
American Securities Corporation.
Carl Domino Associates, L.P.
The description of Carl Domino Associates, L.P. under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Quadra Value Equity Fund, constituting
part of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of, Carl
Domino Associates, L.P., 580 Village Blvd., West Palm Beach, FL 33409
including their business connections which are of a substantial nature.
Carl J. Domino, Managing Partner & Portfolio Manager.
Paul Scoville, Jr., Senior Portfolio Manager.
Ann Fritts Syring, Senior Portfolio Manager.
John Wagstaff-Callahan, Senior Portfolio Manager.
Prior to joining Carl Domino Associates, L.P., Mr. Wagstaff-Callahan
was a Trustee with Batterymarch Financial Management, Boston,
Massachusetts.
Stephen Krider Kent, Jr., Senior Portfolio Manager.
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Prior to joining Carl Domino Associates, L.P., Mr. Kent was a Senior
Portfolio Manager with Gamble, Jones Holbrook & Bent, Carlsbad,
California.
Anhalt/O'Connell, Inc.
The description of Anhalt/O'Connell, Inc. under the caption "Management -
Advisor" in the Prospectus and Statement of Additional Information with
respect to the Quadra Limited Maturity Treasury Fund, constituting part
of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of,
Anhalt/O'Connell, Inc., 345 South Figueroa Street, Suite 303, Los
Angeles, CA, including their business connections which are of a
substantial nature.
Paul Edward Anhalt, Managing Director and Chairman.
Mr. Anhalt is also a partner of Anhalt/O'Connell, a partnership, and
was formerly Managing Director and Consulting Economist of Trust
Company of the West.
Michael Frederick O'Connell, Managing Director
Mr. O'Connell is also a partner of Anhalt/O'Connell, a partnership,
and was formerly Managing Director of Trust Company of the West and
Vice President of Institutional Research Services, Inc., a registered
broker-dealer.
LM Capital Management, Inc.
The description of LM Capital Management, Inc., under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Quadra Opportunistic Bond Fund,
constituting part of Parts A and B, respectively, of this Registration
Statement are incorporated by reference herein.
The following are the directors and principal executive officers of, LM
Capital Management, Inc., including their business connections which are
of a substantial nature.
Luis Malzel, Managing Director.
John Chalker, Managing Director
McDonald Investment Management, Inc.
The description of McDonald Investment Management, Inc., under the
caption "Management - Advisor" in the Prospectus and Statement of
Additional Information with respect to the Quadra International 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
McDonald Investment Management, Inc., including their business
connections which are of a substantial nature.
John McDonald, President and Chief Investment Officer.
Ron Belcot, Vice President - Research and Trading.
Bill Hallman, Vice President.
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Ray DiBernardo, Vice President., Managing Director
Mr. DiBernardo was formerly a portfolio manager with Royal Trust.
Smith Asset Management Group, L.P.
The description of Smith Asset Management Group, L.P., under the caption
"Management - Investment Advisory Services" in the Prospectus and
Statement of Additional Information with respect to the Quadra Growth
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 Smith
Asset Management Group, L.P., including their business connections which
are of a substantial nature.
Mr. Stephen Smith, Chief Investment Officer
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Forum Financial Services, Inc., Registrant's underwriter,
serves as underwriter to Core Trust (Delaware), The CRM Funds,
The Cutler Trust, The Highland Family of Funds, Monarch Funds,
Norwest Funds, Norwest Select Funds, Sound Shore Fund, Inc.,
and Trans Adviser Funds, Inc.
(b) John Y. Keffer, President of Forum Financial Services, Inc.,
is the Chairman and President of the Registrant. Sara M.
Morris is the Treasurer of Forum Financial Services. David I.
