[Pictures on left half of
cover of globe, coins, a
stamp, a fort.] ------------------------------
P R O S P E C T U S
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Equity
Index Fund
Investors
Equity Fund
Small Company
Opportunities
Fund
International
Equity Fund
Emerging
Markets Fund
FORUM
FUNDS
OCTOBER 1, 1998
<PAGE>
FORUM FUNDS
EQUITY INDEX FUND
INVESTORS EQUITY FUND
SMALL COMPANY OPPORTUNITIES FUND
INTERNATIONAL EQUITY FUND
EMERGING MARKETS FUND
PROSPECTUS
October 1, 1998
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ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
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This Prospectus offers shares of Equity Index Fund, Investors Equity Fund, Small
Company Opportunities Fund, International Equity Fund and Emerging Markets Fund
(each, a "Fund" and collectively, the "Funds"), separately-managed portfolios of
Forum Funds (the "Trust"), a registered, open-end, management investment
company. Each of Equity Index Fund, International Equity Fund and Emerging
Markets Fund seeks to achieve its investment objective by investing all of its
investable assets in a separate portfolio of another registered, open-end,
management investment company with the same investment objective. Accordingly,
each of these Fund's investment experience will correspond directly with the
portfolio's investment experience. See "Other Information - Core and Gateway(R)
Structure." Small Company Opportunities Fund seeks to achieve its investment
objective by investing in various portfolios of other registered,open-end,
management investment companies, each of which invests using a different small
company investment style. See "Other Information -- Core and Gateway(R)
Structure." Investors Equity Fund seeks to achieve its investment objective by
investing directly in portfolio securities.
EQUITY INDEX FUND seeks to duplicate the return of the Standard & Poor's
500 Composite Stock Index ("S&P 500 Index") with minimum tracking error,
while also minimizing transaction costs. Under normal circumstances, the
portfolio will hold stocks representing 100% or more of the
capitalization-weighted market values of the S&P 500 Index.
INVESTORS EQUITY FUND seeks to provide capital appreciation by investing
primarily in a portfolio of common stock of companies domiciled in the
United States. The Fund intends to maintain a portfolio that is broadly
diversified across investment sectors.
SMALL COMPANY OPPORTUNITIES FUND seeks to provide long-term capital
appreciation while moderating annual return volatility by diversifying its
investments across different small capitalization equity investment styles.
INTERNATIONAL EQUITY FUND seeks to provide shareholders with long-term
capital appreciation by investing directly or indirectly in high quality
companies based outside the United States. Investments in foreign
securities involve special risks in addition to the risks associated with
investments in general.
EMERGING MARKETS FUND seeks to achieve long-term capital appreciation
through investment in equity securities of issuers domiciled or doing
business in emerging market countries in regions such as Southeast Asia,
Latin America, and Eastern and Southern Europe. It is designed for
investors who seek the aggressive growth potential of emerging world
markets and are willing to bear the special risks of investing in those
markets.
There can be no assurance that any Fund's objective will be achieved. 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 4.0% of the total public offering
price (4.17% of the amount invested).
This Prospectus sets forth concisely the information a prospective investor
should know before investing in a Fund. The Trust has filed with the Securities
and Exchange Commission ("SEC") a Statement of Additional Information dated
October 1, 1998, as may be amended from time to time (the "SAI"), which contains
more detailed information about the Trust and the Funds and is available along
with other related materials for reference on the SEC's Internet Web Site
(http://www.sec.gov). The SAI, which is incorporated by reference into this
Prospectus, is also available without charge by contacting Forum Shareholder
Services, LLC, the Funds' transfer agent, at the address and telephone numbers
printed above.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C> <C> <C>
PAGE PAGE
1. Prospectus Summary.......................... 2 5. Risk Considerations....................... 19
2. Financial Highlights........................ 7 6. Management................................ 24
3. Investment Objectives and Policies.......... 8 7. Purchases and Redemptions of Shares....... 29
4. Additional Investment Policies.............. 15 8. Distributions and Tax Matters............. 36
9. Other Information......................... 38
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
FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
THE FUNDS
Each Fund's objective is described on the cover page. Investors Equity Fund
invests directly in portfolio securities. Each of Equity Index Fund,
International Equity Fund and Emerging Markets Fund seeks to achieve its
investment objective by investing all of its investable assets in a separate
series of another registered, open-end, management investment company (each a
"Portfolio"). Accordingly, the investment experience of each of these Funds will
correspond directly with the investment experience of its corresponding
Portfolio. See "Other Information - Core and Gateway(R) Structure." The
Portfolios in which the Funds invest are:
FUND PORTFOLIO
Equity Index Fund Index Portfolio
International Equity Fund International Portfolio
Emerging Markets Fund Schroder EM Core Portfolio
Index Portfolio and International Portfolio are series of Core Trust (Delaware)
("Core Trust"), and Schroder EM Core Portfolio is a series of Schroder Capital
Funds ("Schroder Core").
Small Company Opportunities Fund seeks to achieve its investment objective by
investing in various Portfolios of other registered, open-end, management
investment companies. Each Portfolio in which the Fund invests uses a different
investment style. See "Other Information -- Core and Gateway(R) Structure." The
Portfolios in which Small Company Opportunities Fund currently invests are:
Small Cap Index Portfolio, Small Company Stock Portfolio, Small Company Value
Portfolio, and Small Cap Value Portfolio, each a separate series of Core Trust.
The percentage of the Fund's assets invested in each Portfolio may be changed at
any time by the Fund's investment adviser in response to market or other
conditions. Allocations are made within specified ranges.
INVESTMENT ADVISERS
INVESTORS EQUITY FUND. H.M. Payson & Co. ("Payson") serves as the Fund's
investment adviser and Peoples Heritage Bank ("Peoples") serves as the
investment subadviser. Peoples is a subsidiary of Peoples Heritage Financial
Group, a multi-bank and financial services holding company.
EQUITY INDEX FUND. Norwest Investment Management, Inc. ("Norwest") serves
as Index Portfolio's investment adviser. Norwest is an indirect subsidiary of
Norwest Bank of Minnesota, N.A. ("Norwest Bank"), a multi-bank holding company.
SMALL COMPANY OPPORTUNITIES FUND. Forum Investment Advisors, LLC ("Forum
Advisors") serves as the Fund's investment adviser. Following are the investment
advisers and investment subadvisers of the Portfolios in which the Fund may
invests:
NORWEST serves as investment adviser to Small Cap Index
Portfolio, Small Company Stock Portfolio, Small Company Value
Portfolio and Small Cap Value Portfolio.
CRESTONE CAPITAL MANAGEMENT, INC. ("Crestone"), an indirect
investment advisory subsidiary of Norwest Bank, serves as
investment subadviser to Small Company Stock Portfolio.
PEREGRINE CAPITAL MANAGEMENT, INC. ("Peregrine"), an indirect
investment advisory subsidiary of Norwest Bank, serves as
investment subadviser to Small Company Value Portfolio.
SMITH ASSET MANAGEMENT GROUP, L.P. ("Smith"), an investment
advisory affiliate of Norwest Bank, serves as investment
subadviser to Small Cap Value Portfolio.
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS FUND. Schroder
Capital Management International Inc. ("SCMI") serves as
International Portfolio's and Schroder EM Core Portfolio's
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investment adviser. SCMI is a wholly owned U.S. subsidiary of
Schroders Incorporated, the wholly owned U.S. subsidiary of
Schroders plc, a publicly owned company organized under the laws
of England.
Each investment adviser to a Fund or Portfolio may be referred to as an
"Adviser." For a description of each Adviser and its fees, see "Management -
Investment Advisers." The investment advisory fees paid by a Portfolio are borne
indirectly by the Fund (and its shareholders) investing in that Portfolio.
MANAGEMENT
The administrator of the Funds is Forum Administrative Services, LLC
("FAdS") and the distributor of their shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC ("FSS") serves as the Funds' transfer
agent, dividend disbursing agent and shareholder servicing agent while Forum
Accounting Services, LLC ("FAcS") provides portfolio accounting services for the
Funds. See "Management." Each of these companies are located at Two Portland
Square, Portland, Maine 04101.
PURCHASES AND REDEMPTIONS
Shares of each Fund are offered at the next-determined net asset value
per share plus any applicable sales charge. Shares may be purchased or redeemed
by mail, by bank-wire and through an investor's broker-dealer or other financial
institution. The minimum initial investment is $2,000, ($1,000 for an Individual
Retirement Account) and the minimum subsequent investment is $250. Shares may be
redeemed without charge. See "Purchases and Redemptions of Shares."
Shares of the Funds are not offered for sale in every state. To
determine whether a Fund is available for purchase in a particular state,
contact FSS at the numbers listed on the first page of this Prospectus.
EXCHANGE PROGRAM
Shareholders may exchange their shares without charge for the shares of
certain funds of the Trust. See "Purchases and Redemptions of Shares --
Exchanges."
DISTRIBUTIONS
Distributions of net investment income are declared and paid annually.
Distributions of any net capital gain are made annually. With respect to each
Fund, distributions are reinvested automatically in additional shares of the
Fund at net asset value unless the shareholder has notified the Fund in writing
of the shareholder's election to receive distributions in cash. See
"Distributions and Tax Matters."
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that a Fund will achieve its investment
objective; a Fund's net asset value and total return will fluctuate based upon
changes in the value of the securities in which it or its corresponding
Portfolio invests. No single Fund is a complete investment program. See
"Investment Objectives and Policies" and "Risk Considerations."
The policies of Equity Index Fund, Investors Equity Fund and Small
Company Opportunities Fund of investing in equity securities of U.S. issuers
involve equity market risks that are related to such securities. Equity market
risk is the risk that common stock prices will fluctuate or decline over short
or even extended periods.
The policies of International Equity Fund and Emerging Markets Fund of
investing in the securities of foreign issuers may involve risks in addition to
those normally associated with investments in the securities of U.S. issuers,
including risks of foreign political and economic instability, adverse movements
in exchange rates, and the imposition or tightening of limitations on the
repatriation of capital. These risks are more pronounced for Emerging Markets
Fund. International Equity
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Fund and Emerging Markets Fund are designed for the investment of that portion
of an investor's funds that can appropriately bear the special risks associated
with an investment in foreign and/or emerging market securities. See "Risk
Considerations."
The policy of investing in securities of smaller companies employed by
Small Company Opportunities Fund entails certain risks in addition to those
normally associated with investments in equity securities. These risks include
lower trading volumes and, therefore, the potential for greater stock price
volatility. For a description of investment considerations and risks involved in
investing in small company securities, see "Risk Considerations." Small Company
Opportunities Fund is designed for the investment of that portion of an
investor's funds that can appropriately bear the special risks associated with
an investment in smaller market capitalization companies.
By pooling their assets in one or more Portfolios with other
institutional investors, Equity Index Fund, Small Company Opportunities Fund,
International Equity Fund and Emerging Markets Fund may achieve certain
efficiencies and economies of scale. Nonetheless, this investment also could
have potential adverse effects on these Funds. These risks are described under
"Other Information - Core and Gateway(R) Structure."
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EXPENSES OF INVESTING IN THE FUNDS
The purpose of the following table is to assist investors in
understanding the expenses that an investor in shares of the Funds will bear
directly or indirectly.
<TABLE>
<S> <C> <C> <C> <C> <C>
Equity Investors Small Company International Emerging
Index Equity Opportunities Equity Markets
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge imposed
on purchases(1) (as a percentage
of public offering price) 4.0% 4.0% 4.0% 4.0% 4.0%
Exchange Fee None None None None None
ANNUAL FUND OPERATING
EXPENSES(2)
(as a percentage of average
net assets)
Management Fees
(after fee waivers)(3) 0.15% 0.20% 0.79% 0.44% 0.09%
12b-1 Fees.................. None None None None None
Other Expenses
(after fee waivers and
expense reimbursements)(4)......... 0.10% 0.90% 0.94% 0.93% 1.62%
----- ----- ----- ----- -----
Total Fund Operating
Expenses(4)................... 0.25% 1.10% 1.73% 1.37% 1.71%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares - Reduced Sales Charges."
(2) For a further description of the various expenses incurred in the
operation of the Funds, see "Management." Expense reimbursements and fee waivers
are voluntary and may be reduced or eliminated at any time. The amount of fees
and expenses for each Fund is based on annualized expenses for the Fund's fiscal
year ending May 31, 1998. For each Fund that invests its assets in one or more
separate series of another registered, open-end, management investment company
(a "Portfolio"), the Fund's expenses include its pro rate portion of all
expenses of its corresponding Portfolio(s), which are borne indirectly by the
Fund's shareholders.
(3) Absent fee waivers, Management Fees for Equity Index Fund, Investors
Equity Fund, Small Company Opportunities Fund, International Equity Fund and
Emerging Markets Fund would be 0.15%, 0.65%, 1.04%, 0.45%, 1.00%, respectively.
Management Fees are the investment advisory fees of a Fund and/or of the
Portfolio or Portfolios in which the Fund invests.
(4) Absent expense reimbursements and fee waivers, Other Expenses and Total
Fund Operating Expenses would be 2.16% and 2.31%, respectively, for Equity Index
Fund, 1.44% and 2.09%, respectively, for Investors Equity Fund, 1835.38% and
1836.42%, respectively, for Small Company Opportunities Fund, 674.96% and
675.41%, respectively, for International Equity Fund, and 601.87% and 602.87%,
respectively for Emerging Markets Fund.
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EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in each Fund would pay assuming: (1) a $1,000
investment in the Fund; (2) a 5% annual return; (3) the reinvestment of all
distributions; (4) the payment of the maximum initial sales charge and (5) full
redemption at the end of each period:
<TABLE>
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Equity Index Fund $42 $48 $53 $70
Investors Equity Fund $51 $74 $98 $169
Small Company Opportunities Fund $57 $92 $130 $235
International Equity Fund $53 $81 $112 $197
Emerging Markets Fund $57 $91 $129 $233
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURNS. ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN INDICATED. The
example is based on the expenses listed in the table which assumes the continued
waiver and/or reimbursement of certain fees and expenses. The 5% annual return
is not a prediction of the Funds' projected return; rather it is required by
government regulation.
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2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Funds. The information has been audited in connection with an
audit of the Funds' financial statements by Deloitte & Touche LLP, independent
auditors. The financial statements and independent auditors' report thereon are
incorporated by reference into the SAI. Further information about the Funds'
performance is contained in the Funds' annual report to shareholders, which may
be obtained from the Trust, without charge, by contacting FSS.
<TABLE>
<S> <C> <C> <C> <C> <C>
SMALL COMPANY
INVESTORS EQUITY INDEX OPPORTUNITIES INTERNATIONAL EMERGING MARKETS
EQUITY FUND (A) FUND (A) FUND (A) EQUITY FUND(A) FUND (A)
--------------- --------------- --------------- --------------- -----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED MAY
MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 31, 1998
--------------- --------------- --------------- --------------- -----------------
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00 $10.00
--------------- --------------- --------------- --------------- -----------------
Investment Operations:
Net Investment Income (Loss) 0.00 0.07 (0.01) 0.04 0.04
Net Realized and Unrealized Gain
(Loss) on Investments 1.43 1.62 (0.29) 1.98 (0.76)
--------------- --------------- --------------- --------------- -----------------
Total from Investment Operations 1.43 1.69 (0.30) 2.02 (0.72)
Net Asset Value, End of Period $11.43 $11.69 $9.70 $12.02 $9.28
=============== =============== =============== =============== =================
Total Return(b) 14.30%(c) 16.90%(c) (3.00%)(c) 20.20%(c) (7.20%)(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's $30,090 $5,038 $5 $9 $7
omitted)
Ratios to Average Net Assets:
Expenses Including 1.10% 0.25% 1.87% 1.36% 1.69%
Reimbursement/Waiver(d)
Expenses Excluding 2.09% 2.25%% 1,836.34% 675.46% 602.84%
Reimbursement/Waiver(d)
Net Investment Income (Loss) Including
Reimbursement/Waiver(d) 0.09% 1.41% (0.93%) 0.98% 1.05%
Average Commission Rate(e) $0.0549 $0.0339(f) N/A(g) $0.0194(f) $0.0039 (f)
Portfolio Turnover Rate 11.35% $6.68%(f) N/A(g) 36.96%(f) 20.09%(f)
</TABLE>
(a) Investors Equity Fund and Small Company Opportunities Fund commenced
operations on December 17, 1997 and March 31, 1998, respectively. Equity
Index Fund, International Equity Fund, and Emerging Markets Fund commenced
operations on December 24, 1997.
(b) Total return calculations do not include sales charge.
(c) Not annualized.
(d) Annualized.
(e) Amount represents the average commission per share paid to brokers on the
purchase of sale of equity securities.
(f) Information presented is that of the Portfolio in which the Fund invests.
(g) The average commission rates for Small Company Value Portfolio, Small Cap
Index Portfolio and Small Cap Value Portfolio were $0.0522, $0.0199 and
$0.0556, respectfully.
(h) The turnover rates for Small Company Value Portfolio, Small Cap Index
Portfolio and Small Cap Value Portfolio were 99.08%, 2.25% and 79.43%,
respectively.
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3. INVESTMENT OBJECTIVES AND POLICIES
To achieve their investment objectives, the Funds invest primarily in
common stocks and other equity securities. The domestic securities in which a
Fund invests are generally listed on a securities exchange or included in the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System but may be traded in the over-the-counter securities
market. Each Fund, other than Equity Index Fund, may invest in foreign issuers.
These investments may involve certain risks. See "Risk Considerations - Foreign
Investments."
There can be no assurance that a Fund or Portfolio will achieve its
investment objective; a Fund's net asset value and total return will fluctuate
based upon changes in the value of the securities in which it or its
corresponding Portfolio invests. No single Fund is a complete investment
program.
The investment policies of Equity Index Fund, Small Company
Opportunities Fund, International Equity Fund and Emerging Markets Fund mirror
those of the Portfolios in which they invest and the responsibilities of Core
Trust's Board of Trustees (the "Core Trust Board") or Schroder Core's Board of
Trustees (the "Schroder Core Board"), as applicable, apply equally to the Funds
and the Trust's Board of Trustees (the "Board"). Additional information
concerning the investment policies of the Funds and the Portfolios, including
additional fundamental policies, is contained in the SAI.
EQUITY INDEX FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIO
The investment objective of Equity Index Fund is to duplicate the
return of the S&P 500 Index.
The Fund currently seeks to achieve its investment objective by
investing all of its investable assets in Index Portfolio (the "Portfolio"),
which has substantially the same investment objective and substantially similar
policies as the Fund.
INVESTMENT POLICIES
The Fund duplicates the return of the S&P 500 Index with minimum
tracking error and to minimize transaction costs. Under normal circumstances,
the Fund holds stocks representing 100% or more of the capitalization-weighted
market values of the S&P 500 Index. Portfolio transactions for the Fund
generally are executed only to duplicate the composition of the S&P 500 Index,
to invest cash received from portfolio security dividends or investments in the
Fund, and to raise cash to fund redemptions. The Fund may hold cash or cash
equivalents to facilitate payment of the Fund's expenses or redemptions and may
invest in index futures contracts. For these and other reasons, the Fund's
performance can be expected to approximate but not be equal to that of the S&P
500 Index.
The Fund may utilize index futures contracts to a limited extent. Index
futures contracts are bilateral agreements pursuant to which two parties agree
to take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the index value at the close of trading of the
contract and the price at which the futures contract is originally struck. As no
physical delivery of securities comprising the S&P Index is made, a purchaser of
index futures contracts may participate in the performance of the securities
contained in the S&P 500 Index without the required capital commitment. Index
futures contracts may be used for several reasons: to simulate full investment
in the underlying index while retaining a cash balance for fund management
purposes, to facilitate trading or to reduce transaction costs. The Fund does
not invest in futures contracts for speculative reasons or to leverage the Fund.
The Fund is, however, subject to certain
8
<PAGE>
investment risks. These risks include: (1) imperfect correlations between
movements in the prices of futures contracts and movements in the price of the
securities hedged which may cause a given hedge not to achieve its objective;
(2) the fact that the skills and techniques needed to trade futures are
different from those needed to select the other securities in which the Fund
invests; (3) lack of assurance that a liquid secondary market will exist for any
particular instrument at any particular time, which, among other things, may
hinder the Fund's ability to limit exposures by closing its positions; and (4)
the possible need to defer closing out of certain futures contracts to avoid
adverse tax consequences.
The S&P 500 Index tracks the total return performance of 500 common
stocks which are chosen for inclusion in the S&P 500 Index by Standard & Poor's,
A Division of The McGraw Hill Companies, ("S&P") on a statistical basis. The 500
securities, most of which trade on the New York Stock Exchange, represent
approximately 70% of the total market value of all U.S. common stocks. Each
stock in the S&P 500 Index is weighted by its market value. Because of the
market-value weighting, the 50 largest companies in the S&P 500 Index currently
account for approximately 47% of its value. The S&P Index emphasizes large
capitalizations and, typically, companies included in the S&P 500 Index are the
largest and most dominant firms in their respective industries.
S&P does not sponsor, sell, promote or endorse the Fund or the
Portfolio. S&P does not warrant that the S&P 500 Index is a good investment, is
accurate or complete, or will track general stock market performance.
INVESTORS EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of Investors Equity Fund is to seek capital
appreciation by investing primarily in common stock of companies domiciled in
the United States.
INVESTMENT POLICIES
The Fund intends to invest in securities of established, growing
companies that have demonstrated a high degree of financial strength and
fiduciary quality, and provide good liquidity in the market. Under normal
circumstances, the Fund invests at least 65% of its assets in these companies,
without concentration in any one industry. In seeking these investments, the
Advisers rely, in part, upon fundamental and technical analysis of individual
companies. The Advisers consider companies which have, among other things, the
following characteristics: a strong record of earnings growth, industry
leadership, a unique product or niche and good management. The Advisers also
apply a broader analysis of industry conditions and economic trends. While the
Fund will be broadly diversified across investment sectors, the Advisers' top
down industry and economic analysis will influence the actual sector weightings.
The fundamental risk of investing in common stock is the risk that the
value of the stock might decrease. Stock values fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than preferred stocks,
fixed-income securities and money market investments. The market value of all
securities, including equity securities, is based upon the market's perception
of value and not necessarily the book value of an issuer or other objective
measures of a company's worth.
In addition to common stock, the Fund also may invest in preferred
stocks and investment-grade convertible debt securities. The Fund also may
invest in American Depositary Receipts, European Depositary Receipts and other
similar securities of foreign issuers. The Fund expects any
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<PAGE>
foreign investments to constitute less than 10% of its assets.
SMALL COMPANY OPPORTUNITIES FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIOS
The investment objective of the Small Company Opportunities Fund is to
provide long term capital appreciation while moderating annual return volatility
by diversifying its investments across different small capitalization equity
investment styles. The Fund currently seeks to achieve its investment objective
by investing all of its investable assets in the Portfolios described below.
INVESTMENT POLICIES
The Fund follows a "multi-style" approach designed to minimize the
volatility and risk of investing in small capitalization equity securities. The
Fund invests in various different small capitalization equity styles. The Fund
uses different investment styles in order to reduce the risk of price and return
volatility associated with reliance on a single investment style.
SMALL COMPANY OPPORTUNITIES FUND ALLOCATION. Set forth below are the
ranges of investments by the Fund in each Portfolio and current allocation among
the Portfolios on or about the date of this Prospectus.
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
ALLOCATION INVESTMENT
---------- ----------
Small Cap Index Portfolio 30% 25% - 75%
Small Company style 70%
Small Company Stock Portfolio 0% 0% - 75%
Small Company Value Portfolio 30% 0% - 75%
Small Cap Value Portfolio 40% 0% - 75%
---------------
TOTAL FUND ASSETS 100%
</TABLE>
As market values of a Portfolio's assets change, the percentage of Fund
assets that are invested in each Portfolio may temporarily deviate from the
current allocations. In response thereto, Forum Advisors monitors the portfolio
on a daily basis and affects transactions as necessary.
Consistent with the Fund's investment objective and policies and under
the general supervision of the Board, Forum Advisors may make changes in the
percentage allocations, within the prescribed ranges of investment, at any time
Forum Advisors deems appropriate, including in response to market and other
conditions. When Forum Advisors believes that a change in the allocation
percentages is desirable, it will redeem and purchase interests in the
Portfolios to effect the change. In addition, upon approval of the Board and
notification of shareholders, the Fund may invest in additional or fewer
Portfolios or invest directly in portfolio securities.
Following is a discussion of the investment objectives, policies and
risks of the Portfolios in which the Fund currently invests.
SMALL CAP INDEX PORTFOLIO. Small Cap Index Portfolio seeks to replicate
the return of the Standard & Poor's Small Cap 600 Composite Stock Price Index
Index (the "S&P Small Cap 600 Index") with minimum tracking error and to
minimize transaction costs. Under normal circumstances, the Portfolio will hold
stocks representing 100% of the capitalization-weighted market values of the S&P
Small Cap 600 Index. Portfolio transactions for the Portfolio generally are
executed only to duplicate the composition of the S&P Small Cap 600 Index, to
invest cash received from portfolio security dividends or investments in the
Portfolio, and to raise cash to fund redemptions. The Portfolio may hold cash or
cash equivalents for the purpose of facilitating payment of the Portfolio's
expenses or redemptions and may invest in index futures contracts.. For these
and other reasons, the Portfolio's performance can be expected to approximate
but not be equal to that of the S&P Small Cap 600 Index.
Small Cap Index Portfolio may utilize index futures contracts to a
limited extent. Index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contract and the price at which the futures contract is
originally
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struck. As no physical delivery of securities comprising the Index is made, a
purchaser of index futures contracts may participate in the performance of the
securities contained in the index without the required capital commitment. Index
futures contracts may be used for several reasons: to simulate full investment
in the underlying index while retaining a cash balance for portfolio management
purposes; to facilitate trading; or to reduce transaction costs. The Portfolio
does not invest in futures contracts for speculative reasons or to leverage the
Portfolio. (See "Investment Objectives and Policies -- Equity Index Fund".)
The S&P Small Cap 600 Index tracks the total return performance of 600
common stocks which are chosen for inclusion in the S&P Small Cap 600 by S&P on
a statistical basis. The 600 securities, most of which trade on the New York
Stock Exchange, represent 4% of the total market value of all U.S. common
stocks. Each stock in the S&P Small Cap 600 Index is weighted by its market
value.. The S&P Small Cap 600 Index emphasizes smaller capitalizations and
typically, companies included in the S&P Small Cap 600 Index may not be the
largest nor the most dominent firms in their respective industries.
S&P does not sponsor, sell, endorse or promote the Portfolio. S&P does
not warrant that the S&P Small Cap 600 Index is a good investment, is accurate
or complete, or will track general stock market performance.
SMALL COMPANY STOCK PORTFOLIO. Small Company Stock Portfolio seeks
long-term capital appreciation by investing primarily in the common stock of
small- and medium-size domestic companies that have a market capitalization well
below that of the average company in the S&P 500 Index. The Adviser considers
small companies to be those companies whose market capitalization is less than
the largest stock in the Russell 2000 Index. The Adviser considers medium
companies to be those companies whose market capitalization is in the range of
$500 million to $8 billion.
In selecting securities for the Portfolio, the Adviser seeks securities
with significant price appreciation potential, and attempts to identify
companies that show above-average growth. The companies in which the Portfolio
invests may be in relatively early stages of development or may produce goods
and services that have favorable prospects for growth due to increasing demand
or developing markets. Frequently, these companies have a small management group
and single product or product line expertise, which, in the view of the Adviser,
may result in an enhanced entrepreneurial spirit and greater focus. The Adviser
believes that these companies may develop into significant business enterprises
and that an investment in these companies offer a greater opportunity for
capital appreciation than an investment in larger, more established companies.
The Portfolio may invest up to 20% of its assets in foreign companies.
The Fund may also write covered call options and purchase call options on equity
securities to manage risk or enhance returns.
SMALL COMPANY VALUE PORTFOLIO. Small Company Value Portfolio seeks to
provide long-term capital appreciation by investing primarily in smaller
companies whose market capitalization is less than the largest stock in the
Russell 2000 Index.
The Adviser focuses on securities that are conservatively valued in the
marketplace relative to the stock of comparable companies, determined by
price/earnings ratios, cash flows, or other measures. Value investing provides
investors with a less aggressive way to take advantage of growth opportunities
of small companies. Value investing may reduce downside risk while offering
potential
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for capital appreciation as a stock gains favor among other investors and its
stock price rises.
SMALL CAP VALUE PORTFOLIO. Small Cap Value Portfolio seeks capital
appreciation by investing in common stocks of smaller companies. Normally, the
Portfolio will invest substantially all of its assets in securities of companies
with market capitalizations that reflects the market capitalization of companies
included in the Russell 2000 Index. The Portfolio seeks higher growth rates and
greater long-term returns by investing primarily in the common stock of smaller
companies that the Adviser believes to be undervalued and likely to report a
level of earnings exceeding that expected by investors. The Adviser values
companies based upon both the price-to-earnings ratio of the company and a
comparison of the public market value of the company to a proprietary model that
values the company in the private market. In seeking companies that will report
a level of earnings exceeding that expected by investors, the investment adviser
uses both quantitative and fundamental analysis. Among the factors that the
Advisers considers are changes of earnings estimates by investment analysts, the
recent trend of company earnings reports, and the fundamental business outlook
for the company.
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INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIO
The investment objective of International Equity Fund (the "Fund") is
long-term capital appreciation by investing directly or indirectly in high
quality companies based outside the United States.
The Fund is designed for U.S. investors who seek international
diversification of their investments by participating in foreign securities
markets. Investments in the securities of foreign issuers generally involve
risks in addition to the risks associated with investments in the securities of
U.S. issuers. See "Risk Considerations - Foreign Investments."
The Fund currently seeks to achieve its investment objective by
investing all of its investment assets in International Portfolio (the
"Portfolio"), which has substantially the same investment objective and
substantially similar policies as the Fund.
INVESTMENT POLICIES
The Fund normally invests at least 65% of its total assets in equity
securities of companies domiciled outside the United States. Investments by the
Fund are selected on the basis of their potential for capital appreciation
without regard to current income. The Fund also may invest in the securities of
domestic closed-end investment companies investing primarily in foreign
securities and may invest in debt obligations of foreign governments or their
political subdivisions, agencies or instrumentalities, of supranational
organizations and of foreign corporations. The Fund's investments are generally
diversified among securities of issuers in foreign countries including, but not
limited to, Japan, Germany, the United Kingdom, France, The Netherlands, Hong
Kong, Singapore and Australia. In general, the Fund will invest only in
securities of companies and governments in countries that the Adviser, in its
judgment, considers both politically and economically stable. The Fund has no
limit on the amount of its assets that may be invested in any one type of
foreign instrument or in any foreign country.To the extent the Fund concentrates
its assets in a foreign country, it will incur greater risks. See "Risk
Considerations - Foreign Investments."
The Fund may purchase preferred stock and convertible debt securities,
including convertible preferred stock, and may purchase American Depository
Receipts, European Depository Receipts or other similar securities of foreign
issuers The Fund also may enter into foreign exchange contracts, including
forward contracts to purchase
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or sell foreign currencies, in anticipation of its currency requirements and to
protect against possible adverse movements in foreign exchange rates. Although
such contracts may reduce the risk of loss to the Fund from adverse movements in
currency values, the contracts also limit possible gains from favorable
movements. See "Additional Investment Policies - Foreign Exchange Contracts."
EMERGING MARKETS FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIO
The investment objective of Emerging Markets Fund (the "Fund") is to
seek long-term capital appreciation. It seeks to achieve this objective through
investment in equity securities of issuers domiciled or doing business in
emerging market countries in regions such as Southeast Asia, Latin America, and
Eastern and Southern Europe.
The Fund is designed for investors who seek the aggressive growth
potential of emerging world markets and are willing to bear the special risks of
investing in those markets. Investments in the securities of foreign issuers
generally involve risks in addition to the risks associated with investments in
the securities of U.S. issuers. See "Risk Considerations." The Fund is not
intended for investors whose objective is assured income or preservation of
capital.
The Fund seeks to achieve its investment objective by investing all of
its assets in Schroder EM Core Portfolio, which has substantially the same
investment objective and substantially similar policies as the Fund.
INVESTMENT POLICIES
Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities of issuers determined by the Adviser to be
emerging market issuers. Equity securities include common stocks; preferred
stocks; securities convertible into common and preferred stocks; and rights or
warrants to purchase any of the foregoing. Emerging market equity securities may
also include American Depositary Receipts, European Depositary Receipts, and
other similar instruments providing for indirect investment in securities of
foreign issuers. The Portfolio may also invest in securities of closed-end
investment companies that invest in turn primarily in foreign securities,
including emerging market issuers. See "Investment in Other Investment Companies
or Vehicles" below.Investments in stock rights and warrants will not be
considered for purposes of determining compliance with this policy.
The remainder of the Fund's assets may be invested in securities of
issuers located anywhere in the world. The Fund may invest up to 35% of its
total assets in debt securities, including lower-quality, high-yielding debt
securities that are unrated or rated below investment grade. See "Risk
Considerations - Debt Securities." The Portfolio may acquire emerging market
securities that are not denominated in emerging market currencies.. In recent
years, many emerging market countries have begun programs of economic reform:
removing import tariffs, dismantling trade barriers, deregulating foreign
investment, privatizing state-owned industries, permitting the value of their
currencies to float against the dollar and other major currencies, and generally
reducing the level of state intervention in industry and commerce. Important
intra-regional economic integration also holds the promise of greater trade and
growth. At the same time, significant progress has been made in restructuring
the heavy external debt burden that certain emerging market countries
accumulated during the 1970s and 1980s. While there is no assurance that these
trends will continue, the Fund's Adviser will seek out attractive investment
opportunities in these countries.
"Emerging market" countries are all those not included in the Morgan
Stanley Capital International World Index ("MSCI World") of major world
economies. The following economies currently are not considered to be emerging
markets by the Adviser: Australia, Austria, Belgium,
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Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, The
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States of America. The Adviser
may at times determine that the economy of a MSCI World-listed country is an
emerging market economy and include such country in the emerging market
category. There is no limit on the amount of the Fund's assets that may be
invested in the securities of issuers domiciled in any one country. See "Risk
Considerations - Foreign Investments - Geographic Concentration."
An issuer of a security will be considered to be domiciled or doing
business in an emerging market if the Adviser determines that (1) it is
organized under the laws of an emerging market country; (2) its primary
securities trading market is in an emerging market country; (3) at least 50% of
the issuer's revenues or profits are derived from goods produced or sold,
investments made, or services performed in emerging market countries; or (4) it
has at least 50% of its assets situated in emerging market countries. The
Portfolio may consider investment companies to be located in the country or
countries in which the Adviser determines that they focus their investments.
BRADY BONDS. The Fund may invest a portion of its assets in Brady
Bonds, which are securities created through the exchange of existing commercial
bank loans to sovereign entities for new obligations in connection with debt
restructuring (under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady). Brady Bonds have been issued only
recently and, therefore, do not have a long payment history. Brady Bonds may
have collateralized and uncollateralized components, are issued in various
currencies and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered U.S. Government Securities as that term is
defined in the Securities Exchnage Act of 1934. In light of the residual risk
associated with the uncollateralized portions of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are considered speculative. Brady Bonds could be subject to restructuring
arrangements or to requests for new credit, which could cause the Fund to suffer
a loss of interest or principal on its holdings. For further information, see
"Brady Bonds" in the SAI.
INVESTMENTS IN OTHER INVESTMENT COMPANIES OR VEHICLES. The Fund is
permitted to invest in certain emerging markets through governmentally
authorized investment vehicles or companies. Pursuant to the 1940 Act, the Fund
may invest in the shares of other investment companies which invest in
securities that the Fund is permitted to purchase subject to the limits
permitted under the 1940 Act or any orders, rules or regulations thereunder.
When investing through investment companies, the Fund may pay substantial
premiums above such investment companies' net asset value per share. As a
shareholder in an investment company, the Fund would bear its ratable share of
the investment company's expenses, including its advisory and administrative
fees. At the same time, the Fund would continue to pay its own fees and
expenses.
NON-DIVERSIFIED INVESTMENTS. Because suitable investments in emerging
market countries may be limited, the Fund is classified as "non-diversified" so
that it may invest more than 5% of its total assets in the securities of a
single issuer. This classification may not be changed without a shareholder
vote. However, so that the Fund may continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, at the close of
each quarter of the taxable year: (1) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer;
and (2) with respect to 50% of the market value of its total assets, not more
than 5% will be invested in the securities of
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a single issuer; and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer.
To the extent the Fund makes investments in excess of 5% of its assets
in a particular issuer, its exposure to credit and market risks associated with
that issuer is increased. Also, since a relatively high percentage of the Fund's
assets may be invested in the securities of a limited number of issuers, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence than a diversified investment company.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of each of the
Funds and the Portfolios that are designated as fundamental may not be changed
without approval of the holders of a majority of the outstanding voting
securities of a Fund or a Portfolio, as applicable. A majority of outstanding
voting securities means the lesser of: (1) 67% of the shares present or
represented at a shareholder meeting at which the holders of more than 50% of
the outstanding shares are present or represented; or (2) more than 50% of
outstanding shares. Unless otherwise indicated, all investment policies of the
Funds are not fundamental and may be changed by the Board without approval by
shareholders of the Fund. Likewise, nonfundamental investment policies of a
Portfolio may be changed by the Core Trust Boards, or the Schroder Core Board as
applicable, without shareholder approval. For more information concerning
shareholder voting, see "Other Information - "The Trust and Its Shares" and
"Core and Gateway(R) Structure."
Unless otherwise indicated below, the discussion below of the
investment policies of a Fund investing in a Portfolio(s) also refers to the
investment policies of the Portfolio(s).
COMMON AND PREFERRED STOCK, WARRANTS AND RIGHTS
Each Fund may invest in common and preferred stock. Common stockholders
are the owners of the company issuing the stock and, accordingly, vote on
various corporate governance matters such as mergers. They are not creditors of
the company, but rather, upon liquidation of the company, are entitled to their
pro rata share of the company's assets after creditors (including fixed income
security holders) and, if applicable, preferred stockholders are paid. Preferred
stock is a class of stock having a preference over common stock as to dividends
and, in general, as to the recovery of investment. A preferred stockholder is a
shareholder in the company and not a creditor of the company, as is a holder of
the company's fixed income securities. Dividends paid to common and preferred
stockholders are distributions of the earnings of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded in the over-the counter market or on a securities exchange, but
may not be traded every day or in the volume typical of securities traded on a
major U.S. national securities exchange. As a result, disposition by a Fund of a
security to meet redemptions by interest holders or otherwise may require the
Fund to sell these securities at a discount from market prices, to sell during
periods when disposition is not desirable, or to make many small sales over a
lengthy period of time. The market value of all securities, including equity
securities, is based upon the market's perception of value and not necessarily
the book value of an issuer or other objective measure of a company's worth. A
Fund may also invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Emerging
Markets Fund may also invest in stock rights which are options given to
shareholders to buy additional
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shares at a predetermined price during a specified time period.
BORROWING
Equity Index Fund, Investors Equity Fund, Small Company Opportunities
Fund and International Equity Fund may each borrow money for temporary or
emergency purposes, including the meeting of redemption requests, but not in
excess of 33 1/3% of the value of the Fund's total assets (computed immediately
after the borrowing). Emerging Markets Fund will not borrow money if, as a
result, outstanding borrowings for temporary or emergency purposes would exceed
an amount equal to one third of the Fund's total assets (computed immediately
after the borrowing). No Fund may borrow more than 5% of the Fund's net assets
for other than temporary or emergency purposes.
DIVERSIFICATION AND CONCENTRATION
Each Fund (except Emerging Markets Fund) is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, a diversified fund may not purchase a
security (other than a U.S. Government Security or shares of investment
companies) if, as a result: (1) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer; or (2) the Fund would own more
than 10% of the outstanding voting securities of any single issuer. Each Fund is
prohibited from concentrating its assets in the securities of issuers in any
industry. As a fundamental policy, no Fund may 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 conducting their principal
business activities in the same industry. This limit does not apply to
investments in U.S. Government Securities or repurchase agreements covering U.S.
Government securities. Each Fund reserves the right to invest up to 100% of its
assets in one or more investment companies such as the Portfolios. International
Equity Fund and Emerging Markets Fund have no limitations on the amount of
assets invested in securities of issuers domiciled in a foreign country.
ILLIQUID SECURITIES
No Fund may knowingly acquire securities or invest in repurchase
agreements with respect to any securities if, as a result, more than 15% of the
Fund's net assets taken at current value would be invested in securities that
are not readily marketable. Illiquid securities are 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
include, among other things, repurchase agreements not entitling the holder to
payment within seven days and restricted securities (other than those determined
to be liquid pursuant to guidelines established by the Board, the Schroder Core
Board or the Core Trust Board). Under the supervision of the applicable Board,
an Adviser determines and monitors the liquidity of portfolio securities.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES
Each Fund may enter into repurchase agreements and may lend 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 may have difficulties in exercising its
rights to the underlying securities, may incur costs and experience time delays
in disposing of them and may suffer a loss.
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
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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 and each Fund will limit securities lending to not more than 33
1/3% of the value of its total assets.
MARGIN AND SHORT SALES
No Fund may purchase securities on margin or make short sales of
securities, except short sales against the box. A short sale is
"against-the-box" to the extent that the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold short. These
prohibitions do not restrict the Fund's ability to use short-term credits
necessary for the clearance of portfolio transactions and to make margin
deposits in connection with permitted transactions in options and futures
contracts.
FOREIGN EXCHANGE CONTRACTS
Investors Equity Fund, Small Company Opportunities Fund, International
Equity Fund, and Emerging Markets Fund may invest in securities issued by
foreign companies. Changes in foreign currency exchange rates will affect the
U.S. dollar values of securities denominated in currencies other than the U.S.
dollar. The rate of exchange between the U.S. dollar and other currencies
fluctuates in response to forces of supply and demand in the foreign exchange
markets. These forces are affected by the international balance of payments and
other economic and financial conditions, government intervention, speculation
and other factors, many of which may be difficult if not impossible to predict.
No Fund or Portfolio will seek to benefit from anticipated short-term
fluctuations in currency exchange rates. When investing in foreign securities,
these Funds, will usually effect currency exchange transactions on a spot (I.E.,
cash) basis at the spot rate prevailing in the foreign exchange market. The
Funds incur foreign exchange expenses in converting assets from one currency to
another.
These Funds may enter into foreign currency forward contracts for the
purchase or sale of foreign currency to "lock in" the U.S. dollar price of the
securities denominated in a foreign currency or the U.S. dollar value of
interest and dividends to be paid on such securities, or to hedge against the
possibility that the currency of a foreign country in which the Fund has
investments may suffer a decline against the U.S. dollar. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. This method of
attempting to hedge the value of portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. Although the strategy of engaging in foreign currency
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency, it could also limit the potential gain from an increase in the
value of the currency. The Funds do not intend to maintain a net exposure to
such contracts where the fulfillment of the Fund's obligations under such
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in the currency. A Fund will not enter into these contracts for
speculative purposes and will not enter into non-hedging currency contracts.
These contracts involve a risk of loss if the Adviser fails to predict currency
values correctly. International Portfolio has no present intention to enter into
currency futures or options contracts but may do so in the future.
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OPTIONS AND FUTURES TRANSACTIONS
Each Fund may (1) purchase or sell (write) put and call options on
securities to enhance its performance and (2) seek to hedge against a decline in
the value of securities owned by a Fund or an increase in the price of
securities a Fund plans to purchase through the writing and purchase of
exchange-traded and over-the counter options on individual securities,
broadly-based stock indices or financial indices and through the purchase and
sale of futures and options on those futures contracts, all of which are
referred to as "Hedging Instruments." To the extent that a Fund invests in
foreign issues, it may purchase and sell options on foreign currencies or invest
in foreign currency futures.
The Hedging Instruments a Fund is authorized to use have certain risks
associated with them, including: (1) the possible failure of such instruments as
hedging techniques in cases where the price movements of the securities
underlying the options or futures do not follow the price movements of the
portfolio securities subject to the hedge; (2) potentially unlimited loss
associated with futures transactions and the possible lack of a liquid secondary
market for closing out a futures position; and (3) possible losses resulting
from the inability of the investment adviser to predict the direction of stock
prices, interest rates and other economic factors. The Hedging Instruments each
Fund may use and the risks associated with them are described in greater detail
under "Options and Hedging" in the SAI.
DEBT SECURITIES
Each Fund except Equity Index Fund may seek capital appreciation
through investment in convertible or non-convertible debt securities. Capital
appreciation in debt securities may arise as a result of a favorable change in
relative foreign exchange rates, in relative interest rate levels, or in the
creditworthiness of issuers. The receipt of income from such debt securities is
incidental to a Fund's or Portfolio's objective of long-term capital
appreciation. Such income can be used, however, to offset the operating expenses
of the Funds or Portfolios. The debt securities in which the Funds invest may be
unrated. Emerging Markets Fund may invest up to 35% of its total assets in debt
securities that are unrated or rated below investment grade (below "Baa" by
Moody's Investors Service, ("Moody's") Inc. or "BBB" by S&P). See "Risk
Considerations - Debt Securities." For a further description of S&P's and
Moody's securities ratings see the Appendix to the SAI.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Fund may assume a
temporary defensive position and invest without limit in cash or prime quality
cash equivalents, including: (1) short-term U.S. Government Securities; (2)
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 the investment, except in the case of the International Equity Fund,
total assets in excess of one billion dollars and that are insured by the FDIC;
(3) 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; (4) repurchase agreements covering any of the securities in which a
Fund may invest directly; and (5) shares of money market funds registered under
the 1940 Act within the limits specified therein. During periods when and to the
extent that a Fund or Portfolio has assumed a temporary defensive position, it
may not be pursuing its investment objective. Prime quality instruments are
those that are rated in one of the two highest short-term rating categories or,
if not rated, determined by the Adviser to be of comparable quality. Apart from
temporary defensive purposes, a Fund may at any time invest a portion of its
assets in cash and cash equivalents as described above. To the extent that
Investors Equity Fund, Small Company Opportunities Fund, International Equity
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Fund and Emerging Markets Fund may invest in foreign issuers, they may also hold
cash and bank instruments denominated in any major foreign currency.
PORTFOLIO TRANSACTIONS
The frequency of portfolio transactions of the Funds (the portfolio
turnover rate) will vary from year to year depending on market conditions. The
Funds (or their respective Portfolios where applicable) may engage in short-term
trading but their portfolio turnover rate is not expected to exceed 100%. An
annual portfolio turnover rate of 100% would occur if all the securities in a
Fund or Portfolio were replaced in a one year period. Higher portfolio turnover
and short-term trading involve correspondingly greater commission expenses and
transaction costs. The Advisers weigh the anticipated benefits of short-term
investments against these consequences. Also, higher portfolio turnover rates
may cause shareholders of a Fund to recognize greater capital gains for federal
income tax purposes. See "Distributions and Tax Matters."
The Advisers have no obligation to deal with any specific brokers or
dealers in the execution of transaction on behalf of the Portfolios or the
Funds. Consistent with the Funds' or Portfolios' policy of obtaining the best
price consistent with quality of execution of transactions, a Fund and/or
Portfolio's transactions may be conducted through certain affiliates of the
Advisers (collectively "Affiliated Brokers"). A Fund or Portfolio's payment of
commissions to Affiliated Brokers is subject to procedures adopted by the Board,
the Core Trust Board or the Schroder Core Board, to provide that the commissions
are comparable to those charged by unaffiliated qualified broker-dealers. No
specific portion of a Fund's brokerage will be directed to Affiliated Brokers
and in no event will a broker affiliated with an Adviser directing the
transaction receive brokerage transactions in recognition of research services
provided to the Adviser. The Advisers may effect transactions for the Funds (or
the Portfolios) through brokers who sell Fund shares.
5. RISK CONSIDERATIONS
FOREIGN INVESTMENTS
GENERAL
All investments, domestic and foreign, involve certain risks.
Investment in the securities of foreign issuers may involve risks in addition to
those normally associated with investments in the securities of U.S. issuers. In
general, an Adviser will invest only in securities of companies and governments
in countries which it, in its judgment, considers both politically and
economically stable. Nevertheless, all foreign investments are subject to risks
of foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital and changes in foreign
governmental attitudes towards private investment possibly leading to
nationalization, increased taxation or confiscation of Fund assets. To the
extent the Funds invest substantially in issuers located in one country or area,
such investments may be subject to greater risk in the event of political or
social instability or adverse economic developments affecting that country or
area.
Moreover, (1) dividends payable on foreign securities may be subject to
foreign withholding taxes, thereby reducing the income available for
distribution to a Fund's shareholders; (2) commission rates payable on foreign
portfolio transactions are generally higher than in the U.S.; (3) accounting,
auditing and financial reporting standards differ from those in the U.S., and
this may mean that less information about foreign companies may be available
than is generally available about issuers of comparable securities in the U.S.;
(4) foreign securities often trade less frequently and with less volume than
U.S. securities and consequently may exhibit greater price
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volatility; and (5) foreign securities trading practices, including those
involving securities settlement, may expose the Fund to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer or
registrar.
CURRENCY FLUCTUATIONS AND DEVALUATIONS
Because International Equity Fund and Emerging Markets Fund will invest
heavily in non-U.S. currency denominated securities, changes in foreign currency
exchange rates will affect the value of the Funds' investments. Exchange rates
are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies. A decline in the value of currencies in which a Fund's investments
are denominated against the dollar will result in a corresponding decline in the
dollar value of the Fund's assets. This risk tends to be heightened in the case
of investments in certain emerging market countries as further discussed below.
A decline in the value of a particular foreign currency against the U.S. dollar
occurring after the Fund's income has been earned and computed in U.S. dollars
may require the Fund to liquidate portfolio securities to acquire sufficient
U.S. dollars to fund redemptions. Similarly, if the exchange rate declines
between the time the Fund incurs expenses in U.S. dollars and the time such
expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
GEOGRAPHIC CONCENTRATION
Emerging Markets Fund and International Equity Fund may invest more
than 25% of their total assets in issuers located in any one country. To the
extent it invests in issuers located in one country, a Fund is susceptible to
factors adversely affecting that country. In particular, these factors may
include the political and economic developments and foreign exchange rate
fluctuations discussed above. As a result of investing substantially in one
country, the value of a Fund's assets may fluctuate more widely than the value
of shares of a comparable fund with a lesser degree of geographic concentration.
EMERGING MARKETS
POLITICAL AND ECONOMIC RISKS
Emerging Markets Fund may invest in securities of issuers located in
countries considered by some to be emerging market countries. The risks of
investing in foreign securities may be greater with respect to securities of
issuers in, or denominated in the currencies of, emerging market countries. In
any emerging market country, there is the possibility of expropriation of
assets, confiscatory taxation, nationalization, foreign exchange controls,
foreign investment controls on daily stock market movements, default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as economic growth rates, rates of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments positions.
Certain foreign investments may also be subject to foreign withholding taxes,
thereby reducing the income available for distribution to a Fund's shareholders.
The economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be adversely affected by economic conditions in the countries with which they
trade.
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Certain emerging market countries may restrict investment by foreign
entities. For example, some of these countries may limit the size of foreign
investment in certain issuers, require prior approval of foreign investment by
the government, impose additional tax on foreign investors or limit foreign
investors to specific classes of securities of an issuer that have less
advantageous rights (with regard to price or convertibility, for example) than
classes available to domiciliaries of the country. These restrictions or
controls may at times limit or preclude investment in certain securities and may
increase the costs and expenses of the Fund.
Substantial limitations may also exist in certain countries with
respect to a foreign investor's ability to repatriate investment income, capital
or the proceeds of sales of securities. The Fund could be adversely affected by
delays in, or refusals to grant, any required governmental approvals for
repatriation of capital. If a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on foreign capital
remittances. In the event of expropriation, nationalization or other
confiscation, the Fund could lose its entire investment in the country involved.
REGULATION AND LIQUIDITY OF MARKETS
Government supervision and regulation of exchanges and brokers in
emerging market countries is frequently less extensive than in the United
States. Therefore, there is an increased risk of uninsured loss due to lost,
stolen or counterfeit stock certificates. These markets may have different
clearance and settlement procedures. Securities settlements may, in some
instances, be subject to delays and related administrative uncertainties. In
certain cases, settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could adversely affect or interrupt the Fund's intended investment
program or result in investment losses due to intervening declines in security
values.
The securities markets of many foreign countries, including emerging
market countries, are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited number of companies
representing a small number of industries. Consequently, a Fund whose investment
portfolio includes securities traded in such markets may experience greater
price volatility and significantly lower liquidity than a portfolio invested
solely in equity securities of United States companies. These foreign markets
may be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. Furthermore, reduced secondary market liquidity may
make it more difficult for the Fund to determine the value of its portfolio
securities or dispose of particular instruments when necessary.
Investing in local markets, particularly emerging markets, may require
the Fund to adopt special procedures, seek local government approvals or take
other actions each of which may involve additional costs to the Fund. Brokerage
commissions and other transaction costs on and off of foreign securities
exchanges are also generally higher.
FINANCIAL INFORMATION AND STANDARDS AND REGULATION OF ISSUERS
Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with respect to
such matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information. Foreign
companies may not be subject to uniform accounting, auditing and financial
reporting standards. Often, available information about issuers and their
securities is less extensive, and, in certain circumstances, substantially less
extensive in foreign markets, and particularly emerging market countries, than
in the United States. In addition,
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laws in foreign countries governing business organizations, bankruptcy and
insolvency may provide less protection to security holders such as the Portfolio
than that provided by U.S. laws.
CURRENCY FLUCTUATIONS AND DEVALUATIONS
The risks associated with currency fluctuations and devaluations often
are heightened with respect to investments in emerging market countries. For
example, some currencies of emerging market countries have experienced steady
devaluations relative to the U.S. dollar, and major adjustments have been made
in certain of such currencies periodically. Some emerging market countries also
may have managed currencies which do not freely float against the U.S. dollar.
Exchange rates are influenced generally by the forces of supply and demand in
the foreign currency markets and by numerous other political and economic events
occurring outside the United States, many of which may be difficult, if not
impossible, to predict.
INFLATION
Several emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation in recent years. Inflation and
rapid fluctuations in inflation rates may have very negative effects on the
economies and securities markets of certain emerging market countries. Further,
inflation accounting rules in some emerging market countries require, for
companies that keep accounting records in the local currency, that certain
assets and liabilities be restated on the company's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits for certain emerging market
companies.
DEBT SECURITIES
Emerging Markets Fund may invest up to 35% of its total assets in debt
securities including debt securities that are unrated or are rated below
investment grade (below "Baa" by Moody's or "BBB" by S&P; (for a further
description of Moody's and S&P's securities ratings please see the Appendix to
the SAI.) Note that even debt securities rated "Baa" by Moody's are considered
to have speculative characteristics. Below investment grade securities (and
unrated securities of comparable quality) ("high yield/high risk securities")
are predominantly speculative with respect to the capacity to pay interest and
repay principal, and generally involve a greater volatility of price than
securities in higher rating categories. These securities are commonly referred
to as "junk" bonds. The risks associated with junk bonds are generally greater
than those associated with higher-rated securities. The Fund is not obligated to
dispose of securities due to rating changes by Moody's, S&P or other rating
agencies. The Fund is not authorized to purchase debt securities that are in
default, except for sovereign debt (discussed below) in which the Portfolio may
invest no more than 5% of its total assets while such sovereign debt securities
are in default.
In purchasing high yield/high risk securities, the Fund will rely on
the investment adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. Nonetheless, investors should
review the investment objective and policies of the Fund and consider their
willingness to assume risk before making an investment.
High yield/high risk securities' market values are affected more by
individual issuer developments and are more sensitive to adverse economic
changes than are higher-rated securities. Issuers of high yield/high risk
securities may be highly leveraged and may not have more traditional methods of
financing available to them. During economic downturns or substantial periods of
rising interest rates, issuers of high yield/high risk securities, especially
highly leveraged ones, may be less able to service their principal and interest
payment obligations, meet their projected business goals, or obtain additional
financing. The risk of loss due to
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default by the issuer is significantly greater for holders of high yield/high
risk securities because such securities may be unsecured and may be subordinated
to other creditors of the issuer. In addition, the Portfolio may incur
additional expenses if it is required to seek recovery upon a default by the
issuer of such an obligation or participate in the restructuring of such
obligation.
Periods of economic uncertainty and change will likely cause increased
volatility in the market prices of high yield/high risk securities and,
correspondingly, the Fund's net asset value if it invests in such securities;
market prices of such securities structured as zero coupon or pay-in-kind
securities are more affected by interest rate changes and thus tend to be more
volatile than securities that pay interest periodically and in cash.