Goldstein, Secretary of Forum Financial Services, Inc., is the
Secretary of the Registrant. Margaret J. Fenderson is the
Assistant Treasurer of Forum Financial Services, Inc. and Dana
Lukens is the Assistant Secretary of Forum Financial Services,
Inc. 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 Administrative Services, LLC
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 Registrant's custodian, The First
National Bank of Boston, 100 Federal Street, Boston, Massachusetts 02106. The
records required to be maintained under Rule 31a-1(b)(5), (6) and (9) are
maintained at the offices of the Registrant's adviser or subadviser, as listed
in Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(i) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectuses
offering those shares or the commencement of public shares of the
respective shares; and,
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(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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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 State of Maine on the 31st
day of December, 1997.
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 on the 31st day of December, 1997.
SIGNATURES TITLE
(a) Principal Executive Officer
/S/ JOHN Y. KEFFER President
---------------------- and Chairman
John Y. Keffer
(b) Principal Financial and Accounting Officer
/S/ ROBERT B. CAMPBELL Treasurer
------------------------
Robert B. Campbell
(c) A majority of the Trustees
/S/ JOHN Y. KEFFER Trustee
------------------------
John Y. Keffer
James C. Cheng* Trustee
J. Michael Parish* Trustee
Costas Azariadis* Trustee
By: /S/ JOHN Y. KEFFER
----------------------
John Y. Keffer
Attorney in Fact*
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INDEX TO EXHIBITS
EXHIBIT
5(p) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC
11 Consent of Independent Auditors
105
EXHIBIT 5(P)
<PAGE>
FORUM FUNDS
INVESTMENT ADVISORY AGREEMENT
WITH
FORUM INVESTMENT ADVISORS, LLC
AGREEMENT made the 2nd day of January, 1998 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 Forum Investment Advisors, LLC (the "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, 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, the Trust desires that the Adviser perform investment advisory
services for the investment portfolios of the Trust listed on Schedule A hereto
(the "Funds"), each a separate series of the Trust, 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. APPOINTMENT AND DELIVERY OF DOCUMENTS
(a) The Trust hereby appoints Adviser as investment adviser for the
Funds for the period and on the terms set forth in this Agreement. Adviser
accepts this appointment and agrees to render its services as investment adviser
for the compensation set forth herein.
(b) The Trust has delivered copies of each of the following documents
and will from time to time furnish 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");
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(iv) the prospectus and statement of additional information
relating to the Fund ("Prospectus"); and,
(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 Adviser or its clients.
The Trust shall furnish Adviser with any further documents, materials
or information that Adviser may reasonably request to enable it to perform its
duties pursuant to this Agreement.
SECTION 2. DUTIES OF THE ADVISER
(a) The Adviser shall make decisions with respect to all purchases and
sales of securities and other investment assets in the Funds. To carry out such
decisions, the 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, 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 the Funds since the prior report, and will also keep the Board
informed of important developments affecting the Trust, the Funds and 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.
(c) In making purchases and sales of securities for the Funds, and
otherwise performing its duties hereunder, the 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's Trust Instrument, Bylaws, 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. 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 Quadra's fiduciary duties under its Investment Advisory agreement
with the Trust, and any other applicable law, Quadra may allocate brokerage on
behalf
107
<PAGE>
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) 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.
(e) The Adviser shall maintain records relating to Fund transactions
and the placing and allocation of brokerage orders as are required to be
maintained by the Trust under the Act and the rules and regulations thereunder.
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 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. 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.
(f) The Adviser shall provide the Funds' custodian and fund accountant
on each business day with information relating to all transactions concerning
the Funds' assets.
(g) The 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
(a) The Adviser shall waive its fee to ensure that the Funds' expense
ratios do not exceed any expense limit described in the prospectus or applicable
to the Funds under the laws or regulations of any state in which shares of the
Funds are qualified for sale (reduced pro rata for any portion of less than a
year).