High yield/high risk securities may have call or redemption features
which would permit an issuer to repurchase the securities from the Fund. If a
call were exercised by the issuer during a period of declining interest rates,
the Fund would likely have to replace called securities with lower yielding
securities, thus decreasing the Fund's net investment income and dividends to
shareholders.
While a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for higher
rated securities. In periods of reduced secondary market liquidity, prices of
high yield/high risk securities may become volatile and experience sudden and
substantial price declines. The Fund may, therefore, have difficulty disposing
of particular issues to meet its liquidity needs or in response to a specific
economic event (such as a deterioration in the creditworthiness of the issuer).
Reduced secondary market liquidity for certain high yield/high risk securities
also may make it more difficult for the Fund to obtain accurate market
quotations (for purposes of valuing the Fund's investment portfolio): market
quotations are generally available on many high yield/high risk securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales. Under such conditions, high yield/high
risk securities may have to be valued at fair value as determined by the
Schroder Core Board or the Adviser under Board-approved guidelines.
Adverse publicity and investor perceptions (which may not be based on
fundamental analysis) may decrease the value and liquidity of high yield/ high
risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield/high risk securities are likely to
adversely affect the Fund's net asset value.
SMALL COMPANY INVESTMENTS
While all investments have risks, investments in smaller capitalization
companies carry greater risk than investments in larger capitalization
companies. Smaller capitalization companies generally experience higher growth
rates and higher failure rates than do larger capitalization companies; and the
trading volume of smaller capitalization companies' securities is normally lower
than that of larger capitalization companies and, consequently, generally has a
disproportionate effect on market price (tending to make prices rise more in
response to buying demand and fall more in response to selling pressure).
Disposition by a Fund of a security, to meet redemption requests by shareholders
or otherwise, may require the Fund to sell these securities at a discount from
market prices, to sell during periods when disposition is not desirable, or to
make many small sales over a lengthy period of time. Accordingly, the net asset
value of the Funds can be expected to fluctuate more than other portfolios.
Investments in small, unseasoned issuers generally carry greater risk
than is customarily associated with larger, more seasoned companies. Such
issuers often have products and management personnel that have not been tested
by time or the marketplace and their financial resources may not be as
substantial as those of more established companies. Their securities (which a
Fund may purchase when they are offered to the public for
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the first time) may have a limited trading market which can adversely affect
their sale by the Portfolio and can result in such securities being priced lower
than otherwise might be the case. If other institutional investors engage in
trading this type of security, the Portfolio may be forced to dispose of its
holdings at prices lower than might otherwise be obtained.
6. MANAGEMENT
The business and affairs of the Funds are managed under the direction of
the Board. The Trustees of the Trust are John Y. Keffer, Costas Azariadis, James
C. Cheng and J. Michael Parish. The business and affairs of Index Portfolio,
International Portfolio and the various Portfolios in which Small Company
Opportunities Fund invests, are managed under the direction of the Core Trust
Board. The Trustees of the Trust also serve as the Trustees of Core Trust. The
business and affairs of Schroder EM Core Portfolio are managed under the
direction of the Schroder Core Board. The Trustees of Schroder Core are Peter E.
Guernsey, John I. Howell, Clarence F. Michalis, Hermann C. Schwab, Mark J.
Smith, David N. Dinkins, Peter S. Knight, and Sharon L. Haugh. Additional
information regarding the Trustees and the respective executive officers of the
Trust, Core Trust and Schroder Core may be found in the SAI under "Management -
Trustees and Officers."
INVESTMENT ADVISERS
INVESTORS EQUITY FUND
H.M. Payson & Co., located at One Portland Square, Portland, Maine
04101, serves as investment adviser to Investors Equity Fund. Subject to the
general control of the Board, Payson is responsible for, among other things,
developing a continuing investment program for the Fund in accordance with its
investment objective and reviewing the investment strategies and policies of the
Fund. For its services, Payson receives an advisory fee at a rate of 0.65% of
the Fund's average daily net assets.
Payson was founded in Portland, Maine in 1854 and was incorporated in
Maine in 1987, making it one of the oldest investment firms in the United States
operating under its original name. Payson is a registered broker-dealer and
investment adviser and is a member of the National Association of Securities
Dealers, Inc. Payson provides investment management services through an
investment advisory division and a trust division. As of August 31, 1998, Payson
had approximately $1.05 billion in assets under management. Payson's clients
include pension plans, endowment funds and institutional and individual
accounts.
Payson has entered into an investment sub-advisory agreement with
Peoples Heritage Bank to exercise certain investment discretion over the assets
(or a portion of assets) of the Fund. Subject to the general supervision of the
Board, Peoples is responsible for, among other things, making investment
decisions for the Fund and developing a continuing investment program for the
Fund in accordance with its investment objective and reviewing the investment
strategies and policies of the Fund. Peoples, located at One Portland Square,
Portland, Maine 04101, is a subsidiary of Peoples Heritage Financial Group, a
multi-bank holding company. As of June 30, 1998, Peoples Heritage Financial
Group had assets of approximately $9.8billion and Peoples and its affiliates
managed assets in their trust departments with a value of approximately $939
million. Payson pays a fee to Peoples for its sub-advisory services. This fee is
borne solely by Payson and does not increase the fee paid by shareholders of the
Fund. For its services, Peoples receives a sub-advisory fee at an annual rate of
0.25% of the Fund's average daily net assets.
William N. Weickert, Jr., CFA, Dana R. Mitiguy, CFA and Jonathan W. White,
CFA serve as the portfolio managers of Investors Equity Fund. William N.
Weickert, Jr. has sixteen years of experience in the investment industry and is
a Director, equity and fixed income Research Analyst and Portfolio Manager of
Payson, with which
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he has been associated since 1989. Mr. Weickert received a Bachelor of Arts
degree from Hobart College. Dana R. Mitiguy has fourteen years of experience in
the investment industry and is the Chief Investment Officer for Peoples'
Heritage Bank. Prior to joining Peoples in September 1995, Mr. Mitiguy served as
a Vice President at Key Trust of Maine. Mr. Mitiguy received a Bachelor of Arts
degree from Middlebury College. Jonathan W. White, a member of the Peoples
Investment Committee and Chief Investment Officer for the Bank of New Hampshire,
another subsidiary of Peoples Heritage Financial Group, has over 25 years of
experience in the investment industry. From 1989 through 1994, Mr. White was an
investment associate with Connecticut Seed Ventures. Mr. White received a
Bachelor of Arts degree from Dartmouth College and a Masters in Business
Administration from the University of New Hampshire.
EQUITY INDEX FUND
Subject to the general supervision of the Core Trust Board, Norwest
Investment Management, Inc., located at Norwest Center, Sixth Street and
Marquette, Minneapolis, Minnesota 55479, provides investment advisory services
to Index Portfolio. Norwest manages the investment and reinvestment of the
assets of Index Portfolio and continuously reviews, supervises and administers
the Portfolio's investments. It is the responsibility of Norwest to make
decisions relating to Index Portfolio's investments and to place purchase and
sale orders regarding investments with brokers or dealers selected by it in its
discretion. For its services with respect to the Portfolio, Norwest receives an
advisory fee at an annual rate of 0.15% of the Portfolio's average daily net
assets. The investment advisory fees paid to Norwest by Index Portfolio are
borne indirectly by Equity Index Fund. Norwest is an indirect subsidiary of
Norwest Bank, a multi-bank holding company that was incorporated under the laws
of Delaware in 1929. As of June 30, 1998, Norwest Corporation had assets of
approximately $93 billion, which made it the 12th the largest bank holding
company in the United States, and Norwest and its affiliates managed assets with
a value in excess of $29 billion.
David D. Sylvester and Laurie R. White are primarily responsible for the
day-to-day management of Index Portfolio. Mr. Sylvester has been associated with
Norwest or its affiliates since 1979 and currently is Managing Director -
Reserve Asset Management. Ms. White has been associated with Norwest or its
affiliates since 1991 and is a Director - Reserve Asset Management. Mr.
Sylvester and Ms. White began serving as portfolio managers of Index Portfolio
on January 1, 1996.
SMALL COMPANY OPPORTUNITIES FUND
Forum Investment Advisors, LLC serves as investment adviser to Small
Company Opportunities Fund. Subject to the general control of the Board, Forum
Advisors is responsible for, among other things, making allocation decisions on
behalf of the Fund and developing a continuing investment program for the Fund
in accordance with its investment objective and reviewing the investment
strategies and policies of the Fund. Forum Advisors was organized under the laws
of Delaware in 1987 and is registered under the Investment Advisers Act of 1940.
For its services, Forum Advisors receives an advisory fee at an annual rate of
0.25% of the Fund's average daily net assets. The Fund also bears an investment
advisory fee at a blended rate based on the investment advisory fees of the
Portfolios in which the Fund invests. The total fee payable by the Fund through
its investments in the Portfolios will vary based on the percentage of its
assets invested in each Portfolio.
Mark Kaplan, CFA, serves as the portfolio manager of the Fund. Mr.
Kaplan has over fourteen years of experience in the investment industry and has
been a Managing Director at Forum Investment Advisors, LLC, where he is
responsible for investment advisory services, since September 1995. Before that,
Mr. Kaplan was Managing
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Director and Director of Research at H.M. Payson & Co., an investment advisory
and trust services company. Prior thereto, Mr. Kaplan was a securities analyst
in the investment division of UNUM Life Insurance Company. Mr. Kaplan has a
Masters in Business Administration from Boston University. Forum Advisors is
controlled by John Y. Keffer, President and Chairman of the Trust and is located
at Two Portland Square, Portland, Maine 04101. As of June 30, 1998, Forum
Advisors provided investment advisory services to registered investment
companies with assets of approximately $1.9 billion.
Norwest serves as investment adviser to Small Cap Index Portfolio,
Small Company Stock Portfolio, Small Company Value Portfolio and Small Cap Value
Portfolio, the four Core Trust portfolios in which the Fund invests. It is the
responsibility of Norwest to make investment decisions and to continuously
review, supervise and administer each Portfolio's investment program or to
oversee the investment decisions of the Portfolio's investment subadviser, as
applicable. For its services as investment adviser, Norwest receives an advisory
fee at an annual rate of 0.25%, 0.90%, 0.90% and 0.95% of the net assets of
Small Cap Index Portfolio, Small Company Stock Portfolio, Small Company Value
Portfolio and Small Cap Value Portfolio, respectively. For a description of
Norwest, see "Management -- Investment Advisers -- Equity Index Fund."
To assist Norwest in carrying out its obligations, Core Trust and
Norwest have retained the services of the investment subadvisers described
below. Each investment subadviser makes investment decisions for the Portfolio
to which it serves as investment subadviser and continuously reviews, supervises
and administers the Portfolio's investment program with respect to that portion,
if any, of the Portfolio's assets that Norwest believes should be managed by the
investment subadviser. Currently, each investment subadviser manages all of the
assets of the Portfolio that it subadvises. Norwest (and not the Portfolios)
pays each investment subadviser a fee for its investment subadvisory services.
This compensation does not increase the amount paid by the Portfolios to Norwest
for investment advisory services.
Crestone Capital Management, Inc., which is located at 7720 East
Belleview Avenue, Suite 220, Englewood, Colorado 80111, serves as investment
subadviser to Small Company Stock Portfolio. Crestone, an indirect investment
advisory subsidiary of Norwest Bank, provides investment advice regarding
companies with small market capitalization to various clients, including
institutional investors. As of June 30, 1998, Crestone managed assets with value
of approximately $325 million. Kirk MCown is primarily responsible for the
day-to-day management of the Small Company Stock Portfolio. mr. MCown has been
associated with Norwest or its affiliates since 1993 and is the founder,
President, and Director of Crestone. Mr. McCown has served as the portfolio
manager for Small Company Stock Portfolio since it commenced operations in June
1997.
Peregrine Capital Management, Inc., which is located at LaSalle Plaza, 800
LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55402, serves as investment
subadviser to Small Company Value Portfolio. Peregrine, an indirect investment
advisory subsidiary of Norwest Bank, provides investment advisory services to
corporate and public pension plans, profit-sharing plans, savings-investment
plans and 401(k) plans. As of June 30, 1998, Peregrine managed approximately
$5.8 billion in assets. Tasso H. Coin, Jr. and Douglas G. Pugh are responsible
for the day-to-day management of Small Company Value Portfolio. Mr. Coin has
been associated with Norwest or its affiliates since 1995 and has been a Senior
Vice President of Peregrine since 1995. From 1992 to 1995, Mr. Coin was a
research officer at Lord Asset Management. Mr. Pugh has been associated with
Norwest or its affiliates since 1997. Mr. Pugh is a Senior Vice President of
Peregrine. Prior thereto,
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he was a senior equity analyst and portfolio manager for Advantus Capital
Management and an analyst with Kemper Corporation. Mr. Coin and Mr. Pugh have
served as portfolio managers for Small Company Value Portfolio since it
commenced operations in June 1997.
Smith Asset Management Group, L.P., which is located at 500 Crescent
Court, Suite 250, Dallas, Texas 75201, serves as investment subadviser to Small
Cap Value Portfolio. Smith, an investment advisory affiliate of Norwest Bank,
provides investment management services to company retirement plans,
foundations, endowments, trust companies and high net worth individuals using a
disciplined equity style. As of June 30, 1998, Smith managed over $634 million
in assets. Mr. Smith has been associated with Norwest or its affiliates since
1997. Mr. Smith has been a Chief Investment Officer and principal of Smith since
1995. Mr. Smith previously served as a senior portfolio manager with NationsBank
and in several capacities with AIM Management Company's Summit Fund. Mr. Smith
has served as the portfolio manager of Small Cap Value Portfolio since it
commenced operations in October 1997.
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS FUND
Schroder Capital Management International Inc. manages the investment
and reinvestment of the assets of International Portfolio and Schroder EM Core
Portfolio, the portfolios into which International Equity Fund and Emerging
Markets Fund, respectively, invest their assets. SCMI continuously reviews,
supervises and administers each Portfolio's investments. In this regard, it is
the responsibility of SCMI to make decisions relating to the Portfolios'
investments and to place purchase and sale orders regarding investments with
brokers or dealers selected by it in its discretion. For its services under the
investment advisory agreements between SCMI and Core Trust and between SCMI and
Schroder Core, SCMI is entitled to receive advisory fees at the annual rates of
0.45%, in the case of International Portfolio, and 1.00%, in the case of
Schroder EM Core Portfolio, of the Portfolio's average daily net assets.
The investment advisory fees paid to SCMI by International Portfolio
and Schroder EM Core Portfolio are borne indirectly by International Equity Fund
and Emerging Markets Fund, respectively.
SCMI, located at 787 Seventh Avenue, New York, New York 10019, is a
wholly owned U.S. subsidiary of Schroders Incorporated, the wholly owned U.S.
subsidiary of Schroders plc, a publicly owned company organized under the laws
of England. Schroders plc is the holding company parent of a large world-wide
group of banks and financial services companies (referred to as the "Schroder
Group"), with associated companies and branch and representative offices located
in eighteen countries world-wide. The investment management subsidiaries of the
Schroder Group had, as of June 30, 1998, assets under management of
approximately $175 billion.
Michael Perelstein, a Senior Vice President of SCMI, with the assistance of
an SCMI investment committee, is primarily responsible for the day-to-day
management of International Portfolio's investment portfolio. Mr. Perelstein has
been a Senior Vice President of SCMI since January 1997. Prior thereto, Mr.
Perelstein was a Managing Director at MacKay Shields. Mr. Perelstein has more
than twelve years of international and global investment experience. Mr.
Perelstein has served as portfolio manager of International Portfolio since
January 1997.
Schroder EM Core Portfolio's current investment managers are John A.
Troiano, a Vice President of Schroder Core, who has managed the Portfolio's
assets since its inception, assisted by the management team of Heather Crighton
and Mark Bridgeman, who are responsible for the day-to-day management of the
investment portfolio. Mr. Troiano, Chief Executive Officer of SCMI since April
1, 1997, has been a Managing Director
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of SCMI since October 1995 and has been employed by Schroder Group companies in
the investment research and portfolio management areas since 1981. Ms. Crighton
is a Vice President of SCMI and has been employed by SCMI in the investment
research and portfolio management areas since 1992. Mr. Bridgeman, also a Vice
President of SCMI, has been employed by various Schroder Group companies in the
investment research and portfolio management areas since 1990.
THE ADMINISTRATOR
On behalf of the Funds, the Trust has entered into an administrative
services agreement with Forum Administrative Services, LLC. FAdS is responsible
for the supervision of the overall management of the Trust (including the
Trust's receipt of services for which it must pay), providing the Trust with
general office facilities, necessary personnel to ensure the effective operation
of the Trust, as well as persons satisfactory to the Board to serve as officers
of the Trust. For these services, FAdS receives from each Fund a fee at an
annual rate of 0.20% of the Fund's average daily net assets.
FAdS also serves as administrator of each Portfolio of Core Trust. For
these services, FAdS is entitled to receive fees at annual rates of 0.15% of
International Portfolio's average daily net assets and 0.05% of each other
Portfolio's average daily net assets.
As of June 30, 1998, FAdS and its affiliates provided management
administration and distribution services to registered investment companies with
assets of approximately $38 billion. As of the date of this Prospectus each of
FAdS, FFSI, FAcS and FSS was controlled by John Y. Keffer, president and
Chairman of the Trust and was located at Two Portland Square, Portland, Maine
Schroder Fund Advisors Inc. ("Schroder Advisers"), 787 Seventh Avenue,
New York, New York 10019 serves as administrator for EM Schroder Core Portfolio.
Schroder Advisors is a wholly owned subsidiary of SCMI. For these services,
Schroder Advisors receives an administrative services fee at an annual rate of
0.10% of the Portfolio's average daily net assets. In addition, Schroder Core
has entered into a subadministration agreement with FAdS. Under the agreement,
FAdS is entitled to a fee for its services with respect to Schroder EM Core
Portfolio at an annual rate of 0.075% of the Portfolio's average daily net
assets.
Forum Accounting Services, LLC ("FAcS") performs portfolio accounting
services for the Funds and the Portfolios, including determination of each
Fund's and Portfolio's net asset value, pursuant to separate agreements between
FAcS and each of the Trust, Core Trust and Schroder Core
THE DISTRIBUTOR
Pursuant to a distribution agreement with the Trust, Forum Financial
Services, Inc. acts as distributor of the Funds' shares. FFSI acts as the agent
of the Trust in connection with the offering of shares of the Funds. FFSI
receives, and may reallow to certain financial institutions (i.e. selected
brokers or dealers), the sales charge paid by the purchasers of the Funds'
shares. FFSI may enter into arrangements with banks, broker-dealers or other
financial institutions (i.e. selected brokers or dealers) through which
investors may purchase or redeem shares. FFSI may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund. Investors purchasing
shares of the Funds through another financial institution should read any
materials and information provided by the financial institution to acquaint
themselves with its procedures and any fees that it may charge. FFSI is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
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SHAREHOLDER SERVICING
Shareholder inquiries and communications concerning a Fund may be
directed to FSS, the Funds' transfer agent and dividend disbursing agent. FSS
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. FSS
also performs other transfer agency functions and acts as dividend disbursing
agent for the Trust. For its services, FSS receives a fee at an annual rate of
0.25% of each Fund's average daily net assets plus $12,000.
FSS is authorized to subcontract any or all of its functions to one or
more qualified sub-transfer agents or financial institutions which agree to
comply with the terms of the Transfer Agency Services Agreement. FSS may pay
those agents for their services, but no such payment will increase FSS's
compensation from the Trust. Fund shares may also be available for purhcase
through these financial institutions as described under "Purchase and
Redemptions of Shares - Purchases and Redemptions Through Financial
Institutions."
EXPENSES OF THE TRUST
The Trust is obligated to pay for all its expenses. The Funds' expenses
comprise Trust expenses attributable to the Funds and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Funds
and the portfolios in proportion to their average net assets. Each Fund's
expenses include the Fund's pro rata share of the operating expenses of the
Portfolio or Portfolios, if any, in which it invests, which are borne indirectly
by the Fund's shareholders. A Fund's expenses include: interest charges; taxes;
brokerage fees and commissions; certain insurance premiums; applicable fees and
expenses under the Trust's service contracts, custodian fees, fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; auditing, legal and compliance expenses; costs of preparing
and printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
of certain of the Trust's, trustees, officers and employees and other personnel
performing services for the Trust, and registration fees and related expenses.
Each Adviser and each other service provider in its sole discretion,
may waive all or any portion of its 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.
YEAR 2000 AND EURO
The Funds could be adversely affected if the computer systems used by
the Advisers and other service providers (and in particular foreign service
providers) to the Funds do not properly process and calculate date related
information and data from and after January 1, 2000 or information regarding the
new common currency of the European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments. The Advisers and FAdS are taking
steps to address the Year 2000 issue with respect to the computer systems that
they use and to obtain reasonable assurances that comparable steps are being
taken by the Funds' other major service providers. There can be no assurance,
however, that these steps will be sufficient to avoid any adverse impact on the
Funds from this problem.
7. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL INFORMATION
Investments in a Fund may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are
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<PAGE>
effected through FSS, 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
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 receipt of an order in proper form plus any applicable
sales charge on all weekdays except days when the New York Stock Exchange is
closed ("Business Day"). Normally, the New York Stock Exchange is closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas . Fund shares
are issued immediately after an order for the shares in proper form is accepted
by FSS. Each Fund's net asset value is calculated at 4:00 p.m., Eastern Time on
each Business Day. Fund shares become entitled to receive dividends on the same
Business Day that 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 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 a Fund's net asset value following receipt by FSS of the
redemption order in proper form (and any supporting documentation which the
Transfer Agent may require). Shares redeemed are not entitled to receive
dividends declared on the day on which the redemption becomes effective.
Normally, redemption proceeds are paid immediately following, but in no
event later than seven days following, receipt of a redemption order in proper
form by FSS. Proceeds of redemption requests (and exchanges), however, will not
be paid unless any check used for investment has been cleared by the
shareholder's bank. This delay may be avoided by investing through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading thereon is restricted) for any reason other
than its customary weekend or holiday closings or under any emergency or other
circumstance as determined by the Securities and Exchange Commission.
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 a 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 insure that telephone orders
are genuine including the recording of certain transactions. 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, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS.
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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 a Fund directly. These investors may
open an account by completing the application at the back of this Prospectus or
by contacting FSS at the address on the first page of this prospectus. For those
shareholder services not referenced on the account application, investors should
request an Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $2,000 minimum for initial investments in any Fund ($1,000 for
individual retirement accounts).
BY MAIL. Investors may send a check made payable to the Trust along
with a completed account application for a Fund to FSS. 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, FSS or FFSI.
For individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of a Fund must be made payable to "Forum
Funds" or to one or more owners of that account and endorsed to Forum Funds. For
corporation, partnership, trust, 401(k) plan or other non-individual type
accounts, the check used to purchase shares of a Fund must be made payable on
its face to "Forum Funds." No other method of payment by check will be accepted.
All purchases must be paid in U.S. dollars; checks must be drawn on U.S. banks.
Payment by Traveler's Checks is prohibited.
BY BANK WIRE. To make an initial investment in any Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
BankBoston
Boston, MA
ABA# 011000390
Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: [Name of Fund]
Account #:______________
Account Name: __________
The investor should then promptly complete and mail the account
application. Any investor planning to wire funds should instruct a bank early in
the day so the wire transfer can be received prior to 4:00 p.m., Eastern time,
on the same day. There may be a charge imposed by the bank for transmitting
payment by wire, and there also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $250 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 (207) 879-0001 or 800-94FORUM (800-943-6786) to notify it of the wire
transfer. All payments should clearly indicate the shareholder's name and
account number.
AUTOMATIC INVESTMENT. 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
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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 wishing to participate in
this program may obtain the applicable forms from FSS. Shareholders may
terminate their automatic investments or change the amount to be invested at any
time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or by check or
receive redemption proceeds by bank wire must elect these options by properly
completing the appropriate sections of their account application. These
privileges may not be available until several weeks after a shareholder's
application is received. Shares for which certificates have been issued may not
be redeemed by telephone.
BY MAIL. Shareholders may make a redemption in any amount by sending a
written request to FSS accompanied by any stock certificate that may have been
issued to the shareholder. All certificates submitted for redemption must be
endorsed by the shareholder with signature guaranteed. All written requests for
redemption must be signed by the shareholder and, in some cases, must have a
signature guarantee. See "Purchase and Redemption Procedures -- Other Redemption
Matters."
BY TELEPHONE. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling FSS at (207)
879-0001 or 800-94FORUM (800-943-6786) and providing the shareholder's account
number, the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. In response to
the telephone redemption instruction, the Fund will mail a check to the
shareholder's record address or, if the shareholder has elected wire redemption
privileges, wire the proceeds.
BY BANK WIRE. For redemptions of more than $5,000, a shareholder that
has elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request bank wire redemptions by
telephone, the shareholder also must have elected the telephone redemption
privilege. Redemption proceeds are transmitted by wire on the Business Day after
the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds will be sent either by check or by
automatic transfer to a designated bank account maintained with a United States
banking institution which is an Automated Clearing House member. Under this
program, shareholders may authorize the redemption of shares in amounts of $250
or more from their account monthly or quarterly. Shareholders may terminate
their automatic redemptions or change the amount to be redeemed at any time by
written notification to FSS.
OTHER REDEMPTION MATTERS. To protect shareholders and the Funds against
fraud, signatures on certain requests must have a signature guarantee. Requests
must be made in writing and include a signature guarantee for any of the
following transactions: (1) any endorsement on a stock certificate; (2) written
instruction to redeem Shares whose value exceeds $50,000; (3) instructions to
change a shareholder's record name and address; (4) redemption in an account in
which the account address or account registration has changed within the last 30
days; (5) the proceeds are not being sent to the address of record,
preauthorized bank account, or preauthorized brokerage firm account; (6)
proceeds are to be paid to someone other than the registered owners or to an
account with a different registration; or
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<PAGE>
(7) change of automatic investment or redemption, dividend election, telephone
redemption or exchange option election or any other option election in
connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution
acceptable to FSS, including a bank, a broker, a dealer, a national securities
exchange, a credit union, or a savings association that is authorized to
guarantee signatures. Whenever a signature guarantee is required, the signature
of each person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost, all
distributions on the account will be reinvested in additional shares of a Fund.
In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to FSS 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 for each Fund as follows:
<TABLE>
<S> <C> <C> <C>
PUBLIC OFFERING NET ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- -------------------------------------------- ------------------------ ------------------ -------------------
less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $200,000 3.50% 3.63% 3.10%
$200,000 but less than $400,000 3.00% 3.09% 2.70%
$400,000 but less than $600,000 2.50% 2.56% 2.25%
$600,000 but less than $800,000 2.00% 2.04% 1.75%
$800,000 but less than $1,000,000 1.50% 1.52% 1.30%
$1,000,000 and up 0.50% 0.50% 0.40%
</TABLE>
* Rounded to the nearest one-hundredth percent.
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: (1) the provision of travel arrangements and lodging;
(2) tickets for entertainment events; and (3) merchandise.
No sales charge will be assessed on purchases made for investment
purposes by: (1) 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
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<PAGE>
employee benefit trust created pursuant to a qualified retirement plan); (2) 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; (3)
any registered investment adviser which is acting on behalf of its fiduciary
customer accounts and for which it provides additional investment advisory
services; (4) 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; (5) directors and officers of the
Trust; directors, officers and full-time employees of the Advisers, FFSI, any of
their affiliates or any 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;
(6) 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; (7) 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 - Exchanges"; and (8)
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 FSS 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 Business Day) of shares of a
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 2.50% rate applicable to a single $450,000 purchase, rather than
at the 4.0% rate. To qualify for ROA on a purchase, the investor must inform FSS
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 FSS.
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<PAGE>
EXCHANGES
Fund shareholders are entitled to exchange their shares for shares of
any other fund of the Trust or any other fund that participates in the exchange
program and whose shares are eligible for sale in the shareholder's state of
residence. Exchanges may only be made between accounts registered in the same
name. A completed account application must be submitted to open a new account in
a Fund through an exchange if the shareholder requests any shareholder privilege
not associated with the existing account. Exchanges are subject to the fees
charged by, and the restrictions listed in the prospectus for, the fund into
which a shareholder is exchanging, including minimum investment requirements.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of
the shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined following receipt of proper instructions and all
necessary supporting documents by the fund whose shares are being exchanged.
If a shareholder exchanges into a fund that imposes a sales charge,
that shareholder is required to pay the difference between that fund's sales
charge and any sales charge the shareholder has previously paid in connection
with the shares being exchanged. For example, if a shareholder paid a 2% sales
charge in connection with the purchase of the shares of a fund and then
exchanged those shares into another fund with a 3% sales charge, that
shareholder would pay an additional 1% sales charge on the exchange. Shares
acquired through the reinvestment of dividends and distributions are deemed to
have been acquired with a sales charge rate equal to that paid on the shares on
which the dividend or distribution was paid. The exchange privilege may be
modified materially or terminated by the Trust at any time upon 60 days' notice
to shareholders.
EXCHANGES BY MAIL. Exchanges may be accomplished by written
instructions to FSS accompanied by any stock certificate that may have been
issued to the shareholder. All written requests for exchanges must be signed by
the shareholder (a signature guaranteed is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.
EXCHANGES BY TELEPHONE. Exchanges may be accomplished by telephone by
any shareholder that has elected telephone exchange privileges by calling FSS at
(207) 879-0001 or 800-94FORUM (800-943-6786) and providing the shareholder's
account number, the exact name in which the shareholder's shares are registered
and the shareholder's social security or taxpayer identification number.
RETIREMENT PROGRAMS
INDIVIDUAL RETIREMENT ACCOUNTS
A single Fund should not be considered as a complete investment vehicle
for the assets held in individual retirement accounts ("IRAs"). The minimum
initial investment for an IRA is $1,000, and the minimum subsequent investment
is $250. 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 Funds
concerning Fund sponsored IRAs.
EMPLOYEE BENEFIT PLANS
A Fund may be a suitable investment vehicle for part of the assets held
in various employee benefit plans, including 401(k) plans, 403(b) plans and
SARSEPs.
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<PAGE>
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealer
banks, trust companies and their affiliates, and other financial institutions,
including affiliates of the FSS. Certain financial institutions (i.e. selected
brokers and dealers) may receive as a dealer's reallowance a portion of the
sales charge paid by their customers who purchase Fund shares. In addition,
financial institutions 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
institution to promptly forward these requests.
Investors who purchase shares through a financial institution 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 financial institution,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in a Fund directly. These investors should acquaint themselves with
their financial institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their financial
institution. Customers who purchase Fund shares through a financial institution
may or may not be the shareholder of record and, subject to their financial
institution's and a Fund's procedures, may have Fund shares transferred into
their name. Under their arrangements with the Trust, broker-dealer financial
institutions are not generally required to deliver payment for purchase orders
until several business days after a purchase order has been received by a Fund.
Certain other financial institutions may also enter purchase orders with payment
to follow.
Certain shareholder services may not be available to shareholders who
have purchased shares through a financial institution. These shareholders should
contact their financial institution for further information. The Trust may
confirm purchases and redemptions of a financial institution's customers
directly to the financial institution, which in turn will provide its customers
with such confirmations and periodic statements as may be required by law or
agreed to between the financial institution and its customers. The Trust is not
responsible for the failure of any financial institution to carry out its
obligations to its customer. Certain states permit shares of a Fund to be
purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
8. DISTRIBUTIONS AND TAX MATTERS
THE FUNDS
DISTRIBUTIONS
Distributions of each Fund's net investment income are declared and
paid annually. Distributions of net realized long-term capital gain are
distributed annually by each Fund.
Shareholders may have all distributions reinvested in additional shares
of the Fund in which they invest or received in cash. In addition, shareholders
may have distributions of net capital gain reinvested in additional shares of
the Fund in which they invest and distributions of net investment income paid in
cash. All distributions are treated in the same manner for Federal income tax
purposes whether received in cash or reinvested in shares of a Fund.
All distributions are reinvested unless another option is selected. All
distributions will be reinvested at a Fund's net asset value as of the payment
date of the dividend.. All distributions not reinvested will be paid to the
shareholder in cash and may be paid more than seven days following the date on
which dividends would otherwise be reinvested.
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<PAGE>
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 each Fund intends to distribute all of their net investment income and
net capital gain each year, each Fund should avoid all Federal income and excise
taxes.
Distributions paid by each Fund out of its net investment income
(including realized net short-term capital gain) are taxable to the shareholders
of the Fund as ordinary income. Distributions of net capital gain (i.e., the
excess of net gain from capital assets held for more than one year over net
losses from capital assets held for no more than one year) will be treated in
the hands of the shareholders as long-term capital gain, regardless of how long
a shareholder has held shares in a 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 gain received on those
shares.
Any 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 the income or gain comprising adistribution was accrued by a Fund before
the shareholder purchased the shares, the distribution would be in effect a
return of capital to the shareholder. All distributions, including those that
operate as a return of capital, however, are taxable as described above to the
shareholder receiving them regardless of the length of time he may have held
shares prior to the distribution.
It is expected that a portion of the distributions paid by Investors
Equity Fund, Equity Index Fund, and Small Company Opportunities Fund will
qualify for the dividends received deduction for corporations.
The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by a Fund
will be mailed to shareholders shortly after the close of each year.
EFFECT OF FOREIGN TAXES. With respect to each Fund that invests in
foreign securities, foreign governments may impose taxes on the Fund or
Portfolio and its investments, which generally reduce the Fund's income.
However, an offsetting tax credit or deduction may be available to you. If so,
your tax statement will show more taxable income than was actually distributed
by the Fund but will also show the amount of the available offsetting credit or
deduction.
If International Equity Fund and Emerging Markets Fund are eligible to
do so, each intends to elect to permit its shareholders to take a credit (or a
deduction) for the Fund's share of foreign income taxes paid by the Portfolio in
which the Fund invests. If a Fund does make such an election, its shareholders
would include as gross income in their federal income tax returns both: (1)
distributions received from the Fund; and (2) the amount that the Fund advises
is their pro rata portion of foreign income taxes paid with respect to or
withheld from, dividends and interest paid to the Fund or Portfolio from its
foreign investments. Shareholders then would be entitled, subject to certain
limitations, to take a foreign tax credit against their federal income tax
liability for the amount of such foreign taxes or else to deduct
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<PAGE>
such foreign taxes as an itemized deduction from gross income.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisors.
THE PORTFOLIOS
The Portfolios are not required to pay Federal income taxes on their
net investment income and capital gain, as they are treated as partnerships for
Federal income tax purposes. All interest, dividends and gain and losses of a
Portfolio are deemed to have been "passed through" to the Fund in proportion to
its holdings of the Portfolio, regardless of whether such interest, dividends or
gain have been distributed by the Portfolio. Investment income received by a
Fund from sources within foreign countries may be subject to foreign income or
other taxes, with respect to which shareholders may be entitled to claim a
credit or deduction.
9. OTHER INFORMATION
PERFORMANCE INFORMATION
Each Fund's performance may be quoted in advertising in terms of yield
or total return. Both types are based on historical results and are not intended
to indicate future performance. A Fund's yield measures 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 a Fund for the stated period
by the average number of shares entitled to receive dividends and expressing the
result as an annualized percentage rate based on the Fund's share price at the
end of the period. Total return refers to the average annual compounded rates of
return over some representative period that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, after giving effect to the reinvestment of all dividends and
distributions and deductions of expenses during the period. A Fund also may
advertise its total return over different periods of time or by means of
aggregate, average, year by year, or other types of total return figures.
Because average annual returns tend to smooth out variations in a Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results. 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.
Each Fund's advertisements may reference ratings and rankings among
similar funds by independent evaluators such as Morningstar, Lipper Analytical
Services, Inc. or IBC/Donoghue, Inc. In addition, the performance of a Fund 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 FAdS would permit a bank or bank affiliate to
perform sub-transfer agent or similar services for the Trust and its
shareholders. If a bank or bank affiliate were prohibited from performing all or
a part of the foregoing services, its shareholder customers would be permitted
to remain shareholders of the Trust and alternative means for continuing to
service them would be sought. It is not expected that shareholders would suffer
adverse financial consequences as a result of any changes in bank or bank
affiliate service arrangements.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of a Fund as of 4:00
p.m., Eastern Time, on each 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 or Portfolio 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 Core Trust Board or the
Schroder Core Board, as applicable, or pursuant to procedures approved by the
Board, the Core Trust Board, or the Schroder Core Board, as applicable.
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 under the name
Forum Funds. The Trust has an unlimited number of authorized shares of
beneficial interest. The Board may, without shareholder approval, divide the
authorized shares into an unlimited number of separate 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 23 separate series.
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. 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. As of September 1,
1998, Bank of New Hampshire may be deemed to have controlled Investors Equity
Fund, Peoples Heritage Bank may be deemed to have controlled Equity Index Fund
through investments in the Funds by their customers. As of the same date,
Donaldson, Lufkin & Jenrette Sec Corp. may be deemed to have controlled
International Equity Fund, Small Company Opportunities Fund and Emerging Markets
Fund through investments in the Funds by their clients. As of this date, Forum
Administrative Services, LLC and/or its affiliates had controlling interests in
International Equity Fund, Small Company Opportunities Fund and Emerging Markets
Fund.
CORE AND GATEWAY(R) STRUCTURE
THE PORTFOLIOS
Each of Equity Index Fund, International Equity Fund and Emerging
Markets Fund seeks to achieve its investment objective by investing all of its
investable assets in a Portfolio, which has substantially the same investment
objective and policies as the Fund. Small Company Opportunities Fund currently
seeks to achieve its investment objective by investing in several Portfolios.
Accordingly, the Portfolios directly acquire their
39
<PAGE>
own securities and the Funds acquire an indirect interest in those securities.
Index Portfolio, International Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio and Small Cap Value
Portfolio are separate series of Core Trust, a business Trust organized under
the laws of the State of Delaware in September 1994. Schroder EM Core Portfolio
is a separate series of Schroder Core, a business trust organized under the laws
of the State of Delaware in September 1995. Each of Core Trust and Schroder Core
is registered as an open-end, management, investment company. Core Trust
currently has 22 separate portfolios and Schroder Core currently has eight
separate portfolios. The assets of each Portfolio, belong only to, and the
liabilities of each Portfolio are borne solely by, the Portfolio and no other
portfolio of the respective trust.
The investment objective and fundamental investment policies of the
Funds and the Portfolios can be changed only with shareholder approval. See
"Investment Objectives and Policies" and "Management" for a complete description
of the Portfolios' investment objective, policies, restrictions, management, and
expenses.
The Funds' investment in the Portfolios is in the form of a
non-transferable beneficial interest. As of the date of this Prospectus, each of
the Portfolios has at least one other open-end management investment company
that invests in the Portfolio. The Portfolios may permit other investment
companies or institutional investors to invest in them. All investors in a
Portfolio will invest on the same terms and conditions as the Fund and will pay
a proportionate share of the Portfolio's expenses.
The Portfolios normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in a Portfolio will be entitled to vote
in proportion to its relative beneficial interest in the Portfolio. On most
issues subject to a vote of investors, as required by the Act and other
applicable law, a Fund will solicit proxies from shareholders of the Fund and
will vote its interest in the Portfolio in proportion to the votes cast by its
shareholders. If there are other investors in a Portfolio, there can be no
assurance that any issue that receives a majority of the votes cast by Fund
shareholders will receive a majority of votes cast by all investors in the
Portfolio; indeed, if other investors hold a majority interest in a Portfolio,
they could hold have voting control of the Portfolio.
The Portfolios will not sell their shares directly to members of the
general public. Another investor in a Portfolio, such as an investment company,
that might sell its shares to members of the general public would not be
required to sell its shares at the same public offering price as a Fund
investing in the Portfolio, and could have different advisory and other fees and
expenses than the Fund. Therefore, Fund shareholders may have different returns
than shareholders in another investment company that invests in a Portfolio.
Information regarding the funds that invest in the Schroder EM Core Portfolio
and any such funds in the future will be available from Schroder Core by calling
FFSI at (800) 290-9826. Information regarding the funds that invests in the
other Portfolios and any such funds in the future will be available from Core
Trust by calling FFSI at (207) 879-1900.
Under the Federal securities laws, any person or entity that signs a
registration statement may be liable for a misstatement or omission of a
material fact in the registration statement. Both Core Trust and Schroder Core,
their respective Trustees and certain of their officers are required to sign the
registration statement of the Trust and the registration statements of certain
other publicly-offered investors in the Portfolio. In addition, under the
Federal securities laws, Core Trust and Schroder Core could be liable for a
misstatements or omissions of a material fact in any proxy soliciting material
of a publicly-offered investor in Core Trust or Schroder Core, including the
Fund.
40
<PAGE>
Under the Trust Instrument for Core Trust, each investor in Index Portfolio or
International Portfolio, including the Trust, indemnifies Core Trust and its
Trustees and officers ("Core Trust Indemnitees") against certain claims.
Likewise, under the Trust Instrument for the Schroder Core, each investor in the
Schroder EM Core Portfolio, including the Trust, indemnifies Schroder Core and
its Trustees and officers ("Schroder Core Indemnitees") against certain claims.
Indemnified claims are those brought against Core Trust Indemnitees or Schroder
Core Indemnitees but based on a misstatement or omission of a material fact in
the investor's registration statement or proxy materials, except to the extent
such claim is based on a misstatement or omission of a material fact relating to
information about Core Trust or Schroder Core in the investor's registration
statement or proxy materials that was supplied to the investor by Core Trust or
Schroder Core. Similarly, Core Trust and Schroder Core indemnify each investor
in their respective Portfolios, including the Funds, for any claims brought
against the investor with respect to the investor's registration statement or
proxy materials, to the extent the claim is based on a misstatement or omission
of a material fact relating to information about Core Trust or Schroder Core
that is supplied to the investor by Core Trust or Schroder Core. In addition,
each registered investment company investor in a Portfolio indemnifies each Core
Trust Indemnitee or Schroder Core Indemnitee, as applicable, against any claim
based on a misstatement or omission of a material fact relating to information
about a series of the registered investment company that did not invest in the
Core Trust or Schroder Core. The purpose of these cross-indemnity provisions is
principally to limit the liability of each of Core Trust and Schroder Core to
information that it knows or should know and can control. With respect to other
prospectuses and other offering documents and proxy materials of investors in
Core Trust or in Schroder Core, Core Trust's and Schroder Core's liability is
similarly limited to information about and supplied by Core Trust or Schroder
Core, respectively.
CERTAIN RISKS OF INVESTING IN THE PORTFOLIOS
A Fund's investment in a Portfolio may be affected by the actions of
other large investors in the Portfolio, if any. For example, if a Portfolio had
a large investor other than the Fund that redeemed its interest in the
Portfolio, the Portfolio's remaining investors (including the Fund) might, as a
result, experience higher pro rata operating expenses, thereby producing lower
returns.
A Fund may withdraw its entire investment from a Portfolio at any time,
if the Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in a Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Board.
A withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio. That distribution could result
in a less diversified portfolio of investments for the Fund and could affect
adversely the liquidity of the Fund's portfolio. If the Fund decided to convert
those securities to cash, it would incur brokerage fees or other transaction
costs. If a Fund withdrew its investment from a Portfolio, the Board would
consider what action might be taken, including the management of the Fund's
assets in accordance with its investment objective and policies by the Fund's
Adviser, or another investment adviser or the investment of Fund's assets in
another pooled investment entity. The inability of a Fund to find a suitable
replacement investment, in the event that the Fund's Adviser did not manage the
Fund's assets directly, could have a significant impact on shareholders of the
Fund.
Each investor in a Portfolio, including a Fund, will be liable for all
obligations of the Portfolio,
41
<PAGE>
but not any other portfolio of Core Trust or Schroder Core, as applicable. The
risk to an investor in a Portfolio of incurring financial loss on account of
such liability, however, would be limited to circumstances in which the
Portfolio was unable to meet its obligations. Upon liquidation of a Portfolio,
investors, including the Fund, would be entitled to share pro rata in the net
assets of the Portfolio available for distribution to investors.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE FUNDS'
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.
42
<PAGE>
[Forum Funds Account Application]
<PAGE>
[Forum Funds Account Application cont.]
<PAGE>
[Pictures on right half of page of
globe,coines, paper money.]
[Logo]
SHAREHOLDER INFORMATION:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
<PAGE>
EQUITY INDEX FUND
INVESTORS EQUITY FUND
SMALL COMPANY OPPORTUNITIES FUND
INTERNATIONAL EQUITY FUND
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
Account Information and
Shareholder Servicing: Distributor:
Forum Shareholder Services, LLC 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
OCTOBER 1, 1998
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectus dated October 1,
1998, as amended from time to time, offering shares of Equity Index Fund,
Investors Equity Fund, Small Company Opportunities Fund, International Equity
Fund and Emerging Markets Fund (each, a "Fund" and collectively, the "Funds")
and should be read only in conjunction with the Prospectus, a copy of which may
be obtained by an investor without charge by contacting the Trust's Distributor
at the address listed above.
Each Fund, except for Investors Equity Fund, currently seeks to achieve its
investment objective by holding the securities of one or more separate
portfolios of registered open-end management investment company.
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.
TABLE OF CONTENTS
Page
----
1. General...................................................... 2
2. Investment Policies.......................................... 4
3. Additional Investment Policies............................... 18
4. Performance Data............................................. 26
5. Management................................................... 28
6. Determination of Net Asset Value............................. 43
7. Portfolio Transactions....................................... 43
8. Additional Purchase and
Redemption Information..................................... 45
9. Tax Matters.................................................. 46
10. Other Information............................................ 48
Appendix A - Control Persons and Principal Holders of Securities A-1
Appendix B - Description of Securities Ratings.............. B-1
Appendix C - Additional Advertising Materials............... C-1
<PAGE>
1. GENERAL
THE TRUST. The Trust is registered with the SEC 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 of Trustees (the "Board"), without shareholder
approval, 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 has authorized shares
of twenty-three series, including series that have not commenced operation as of
the date of this SAI. The series of the Trust are as follows:
<TABLE>
<S><C> <C>
Investors High Grade Bond Fund Austin Global Equity Fund
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Quadra Growth Fund
Maine Municipal Bond Fund Quadra Value Equity Fund
New Hampshire Bond Fund Equity Index Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Government Obligations Fund Investors Growth Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Treasury Obligations Fund International Equity Fund
Daily Assets Municipal Fund Emerging Markets Fund
Payson Value Fund Polaris Global Value Fund
Payson Balanced Fund
</TABLE>
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when 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 1, 1998, 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,
Appendix A identifies all shareholders who own of record 5% or more of the
outstanding shares of any of the Registrant's series.
DEFINITIONS. As used in this Statement of Additional Information, the following
terms shall have the meanings listed:
"Board" means the Board of Trustees of Forum Funds.
"CFTC" means the Commodity Futures Trading Commission.
"Core Trust" means Core Trust (Delaware), a Delaware business trust.
"Core Trust Board" means the Board of Trustees of Core Trust (Delaware).
2
<PAGE>
"Core Trust Portfolio" means Index Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio and Small Cap Value
Portfolio, each, a series of Core Trust.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FSS" means Forum Shareholder Services, LLC.
"FFSI" means Forum Financial Services, Inc.
"Forum Advisors" means Forum Investment Advisors, LLC.
"Fund" means Equity Index Fund, Investors Equity Fund, Small Company
Opportunities Fund, International Equity Fund or Emerging Markets Fund.
"Fund Business Day" has the meaning ascribed thereto in the Funds' current
Prospectus.
"NRSRO" means a nationally recognized statistical rating organization.
"Norwest" means Norwest Investment Management, Inc.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"Peoples" means Peoples Heritage Bank
"Portfolio" means Index Portfolio, , International Portfolio, Schroder EM Core
Portfolio, Small Cap Index Portfolio, Small Company Stock Portfolio, Small
Company Value Portfolio or Small Cap Value Portfolio.
"SAI" means this Statement of Additional Information.
"SCMI" means Schroder Capital Management International, Inc.
"SEC" means the U.S. Securities and Exchange Commission.
"Schroder Core" means Schroder Capital Funds, a Delaware business trust.
"Schroder Core Board" means the Board of Trustees of Schroder Core.
"Schroder Core Portfolio" means International Portfolio and Schroder EM Core
Portfolio.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
2. INVESTMENT POLICIES
INTRODUCTION
The following information supplements the discussion found under "Investment
Objective and Policies" and "Additional Investment Policies" in the Prospectus.
Investors Equity Fund seeks to achieve its investment objective by investing
directly in portfolio securities. Each of Equity Index Fund, International
Equity Fund and Emerging Markets Fund currently seeks to achieve its investment
objective by investing all of its investment assets in a Portfolio, that has
substantially the same investment objective and policies. Because each Fund has
substantially the same investment policies as the Portfolio in which it invests
and currently invests all of its assets in that Portfolio, investment policies
for these Funds and the Portfolios in which they invest are generally discussed
in reference to the Fund. Small Company Opportunities Fund currently seeks to
achieve its investment objective by investing its assets in two or more
Portfolios. Accordingly, that Fund may invest in certain of the instruments
described below through the Portfolios in which it invests.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible preferred stocks and convertible debt
securities. A convertible security is fixed income security, preferred stock or
other security that may be converted into or exchanged for a prescribed amount
of common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, carry less
risk than the corporation's common stock. A convertible security entitles the
holder to receive interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures, is redeemed, or
converted, or is exchanged. Before conversion, convertible securities ordinarily
provide a stream of income with generally higher yields than those of common
stock of the same or similar issuers, but lower than the yield of nonconvertible
debt. By investing in convertible securities, a Fund obtains the right to
benefit from the capital appreciation potential in the underlying common stock
upon the exercise of the conversion right, while earning higher current income
than could be available if the stock was purchased directly. In general, the
value of a convertible security is the higher of its "investment value" (its
value as a fixed income security), and its "conversion value" (the security's
worth if it were to be exchanged for the underlying security, at market value,
pursuant to its conversion privilege). As a fixed income security, the value of
a convertible security generally increases when interest rates decline and
generally decreases when interest rates rise. The value of a convertible
security is, however, influenced by the value of the underlying common stock.
All Funds (except Emerging Markets Fund) invest in convertible securities that
are investment grade.
Because convertible securities are typically issued by smaller capitalized
companies whose stock price may be volatile, the price of a convertible security
may reflect variations in the price of the underlying common stock in a way that
nonconvertible debt does not. Convertible securities, however, are subject to
less fluctuations in value than underlying stock since they have fixed income
characteristics. A convertible security may be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security is called for redemption, the
Fund will be required to permit the issuer to redeem the security, convert it
into the underlying common stock or sell it to a third party.
The conversion value of a convertible security is determined by the market price
of the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value and generally the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of
the convertible security will be increasingly influenced by its conversion
value. In addition, a convertible security generally will sell at a premium over
its conversion value determined by the extent to which investors place value on
the right to acquire the underlying common stock while holding a fixed income
security.
4
<PAGE>
DEBT-TO-EQUITY CONVERSIONS
Emerging Markets Fund may invest up to 5% of its net assets in debt-to-equity
conversions incident to corporate reorganizations. Debt-to-equity conversion
programs are sponsored in varying degrees by certain emerging market countries,
particularly in Latin America, and permit investors to use external debt of a
country to make equity investments in local companies. Many conversion programs
relate primarily to investments in transportation, communication, utilities and
similar infrastructure-related areas. The terms of the programs vary from
country to country, but include significant restrictions on the application of
proceeds received in the conversion and on the repatriation of investment
profits and capital. When inviting conversion applications by holders of
eligible debt, a government usually specifies the minimum discount from par
value that it will accept for conversion. The Adviser believes that
debt-to-equity conversion programs may offer investors opportunities to invest
in otherwise restricted equity securities that have a potential for significant
capital appreciation and intends to invest assets of the Fund to a limited
extent in such programs under appropriate circumstances. There can be no
assurance that debt-to-equity conversion programs will continue or be successful
or that the Fund will be able to convert all or any of its emerging market debt
portfolio into equity investments.
EQUITY-LINKED SECURITIES
All Funds (except Investors Equity Fund and Emerging Markets Fund) may invest in
equity-linked securities. Equity-linked securities are securities whose interest
and/or principal payment obligations are linked to a specified index of equity
securities, or determined pursuant to specific formulas. A Fund may invest in
these instruments when the securities provide a higher amount of dividend income
than is available from a company's common stock. The amount received by an
investor at maturity of these securities is not fixed but is based on the price
of the underlying common stock, which may rise or fall. Adverse changes in the
securities markets may reduce interest payments made under, and/or the principal
of, equity-linked securities held by a Fund. In addition, it is not possible to
predict how equity-related securities will trade in the secondary market or
whether the market for the securities will be liquid. The following are three
examples of equity-linked securities.
Preferred Equity Redemption Cumulative Stock ("PERCS") technically are preferred
stock with some characteristics of common stock. PERCS are mandatory convertible
into common stock after a period of time, usually three years, during which the
investors' capital gains are capped, usually at 30%. Commonly, PERCS may be
redeemed by the issuer either at any time or when the issuer's common stock is
trading at a specified price level or better. The redemption price starts at the
beginning of the PERCS' duration period at a price that is above the cap by the
amount of the extra dividends the PERCS holder is entitled to receive relative
to the common stock over the duration of the PERCS and declines to the cap price
shortly before maturity of the PERCS. In exchange for having the cap on capital
gains and giving the issuer the option to redeem the PERCS at any time or at the
specified common stock price level, a Fund may be compensated with a
substantially higher dividend yield than that on the underlying common stock.
Funds that seek current income find PERCS attractive because a PERCS provides a
higher dividend income than that paid with respect to a company's common stock.
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under an indenture trust. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, subject to adjustment as a result of certain
dilution events, for the 10 trading days immediately prior to maturity. Unlike
PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS
usually bear interest during the three-year term at a substantially higher rate
than the dividend yield on the underlying common stock. In exchange for having
the cap on the return that might have been received as capital gains on the
underlying common stock, a Fund may be compensated with the higher yield,
contingent on how well the underlying common stock does. Funds that seek current
income find ELKS attractive because ELKS provide a higher dividend income than
that paid with respect to a company's common stock.
5
<PAGE>
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities in that
the amount received prior to maturity is not fixed but is based on the price of
the issuer's common stock. LYONs are zero-coupon notes that sell at a large
discount from face value. For an investment in LYONs, a Fund will not receive
any interest payments until the notes mature, typically in 15 or 20 years, when
the notes are redeemed at face, or par, value. The yield on LYONs, typically, is
lower-than-market rate for debt securities of the same maturity, due in part to
the fact that the LYONs are convertible into common stock of the issuer at any
time at the option of the holder of the LYON. Commonly, LYONs are redeemable by
the issuer at any time after an initial period or if the issuer's common stock
is trading at a specified price level or better, or, at the option of the
holder, upon certain fixed dates. The redemption price typically is the purchase
price of the LYONs plus accrued original issue discount to the date of
redemption, which amounts to the lower-than-market yield. A Fund will receive
only the lower-than-market yield unless the underlying common stock increases in
value at a substantial rate. LYONs are attractive to investors when it appears
that they will increase in value due to the rise in value of the underlying
common stock.
DEBT SECURITIES
Certain Funds, as indicated below, may invest in fixed income securities include
corporate debt obligations, U.S. Government Securities, corporate debt
obligations, zero coupon securities, financial institution obligations and
participation interests.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government Securities.
U.S. Government Securities include securities issued by the U.S. Treasury and by
U.S. Government agencies and instrumentalities. U.S. Government Securities may
be supported by the full faith and credit of the United States (i.e.,
mortgage-related securities and certificates of the Government National Mortgage
Association and securities of Small Business Administration); by the right of
the issuer to borrow from the U.S. Treasury (i.e., Federal Home Loan Bank
securities); by the discretionary authority of the U.S. Treasury to lend to the
issuer (i.e., Fannie Mae (formerly the Federal National Mortgage Association)
securities); or solely by the creditworthiness of the issuer (i.e., Federal Home
Loan Mortgage Corporation Securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assess a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. No assurance can be given that the U.S. Government would provide
support if it is not obligated to do so by law. Neither the U.S. Government nor
any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt. The
corporate debt obligations in which a Fund may invest include corporate bonds,
debentures, notes, commercial paper and other similar corporate debt
instruments. These instruments are used by companies to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
must repay the amount borrowed at maturity. Commercial paper (short-term
unsecured promissory notes) is issued by companies to finance their current
obligations and normally has a maturity of less than 9 months.