(b) If the Funds' expense ratio exceeds the expense limits described in
subsection (a) above after the Adviser has waived its fees, the Adviser shall be
responsible for that portion of the net expenses of the Funds that exceed any
expense limit described in the prospectus and the net expenses of the Funds
(except interest, taxes, brokerage, fees and other expenses paid by the Funds 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 Funds during each of the
Funds' fiscal years or portion thereof that this Agreement is in effect which,
as to the Funds, in any such year exceeds any expense limits
108
<PAGE>
applicable to the Funds under the laws or regulations of any state in which
shares of the Funds are qualified for sale (reduced pro rata for any portion of
less than a year).
(c) 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: (i) interest charges, taxes, brokerage fees
and commissions; (ii) certain insurance premiums; (iii) fees, interest charges
and expenses of the Trust's custodian, transfer agent and dividend disbursing
agent; (iv) telecommunications expenses; (v) the fees and expenses of the
Trust's independent auditors and of the outside legal counsel appointed by the
Board; (vi) costs of the Trust's formation and maintaining its existence; (vii)
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; (viii) costs of
maintaining books of original entry for portfolio and fund accounting and other
required books and accounts and of calculating the net asset value of shares of
the Trust; (ix) costs of reproduction, stationery and supplies; (x) compensation
of the Trust's Trustees, officers, employees and other personnel performing
services for the Trust who are not officers of the Adviser, of Forum Financial
Services, Inc. or of affiliated persons of either; (xi) costs of corporate
meetings; (xii) registration fees and related expenses for registration with the
Commission and the securities regulatory authorities of other countries in which
the Trust's shares are sold; (xiii) state securities law registration fees and
related expenses; (xiv) the fee payable hereunder and fees and out-of-pocket
expenses payable to Forum Financial Services, Inc. under any distribution,
management or similar agreement; (xv) 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 or otherwise.
SECTION 4. STANDARD OF CARE
The Trust shall expect of the Adviser, and the Adviser will give the
Trust the benefit of, the Adviser's best judgment and efforts in rendering its
services to the Trust, and as an inducement to the Adviser's undertaking these
services the Adviser shall not be liable hereunder for any mistake of judgment
or in any event whatsoever, except for lack of good faith, breach of fiduciary
duty, willful misfeasance, bad faith or gross negligence in the performance of
the Adviser's duties hereunder, or by reason of the Adviser's reckless disregard
of its obligations and duties hereunder and except as otherwise provided by law.
SECTION 5. COMPENSATION
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. These 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 the Funds' expenses as provided in Section 4 hereof,
shall be estimated and accrued daily and paid to the Trust monthly in arrears,
at the same time as the Trust's payment to the Adviser for such month.
109
<PAGE>
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) With respect to the Funds, this Agreement shall become effective
immediately upon approval by a majority of the Trust's Trustees, including a
majority of the Trustees who are not interested persons of the Trust.
(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 Funds, 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, the 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 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 the Board or by a vote of a majority of the outstanding
voting securities of the Funds on 30 days' written notice to the Adviser or (ii)
by the 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
the 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 the Adviser's right, or the
right of any of the Adviser's officers, directors, trustees 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.
110
<PAGE>
SECTION 8. SUB-ADVISERS
At its own expense, the Adviser may carry out any of its obligations
under this Agreement by employing, subject to the Adviser's 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 ("Sub-advisers"). Each Sub-adviser's employment will be evidenced by
a separate written agreement approved by the Board and, if required, by the
shareholders of the applicable Fund.
SECTION 9. 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 the Trust, at:
Forum Funds
Two Portland Square
Portland, ME 04101
Attn: Secretary
and if to the Adviser, at:
Forum Investment Advisors, LLC
Two Portland Square
Portland, ME 04101
Attn: Secretary
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. MISCELLANEOUS
(a) No provision of this Agreement with respect to any of the Funds 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 Funds.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
111
<PAGE>
(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.