ZERO-COUPON SECURITIES. Each Fund may invest in zero-coupon bonds. Zero-coupon
securities are debt obligations that are issued or sold at a significant
discount from their face value and do not pay current interest to holders prior
to maturity, a specified redemption date or cash payment date. The discount
approximates the total interest the securities will accrue and compound over the
period to maturity or the first interest payment date at a rate of interest
reflecting the market rate of interest at the time of issuance. The original
issue discount on the zero-coupon securities must be included ratably in the
income of a Fund (and thus an investor's) as the income accrues, even though
payment has not been received. Because interest on zero-coupon securities is not
paid on a current basis but is in effect compounded, the value of these
securities is subject to greater fluctuations in response to changing interest
rates, and may involve greater credit risks, than the value of debt obligations
which distribute income regularly.
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Zero-coupon securities may be securities that have been stripped of their
unmatured interest stream. Zero-coupon securities may be custodial receipts or
certificates, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government Securities. The underwriters of these certificates or receipts
generally purchase a U.S. Government Security and deposit the security in an
irrevocable trust or custodial account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the purchased unmatured
coupon payments and the final principal payment of the U.S. Government Security.
These certificates or receipts have the same general attributes as zero-coupon
stripped U.S. Treasury securities but are not supported by the issuer of the
U.S. Government Security. The risks associated with stripped securities are
similar to those of other zero-coupon securities, although stripped securities
may be more volatile, and the value of certain types of stripped securities may
move in the same direction as interest rates.
BANK OBLIGATIONS. A Fund may invest in obligations of financial institutions,
including negotiable certificates of deposit, bankers' acceptances and time
deposits of U.S. banks, foreign branches of U.S. banks, foreign banks and their
non-U.S. branches (Eurodollars), U.S. branches and agencies of foreign banks
(Yankee dollars), and wholly-owned banking-related subsidiaries of foreign
banks.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date. Time deposits are non-negotiable
deposits with a banking institution that earn a specified interest rate over a
given period. Certificates of deposit and fixed time deposits, which are payable
at the stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by the Fund but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation and could reduce the Fund's yield. Although fixed-time deposits do
not in all cases have a secondary market, there are no contractual restrictions
on the Fund's right to transfer a beneficial interest in the deposits to third
parties. Deposits subject to early withdrawal penalties or that mature in more
than seven days are treated as illiquid securities if there is no readily
available market for the securities. A Fund's investments in the obligations of
foreign banks and their branches, agencies or subsidiaries may be obligations of
the parent, of the issuing branch, agency or subsidiary, or both. Investments in
foreign bank obligations are limited to banks and branches located in countries
which the Advisers believe do not present undue risk.
The Funds (except Emerging Markets Fund) may invest in Eurodollar certificates
of deposit, which are U.S. dollar denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States; Yankee
certificates of deposit, which are certificates of deposit issued by a U.S.
branch of a foreign bank denominated in U.S. dollars and held in the United
States; Eurodollar time deposits ("ETDs"), which are U.S. dollar denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; and Canadian time
deposits, which are essentially the same as ETDs, except that they are issued by
Canadian offices of major Canadian banks. Emerging Markets Fund may invest in
certificates of deposit issued by United States branches of foreign banks and
foreign branches of United States banks.
Investments in instruments of foreign banks, branches or subsidiaries may
involve certain risks, including future political and economic developments, the
possible imposition of foreign withholding taxes on interest income payable on
such securities, the possible seizure or nationalization of foreign deposits,
differences from domestic banks in applicable accounting, auditing and financial
reporting standards, and the possible establishment of exchange controls or
other foreign governmental laws or restrictions applicable to the payment of
certificates of deposit or time deposits which might affect adversely the
payment of principal and interest on such securities held by the Fund.
PARTICIPATION INTERESTS. A Fund (except Emerging Markets Fund) may purchase
participation interests in loans or securities in which the Fund may invest
directly that are owned by banks or other institutions. A participation interest
gives a Fund an undivided proportionate interest in a loan or security
determined by the Fund's investment. Participation interests may carry a demand
feature permitting the holder to tender the interests back to the bank or other
institution. Participation interests, however, do not provide the Fund with any
right to enforce compliance by the borrower, nor any rights of set-off against
the borrower and the Fund may not directly benefit from any collateral
supporting the loan in which it purchased a participation interest. As a result,
the Fund will assume the
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credit risk of both the borrower and the lender that is selling the
participation interest. A Fund (except Investors Equity Fund) will not invest
more than 10% of its total assets in participation interests in which the Fund
does not have demand rights.
SHORT-TERM DEBT SECURITIES. Each Fund may invest in commercial paper, that is,
short-term unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. The commercial paper purchased by
a Fund for temporary defensive purposes consists of direct obligations of
domestic issuers which, at the time of investment, are rated "P-1" by Moody's
Investors Service, Inc. ("Moody's") or "A-1" by Standard & Poor's Corporation
("S&P"), or securities that, if not rated, are issued by companies having an
outstanding debt issue currently rated "Aa" by Moody's or "AAA" or "AA" by S&P.
The rating "P-1" is the highest commercial paper rating assigned by Moody's, and
the rating "A-1" is the highest commercial paper ratings assigned by S&P.
PAYMENT-IN KIND SECURITIES. Emerging Markets Fund may invest in payment-in-kind
bonds which allow the issuer, at its option, to make current interest payments
on the bonds either in cash or in additional bonds. The value of payment-in-kind
bonds are subject to greater fluctuation in response to changes in market
interest rates than bonds which pay interest currently, and may involve greater
risk than such bonds.
HIGH YIELD/JUNK BONDS. Emerging Markets Fund may invest up to 35% of its assets
in such high yield/high risk securities. Securities rated lower than "Baa" by
Moody's or "BBB" by S&P are classified as non-investment grade securities ("junk
bonds") and are considered speculative. Junk bonds may be issued as a
consequence of corporate restructurings (such as leveraged buyouts, mergers,
acquisitions, debt recapitalizations, or similar events) or by smaller or highly
leveraged companies. Although the growth of the high yield securities market in
the 1980's paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized that
an economic downturn or increase in interest rates is likely to have a negative
effect on: (1) the high yield bond market; (2) the value of high yield
securities; and (3) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goal, or to obtain additional financing. In addition, the market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the market for investment grade securities. Under adverse market or
economic conditions, the market for high yield securities could contract
further, independent of any specific adverse changes in the condition of a
particular issuer. As a result, the Fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the Fund's net asset value.
In periods of reduced market liquidity, junk bond prices may become more
volatile and may experience sudden and substantial price declines. Also, there
may be significant disparities in the prices quoted for junk bonds by various
dealers. Under such conditions, a Fund may have to use subjective rather than
objective criteria to value its junk bond investments accurately and rely more
heavily on the judgment of the Fund's investment adviser.
Prices for junk bonds also may be affected by legislative and regulatory
developments. For example, new federal laws require the divestiture by federally
insured savings and loans associations of their investments in high yield bonds.
Also, from time to time, Congress has considered legislation to restrict or
eliminate the corporate tax deduction for interest payments or to regulate
corporate restructurings such as takeovers, mergers or leveraged buyouts. These
laws could adversely affect the Fund's net asset value and investment practices,
the market for high yield securities, the financial condition of issuers of
these securities, and the value of outstanding high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's portfolio and increasing
the exposure of the Fund to the risks of high yield securities.
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ILLIQUID AND RESTRICTED SECURITIES
No Fund may invest may invest more than 15% of its net assets in illiquid
investments. "Illiquid and Restricted Securities" under "Investment Policies" in
the Prospectus sets forth the circumstances in which a Fund may invest in
"restricted securities". In connection with the Funds' original purchase of
restricted securities, it may negotiate rights with the issuer to have such
securities registered for sale at a later time. Further, the registration
expenses of illiquid restricted securities may also be negotiated by a Fund with
the issuer at the time such securities are purchased by the Fund. When
registration is required, however, a considerable period may elapse between the
decision to sell the securities and the time the Fund would be permitted to sell
such securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, a Fund may not be
able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
OPTIONS AND FUTURES CONTRACTS
A Fund may (1) purchase or sell (write) put and call options on securities to
enhance the Fund's performance and (2) seek to hedge against a decline in the
value of securities owned by the Fund or an increase in the price of securities
that the Fund plans to purchase through the writing and purchase of
exchange-traded and over-the-counter options on individual securities or
securities or financial indices and through the purchase and sale of futures
contracts and options on those futures contracts. A Fund may only write options
that are covered. To the extent a Fund invests in foreign securities, it may
also invest in options on foreign currencies, foreign currency futures contracts
and options on those futures contracts. These instruments are considered to be
derivatives. Use of these instruments is subject to regulation by the SEC, the
several options and futures exchanges on which futures and options are traded or
the CFTC. No assurance can be given that any hedging or option income strategy
will achieve its intended result. A Fund (except Emerging Markets Fund) may
enter into futures contracts only if the aggregate of initial margin deposits
for open futures contract positions does not exceed 5% of the Fund's total
assets.
COVER FOR OPTIONS AND FUTURES CONTRACTS. A Fund will hold securities,
currencies, or other options or futures positions whose values are expected to
offset ("cover") its obligations under the transactions. A Fund will enter into
a hedging strategy that exposes it to an obligation to another party only if the
Fund owns either (1) an offsetting ("covered") position in the underlying
security, currency or options or futures contract, or (2) cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. Each Fund will comply with SEC guidelines with respect to
coverage of these strategies and, if the guidelines require, will set aside
cash, liquid debt securities and other permissible assets ("Segregated Assets")
in a segregated account with the Custodian in the prescribed amount. Segregated
Assets cannot be sold or closed out while the hedging or option income strategy
is outstanding, unless the Segregated Assets 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 a Fund's ability to meet redemption requests or other current
obligations.
LIMITATIONS ON OPTIONS AND FUTURES. The Funds have no current intention of
investing in futures contracts and options thereon for purposes other than
hedging. No Fund (except Emerging Markets Fund) may purchase any call or put
option on a futures contract if the premiums associated with all such options
held by the Fund would exceed 5% of the Fund's total assets as of the date the
option is purchased. Equity Index Fund and International Equity Fund may sell a
put option if the exercise value of all put options written by the Fund would
exceed 50% of the Fund's total assets or sell a call option if the exercise
value of all call options written by the Fund would exceed the value of the
Fund's assets. In addition, and with respect to Equity Index Fund and
International Equity Fund, the current market value of all open futures
positions held by the Funds will not exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the
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underlying security upon exercise at the exercise price during the option
period. The amount of premium received or paid is based upon certain factors,
including the market price of the underlying assets, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying assets, the option period, supply and demand and interest rates.
OPTIONS ON STOCK INDICES. Each Fund may invest in options on stock indices. A
stock index assigns relative values to the stock included in the index, and the
index fluctuates with changes in the market values of the stocks included in the
index. Stock index options operate in the same way as the more traditional
options on securities except that exercises of stock index options are effected
with cash payments and do not involve delivery of securities (i.e., stock index
options are settled exclusively in cash). Thus, upon exercise of stock index
options, the purchaser will realize and the writer will pay an amount based on
the differences between the exercise price and the closing price of the stock
index.
OPTIONS ON FOREIGN CURRENCIES. International Equity Fund and Emerging Markets
Fund may invest in options on foreign currencies. Options on foreign currencies
are similar to options on securities and are trades primarily in the over-the
counter market, although options on foreign currencies have recently been listed
on several exchanges. The value of foreign currency options is dependent upon
the value of the foreign currency relative to the U.S. dollar and has no
relationship to the investment merits of a foreign security. Because foreign
currency transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign currency
options, the Fund may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots. To the extent that the U.S. options markets are closed while the market
for the underlying currencies remains open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the options
markets.
OPTIONS ON FUTURES CONTRACTS. Each Fund may invest in options on futures
contracts. Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract rather
than to purchase or sell stock, at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the delivery of the
futures position to the holder of the option will be accompanied by transfer to
the holder of an accumulated balance representing the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the future.
FUTURES CONTRACTS. A futures contract is a bilateral agreement where one party
agrees to accept, and the other party agrees to make, delivery of cash, an
underlying debt security or a currency, as called for in the contract, at a
specified date and at an agreed-upon price. A bond or stock index futures
contract involves the delivery of an amount of cash equal to a specified dollar
amount times the difference between the bond or stock index value at the close
of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, these futures contracts are closed out prior to the
expiration date of the contracts.
A Fund will purchase or sell interest rate futures contracts for the purpose of
hedging some or all of the value of its portfolio securities (or anticipated
portfolio securities) against changes in prevailing interest rates. If the
investment adviser anticipates that interest rates may rise and, concomitantly,
the price of certain of its portfolio securities fall, a Fund may sell an
interest rate futures contract. If declining interest rates are anticipated, a
Fund may purchase an interest rate futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by a Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
A Fund will purchase or sell index futures contracts for the purpose of hedging
some or all of its portfolio (or anticipated portfolio) securities against
changes in their prices. If it anticipates that the prices of securities it
holds may fall, a Fund may sell an index futures contract. Conversely, if a Fund
wishes to hedge against anticipated price rises in those securities which it
intends to purchase, the Fund may purchase an index futures contract.
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A Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated for
the purposes of hedging against anticipated changes in currency exchange rates.
A Fund will enter into currency futures contracts for the same reasons as set
forth above for entering into forward foreign currency exchange contracts;
namely, to secure the value of a security purchased or sold in a given currency
vis-a-vis a different currency or to hedge against an adverse currency exchange
rate movement of a portfolio security's (or anticipated portfolio security's)
denominated currency vis-a-vis a different currency.
In addition to the above, interest rate, index and currency futures will be
bought or sold in order to close out short or long positions maintained by a
Fund in corresponding futures contracts.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without making or taking delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that a Fund will be able to enter into a closing
transaction.
INTEREST RATE FUTURES CONTRACTS. Each Fund may invest in interest rate futures.
When a Fund enters into an interest rate futures contract, it is initially
required to deposit with its custodian (in a segregated account in the name of
the broker performing the transaction) an "initial margin" of cash or U.S.
Government securities or other high grade short-term obligations equal to
approximately 2% of the contract amount. Initial margin requirements are
established by the exchanges on which futures contracts trade and may change. In
addition, brokers may establish margin deposit requirements in excess of those
required by the exchanges.
Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of money by a
brokers' client but is, rather, a good faith deposit on the futures contract
that will be returned to a Fund upon the proper termination of the futures
contract. The margin deposits made are marked to market daily and a Fund may be
required to make subsequent deposits of cash or U.S. Government securities
(called "variation margin") with the Fund's futures contract clearing broker,
which are reflective of price fluctuations in the futures contract.
CURRENCY FUTURES. International Equity Fund and Emerging Markets Fund may invest
in currency futures. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. SCMI will
assess such factors as cost spreads, liquidity and transaction costs in
determining whether to use futures contracts or forward contracts in its foreign
currency transactions and hedging strategy.
Purchasers and sellers of foreign currency futures contracts are subject to the
same risks that apply generally to the buying and selling of futures. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, a Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
INDEX FUTURES CONTRACTS. Each Fund may invest in index futures contracts. An
index futures contract sale creates an obligation by a Fund, as seller, to
deliver cash at a specified future time. An index futures contract purchase
would create an obligation by a Fund, as purchaser, to take delivery of cash at
a specified future time. Futures
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contracts on indices do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date that reflects
accumulated profits and losses credited or debited to each party's account.
A Fund is required to maintain margin deposits with brokerage firms through
which it effects index futures contracts in a manner similar to that described
above for interest rate futures contracts. In addition, due to current industry
practice, daily variations in gains and losses on open contracts are required to
be reflected in cash in the form of variation margin payments. A Fund may be
required to make additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, a Fund 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 a Fund and the Fund realizes a loss or gain.
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. Emerging Market Fund may invest
in futures on debt securities. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular month, of securities
having a standardized face value and rate of return. By purchasing futures on
debt securities -- assuming a "long" position -- a Portfolio will legally
obligate itself to accept the future delivery of the underlying security and pay
the agreed price. By selling futures on debt securities -- assuming a "short"
position -- it will legally obligate itself to make the future delivery of the
security against payment of the agreed price.
The Fund may, for example, take a "short" position in the futures market by
selling contracts for the future delivery of debt securities held by the Fund
(or securities having characteristics similar to those held by the Portfolio) in
order to hedge against an anticipated rise in interest rates that would
adversely affect the value of the Portfolio's portfolio securities. When hedging
of this character is successful, any depreciation in the value of portfolio
securities may substantially be offset by appreciation in the value of the
futures position.
On other occasions, the Fund may take a "long" position by purchasing futures on
debt securities. This would be done, for example, when the Fund expects to
purchase particular securities when it has the necessary cash, but expects the
rate of return available in the securities markets at that time to be less
favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase.
Successful use by a Portfolio of futures contracts on debt securities is subject
to SCMI's ability to predict correctly movements in the direction of interest
rates and other factors affecting markets for debt securities. For example, if a
Portfolio has hedged against the possibility of an increase in interest rates
which would adversely affect the market prices of debt securities held by it and
the prices of such securities increase instead, the Portfolio will lose part or
all of the benefit of the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily maintenance margin requirements. The Portfolio may have
to sell securities at a time when it may be disadvantageous to do so.
The Fund may purchase and write put and call options on certain debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. The Fund
will be required to deposit initial margin and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to brokers'
requirements, and, in addition, net option premiums received will be included as
initial margin deposits. See "Investment Objectives and Policies - Futures
Contracts - Margin Payments". Compared to
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the purchase or sale of futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to a Portfolio because the
maximum amount at risk is the premium paid for the options plus transactions
costs. However, there may be circumstances when the purchase of call or put
options on a futures contract would result in a loss to a Portfolio when the
purchase or sale of the futures contracts would not, such as when there is no
movement in the prices of debt securities. The writing of a put or call option
on a futures contract involves risks similar to those risks relating to the
purchase or sale of futures contracts.
RISKS OF OPTIONS AND FUTURES CONTRACTS.A Fund's use of options and futures
contracts subjects the Fund to certain unique investment risks. These risks
include: (1) dependence on an Adviser's ability to correctly predict movements
in the prices of individual securities and fluctuations in interest rates, the
general securities markets and other economic factors; (2) imperfect
correlations between movements in the prices of options or futures contracts and
movements in the price of the securities hedged or used for cover which may
cause a given hedge not to achieve its objective; (3) the fact that the skills
and techniques needed to trade these instruments are different from those needed
to select the other securities in which a Portfolio invests; (4) lack of
assurance that a liquid secondary market will exist for any particular
instrument at any particular time, which, among other things, may hinder a
Fund's ability to limit exposures by closing its positions; (5) the possible
need to defer closing out certain options, futures contracts and related options
to avoid adverse tax consequences; and (6) the potential for unlimited losses
when investing in futures contracts or writing options for which an offsetting
position is not held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. There are a limited number of options on
interest rate futures contracts and exchange-traded options contracts on fixed
income securities. The Portfolios may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist. A Portfolio's activities in the futures and
options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Portfolio's yield.
FOREIGN CURRENCY TRANSACTIONS
International Equity Fund and Emerging Markets Fund may conduct foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market or by entering into a forward foreign
currency contract. A forward foreign currency contract ("forward contract")
involves an obligation to purchase or sell a specific amount of a specific
currency at a future date, which may be any fixed number of days (usually less
than one year) from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. Forward contracts are considered to be
"derivatives" -- financial instruments whose performance is derived, at least in
part, from the performance of another asset (such as a security, currency or an
index of securities). A Fund enters into forward contracts in order to "lock in"
the exchange rate between the currency it will deliver and the currency it will
receive for the duration of the contract. In addition, a Fund may enter into
forward contracts to hedge against risks arising from securities the Fund own or
anticipate purchasing, or the U.S. dollar value of interest and dividends paid
on those securities. A Fund will not enter into forward contracts for
speculative purposes. A Fund does not intend to maintain a net exposure to
forward contracts that would obligate the Fund to deliver an amount of foreign
currency in excess of the value of the Funds' investment securities or other
assets denominated in that currency. International Equity Fund will not have
more than 25% of its total assets committed to forward contracts.
If a Fund makes delivery of the foreign currency at or before the settlement of
a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. A Fund may close out a
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forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
Foreign currency transactions involve certain costs and risks. A Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for a Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities a Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
FOREIGN SECURITIES
Each Fund (except Equity Index Fund) may invest in foreign issuers. Investment
in the securities of foreign issuers may involve risks in addition to those
normally associated with investments in the securities of U.S. issuers. All
foreign investments are subject to risks of foreign political and economic
instability, adverse movements in foreign exchange rates, the imposition or
tightening of exchange controls or other limitations on repatriation of foreign
capital, and changes in foreign governmental attitudes towards private
investment, possibly leading to nationalization, increased taxation or
confiscation of foreign investors' assets.
Moreover, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available to shareholders;
commission rates payable on foreign transactions are generally higher than in
the U.S.; foreign accounting, auditing and financial reporting standards differ
from those in the U.S. and, accordingly, less information may be available about
foreign companies than is available about issuers of comparable securities in
the U.S.; and foreign securities may trade less frequently and with lower volume
and may exhibit greater price volatility than U.S. securities.
Changes in foreign exchange rates will also affect the value in U.S. dollars of
all foreign currency-denominated securities held by the Core Portfolio. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies. A decline in the value of a particular foreign currency against the
U.S. dollar occurring after a Fund's or Portfolio's income has been earned and
computed in U.S. dollars may require a Fund or Portfolio to liquidate portfolio
securities to acquire sufficient U.S. dollars to fund redemptions. Similarly, if
the exchange rate declines between the time the Fund or Portfolio incurs
expenses in U.S. dollars and the time such expenses are paid, a Fund or
Portfolio may be required to liquidate additional foreign securities to purchase
the U.S. dollars required to meet such expenses.
WARRANTS AND STOCK RIGHTS
Each Fund may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance). A Fund may not invest more than 5% of its net assets (at
the time of investment) in warrants (other than those that have been acquired in
units or attached to other securities). With the exception of Emerging Markets
Fund, no more than 2% of a Fund's net assets (at the time of investment) may be
invested in warrants that are not listed on the New York or American Stock
Exchanges. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations as a result of speculation or other factors and failure of the
price of the underlying security to reach a level at which the warrant can be
prudently
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exercised (in which case the warrant may expire without being exercised,
resulting in the loss of a Fund's entire investment therein). The prices of
warrants do not necessarily move parallel to the prices of the underlying
securities. To the extent that the market value of the security that may be
purchased upon exercise of the warrant rises above the exercise price, the value
of the warrant will tend to rise. To the extent that the exercise price equals
or exceeds the market value of such security, the warrants will have little or
no market value. Warrants have no voting rights, receive no dividends and have
no rights with respect to the assets of the issuer. Unlike convertible
securities and preferred stock, warrants do not pay a fixed dividend.
In addition, Emerging Markets Fund may invest up to 5% of its assets (at the
time of investment) in stock rights. A stock right is an option given to a
shareholder to buy additional shares at a predetermined price during a specified
time period.
DEPOSITARY RECEIPTS
Each Fund (except Equity Index Fund) may invest in depositary receipts. A
depositary receipt is a receipt for shares of a foreign-based company that
entitles the holder to distributions on the underlying security. Depositary
receipts include sponsored or unsponsored American Depositary Receipts ("ADRs")
or European Depositary Receipts ("EDRs"), or other similar securities
convertible into securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued in the United States
by a bank or trust company, evidencing ownership of the underlying securities.
EDRs are typically issued in Europe under a similar arrangement. Generally, ADRs
are designed for use in the U.S. securities markets and EDRs are designed for
use in European securities markets.
Unsponsored depositary receipts may be created without the participation of the
foreign issuer. Holders of these receipts generally bear all the costs of the
depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depository of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
SHORT SALES AGAINST-THE-BOX
Each Fund may engage in short sales against-the-box in which the Fund sells a
security and contemporaneously must own an equal amount of the securities sold
short; or by virtue of ownership of securities have the right, without payment
of further consideration, to obtain an equal amount of the securities sold
short. When a Fund sells short, it establishes a margin account with the broker
effecting the short sale and deposits collateral with the broker. To make
delivery to the purchaser in a short sale, the broker borrows the securities
sold on behalf of a Fund, and the Portfolio is obligated to replace the
securities borrowed at a date in the future. Each Fund incurs transaction costs,
including interest expense, in connection with short sales against the box. A
Fund may engage in short sales against the box to defer recognition of gain or
loss on the sale of securities to a later tax period. Equity Index Fund and
International Equity Fund may not make short sales against the box if, as a
result, more than 25% of the Fund's total assets would be so invested or such a
position would represent more than 2% of the outstanding voting securities of
any single issuer or class of an issuer.
Pursuant to the Taxpayer Relief Act of 1997, if a Fund has unrealized gain with
respect to a security and enters into a short sale with respect to such
security, the Fund generally will be deemed to have sold the appreciated
security and thus will recognize gain for tax purposes.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities subject to the restrictions stated
in the Prospectus. Under applicable regulatory requirements (which are subject
to change), the loan collateral must: (1) on each business day, at least equal
the market value of the loaned securities; and (2) must consist of cash, bank
letters of credit, U.S. Government securities, or other cash equivalents in
which the Fund is permitted to invest. To be acceptable as collateral, letters
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of credit must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund's investment advisor. When lending portfolio
securities, a Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan plus the interest on the collateral securities (less any finders' or
administrative fees the Fund pays in arranging the loan). A Fund may share the
interest it receives on the collateral securities with the borrower as long as
it realizes at least a minimum amount of interest required by the lending
guidelines established by the Board. A Fund will not lend its portfolio
securities to any officer, director, employee or affiliate of the Fund or the
investment adviser to the Fund. The terms of a Fund's loans must meet certain
tests under the Internal Revenue Code and permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter.
TECHNIQUES INVOLVING LEVERAGE
Use of leverage involves special risks and may involve speculative investment
techniques. The Funds may borrow for other than temporary or emergency purposes,
lend their securities, enter reverse repurchase agreements, and purchase
securities on a when-issued or forward commitment basis. Each of these
transactions involve the use of "leverage" when cash made available to the Fund
through the investment technique is used to make additional portfolio
investments. The Funds use these investment techniques only when the Adviser to
a Fund (or Portfolio, if applicable) 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. Leverage may involve the creation of a liability that requires the Fund to
pay interest (for instance, reverse repurchase agreements) or the creation of a
liability that does not entail any interest costs (for instance, forward
commitment transactions).
The risks of leverage include a higher volatility of the net asset value of a
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. Changes in interest rates and related economic factors could
cause the relationship between the cost of leveraging and the yield to change so
that rates involved in the leveraging arrangement may substantially increase
relative to the yield on the obligations in which the proceeds of the leveraging
have been invested. To the extent that the interest expense involved in
leveraging approaches the net return on a 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 a Fund were not leveraged.
In an extreme case, if a 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.
In order to limit the risks involved in various transactions involving leverage,
the Trust's custodian will set aside and maintain in a segregated account cash
and other liquid securities in accordance with SEC guidelines. The account
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions. The Fund's commitments may include: (1)
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 (2) 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.
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SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the
Portfolio's commitments under these transactions. The use of a segregated
account in connection with leveraged transactions may result in a Fund's
investment portfolio being 100% leveraged.
REPURCHASE AGREEMENTS. Each Fund may invest in securities subject to repurchase
agreements maturing in seven days or less with U.S. banks or broker-dealers. In
a typical repurchase agreement, the seller of a security commits itself at the
time of the sale to repurchase that security from the buyer at a mutually
agreed-upon time and price. The repurchase price exceeds the sale price,
reflecting an agreed-upon interest rate effective for the period the buyer owns
the security subject to repurchase. The agreed-upon rate is unrelated to the
interest rate on that security.
Repurchase agreements allow a Portfolio to earn income on its uninvested cash
for periods as short as overnight, while retaining the flexibility to pursue
longer-term investments. International Equity Fund and may enter into repurchase
agreements with foreign entities.