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
FORUM INVESTMENT ADVISORS, LLC
____________________________
112
<PAGE>
FORUM FUNDS
ADVISORY AGREEMENT
WITH
FORUM INVESTMENT ADVISORS, LLC
SCHEDULE A
AS OF JANUARY 2, 1998
FEE AS A % OF THE
ANNUAL AVERAGE DAILY NET ASSETS
FUNDS OF THE TRUST OF THE FUND
Investors Bond Fund 0.40%
TaxSaver Bond Fund 0.40%
Maine Municipal Bond Fund 0.40%
New Hampshire Bond Fund 0.40%
Investors High Grade Bond Fund 0.40%
Investors Growth Fund 0.65%
113
EXHIBIT (11)
116
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Post-Effective Amendment No. 56 to Registration
Statement File No. 2-67052 of Forum Funds of our reports dated May 9, 1997, on
behalf of Investors Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund and
New Hampshire Bond Fund (four of the series constituting Forum Funds),
incorporated by reference in the Statement of Additional Information, which is a
part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus for Investors High Grade Bond
Fund, Investors Bond Fund and TaxSaver Bond Fund, which is a part of such
Registration Statement, and "Auditors" in the Statement of Additional
Information.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
December 31, 1997
117
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORUM
FUNDS, INC. SEMI-ANNUAL REPORT DATED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000315774
<NAME> FORUM FUNDS, INC.
<SERIES>
<NUMBER> 003
<NAME> INVESTORS BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 26,551,591
<INVESTMENTS-AT-VALUE> 27,180,519
<RECEIVABLES> 1,636,191
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,816,710
<PAYABLE-FOR-SECURITIES> 1,380,713
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 257,732
<TOTAL-LIABILITIES> 1,638,445
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,622,682
<SHARES-COMMON-STOCK> 2,622,957
<SHARES-COMMON-PRIOR> 2,178,639
<ACCUMULATED-NII-CURRENT> (2,108)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (71,237)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 628,928
<NET-ASSETS> 27,178,265
<DIVIDEND-INCOME> 73,072
<INTEREST-INCOME> 924,994
<OTHER-INCOME> 0
<EXPENSES-NET> 88,701
<NET-INVESTMENT-INCOME> 909,365
<REALIZED-GAINS-CURRENT> 67,392
<APPREC-INCREASE-CURRENT> 358,483
<NET-CHANGE-FROM-OPS> 1,335,240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 909,365
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,226,575
<NUMBER-OF-SHARES-REDEEMED> 3,820,212
<SHARES-REINVESTED> 155,783
<NET-CHANGE-IN-ASSETS> 4,988,021
<ACCUMULATED-NII-PRIOR> (2,108)
<ACCUMULATED-GAINS-PRIOR> (138,629)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 50,692
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 178,837
<AVERAGE-NET-ASSETS> 25,276,898
<PER-SHARE-NAV-BEGIN> 10.19
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORUM
FUNDS, INC. SEMI-ANNUAL REPORT DATED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000315774
<NAME> FORUM FUNDS, INC.
<SERIES>
<NUMBER> 005
<NAME> TAXSAVER BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 18,856,177
<INVESTMENTS-AT-VALUE> 19,761,776
<RECEIVABLES> 604,189
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,365,965
<PAYABLE-FOR-SECURITIES> 243,705
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65,713
<TOTAL-LIABILITIES> 309,418
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,126,945
<SHARES-COMMON-STOCK> 1,868,562
<SHARES-COMMON-PRIOR> 1,693,197
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24,003
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 905,599
<NET-ASSETS> 20,056,547
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 557,170
<OTHER-INCOME> 0
<EXPENSES-NET> 58,418
<NET-INVESTMENT-INCOME> 498,752
<REALIZED-GAINS-CURRENT> 28,605
<APPREC-INCREASE-CURRENT> 429,709
<NET-CHANGE-FROM-OPS> 957,066
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 498,752
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,285,095
<NUMBER-OF-SHARES-REDEEMED> 1,642,110
<SHARES-REINVESTED> 198,241
<NET-CHANGE-IN-ASSETS> 2,299,540
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,602)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38,950
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141,428
<AVERAGE-NET-ASSETS> 19,421,627
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .27
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<EXPENSE-RATIO> .60
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</TABLE>