During the term of a repurchase agreement, each Fund's custodian maintains
possession of the purchased securities and any underlying collateral, which is
maintained at not less than 100% of the repurchase price. Each Fund's investment
adviser will monitor the value of the underlying security at the time the
transaction is entered into and at all times during the term of the repurchase
agreement to insure that the value of the security always equals or exceeds the
repurchase price. In the event of default by the seller under the repurchase
agreement, a Fund may have difficulties in exercising its rights to the
underlying securities and may incur costs and experience time delays in
connection with the disposition of such securities. To evaluate potential risks,
the investment adviser reviews the credit-worthiness of those banks and dealers
with which the Fund enters into repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements, transactions in which the Fund sells a security and simultaneously
commits to repurchase that security from the buyer on an agreed upon future date
and at a price reflecting a market rate of interest unrelated to the sold
security. An investment of a Fund's assets in reverse repurchase agreements will
increase the volatility of the Fund's net asset value per share. A Fund will use
the proceeds of reverse repurchase agreements to fund redemptions or to make
investments.
Generally, a reverse repurchase agreement enables a Fund to recover for the term
of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. In addition, interest costs on the money received
in a reverse repurchase agreement may exceed the return received on the
investments made by a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase or sell
portfolio securities on a "when-issued," "delayed delivery" or "forward
commitment" basis. When-issued securities may be purchased on a "when, as and if
issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. When these transactions are negotiated, the
price is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Funds enter into
these transactions only with the intention of actually receiving securities or
delivering them, as appropriate. The Funds may dispose of the right to acquire
these securities before the settlement date if deemed advisable. During the
period between the time of commitment and settlement, no payment is made for the
securities purchased and no interest or dividends on the securities accrue to
the purchaser. At the time a Fund makes a commitment to purchase securities in
this manner, the Fund immediately assumes the risk of ownership, including price
fluctuation. The use of when-issued transactions and forward commitments enables
a Fund to protect against anticipated changes in interest rates and prices, but
also tends to increase the volatility of the Fund's asset value per share.
Equity Index Fund and International Equity Fund will not purchase securities on
a when-issued, delayed delivery or forward commitment basis if, as a result,
more than 15% of the value of the Fund's total assets would be committed to such
transactions.
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3. ADDITIONAL INVESTMENT POLICIES
The following investment limitations restate or are in addition to those
described under "Investment Objective and Policies" and "Additional Investment
Policies" in the Prospectus. Each Fund that invests in a Portfolio has
substantially the same fundamental investment policies as the Portfolio in which
it invests. Thus, reference to any Fund that invests in a Portfolio generally
refers also to the Portfolio in which that Fund invests.
The Investment Objective and fundamental investment policies of the Fund may not
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. A majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act, means the lesser of: (1)
67% of the shares of the Fund present or represented at a shareholders meeting
at which the holders of more than 50% of the shares are present or represented;
or (2) more than 50% of the outstanding shares of the Fund. Investment policies
are not fundamental unless they are designated as fundamental. Non-fundamental
investment policies may be changed by the Trust's Board of Trustees without
shareholder approval
INVESTORS EQUITY FUND
FUNDAMENTAL POLICIES
DIVERSIFICATION: The Fund may not, with respect to 75% of its assets, purchase a
security if as a result: (1) more than 5% of its assets would be invested in the
securities of any single issuer or (2) the Fund would own more than 10% of the
outstanding voting securities of any single issuer. This restriction does not
apply to securities issued by the U.S. Government, its agencies or
instrumentalities.
CONCENTRATION: The Fund may not purchase a security if, as a result, more than
25% of the Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same industry; provided,
however, there is no limit on investments in U.S. Government Securities,
repurchase agreements covering U.S. Government Securities, municipal securities
and issuers domiciled in a single country; that financial service companies are
classified according to the end users of their services (for example, automobile
finance, bank finance and diversified finance); and that utility companies are
classified according to their services (for example, gas, gas transmission,
electric and gas, electric and telephone. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, the Fund may invest in one or
more investment companies; provided that, except to the extent the Fund invests
in other investment companies pursuant to Section 12(d)(1)(A) of the 1940 Act,
the Fund treats the assets of the investment companies in which it invests as
its own for purposes of this policy.
BORROWING: The Fund may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, but not in excess of 33 1/3% of
the value of each Fund's total assets (as computed immediately after the
borrowing).
REAL ESTATE: The Fund may not purchase or sell real estate, provided that the
Fund may invest in securities issued by companies which invest in real estate or
interests therein.
LENDING: The Fund will not lend money except in connection with the acquisition
of that portion of publicly-distributed debt securities which the Fund's
investment policies and restrictions permit it to purchase; the Fund may also
make loans of portfolio securities and enter into repurchase agreements.
COMMODITIES: The Fund will not invest in commodities or commodity contracts
(other than hedging instruments which it may use as permitted by any of its
other fundamental policies, whether or not any such hedging instrument is
considered to be a commodity or a commodity contract).
UNDERWRITING: The Fund will not underwrite securities issued by other persons
except to the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under U.S. securities laws.
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SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: The Fund may not borrow money or enter into leverage transactions if,
as a result, the total of borrowings and liabilities under leverage transactions
(other than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or otherwise acquire
any security if, the total of borrowings and liabilities under leverage
transactions, would exceed an amount equal to 5% of the Fund's total assets.
LIQUIDITY: The Fund may not invest more than 15% of its net assets in illiquid
assets such as: (i) securities that cannot be disposed of within seven days at
their then-current value, (ii) repurchase agreements not entitling the holder to
payment of principal within seven days and (iii) securities subject to
restrictions on the sale of the securities to the public without registration
under the Securities Act of 1933 (the "1933 Act") ("restricted securities") that
are not readily marketable. The Fund may treat certain restricted securities as
liquid pursuant to guidelines adopted by the Board of Trustees.
LENDING: The Fund may not lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to 33 1/3% of the Fund's total assets,
as determined by SEC guidelines.
EXERCISING CONTROL OF ISSUERS: The Fund may not make investments for the purpose
of exercising control of an issuer. Investments by the Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
SHORT SALES AND MARGIN: The Fund may not sell securities short, unless it owns
or has the right to obtain securities equivalent in kind and amount to the
securities sold short (short sales "against the box"), and provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short. The Fund may not purchase securities on margin, except
that the Fund may use short-term credit for the clearance of the Fund's
transactions, and provided that initial and variation margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
SECURITIES OF INVESTMENT COMPANIES: The Fund may not invest in the securities of
any investment company except to the extent permitted by the 1940 Act.
OPTIONS, WARRANTS AND FUTURES CONTRACTS: The Fund may invest in futures or
options contracts regulated by the CFTC for (i) bona fide hedging purposes
within the meaning of the rules of the CFTC and (ii) for other purposes if, as a
result, no more than 5% of the Fund's net assets would be invested in initial
margin and premiums (excluding amounts "in-the-money") required to establish the
contracts. The Fund (i) will not hedge more than 50% of its total assets by
selling futures contracts, buying put options, and writing call options (so
called "short positions"), (ii) will not buy futures contracts or write put
options whose underlying value exceeds 25% of the Fund's total assets, and (iii)
will not buy call options with a value exceeding 5% of the Fund's total assets.
PLEDGING: The Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings or to secure other permitted
transactions
EQUITY INDEX FUND
FUNDAMENTAL POLICIES
DIVERSIFICATION: The Fund may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of an investment
company) if, as a result: (1) more than 5% of its assets would be invested in
the securities of any single issuer or (2) the Fund would own more than 10% of
the outstanding voting securities of any single issuer.
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CONCENTRATION: The Fund may not purchase a security if, as a result, more than
25% of the Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same industry; provided,
however, that there is no limit on investments in U.S. Government Securities,
repurchase agreements covering U.S. Government Securities, foreign government
securities, mortgage-related or housing-related securities and issuers domiciled
in a single country; that financial service companies are classified according
to the end users of their services (for example, automobile finance, bank
finance and diversified finance); and that utility companies are classified
according to their services (for example, gas, gas transmission, electric and
gas, electric and telephone.
BORROWING: The Fund may borrow money from a bank for temporary or emergency
purposes, including the meeting of redemption requests, but not in excess of 33
1/3% of the value of each Fund's total assets (as computed immediately after the
borrowing).
REAL ESTATE: The Fund may not purchase or sell real estate, any interest therein
or real estate limited partnership interests, except that the Funds may invest
in debt obligations secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein.
LENDING: The Fund may not make loans, except the Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted investments
and lend portfolio securities.
COMMODITIES: The Fund may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities, provided that currency and currency-related contracts and contracts
on indices are not be deemed to be physical commodities.
UNDERWRITING: The Fund may not 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.
SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: Borrowing for other than temporary or emergency purposes of meeting
redemptions requests is limited to 5% of the value of the Fund's net assets.
Where the Fund establishes a segregated account to limit the amount of
leveraging with respect to certain investment techniques, the Fund does not
treat those techniques as involving borrowings for purposes of this limitation.
LIQUIDITY: The Fund may not acquire securities or invest in repurchase
agreements with respect to any securities if, as a result, more than 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 not readily marketable by virtue of restrictions on the sale of such
securities to the public without registration under the 1933 Act, as amended
("restricted securities").
OTHER INVESTMENT COMPANIES: The Fund may not invest in securities of another
investment company, except to the extent permitted by the 1940 Act.
SHORT SALES AND MARGIN: The Fund may not purchase securities on margin or make
short sales of securities (except short sales against the box) except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities. The Fund may make margin deposits in connection with
permitted transactions in options, futures contracts and options on futures
contracts. The Fund may not enter into short sales if, as a result, more than
25% of the value of the Fund's total assets would be so invested m or such a
position would represent more than 2% of the outstanding voting securities of
any single issuer or class of an issuer.
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UNSEASONED ISSUERS: The Fund may not 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; provided, that the Fund
may invest all or a portion of its assets in another diversified, open-end
management company with substantially the same investment objective, policies
and restrictions as the Fund.
PLEDGING: The Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings.
LENDING OF PORTFOLIO SECURITIES: The Fund may not lend portfolio securities if
the total value of all loaned securities would exceed 33 1/3% of the Fund's
total assets.
OPTIONS AND FUTURES CONTRACTS: The Fund may not purchase an option, if, as a
result, more than 5% of the value of the Fund's total assets would be so
invested.
WARRANTS: The Fund may not invest in warrants if; (1) more than 5% of the value
of the Fund's net assets would be invested in warrants (valued at the lower of
cost or market)) or (2) more than 2% of the value of the Fund's net assets would
be invested in warrants which are not listed on the New York Stock Exchange or
American Stock Exchange; provided, that warrants acquired by the Fund attached
to securities are deemed to have no value.
SMALL COMPANY OPPORTUNITIES FUND
DIVERSIFICATION: The Fund may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of an investment
company) if, as a result: (i) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer, or (ii) the Fund would own more
than 10% of the outstanding voting securities of any single issuer.
CONCENTRATION: The Fund may not purchase a security if, as a result, more than
25% of the Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same industry. For
purposes of this limitation, there is no limit on: (i) investments in U.S.
Government securities, in repurchase agreements covering U.S. Government
Securities, in tax-exempt securities issued by the states, territories or
possessions of the United States ("municipal securities") or in foreign
government securities or (ii) investment in issuers domiciled in a single
jurisdiction. Notwithstanding anything to the contrary, to the extent permitted
by the 1940 Act, the Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund treats the
assets of the investment companies in which it invests as its own for purposes
of this policy. For purposes of this policy (i) "mortgage related securities,"
as that term is defined in the Securities Act of 1934 (the "1934 Act"), are
treated as securities of an issuer in the industry of the primary type of asset
backing the security, (ii) financial service companies are classified according
to the end users of their services (for example, automobile finance, bank
finance and diversified finance) and (iii) utility companies are classified
according to their services (for example, gas, gas transmission, electric and
gas, electric and telephone).
BORROWING: The Fund may not borrow money if, as a result, outstanding borrowings
would exceed an amount equal to 33 1/3% of the Fund's total assets. As a
non-fundamental policy and for purposes of this limitation, there is no limit on
the following to the extent they are fully collateralized: (i) the delayed
delivery of purchased securities (such as the purchase of when-issued
securities), (ii) reverse repurchase agreements, (iii) dollar-roll transactions
and (iv) the lending of securities ("leverage transactions").
21
<PAGE>
REAL ESTATE: The Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate business).
LENDING: The Fund may not make loans to other parties. For purposes of this
limitation, entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of loans.
COMMODITIES: The Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments (but this
shall not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities).
UNDERWRITING: The Fund may not underwrite (as that term is defined in the 1933
Act) securities issued by other persons except, to the extent that in connection
with the disposition of the Fund's assets, the Fund may be deemed to be an
underwriter.
SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: The Fund may not borrow money or enter into leverage transactions if,
as a result, the total of borrowings and liabilities under leverage transactions
(other than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or otherwise acquire
any security if, the total of borrowings and liabilities under leverage
transactions, would exceed an amount equal to 5% of the Fund's total assets.
(Non-Fundamental
LENDING: The Fund may not lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to 33 1/3% of the Fund's total assets,
as determined by SEC guidelines.
LIQUIDITY: The Fund may not invest more than 15% its net assets in illiquid
assets such as: (i) securities that cannot be disposed of within seven days at
their then-current value, (ii) repurchase agreements not entitling the holder to
payment of principal within seven days and (iii) securities subject to
restrictions on the sale of the securities to the public without registration
under the 1933 Act ("restricted securities") that are not readily marketable.
The Fund may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board of Trustees.
EXERCISING CONTROL OF ISSUERS: The Fund may not make investments for the purpose
of exercising control of an issuer. Investments by the Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
SHORT SALES AND MARGIN: The Fund may not sell securities short, unless it owns
or has the right to obtain securities equivalent in kind and amount to the
securities sold short (short sales "against the box"), and provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short. The Fund may not purchase securities on margin, except
that the Fund may use short-term credit for the clearance of the Fund's
transactions, and provided that initial and variation margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
SECURITIES OF INVESTMENT COMPANIES: The Fund may not invest in the securities of
any investment company except to the extent permitted by the 1940 Act.
OPTIONS, WARRANTS AND FUTURES CONTRACTS: The Fund may invest in futures or
options contracts regulated by the CFTC for (i) bona fide hedging purposes
within the meaning of the rules of the CFTC and (ii) for other purposes if, as a
result, no more than 5% of the Fund's net assets would be invested in initial
margin and premiums (excluding amounts "in-the-money") required to establish the
contracts. The Fund (i) will not hedge more than 50% of its total assets by
selling futures contracts, buying put options, and writing call options (so
called "short positions"), (ii) will
22
<PAGE>
not buy futures contracts or write put options whose underlying value exceeds
25% of the Fund's total assets, and (iii) will not buy call options with a value
exceeding 5% of the Fund's total assets.
INTERNATIONAL EQUITY FUND
FUNDAMENTAL POLICIES
DIVERSIFICATION: The Fund may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of an investment
company) if, as a result: (1) more than 5% of its assets would be invested in
the securities of any single issuer or (2) the Fund would own more than 10% of
the outstanding voting securities of any single issuer.
CONCENTRATION: The Fund may not purchase a security 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 conducting their principal business
activities in the same industry; provided, however, that there is no limit on
investments in U.S. Government Securities, repurchase agreements covering U.S.
Government Securities and issuers domiciled in a single country; that financial
service companies are classified according to the end users of their services
(for example, automobile finance, bank finance and diversified finance); and
that utility companies are classified according to their services (for example,
gas, gas transmission, electric and gas, electric and telephone).
BORROWING: The Fund may borrow money from a bank for temporary or emergency
purposes, including the meeting of redemption requests, but not in excess of 33
1/3% of the value of each Fund's total assets (as computed immediately after the
borrowing).
REAL ESTATE: The Fund may not purchase or sell real estate, any interest therein
or real estate limited partnership interests, except that the Fund may invest in
debt obligations secured by real estate or interests therein or securities
issued by companies that invest in real estate or interests therein.
LENDING: The Fund may not make loans , except the Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted investments
and lend portfolio securities.
COMMODITIES: The Fund may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities, provided that currency and currency-related contracts and contracts
on indices will not be deemed to be physical commodities.
UNDERWRITING: The Fund may not 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.
SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: Borrowing for other than temporary or emergency purposes of meeting
redemptions requests is limited to 5% of the value of the Fund's net assets.
Where the Fund establishes a segregated account to limit the amount of
leveraging of the Fund with respect to certain investment techniques, the Fund
does not treat those techniques as involving borrowings for purposes of this
limitation.
LIQUIDITY: The Fund may not acquire securities or invest in repurchase
agreements with respect to any securities if, as a result, more than 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
23
<PAGE>
by virtue of restrictions on the sale of such securities to the public without
registration under the 1933 Act, as amended ("restricted securities").
LENDING: The Fund may not lend portfolio securities if the total value of all
loaned securities would exceed 331/3% of the Fund's total assets.
OTHER INVESTMENT COMPANIES: The Fund may not invest in securities of another
investment company, except to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES: The Fund may not purchase securities on margin or make
short sales of securities (except short sales against the box) except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities. The Fund may make margin deposits in connection with
permitted transactions in options and futures contracts. The Fund may not enter
into short sales if, as a result, more than 25% of the value of the Fund's total
assets would be so invested m or such a position would represent more than 2% of
the outstanding voting securities of any single issuer or class of an issuer.
UNSEASONED ISSUERS: The Fund may not 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.
PLEDGING: The Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings.
OPTIONS AND FUTURES CONTRACTS: The Fund may not purchase an option, if, as a
result, more than 5% of the value of the Fund's total assets would be so
invested.
WARRANTS: The Fund may not invest in warrants if; (1) more than 5% of the value
of the Fund's net assets would be invested in warrants (valued at the lower of
cost or market)) or (2) more than 2% of the value of the Fund's net assets would
be invested in warrants which are not listed on the New York Stock Exchange or
American Stock Exchange; provided, that warrants acquired by the Fund attached
to securities are deemed to have no value.
EMERGING MARKETS FUND
FUNDAMENTAL POLICIES
INDUSTRY CONCENTRATION: The Fund may not purchase a security if, as a result,
more than 25% of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the same industry. For
purposes of this limitation, there is no limit on: (1) investments in U.S.
government securities, in repurchase agreements covering U.S. government
securities, in securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign government securities;
or (2) investment in issuers domiciled in a single jurisdiction. Notwithstanding
anything to the contrary, to the extent permitted by the 1940 Act, each Fund may
invest in one or more investment companies; provided that, except to the extent
the Fund invests in other investment companies pursuant to Section 12(d)(1)(A)
of the 1940 Act, the Fund treats the assets of the investment companies in which
it invests as its own for purposes of this policy.
BORROWING: The Fund may not borrow money if, as a result, outstanding borrowings
would exceed an amount equal to one third of the Fund's total assets. Borrowing
for other than temporary or emergency purposes or meeting redemption requests is
not expected to exceed 5% of the value of the Fund's assets. Certain
transactions, such as reverse repurchase agreements, that are similar to
borrowings are not treated as borowings to the extent that they are fully
collateralized.
24
<PAGE>
REAL ESTATE: The Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate business).
LENDING: The Fund may not make loans to other parties. For purposes of this
limitation, entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of loans.
COMMODITIES: The Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments (but this
shall not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities).
UNDERWRITING: The Fund may not underwrite (as that term is defined in the 1933
Act, as amended) securities issued by other persons except, to the extent that
in connection with the disposition of the Fund's assets, the Fund may be deemed
to be an underwriter.
SENIOR SECURITIES: The Fund may not issue any class of senior securities except
to the extent consistent with the 1940 Act.
NON-FUNDAMENTAL RESTRICTIONS: The following investment restrictions are not
fundamental policies of the Fund.
DIVERSIFICATION: To the extent required to qualify as a regulated investment
company under the Code, the Fund may not purchase a security (other than a U.S.
government security or a security of an investment company) if, as a result, (1)
with respect to 50% of its assets, more than 5% of the Portfolio's total assets
would be invested in the securities of any single issuer; (2) with respect to
50% of its assets, the Fund would own more than 10% of the outstanding
securities of any single issuer; or (3) more than 25% of the Portfolio's total
assets would be invested in the securities of any single issuer.
BORROWING: For purposes of the Fund's limitation on borrowing, the following are
not treated as borrowings to the extent they are fully collateralized: (1) the
delayed delivery of purchased securities (such as the purchase of when-issued
securities); (2) reverse repurchase agreements; (3) dollar-roll transactions;
and (5) the lending of securities ("leverage transactions").
LIQUIDITY: The Fund may not invest more than 15% of its net assets in: (1)
securities that cannot be disposed of within seven days at their then-current
value; (2) repurchase agreements not entitling the holder to payment of
principal within seven days; and (3) securities subject to restrictions on the
sale of the securities to the public without registration under the 1933 Act
("restricted securities") that are not readily marketable.
EXERCISING CONTROL OF ISSUERS: The Fund may not make investments for the purpose
of exercising control of an issuer. Investments by the Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
OTHER INVESTMENT COMPANIES: The Fund may not invest in securities of another
investment company, except to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES: The Fund purchase securities on margin, except that the
Portfolio may use short-term credit for the clearance of the Portfolio's
transactions, and provided that initial and variation margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin. The Fund may not sell securities
short, unless it owns or has the right to obtain securities equivalent in kind
and amount to the securities sold short (short sales "against the box"), and
provided that transactions in futures contracts and options are not deemed to
constitute selling securities short.
25
<PAGE>
4. 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. Each Fund's net asset value, yield and total return
will fluctuate in response to market conditions and other factors, and the value
of Fund shares when redeemed may be more or less than their original cost.
For the period beginning December 24, 1997 (the commencement of operations) to
May 31, 1998, Equity Index Fund, International Equity Fund, and Emerging Markets
Equity Fund, respectively, had unannualized total returns of 12.22%, 15.39%, and
(10.91%). For the period beginning December 17, 1997 (the commencement of
operations) to May 31, 1998, Investors Equity Fund had an unannualized total
return of 9.73%. For the period of March 31, 1998 (the commencement of
operations) to May 31, 1998, Small Company Opportunities Fund had an
unannualized total return of (6.88%). The total return figures take into
consideration the applicable maximum sales charge.
In performance advertising a 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"). A 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 Standard & Poor's 500 Composite Stock Price Index, the Dow
Jones Industrial Average, the Salomon Brothers Bond Index, the Shearson Lehman
Bond Index, U.S. Treasury bonds, bills or notes and changes in the Consumer
Price Index as published by the U.S. Department of Commerce. The Funds may refer
to general market performances over past time periods such as those published by
Ibbotson Associates. In addition, the Funds may refer in such materials to
mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of the Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Funds may, from time to time, include quotations of its average annual total
return in advertisements or reports to shareholders or prospective investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a Fund
over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:
P (1+T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of Fund expenses (net of certain
reimbursed expenses) on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Quotations of total return will reflect only the performance of a hypothetical
investment in a Fund during the particular time period shown. Total return for a
Fund will vary based on changes in market conditions and the level of the Fund's
expenses, and no reported performance figure should be considered an indication
of performance which may be expected in the future.
In connection with communicating total return to current or prospective
investors, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to other unmanaged
26
<PAGE>
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
In addition to average annual total returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments and/or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted with or without taking into consideration a
Fund's front-end sales charge; excluding sales charges from a total return
calculation produces a higher return figure. 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.
Investors who purchase and redeem shares of a Fund through a customer account
maintained at a Service Organization may be charged one or more of the following
types of fees as agreed upon by the Service Organization and the investor, with
respect to the customer services provided by the Service Organization: account
fees (a fixed amount per month or per year); transaction fees (a fixed amount
per transaction processed); compensating balance requirements (a minimum dollar
amount a customer must maintain in order to obtain the services offered); or
account maintenance fees (a periodic charge based upon a percentage of the
assets in the account or of the dividends paid on these assets). Such fees will
have the effect of reducing the average annual total return of the Fund for
those investors.
OTHER ADVERTISING MATTERS
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Funds' Adviser and biographical descriptions of the management staff of the
Adviser; (7) summaries of the views of the Adviser with respect to the financial
markets; (8) background information regarding the Trust; (9) the results of a
hypothetical investment in a fund over a given number of years, including the
amount that the investment would be at the end of the period; (10) the effects
of investing in a tax-deferred account, such as an individual retirement account
or Section 401(k) pension plan; and (11) the net asset value, net assets or
number of shareholders of the Funds as of one or more dates.
27
<PAGE>
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
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,* Trustee, Chairman and President (age 55)
President, Forum Financial Group, LLC (mutual fund services company
holding company). Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
Costas Azariadis, Trustee (age 55)
Professor of Economics, University of California, Los Angeles, since
July 1992. His address is Department of Economics, University of
California, Los Angeles, 405 Hilgard Avenue, Los Angeles, California
90024.
James C. Cheng, Trustee (age 56)
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. His address is 27 Temple Street,
Belmont, Massachusetts 02178.
J. Michael Parish, Trustee (age 54)
Partner at the law firm of Reid and Priest, LLP, since 1995. Prior
thereto, he was a partner at the law firm of Winthrop Stimson Putnam &
Roberts from 1989 to 1995. His address is 40 West 57th Street, New
York, New York 10019.
Mark D. Kaplan, Vice President, Assistant Treasurer and Assistant Secretary
(age 43)
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.
Stacey Hong, Treasurer (age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Mr. Hong also serves as an
officer of other registered investment companies for which the Forum
Financial Group of Companies provides services. His address is Two
Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Secretary (age 34)
Assistant Counsel, Forum Financial Group, LLC with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the Forum Financial Group of Companies provides services. Her
address is Two Portland Square, Portland, Maine 04101.
28
<PAGE>
Pamela Stutch, Assistant Secretary (age 31)
Fund Administrator, Forum Financial Group, LLC with which she has been
associated since May 1998. Prior thereto, Ms. Stutch attended Temple
University School of Law and graduated in 1997. Ms. Stutch was also a
legal intern for the Maine Department of the Attorney General. Ms.
Stutch also serves as an officer of other registered investment
companies for which the Forum Financial Group of Companies provides
services. 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 May 31, 1998, 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.
The following table provides the aggregate compensation paid to each independent
Trustee. The Trust has not adopted any form of retirement plan covering Trustees
or officers. Information is presented for the fiscal year ended May 31, 1998.
<TABLE>
<S> <C> <C> <C> <C>
ACCRUED ANNUAL
AGGREGATE PENSION BENEFITS UPON TOTAL
TRUSTEE COMPENSATION BENEFITS RETIREMENT COMPENSATION
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $640.69 None None $640.69
Mr. Cheng $649.69 None None $640.69
Mr. Parish $649.69 None None $640.69
</TABLE>
THE PORTFOLIOS
TRUSTEES AND OFFICERS OF CORE TRUST. The Trustees and officers of Core Trust and
their principal occupations during the past five years and ages are set forth
below. Each Trustee who is an "interested person" (as defined by the 1940 Act)
of Core Trust is indicated by an asterisk. Messrs. Keffer, Azariadis, Cheng and
Parish, Trustees of Core Trust, and Mr. Goldstein, Secretary of Core Trust, all
currently serve as Trustees and/or officers of the Trust. Accordingly, for
background information pertaining to these Trustees, see "Management - Trustees
and Officers -The Trust."
John Y. Keffer,* Chairman and President.
Costas Azariadis, Trustee.
James C. Cheng, Trustee.
J. Michael Parish, Trustee.
Thomas G. Sheehan, Vice President (age 43)
Managing Director, Forum Financial Group, LLC with which he has been
associated since October 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr.
Sheehan also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. His address is Two Portland Square, Portland, Maine
04101.
29
<PAGE>
Stacey Hong, Treasurer.
David I. Goldstein, Vice President and Secretary (age 37)
General Counsel, Forum Financial Group, LLC with which he has been
associated since 1991. Mr. Goldstein also serves as an officer of other
registered investment companies for which the Forum Financial Group of
Companies provides services. His address is Two Portland Square,
Portland, Maine 04101.
Pamela J. Wheaton, Assistant Treasurer (age 39)
Senior Manager, Fund Accounting, Forum Financial Group, LLC with which
she has been associated since April 1989. Ms. Wheaton also serves as an
officer of other registered investment companies for which the Forum
Financial Group of Companies provides services. Her address is Two
Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary.
Pamela Stutch, Assistant Secretary.
The following information relates to the principal occupations during the past
five years of each trustee and executive officer of Schroder Core and shows the
nature of any affiliation with SCMI. Except as noted, each of these individuals
currently serves in the same capacity for Schroder Capital Funds (Delaware),
Schroder Capital Funds II and Schroder Series Trust, other registered investment
companies in the Schroder family of funds. If no address is shown, the person's
address is that of the Trust, Two Portland Square. Portland, Maine 04101.
Peter E. Guernsey (age 75), Trustee of Schroder Core
Insurance Consultant since August 1986. His address is Schroder Core,
Two Portland Square, Portland, Maine.
John I. Howell (age 80), Trustee of Schroder Core
Private Consultant since February 1987; Honorary Director, American
International Group, Inc.; Director, American International Life
Assurance Company of New York. His address is c/o Schroder Core, Two
Portland Square, Portland, Maine.
Clarence F. Michalis (age 75), Trustee of Schroder Core
Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation). His address is c/o Schroder Core, Two
Portland Square, Portland, Maine.
Hermann C. Schwab (age 77), Chairman and Trustee of Schroder Core
Retired since March, 1988. His address is c/o Schroder Core, Two
Portland Square, Portland, Maine.
Peter S. Knight (age 46), Trustee of Schroder Core
Partner, Wunder, Knight, Levine, Thelen & Forcey; Director, Comsat
Corp., Medicis Pharmaceutical Corp., and Whitman Education Group Inc.,
Formerly, Campaign Manager, Clinton/Gore `96. His address is c/o
Schroder Core, Two Portland Square, Portland, Maine
Hon. David N. Dinkins (age 69), Trustee of Schroder Core
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<PAGE>
Professor, Columbia University School of International and Public
Affairs; Director, American Stock Exchange, Carver Federal Savings
Bank, Transderm Laboratory Corporation, and The Cosmetic Center, Inc.;
formerly, Mayor, The City of New York. His address is c/o Schroder
Core, Two Portland Square, Portland, Maine
Sharon L. Haugh* (age 51), Trustee of Schroder Core
Chairman, Schroder Capital Management Inc. ("SCM"); Executive Vice
President and Director, SCMI; Chairman and Director, Schroder
Advisors. Her address is 787 Seventh Avenue, New York, New York.
Mark J. Smith* (age 35), President and Trustee of Schroder Core
Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors. His address is 33 Gutter
Lane, London, England.
Mark Astley (age 33), - Vice President of Schroder Core
First Vice President of SCMI; prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and
portfolio management areas since 1987. His address is 787 Seventh
Avenue, New York, New York.
Robert G. Davy (age 36), - Vice President of Schroder Core
Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior
thereto, employed by various affiliates of SCMI in various positions
in the investment research and portfolio management areas since 1986.
His address is 787 Seventh Avenue, New York, New York.
Margaret H. Douglas-Hamilton (age 55), Vice President of Schroder Core
Secretary of SCM since July 1995; Senior Vice President (since April
1997) and General Counsel of Schroders U.S. Holdings Inc. since May
1987; prior thereto, partner of Sullivan & Worcester, a law firm. Her
address is 787 Seventh Avenue, New York, New York.
Richard R. Foulkes (age 51), Vice President of Schroder Core;
Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd. since
1989. His address is 787 Seventh Avenue, New York, New York.
Fergal Cassidy (age 28), Treasurer of Schroder Core
Acting Controller and Assistant Vice President of SCM and SCMI since
September 1997; Assistant Vice President of SCM and SCMI from April
1997 to September 1997; Associate, SCMI, from August 1995 to March
1997; prior thereto, Senior Accountant of Concurrency Mgmt, Greenwich,
Connecticut from November 1994 to August 1995; and Senior Accountant,
Schroder Properties, London from September 1990 to November 1993. His
address is 787 Seventh Avenue, New York, New York.
John Y. Keffer, Vice President of Schroder Core
Jane P. Lucas (age 35), Vice President of Schroder Core
Director and Senior Vice President SCMI; Director of SCM since
September 1995; Director of Schroder Advisors since September 1996;
Assistant Director Schroder Investment Management Ltd. since June
1991. Her address is 787 Seventh Avenue, New York, New York.
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<PAGE>
Catherine A. Mazza (age 37), Vice President of Schroder Core
President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing
positions at Alliance Capital, an investment adviser, since July 1985.
Her address is 787 Seventh Avenue, New York, New York.
Alan Mandel (age 41), Assistant Treasurer of Schroder Core
Vice President of SCMI since September 1998; prior thereto, Director
of Mutual Fund Administration for Salomon Brothers Asset Management
since 1995; prior thereto, Chief Financial Officer and Vice President
of Mutual Capital Management since 1991. His address is 787 Seventh
Avenue, New York, New York.
Carin Muhlbaum (age 36), Assistant Secretary of Schroder Core
Vice President of SCMI since 1998; prior thereto, an investment
management attorney at Seward & Kissel since 1998; prior thereto, an
investment management attorney with Gordon Altman Butowsky Weitzen
Shalov & Wein since 1989. Her address is 787 Seventh Avenue, New York,
New York.
Michael Perelstein (age 41), Vice President of Schroder Core
Director since May 1997 and Senior Vice President of SCMI since January
1997; prior thereto, Managing Director of MacKay - Shields Financial
Corp. His address is 787 Seventh Avenue, New York, New York.
Alexandra Poe (age 37), - Secretary and Vice President of Schroder Core
Vice President of SCMI since August 1996; Fund Counsel and Senior Vice
President of Schroder Advisors since August 1996; Secretary of Schroder
Advisors; prior thereto, an investment management attorney with Gordon
Altman Butowsky Weitzen Shalov & Wein since July 1994; prior thereto
counsel and Vice President of Citibank, N.A. since 1989. Her address is
787 Seventh Avenue, New York, New York.
Fariba Talebi (age 36), Vice President of the Trust
Group Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas
since 1987; Director of SCM since April 1997. Her address is 787
Seventh Avenue, New York, New York.
John A. Troiano (age 38), Vice President of Schroder Core
Director of SCMI since April 1997; Chief Executive Officer, since July
1, 1997, of SCMI and Managing Director and Senior Vice President of
SCMI since October 1995; prior thereto, employed by various affiliates
of SCMI in various positions in the investment research and portfolio
management areas since 1981. His address is 787 Seventh Avenue, New
York, New York.
Ira L. Unschuld (age 31), Vice President of Schroder Core
Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993. His address is 787 Seventh Avenue, New York, New
York.
Nicholas Rossi (age 35), Assistant Secretary of Schroder Core
Associate of SCMI since October 1997 and Assistant Vice President
Schroder Advisors since March 1998; prior thereto Mutual Fund
Specialist, Willkie Farr & Gallagher since May 1996; prior thereto,
32
<PAGE>
Fund Administrator with Furman Selz LLC since 1992. His address is 787
Seventh Avenue, New York, New York.
Thomas G. Sheehan, Assistant Treasurer and Assistant Secretary of Schroder Core
Cheryl O. Tumlin (age 32), Assistant Treasurer and Assistant Secretary of
Schroder Core
Assistant Counsel, Forum Financial Group, LLC since July 1996. Prior
thereto, Ms. Tumlin was an attorney with the U.S. Securities and
Exchange Commission, Division of Market Regulation. Her address is Two
Portland Square, Portland, Maine 04101.
THE INVESTMENT ADVISERS
INVESTORS EQUITY FUND
Pursuant to an Investment Advisory Agreement with the Trust, Payson serves as
investment adviser to Investors Equity Fund. Payson furnishes, at its own
expense, all services, facilities and personnel necessary in connection with
managing of the Fund's investments and effecting portfolio transactions for the
Fund. The Investment Advisory Agreement provides for an initial term of two
years from its effective date and shall continue in effect for successive twelve
month periods thereafter, provided that the Investment Advisory Agreement is
specifically approved at least annually (1) by the Board or by vote of the
majority of the Fund's shareholders, and, in either case, (2) by a majority of
the directors who are not party to the Investment Advisory Agreement or interest
persons of any such party (other than as trustees of the Trust).
The Investment Advisory Agreement is terminable without penalty by the Trust on
60 days' written notice when authorized either by vote of a majority of the
Fund's shareholders or directors, or by Payson on 60 days' written notice, and
will automatically terminate in the event of its assignment. The Investment
Advisory Agreement also provides that, with respect to the Fund, Payson shall
not be liable for any action or inaction except error of judgment or mistake of
law or for any act or omission in the performance of its duties to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties under the Investment Advisory Agreement. The Investment Advisory
Agreement provides that the Adviser may render services to others.
For its services, Payson receives an advisory fee at an annual rate of 0.65% of
Investor Equity Fund's average daily net assets. The following table shows the
dollar amount of fees payable to Payson for services rendered to the Fund under
the Investment Advisory Agreement, the amount of fees that was waived by Payson,
if any, and the actual fees received by Payson.
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $44,695 $30,943 $13,752
Payson has entered into an investment subadvisory agreement with Peoples to
exercise certain investment discretion over the assets (or a portion of assets)
of Investors Equity Fund. Subject to the general supervision of the Board,
Peoples is responsible for, among other things, developing a continuing
investment program for Investors Equity Fund in accordance with its investment
objective and reviewing the investment strategies and policies of Investors
Equity Fund. Peoples , located at One Portland Square, Portland, Maine 04101, is
a subsidiary of Peoples Heritage Financial Group, a multi-bank holding company.
As of June 30, 1998, Peoples Heritage Financial Group had assets of
approximately $9.8 billion and Peoples Heritage and its affiliates managed
assets with a value of approximately $939 million. Payson pays a fee to Peoples
for its subadviser services of 0.25% of Investors Equity Fund's average daily
net assets. This fee is borne solely by Payson and does not increase the fee
paid by shareholders of Investors Equity Fund.
33
<PAGE>
SMALL COMPANY OPPORTUNITIES FUND
Pursuant to an Investment Advisory Agreement with the Trust, Forum Advisors
serves as adviser to Small Company Opportunities Fund. Forum Advisors furnishes,
at its own expense, all services, facilities and personnel necessary in
connection with managing of the Fund's investments and effecting portfolio
transactions for the Fund. The Investment Advisory Agreement provides for an
initial term of two years from its effective date and shall continue in effect
for successive twelve month periods thereafter, provided that the Investment
Advisory Agreement is specifically approved at least annually (1) by the Board
or by vote of the majority of the Fund's shareholders, and, in either case, (2)
by a majority of the directors who are not parties to the Investment Advisory
Agreement or interest persons of any such parties.
The Investment Advisory Agreement is terminable without penalty by the Trust on
60 days' written notice when authorized either by vote of a majority of its
shareholders or directors, or by the Adviser on not more than 60 days' written
notice, and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that, with respect to the Fund,
Forum Advisors shall not be liable for any error of judgment or mistake of law
or in any event whatsoever, except for willful misfeasance, bad faith, reckless
disregard, or gross negligence in the performance of its duties under the
Investment Advisory Agreement. The Investment Advisory Agreement provides that
Forum Advisors may render services to others.
Small Company Opportunities Fund invests its assets in four separate portfolios
of Core Trust: Small Cap Index Portfolio, Small Company Stock Portfolio, Small
Company Value Portfolio and Small Cap Value Portfolio.
Pursuant to an Investment Advisory Agreement with Core Trust, Norwest provides
investment advisory services to each of these Portfolios. The Investment
Advisory Agreement provides for an initial term of two years from its effective
date and shall continue in effect for successive twelve month periods
thereafter, provided that the Investment Advisory Agreement is specifically
approved at least annually (1) by the Core Trust Board or by vote of the
majority of a Portfolio's shareholders, and, in either case, (2) by a majority
of the directors who are not parties to the Investment Advisory Agreement or
interest persons of any such parties.
The Investment Advisory Agreement is terminable without penalty by Core Trust on
60 days' written notice when authorized either by vote of a majority of its
shareholders or directors, or by the Adviser on not more than 60 days' written
notice, and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that, with respect to a Portfolio,
Norwest shall not be liable for any mistake of judgment, except for willful
misfeasance, bad faith, reckless disregard, or gross negligence in the
performance of its duties under the Investment Advisory Agreement. The
Investment Advisory Agreement provides that Norwest may render services to
others.
For its services with respect to the Portfolios, Norwest receives an advisory
fee at an annual rate of 0.90% of the average daily net assets of Small Company
Stock Portfolio and Small Company Value Portfolio, 0.95% of the average daily
net assets of Small Cap Portfolio, and 0.25% of the average daily net assets of
the Small Cap Index Portfolio. The Small Company Opportunities Fund bears its
pro rata portion of the advisory fees for each Portfolio in which it invests.
For its services, Forum Advisors receives an advisory fee at an annual rate of
0.25% of Small Company Opportunities Fund's average daily net assets. The
following table shows the gross fees payable for advisory services rendered, the
amount of advisory fees waived, if any, and the actual advisory fees paid by the
Fund.
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $9 $2 $7
To assist Norwest in carrying out its obligations, Norwest has retained the
services of the investment subadvisers described below. Each investment
subadviser makes investment decisions for the Portfolio to which it serves as
investment subadviser and continually reviews, supervises and administers the
Portfolio's investment program with
34
<PAGE>
respect to that portion, if any, of the Portfolio's assets that Norwest believes
should be managed by the investment subadviser. Currently, each investment
subadviser manages all of the assets of the Portfolio that it subadvisers.
Norwest (and not the Portfolios) pay each investment subadviser a fee for its
investment subadvisory services. This compensation does not increase the amount
paid by the Portfolios to Norwest for investment advisory services.
Crestone, which is located at 7720 East Belleview Avenue, Suite 220, Englewood,
Colorado 80111, serves as investment subadviser to Small Company Stock
Portfolio. Crestone, an indirect investment subsidiary of Norwest Bank
Minnesota, N.A., provides investment advice regarding companies with small
market capitalization to various clients, including institutional investors. As
of June 30, 1998, Crestone managed assets with a value of approximately $325
million.
Peregrine, which is located at LaSalle Plaza, 800 LaSalle Avenue, Suite 1850,
Minneapolis, Minnesota 55402, serves as investment subadviser to Small Company
Value Portfolio. Peregrine, an indirect investment advisory subsidiary of
Norwest Bank, provides investment advisory services to corporate and public
pension plans, profit-sharing plans, savings-investment plans and 401(k) plans.
As of June 30, 1998, Peregrine managed approximately $5.8 billion in assets.
Smith, which is located at 500 Crescent Court, Suite 250, Dallas, Texas 75201,
is a registered investment adviser. Smith, an investment advisory affiliate of
Norwest Bank, provides investment management services to company retirement
plans, foundations, endowments, trust companies and high net worth individuals
using a disciplined equity style. As of June 13, 1998, Smith managed over
approximately $634 million in assets.
EQUITY INDEX FUND
Equity Index Fund invests its assets in Index Portfolio, a series of Core Trust.
Pursuant to an Investment Advisory Agreement with Core Trust, Norwest provides
investment advisory services to Index Portfolio. The Investment Advisory
Agreement provides for an initial term of two years from its effective date and
shall continue in effect for successive twelve month periods thereafter,
provided that the Investment Advisory Agreement is specifically approved at
least annually (1) by the Board or by vote of the majority of a Portfolio's
shareholders, and, in either case, (2) by a majority of the directors who are
not parties to the Investment Advisory Agreement or interest persons of any such
parties.
The Investment Advisory Agreement is terminable without penalty by Core Trust on
60 days' written notice when authorized either by vote of a majority of its
shareholders or directors, or by the Adviser on not more than 60 days' written
notice, and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that, with respect to the Portfolio,
Norwest shall not be liable for any mistake of judgment, except for willful
misfeasance, bad faith, reckless disregard, or gross negligence in the
performance of its duties under the Investment Advisory Agreement. The
Investment Advisory Agreement provides that Norwest may render services to
others.
For its services with respect to the Portfolio, Norwest receives an advisory fee
at an annual rate of 0.15% of the average daily net assets of Index Portfolio.
Equity Index Fund bears a pro rata portion of the advisory fees for Index
Portfolio. For its services, Forum Advisors receives an advisory fee at an
annual rate of 0.25% of Small Company Opportunities Fund's average daily net
assets. The following table shows the gross fees payable for advisory services
rendered, the amount of advisory fees waived, if any, and the actual advisory
fees paid by the Fund
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $2,990 $0 $2,990
35
<PAGE>
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS FUND
International Equity Fund invests its assets in International Portfolio, a
series of Core Trust. Emerging Markets Fund invests its assets in Schroder EM
Core Portfolio, a series of Schroder Capital Funds. Pursuant to separate
Investment Advisory Agreements with Core Trust and Schroder Capital Funds, SCMI
serves as the adviser to both International Portfolio and Schroder EM Core
Portfolio. SCMI, the investment adviser to the Schroder Core Portfolios, is a
wholly owned U.S. subsidiary of Schroder U.S. Holdings Inc., which engages
through its subsidiary firms in the investment banking, asset management, and
securities businesses. Affiliates of Schroders U.S. Holdings Inc. (or their
predecessors) have been investment managers since 1927. SCMI and its United
Kingdom affiliate, Schroder Capital Management International, Ltd., have served
together as investment manager for approximately $28 billion as of September 30,
1997. Schroders U.S. Holdings Inc. is an indirect, wholly owned U.S. subsidiary
of Schroders plc, a publicly owned holding company organized under the laws of
England. Schroders plc and its affiliates engage in international merchant
banking and investment management businesses, and as of September 30, 1997, had
under management assets of over $175 billion. Schroder Advisors is a wholly
owned subsidiary of Schroder Capital Management International Inc. As investment
adviser, SCMI is entitled to monthly advisory fees at the annual rates of 1.00%
and 0.45%, respectively, of Schroder EM Core Portfolio's and International
Portfolio's average daily net assets.
The Investment Advisory Agreements between SCMI and Core Trust and SCMI and
Schroder Capital Funds each provide for an initial term of two years from its
effective date and shall continue in effect for successive twelve month periods
thereafter, provided that the Investment Advisory Agreement is specifically
approved at least annually (1) by their respective Boards or by vote of the
majority of a Portfolio's shareholders, and, in either case, (2) by a majority
of their respective directors who are not parties to the Investment Advisory
Agreement or interest persons of any such parties.
Each Investment Advisory Agreement is terminable without penalty by the
applicable Board on 60 days' written notice when authorized either by vote of a
majority of a Portfolios shareholders or directors, or by SCMI on 60 days'
written notice, and will automatically terminate in the event of its assignment.
The Investment Advisory Agreements also provide that, with respect to a
Portfolio, SCMI shall not be liable for any mistake of judgment or any event
whatsoever, except for willful misfeasance, bad faith, reckless disregard, or
gross negligence in the performance of its duties under the Investment Advisory
Agreements. The Investment Advisory Agreements provide that SCMI may render
services to others.
For its services with respect to the Portfolios, SCMI receives an advisory fee
at an annual rate of 1.00% of the average daily net assets of Schroder EM Core
Portfolio and 0.45% of the average daily net assets of International Portfolio.
Emerging Markets Fund and International Equity Fund bears a pro rata proportion
of advisory fees of the Portfolios in which they invest. The following table
shows the gross fees payable for advisory services rendered, the amount of
advisory fees waived, if any, and the actual advisory fees paid by the Fund.
EMERGING MARKETS FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $31 $28 $3
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $15 $1 $14
36
<PAGE>
THE ADMINISTRATOR
THE FUNDS
Pursuant to an Administrative Agreement with the Trust, Forum Administrative
Services, LLC ("FAdS") acts as administrator of the Funds. As administrator,
FAdS provides management and administrative services necessary to the operation
of the Trust (which include, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent and custodian and arranging for maintenance of books and records
of the Trust), and provides the Trust with general office facilities. At the
request of the Board, FAdS provides persons satisfactory to the Board to serve
as officers of the Trust. Those officers as well as certain other employees and
Trustees of the Trust, may be directors, officers or employees of FAdS, Forum
Advisors, Norwest, SCMI, Payson, Peoples or their affiliates.
The Administration Agreement will remain in effect for a period of twelve months
with respect to a Fund and will continue in effect thereafter only if it is
specifically reapproved annually (1) by the Board or by majority vote of the
shareholders of a Fund and (2) by vote of a majority of the Trustees of the
Trust who are not party to the Administrative Agreement or interested persons of
any such party (other than as Trustees of the Trust).
The Administration Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to the Fund by vote of the Board or
by FAdS on 60 days' written notice. The Administration Agreement also provides
that FAdS shall not be liable for any action or inaction except for willful
misfeasance, bad faith, reckless disregard, or gross negligence in the
performance of its duties under the Administration Agreement.
For its administrative services, FAdS receives a fee at an annual rate of 0.20%
of a Fund's average daily net assets.
THE CORE TRUST PORTFOLIOS
Pursuant to an Administrative Agreement with Core Trust, Forum Administrative
Services, LLC ("FAdS") acts as administrator of the Portfolios. As
administrator, FAdS provides management and administrative services necessary to
the operation of Core Trust (which include, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of Core Trust), and provides Core Trust with general office
facilities. At the request of the Board, FAdS provides persons satisfactory to
the Core Trust Board to serve as officers of Core Trust. Those officers as well
as certain other employees and Trustees of Core Trust, may be directors,
officers or employees of FAdS, Forum Advisors, Norwest, SCMI, Payson, Peoples or
their affiliates.
The Administration Agreement will remain in effect for a period of twelve months
with respect to a Fund and will continue in effect thereafter only if it is
specifically reapproved annually (1) by the Core Trust Board or by majority vote
of the shareholders of a Fund and (2) by vote of a majority of the Trustees of
Core Trust who are not party to the Administrative Agreement or interested
persons of any such party (other than as Trustees of Core Trust).
The Administration Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to the Fund by vote of the Board or
by FAdS on 60 days' written notice. The Administration Agreement also provides
that FAdS shall not be liable for any action or inaction except for willful
misfeasance, bad faith, reckless disregard, or gross negligence in the
performance of its duties under the Administration Agreement.
For its administrative services, FAdS is entitled to receive from each portfolio
fees at the annual rates of 0.15% and 0.10%, respectively, of International
Portfolio and Index Portfolio's average daily net assets and 0.05% of the
average daily net assets of each of Small Company Stock Portfolio, Small Company
Value Portfolio, Small Cap Value Portfolio, and Small Cap Index Portfolio.
37
<PAGE>
EM SCHRODER CORE PORTFOLIO
Pursuant to an Administration Agreement with Schroder Capital Funds and Schroder
Fund Advisors Inc. ("Schroder Advisors") located at 787 Seventh Avenue, New
York, New York 10019, Schroder Advisors serves as administrator for the
Portfolio. Schroder Advisors is a wholly-owned subsidiary of SCMI and is a
registered broker-dealer organized to act as administrator and distributor of
mutual funds. Pursuant to a Subadministration Agreement between Schroder Capital
Funds and FAdS, FAdS serves as the subadministrator for the Portfolio.
Pursuant to their respective Administration Agreements, Schroder Advisors and
FAdS provides management and administrative services necessary to the operation
of a Portfolio including, among other things, the 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 Portfolio.
At the request of the Board of Schroder Core, Schroder Advisors and FAdS also
provides Schroder Core with general office facilities and persons satisfactory
to the Board to serve as officers of Schroder Core. Those officers as well as
certain other employees and Trustees of Schroder Core, may be directors,
officers or employees of FAdS, Forum Advisors, Norwest, SCMI, Payson, Peoples or
their affiliates.
The respective Administration Agreements will remain in effect for a period of
twelve months and will continue in effect thereafter only if they are
specifically reapproved annually (1) by the Schroder Trust Board or by majority
vote of the shareholders of the Portfolio and (2) by vote of a majority of the
Trustees of Schroder Trust who are not party to the Administrative Agreement or
interested persons of any such party (other than as Trustees of Schroder Trust).
The Administration Agreements terminate automatically if it is assigned and may
be terminated without penalty with respect to a Portfolio by vote of the
Schroder Core Board by Schroder Advisors or FAdS, where applicable, on 60 days'
written notice. The Administration Agreements also provides that Schroder
Advisors and FAdS shall not be liable for any action or inaction except for
willful misfeasance, bad faith, or gross negligence in the performance of its
duties under the applicable Administration Agreement.
For these services, Schroder Advisors and FAdS are each entitled to receive from
Schroder Core fees at the annual rates of 0.10% and 0.075%, respectively, of the
Portfolio's average daily net assets. Schroder Advisors and not the Portfolios
are responsible for paying the fee of FAdS.
To the extent that a Fund invests its assets in one or more Portfolios, the Fund
is responsible for its pro rate share of a Portfolios administrative expenses.
The following table shows the gross fees payable for administrative services
rendered, the amount of administrative fees waived, if any, and the actual
administrative fees paid by each Fund for the fiscal year ended May 31, 1998.
INVESTORS EQUITY FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $13,752 $13,752 $0
EQUITY INDEX FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $5,154 $5,147 $7
38
<PAGE>
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $2 $2 $0
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $12 $7 $5
EMERGING MARKETS FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $9 $6 $3
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Forum Financial Services,
Inc. ("Forum"), an affiliate of FAdS, is the Trust's distributor and acts as the
agent of the Trust in connection with the offering of shares of the Funds. FFSI
is under no obligation to sell any specific amount of Fund shares. All
subscriptions of shares obtained by FFSI are directed to the Trust or acceptance
and are not binding on the Trust until accepted.
The Distribution Agreement will continue in effect with respect to a Fund for
twelve months from the date of its effectiveness and will continue in effect
thereafter only if its continuance is specifically approved at least annually by
the Board or by majority vote of a Fund's shareholders and in either case, by a
majority of the Trustees who: (1) are not parties to the Distribution Agreement;
(2) are not interested persons of any such party or of the Trust and (3) with
respect to any class for which the Trust has adopted a distribution plan, have
no direct or indirect financial interest in the operation of that distribution
plan or in the Distribution Agreement.
The Distribution Agreement terminates automatically upon assignment and may be
terminated with respect to a Fund without penalty (1) by the Board or by a
majority vote of its shareholders on 60 days' written notice to FFSI or by FFSI
on 60 days' written notice to the Trust. The Distribution Agreement provides
that Forum shall not be liable for any error of judgment or mistake of law or in
any event whatsoever, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's duties or by reason of reckless
disregard of its obligations and duties under the Distribution Agreement.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of a Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of a Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to a Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of a Fund in this manner should acquaint themselves with their
institution's procedures and should read this Prospectus in conjunction with any
materials and
39
<PAGE>
information provided by their institution. The financial institution and not its
customers will be the shareholder of record, although customers may have the
right to vote shares depending upon their arrangement with the institution.
For these services, FFSI receives, and may reallow to certain financial
institutions, the sales charge paid by the purchasers of the Funds' shares. For
the fiscal year ended May 31, 1998, no sales charges were paid to FFSI in
connection with the purchases of the Funds.
THE TRANSFER AGENT
Pursuant to a Transfer Agency and Services Agreement, Forum Shareholder
Services, LLC ("FSS") acts as transfer agent of the Trust. With respect to each
Fund, the Transfer Agency and Services Agreement provides for an initial term of
one year from its effective date and for its continuance in effect for
successive twelve-month periods thereafter, provided that the agreement is
specifically approved at least annually by the Board or by a majority 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 and Services 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 FSS 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 Fund may be effected and certain
other matters pertaining to the Fund; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the 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.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation as custodian, investment manager, nominee, agent or fiduciary for
its customers or clients who are shareholders of the Fund with respect to assets
invested in the Fund. FSS 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 FSS with respect to
assets of those customers or clients invested in the Fund. FSS, FAdS or
sub-transfer agents or processing agents retained by FSS 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 FSS or Forum.
For its services under the Transfer Agency and Services Agreement, FSS receives:
(1) a fee at an annual rate of 0.25% of the average daily net assets of a Fund;
(2) a fee of $24,000 per year; such amounts to be computed and paid monthly in
arrears by the Fund; and (3) Annual Shareholder Account Fees of $25.00 for a
retail and $125.00 for an institutional shareholder account; such fees to be
computed as of the last business day of the prior month.
FSS 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.
FSS also is the Schroder Core Portfolio's transfer agent pursuant to a Transfer
Agency and Fund Accounting Agreement between Schroder Core and FSS. FSS is
compensated for those services in the amount of $12,000 per year plus certain
interestholder account fees.
To the extent that a Fund invests its assets in one or more Portfolios, the Fund
is responsible for its pro rata share of a Portfolio's transfer agency expenses,
if any. The following table shows the gross fees payable for transfer agency
40
<PAGE>
services rendered, the amount of transfer agency fees waived, if any, and the
actual transfer agency fees paid by each Fund for the fiscal year ended May 31,
1998.
INVESTORS EQUITY FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $22,715 $17,123 $5,592
EQUITY INDEX FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $10,295 $4,998 $5,297
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $2,037 $2 $2,035
</TABLE>
INTERNATIONAL EQUITY FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $5,282 $8 $5,274
EMERGING MARKETS FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $5,282 $8 $5,274
</TABLE>
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust, FAcS performs portfolio
accounting services for the Funds. Pursuant to the Fund Account Agreement, FAcS
prepares and maintains books and records of the Funds as required under the 1940
Act, calculates the net asset value per share of the Funds and dividends and
capital gain distributions and prepares period reports to shareholders and the
Securities and Exchange Commission.
The Fund Accounting Agreement will continue in effect with respect to a Fund for
twelve months from the date of its effectiveness and will continue in effective
if such continuance is specifically approved at least annually by the Board of
Trustees or by majority vote of a Fund's shareholders and in either case by a
majority of the Trustees who are not parties to the Fund Accounting Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Fund Accounting Agreement. For its services, FAcS receives from
the Trust an annual fee of $36,000 plus certain additional surcharges for the
number and type of portfolio transactions conducted with respect to the
Investors Equity Fund. In connection with the Small Company Opportunities Fund,
FAcS receives an annual fee of $24,000. As for each of the International Equity
Fund, Emerging Markets Fund, and the Equity Index Fund, FAcS receives an annual
fee of $12,000.
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<PAGE>
FAcS also performs portfolio accounting services for the Core Trust Portfolios
pursuant to a Fund Accounting Agreement between Core Trust and FAcS. For its
services, FAcS receives a fee of $60,000 per year, plus additional surcharges
based upon total assets or security positions.
FSS performs transfer agency and portfolio accounting services for the Schroder
Core Portfolio pursuant to a Transfer Agency and Fund Accounting Agreement
between Schroder Core and FSS. For its portfolio accounting services, FSS is
entitled to receive a fee of $60,000 per year, plus additional surcharges based
upon total assets or security positions. For its transfer agency services, FSS
is entitled to receive a fee of $12,000 per year, plus per account charges.
To the extent that a Fund invests its assets in one or more Portfolios, the Fund
is responsible for its pro rate share of a Portfolio's fund accounting expenses.
The following table shows the gross fees payable for fund accounting fees, the
amount of fund accounting fees waived, if any, and the actual fund accounting
fees paid by each Fund for the fiscal year ended May 31, 1998.
INVESTORS EQUITY FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $18,452 $0 $18,452
</TABLE>
EQUITY INDEX FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $7,506 $0 $7,506
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $6,066 $0 $6,066
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $7,258 $0 $7,258
EMERGING MARKETS FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $7,266 $0 $7,266
</TABLE>
42
<PAGE>
6. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of each Fund as of 4:00 p.m.,
Eastern Time, on each Business Day as defined in the Prospectus, by dividing the
value of a 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. Purchases and sales of a Fund
are effected at the next determination of the net asset value of that Fund
following the receipt of any purchase or redemption order.
Securities owned by a Fund or Portfolio listed on the recognized stock exchanges
are valued at the last reported trade price, prior to the time when the assets
are valued, on the exchange on which the securities are principally traded.
Listed securities traded on recognized stock exchanges where last trade prices
are not available are valued at mid-market prices. Securities traded in
over-the-counter markets, or listed securities for which no trade is reported on
the valuation date, are valued at the most recent reported mid-market price.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith using methods
approved by the Board.
Trading in securities on European and Far Eastern Securities exchanges and
over-the-counter markets may not take place on every day that the New York Stock
Exchange is open for trading. Furthermore, trading takes place in various
foreign markets on days on which a Portfolio's NAV is not calculated. If events
materially affecting the value of foreign securities occur between the time when
their price is determined and the time when net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the
Schroder Core Board or the Board.
All assets and liabilities of a Portfolio or Fund denominated in foreign
currencies are converted to U.S. dollars at the mid price of such currencies
against U.S. dollars last quoted by a major bank prior to the time when NAV of
the Fund or Portfolio is calculated.
7. PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for each Portfolio and Fund and for the other investment
advisory clients of the investment advisers are made with a view to achieving
their respective investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which in the
investment adviser's opinion is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by a Fund or Portfolio of negotiated brokerage commissions. Such
commissions vary among different brokers. Also, a particular broker may charge
different commissions according to such factors as the difficulty and size of
the transaction. Transactions in foreign securities generally involve the
payment of fixed brokerage commissions, which are generally higher than those in
the United States. Since most brokerage transactions for the Schroder EM Core
Portfolio and International Portfolio will be placed with foreign
broker-dealers, certain portfolio transaction costs for these Portfolios may be
higher than fees for similar transactions executed on U.S. securities exchanges.
There is generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Funds or
43
<PAGE>
Portfolios usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Funds or Portfolios includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
Brokerage commissions were not paid directly by Equity Index, Small Company
Opportunities Fund, International Equity Fund, and Emerging Markets Fund as each
of these series invest their assets directly in one or more investment
companies. For the fiscal year ended May 31, 1998, the aggregate brokerage
commissions paid by Investors Equity Fund were $4,512. For the fiscal year ended
May 31, 1998, $0.00 or 0.00% of aggregate brokerage commissions paid was paid to
an affiliated broker and 0.00% of the total dollar amount of transactions
involving payment of commissions was effected through an affiliated broker. As
of March 31, 1998, the Investors Equity Fund owned approximately $273,000,
$948,000, and $1,001,000, respectively of Merrill Lynch & Co., Inc. Franklin
Resources, Inc., and Norwest Corporation. Investors Equity Fund utilizes these
three entities and/or their affiliated broker-dealers, among others, to affect
transactions on its behalf.
The Investment Advisory Agreements authorize and direct the investment advisers
to place orders for the purchase and sale of assets with brokers or dealers
selected by the investment advisers in their discretion and to seek "best
execution" of such portfolio transactions. Each Adviser monitors the
creditworthiness of counterparties to the Funds' and Portfolios' transactions
and enters unto a transaction only when it believes that the counterparty
presents minimal credit risks and the benefits from the transaction justify the
attendant risks. An investment adviser places all such orders for the purchase
and sale of portfolio securities and buys and sells securities for a Fund or
Portfolio through a substantial number of brokers and dealers. In so doing, the
investment adviser uses its best efforts to obtain for the Fund or Portfolio the
most favorable price and execution available. The Fund or Portfolio may,
however, pay higher than the lowest available commission rates when the
investment adviser believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction. In seeking the most favorable price and execution, the investment
adviser, having in mind the Fund's or Portfolio's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealers
involved and the quality of service rendered by the broker-dealers in other
transactions.
It has for many years been a common practice in the investment advisory business
as conducted in certain countries, including the United States, for advisers of
investment companies and other institutional investors to receive research
services from broker-dealers which execute portfolio transactions for the
clients of such advisers. Consistent with this practice, and investment adviser
may receive research services from broker-dealers with which it places the
Fund's or Portfolio's portfolio transactions. These services, which in some
cases may also be purchased for cash, include such items as general economic and
security market reviews, industry and company reviews, evaluations of securities
and recommendations as to the purchase and sale of securities. Some of these
services are of value to the investment adviser in advising various of its
clients (including the Fund or Portfolio), although not all of these services
are necessarily useful and of value in managing the Portfolio. The investment
advisory fee paid by a Portfolio is not reduced because the investment adviser
and its affiliates receive such services.
As permitted by Section 28(e) of the 1934 Act, an investment adviser may cause a
Fund or Portfolio to pay a broker-dealer which provides "brokerage and research
services" (as defined in the Act) to it an amount of disclosed commission for
effecting a securities transaction in excess of the commission which another
broker-dealer would have charged for effecting that transaction. Although
Investors Equity Fund and the Portfolios do not currently engage in directed
brokerage arrangements to pay expenses, they may do so in the future. These
arrangements, whereby brokers executing a Fund's or Portfolio's portfolio
transactions would agree to pay designated expenses of the Fund or Portfolio if
brokerage commissions generated by the Fund or Portfolio reached certain levels,
might reduce the Fund's expenses or the Portfolio's expenses (and, indirectly,
the Fund's expenses). As anticipated, these arrangements would not materially
increase the brokerage commissions paid by the Fund or Portfolio.
SCMI places all orders for purchases and sales of Schroder EM Core Portfolio's
and International Portfolios' securities. In selecting broker-dealers, SCMI may
consider research and brokerage services furnished to it and its affiliates.
Schroder & Wertheim & Co. and Schroder Securities Limited, affiliates of SCMI,
may receive brokerage commissions from the Portfolios in accordance with
procedures adopted by the Trust's Trustees or Schroder Core
44
<PAGE>
Trustees under the 1940 Act which require periodic review of these transactions.
Subject to seeking the most favorable price and execution available, SCMI may
consider sales of shares of the Funds as a factor in the selection of
broker-dealers.
The annual portfolio turnover rate of a Fund (or Portfolio) may exceed 50% but
will not ordinarily exceed 100%.
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Detailed information pertaining to the purchase of shares of each Fund,
redemption of shares and the determination of the net asset value of Fund shares
is set forth in the Prospectus under "Purchases and Redemptions of Shares".
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 a
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 Prospectus at a price based on the net asset value per share of the
Fund on May 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C>
Investors Equity Small Company International Emerging
Equity Index Opportunities Equity Markets
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
Net Asset Value Per Share $11.43 $11.69 $9.70 $12.02 $9.28
Shares Charge, 4.00% of
offering price (4.17% of net
asset value per share) $0.48 $0.49 $0.40 $0.50 $0.39
Offering to Public $11.91 $12.18 $10.10 $12.52 $9.67
</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 Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to a Fund's shares as provided in the
Prospectus.
The Trust has filed a formal election with the Securities and Exchange
Commission pursuant to which a Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.
REDEMPTION IN KIND
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the shareholder in
converting the securities to cash. An in kind distribution of portfolio
securities will be less liquid than cash. The shareholder may have difficulty in
finding a buyer for portfolio securities received in payment for redeemed
shares. Portfolio securities may decline in value between the time of receipt by
the shareholder and conversion to cash. A redemption in kind of a Fund's
portfolio securities could result in a less diversified portfolio of investments
for the Fund and could affect adversely the liquidity of the Fund's portfolio.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of each Fund to exchange their
shares for shares of any other fund of the Trust or shares of certain other
portfolios of investment companies which retain FAdS 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
45
<PAGE>
realize a capital gain or loss depending on whether the value of the shares
redeemed is more or less than his basis in such shares at the time of the
transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FSS to be genuine.
The records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge may
be redeemed and the proceeds used to purchase, without a sales charge, shares of
any other Participating Fund otherwise sold with the same sales charge. If the
Participating Fund purchased in the exchange transaction imposes a higher sales
charge than was paid originally on the exchanged shares, the shareholder will be
responsible for the difference between the two sales charges. Shares acquired
through the reinvestment of dividends and distributions are deemed to have been
acquired with a sales charge rate equal to that paid on the shares on which the
dividend or distribution was paid.
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.
9. TAX MATTERS
The Funds intend to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company the Fund intends to distribute to shareholders at
least 90% of its net investment income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net
long-term capital losses), and to meet certain diversification of assets, source
of income, and other requirements of the Code. By so doing, a Fund will not be
subject to Federal income tax on its net investment income and net capital gain
(the excess of net long-term capital gains over net short-term capital losses)
distributed to shareholders. If a Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation, and its distributions
will be taxable to shareholders as ordinary income to the extent of a Funded
earnings and profits.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a 4% nondeductible excise tax. To
prevent imposition of the excise tax, a Fund must distribute for each calendar
year an amount equal to the sum of (1) at least 98% its ordinary income
(excluding any capital gains or losses) for the calendar year, (2) at least 98%
of the excess of its capital gains over capital losses realized during the
one-year period ending October 31 of such year, and (3) all such ordinary income
and capital gains for previous years that were not distributed during such
years. A distribution will be treated as paid during the calendar year if it is
declared by the Fund in October, November or December of the year with a record
date in such month and paid by the Fund during January of the following year.
Such distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues interest or other receivable or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivable or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, gains or
losses on disposition of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition as well as gains
or losses from certain foreign currency transactions, generally are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may
46
<PAGE>
increase or decrease the amount of the Fund's net investment income to be
distributed to its shareholders as ordinary income.
Generally, the hedging transactions undertaken by the Fund may be deemed
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. The
hedging transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
The requirements applicable to regulated investment companies such as the Fund
may limit the extent to which the Fund will be able to engage in transactions in
options and forward contracts.
Distributions of net investment income (including realized net short-term
capital gain) are taxable to shareholders as ordinary income.
Distributions of net capital gain (i.e., the excess of net gain from capital
assets held for more than one year over net loss from capital assets held for
not more than one year) will be treated in the hands of shareholders as
long-term capital gain, regardless of how long a shareholder has held shares in
a Fund. Distributions of net capital gain are not eligible for the dividends
received deduction. A loss realized by a shareholder on the sale of shares of
the Fund held for six months or less with respect to which distributions of net
capital gain have been paid will, to the extent of such distributions, be
treated as long-term capital loss. Further, a loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced (whether by
reinvestment of distributions or otherwise) within a period of 61 days beginning
30 days before and ending 30 days after the date the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
All distributions are taxable to the shareholder whether reinvested in
additional shares or received in cash. Shareholders receiving distributions in
the form of additional shares will have a cost basis for Federal income tax
purposes in each share received equal to the net asset value of a share of the
Fund on the reinvestment date. Shareholders will be notified annually as to the
Federal tax status of distributions.
Distributions by a Fund reduce the net asset value of the Fund's shares. Should
a distribution reduce the net asset value below a shareholder's cost basis, such
distribution nevertheless would be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implications of buying shares just prior to a
distribution. The price of shares purchased at that time includes the amount of
the forthcoming distribution. Those purchasing just prior to a distribution will
receive a distribution which will nevertheless be taxable to them.
Upon redemption or sale of his shares, a shareholder will realize a taxable gain
or loss depending upon his basis in his shares. Such gain or loss generally will
be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. Such gain or loss generally will be long-term or short-term
depending upon the shareholder's holding period for the shares.
47
<PAGE>
The Funds will be required to report to the Internal Revenue Service (the "IRS")
all distributions as well as gross proceeds from the redemption of the Fund
shares, except in the case of certain exempt shareholders. All such
distributions and proceeds generally will be subject to withholding of Federal
income tax at a rate of 31% ("backup withholding") in the case of nonexempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions or proceeds,
whether reinvested in additional shares or taken in cash, will be reduced by the
amount required to be withheld. Any amounts withheld may be credited against the
shareholder's Federal income tax liability. Investors may wish to consult their
tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and their treatment under state and local income tax
laws may differ from the Federal income tax treatment. Shareholders should
consult their tax advisors with respect to particular questions of Federal,
state and local taxation. Shareholders who are not U.S. persons should consult
their tax advisors regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that certain distributions to them
would be subject to withholding of U.S. tax at a rate of 30% (or a lower rate
under a tax treaty).
10. OTHER INFORMATION
CORE TRUST AND SCHRODER CORE
Core Trust is a business trust organized under the law of the State of Delaware
in September 1994. Schroder Core is a business trust organized under the law of
the State of Delaware in September 1995. Core Trust and Schroder Core are each
registered under the Act as an open-end management investment company.
Currently, Core Trust has TWENTY-ONE separate portfolios, and Schroder Core has
eight separate portfolios. The assets of each Schroder Core Portfolio or Core
Trust , and of any other portfolios of each respective trust now existing or
created in the future, belong only to the Portfolio or those other portfolios,
as the case may be. The assets belonging to a portfolio are charged with the
liabilities of and all expenses, costs, charges and reserves attributable to
that portfolio. Under each of Core Trust's and Schroder Core's Trust Instrument,
the Trustees are authorized to issue beneficial interest in one or more separate
and distinct series. Investments in a Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Each investor in a Portfolio is entitled to a vote in proportion to
the amount of its investment therein. Investors in a Portfolio and other series
(collectively, the "portfolios") of Core Trust or Schroder Core will all vote
together in certain circumstances (e.g., election of the Trustees and
ratification of auditors, as required by the 1940 Act and the rules thereunder).
One or more portfolios could control the outcome of these votes. Investors do
not have cumulative voting rights, and investors holding more than 50% of the
aggregate interests in Core Trust or in Schroder Core or in a Portfolio, as the
case may be, may control the outcome of votes. The Trust is not required and has
no current intention to hold annual meetings of investors, but Core Trust and
Schroder Core each will hold special meetings of investors when (1) a majority
of the Trustees determines to do so or (2) investors holding at least 10% of the
interests in Core Trust or Schroder Core (or a Portfolio) request in writing a
meeting of investors in Core Trust or Schroder Core (or a Portfolio). Except for
certain matters specifically described in the Trust Instruments, the Trustees
may amend the Trust's Trust Instrument without the vote of investors.
Either Core Trust or Schroder Core may enter into a merger or consolidation with
respect to a Portfolio or sell all or substantially all of its assets, if
approved by the applicable Board (without approval of the interestholders of the
Portfolio). A Portfolio may be terminated (1) upon liquidation and distribution
of its assets, if approved by the vote of a majority of the Portfolio's
outstanding voting securities (as defined in the 1940 Act); or (2) by the
Trustees of Core Trust or Schroder Core on written notice to the Portfolio's
investors. Upon liquidation or dissolution of any Portfolio, the investors
therein would be entitled to share pro rata in its net assets available for
distribution to investors.
48
<PAGE>
Core Trust and Schroder Core are each organized as a business trust under the
law of the State of Delaware. Each trust's interestholders are not personally
liable for the obligations of the trust under Delaware law. The Delaware
Business Trust Act provides that an interestholder of a Delaware business trust
shall be entitled to the same limitation of liability extended to shareholders
of private corporations for profit. However, no similar statutory or other
authority limiting business trust interestholder liability exists in many other
states, including Texas. As a result, to the extent that Core Trust or Schroder
Core or an interestholder is subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law, and may thereby subject Core
Trust or Schroder Core to liability. To guard against this risk, the Trust
Instruments of Core Trust and Schroder Core disclaims liability for acts or
obligations of the trust and requires that notice of such disclaimer be given in
each agreement, obligation and instrument entered into by Core Trust, Schroder
Core or their respective Trustees, and provides for indemnification out of Trust
property of any interestholder held personally liable for the obligations of
Core Trust and Schroder Core. Thus, the risk of an interestholder incurring
financial loss beyond his investment because of shareholder liability is limited
to circumstances in which: (1) a court refuses to apply Delaware law; (2) no
contractual limitation of liability is in effect; and (3) Core Trust or Schroder
Core, as applicable, itself is unable to meet its obligations. In light of
Delaware law, the nature of the trusts' business, and the nature of its assets,
the Board believes that the risk of personal liability to a Trust interestholder
is remote.
PLACEMENT AGENT
Forum Financial Services, Inc., Two Portland Square, Portland, Maine 04101,
serves as Core Trust's and Schroder Core's placement agent. FFSI receives no
compensation for such placement agent services.
COUNSEL
Legal matters in connection with the issuance of beneficial interests of the
Trust are passed upon by the law firm of Seward & Kissel, 1200 G Street, N.W.
Washington, D.C. 20005.
Kirkpatrick & Lockhart, 1800 Massachusetts Avenue, N.W., Washington D.C. 20036,
counsel to Core Trust, passes upon certain legal matters in connection with Core
Trust.
Ropes & Gray, One International Place, Boston, Massachusetts, counsel to the
Schroder Core Portfolio, passes upon certain legal matters in connection with
the interests in the Portfolio.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, act as auditors for the Trust.
PricewaterhouseCoopers, LLP, One Post Office Square, Boston, Massachusetts
02019, ("Coopers") serves as independent accountants for the EM Schroder Core
Portfolio, International Portfolio, Small Company Stock Portfolio, and Small
Company Value Portfolio.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110, serves as
independent auditors for Small Cap Index Portfolio and Small Cap Value
Portfolio.
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, N.A., 100 Federal Street, Boston,
MA 02106, acts as the custodian of the Funds' assets. The custodian's
responsibilities include safeguarding and controlling the Fund's cash and
securities, determining income and collecting interest on the Funds'
investments.
Norwest Bank Minnesota, N.A., Sixth Street and Marquette, Minneapolis, Minnesota
55479, acts as the custodian for Index Portfolio, Small Company Stock Portfolio,
Small Company Value Portfolio, Small Cap Value Portfolio, Small Cap Index
Portfolio, and International Portfolio. Norwest may appoint subcustodians for
the foreign securities and other assets held in foreign countries.
49
<PAGE>
The Chase Manhattan Bank ("Chase"), through its Global Securities Services
division located in London, England, acts as custodian of Schroder EM Core
Portfolio's assets, but Chase plays no role in making decisions as to the
purchase or sale of portfolio securities for a Portfolio. Pursuant to rules
adopted under the 1940 Act, the Schroder Core Portfolio may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Schroder Core Board following a consideration of a number of
factors, including (but not limited to) the reliability and financial stability
of the institution; the ability of the institution to perform capably custodial
services for the Portfolio; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and further risks of potential nationalization or
expropriation of portfolio assets.
FINANCIAL STATEMENTS
The financial statements of each Fund and of each Core Trust or Schroder Core
portfolio in which they invest, where applicable, for the fiscal year ended May
31, 1998, which are included in the Annual Report to Shareholders of the Trust
and delivered along with this Statement of Additional Information, are
incorporated herein by reference.
50
<PAGE>
APPENDIX A
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 1, 1998, 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 more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
OAK HALL SMALL CAP CONTRARIAN FUND
Maryann Wolf 14.64% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Jane Levy 6.30% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 6.28% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 6.11% 17,079.686
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SHARES
H M Payson & Co. Custody Account 49.70% 17,756,098.610
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 49.62% 17,727,418.810
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
A-1
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 10.41% 833,430.130
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 10.02% 802,054.250
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Bank of Boston-IRA Custodian 6.99% 559,656.070
FBO F Herman Keller
15838 Marlinton Dr
Whittier, CA 90604-3503
Bank of Boston-IRA Custodian 6.41% 512,607.00
FBO Edward J. Keller
1302 North Idaho Street
Lahabra, CA 90631-2611
Lansdowne Parking Associates LP 6.30% 504,199.840
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 101.99
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
Allagash & Co. 43.81% 11,921,463.850
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
A-2
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES CON'T
H M Payson & Co. Custody Account 33.32% 8,793,445.520
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 16.72% 4,550,030.200
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
Allagash & Co. 7.15% 1,944,122.500
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
CRM Small Cap Value Fund 17.25% 1,008,840.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 17.05% 997,260.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 16.30% 953,220.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Approved List Equity Fund 15.25% 891,720.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Allagash & Co. 11.68% 683,029.550
c/o Bank Of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
CRM Large Cap Value Fund 7.97% 466,032.950
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-3
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS CASH FUND
INVESTORS SHARES
Forum Financial Group 98.99% 10,024.940
Attn. Corporate Accounting
Two Portland Square
Portland, ME 04101
<PAGE>
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
Allagash & Co. 64.24% 10,462,689.340
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 35.56% 5,790,698.540
c/o Bank of New Hampshire
P.O Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Cutler Equity Income Fund 22.39% 652,083.950
C/O Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 20.65% 601,350.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.28% 532,200.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-4
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES-CON'T
CRM Large Cap Value Fund 16.00% 466,032.950
c/o Forum Financial Service Inc.
Two Portland Square
Portland, ME 04101
Dirigo Drywall Assoc. 12.83% 373,456.360
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 6.15% 179,214.880
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Financial Group 98.99% 10,024.450
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 54.97% 11,439,442.420
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.13% 4,812,999.380
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
Allagash & Co. 21.90% 4,557,785.810
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financial Group 99.95% 10,014.320
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
A-5
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS MUNICIPAL FUND
INVESTOR SHARES
Forum Financial Group 99.00% 10,012.670
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 61.84% 67,115,544.220
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 38.16% 41,413,900.330
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Allagash & Co. 99.69% 3,299,339.030
c/o Bank of New Hampshire
P.O. Box 477
CONCORD, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INVESTOR SHARES
FORUM FINANCIAL GROUP 99.00% 10,024.840
---------------------
ATTN: CORPORATE ACCOUNTING
PORTLAND, ME 04101
INVESTORS BOND FUND
Firstrust Co. 71.60% 5,615,875.030
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.56% 906,833.395
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks, PA 19456
A-6
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
INVESTORS BOND FUND CON'T
SEI TRUST COMPANY 9.28% 727,898.651
-----------------
C/O IRWIN UNION BANK & TRUST
ATTN: MUTUAL FUND ADMINISTRATOR
ONE FREEDOM VALLEY DRIVE
OAKS, PA 19456
TAXSAVER BOND FUND
Firstrust Co. 46.04% 1,698,923.696
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 20.21% 745,758.539
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Trustee 5.73% 211,554.575
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood, OH 45322
Mitchell Singer 5.29% 195,037.219
5045 North Main Street
Suite 250
Dayton, OH 45415-3637
Lawrence L. Zusman Trustee 5.14% 189,611.425
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.72% 3,461,677.275
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
A-7
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
PAYSON BALANCED FUND
ALA & Co. 15.10% 253,660.261
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.83% 249,140.428
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
Payse & Co. 22.30% 212,560.364
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.33% 174,716.944
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
Babb & Co. #02-6004105 94.12% 2,320,036.988
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.44% 134,084.041
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
INTERNATIONAL EQUITY FUND
Forum Financing 67.80% 500.000
Attn: Corporate Accounting
Forum Financial Group
Two Portland Square
Portland ME 04101
Donaldson, Lufkin & Jenrette Sec Corp. 32.20% 237.417
Mutual Funds Dept. - 5th Floor
PO Box 2052
Jersey City NJ 07303
A-8
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
INVESTORS GROWTH FUND
Firstrust Co. 99.91% 3,000,887.117
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
Allagash & Co. 97.83% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 69.41% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donaldson Lufkin & Jenrette Sec Corp. 30.59% 220.403
Mutual Funds Dept. - 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
QUADRA VALUE EQUITY FUND
Holly Melosi & Arturo R. Melosi TRUSTEE 81.07% 414,500.069
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.28% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
A-9
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
QUADRA GROWTH FUND
Holly Melosi & Arturo R. Melosi TRUSTEE 77.65% 454,742.476
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.44% 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
David Solomont 11.28% 271,791.712
P.O. Box 67385
Chestnut Hill, MA 02467
DCGT TR 5.30% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
AUSTIN GLOBAL EQUITY FUND
Bear Stearns Sec Corp 91.72% 1,003,764.045
1 Metrotech Center North
Brooklyn, NY 11202-3859
</TABLE>
A-10
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Note: Those bonds in the Aa and A groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa1 and A1.
STANDARD AND POOR'S CORPORATION ("S&P")
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Note: The ratings for AA and A may be modified by the addition of a plus (+) or
minus (-) sign to show the relative standing within the rating category.
FITCH IBCA, INC.. ("FITCH")
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
B-1
<PAGE>
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA categories.
2. COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
o -- Leading market positions in well-established industries.
o -- High rates of return on funds employed.
o -- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
o -- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o -- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
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 IBCA, INC..
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.
B-2
<PAGE>
APPENDIX C
ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which is currently in use is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 149
mutual funds for 12 different fund managers, with more than $38 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 275 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
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Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has 4 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals with decades of experience with some of the country's major
financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed approximately $175 billion as of June 30,
1998.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1.05 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.9 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against
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market volatility. These funds offer regular income, ready access to your money,
and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
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PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 149 funds with
more than $38 billion in assets. Forum manages mutual funds for independent
investment advisors such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment advisor with approximately
$1.9 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1.05 billion in assets under management and $388 million in
non-managed custodial accounts. The Payson Value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment advisor, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
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FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisors and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*ADMINISTRATION AND DISTRIBUTION SERVICES: Regulatory, compliance,
expense accounting, budgeting for
all funds
*FUND ACCOUNTING SERVICES: Portfolio valuation, accounting, dividend
declaration, and tax advice
*SHAREHOLDER SERVICES: Preparation of statements, distribution
support, inquiries and processing of trades
*CLIENT ASSETS UNDER ADMINISTRATION AND DISTRIBUTION: $38 billion
*CLIENT ASSETS PROCESSED BY FUND ACCOUNTING: $49 billion
*CLIENT FUNDS UNDER ADMINISTRATION AND DISTRIBUTION: 149 mutual funds with 226
share classes
*INTERNATIONAL VENTURES:
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*FORUM EMPLOYEES: United States -200 Poland - 71, Bermuda - 4
FORUM CONTACTS:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment
Advisors, LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
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H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.05 Billion
*Custody Income Assets: $388 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 13 shareholders; 12 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
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