OAK HALL(R) SMALL CAP CONTRARIAN FUND
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Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
(207) 879-0001
(800) 625-4255
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PROSPECTUS FEBRUARY 12, 1998
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This Prospectus offers shares of the Oak Hall(R) Small Cap Contrarian Fund (the
"Fund"), which is a diversified portfolio of Forum Funds (the "Trust"), an
open-end, management investment company. The investment objective of the Fund is
to seek capital appreciation by investing primarily in a portfolio of common
stock and securities convertible into common stock. The Fund seeks to achieve
its objective by investing primarily in equity securities of companies with
small market capitalizations. Shares of the Fund are offered to investors
without any sales charge.
This Prospectus sets forth concisely the information concerning the Fund and the
Trust that a prospective investor should know before investing. The Trust has
filed a Statement of Additional Information dated February 12, 1998, as may be
amended from time to time, with the Securities and Exchange Commission, which is
available along with other related materials for reference on its Internet Web
Site (http://www.sec.gov). The Statement of Additional Information contains more
detailed information about the Fund and the Trust and is hereby incorporated
into this Prospectus by reference. An investor may obtain a copy of the
Statement of Additional Information without charge by contacting Shareholder
Servicing at the address or phone number listed above.
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Table of Contents
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1. Prospectus Summary........................ 2 5. Purchases and Redemptions of Shares................. 9
2. Financial Highlights...................... 4 6. Dividends and Tax Matters........................... 13
3. Investment Objective, Policies and 7. Other Information................................... 14
Limitations............................... 5
4. Management................................ 7
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Investors should read this Prospectus and retain it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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1. PROSPECTUS SUMMARY
SUMMARY OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. The Fund seeks to achieve its objective by investing
primarily in equity securities of companies with small market capitalizations. A
small capitalization company has a market capitalization of $1 billion or less
at the time of the Fund's investment. See "Investment Objective, Policies and
Limitations."
MANAGEMENT. Oak Hall(R) Capital Advisors, L.P. (the "Adviser") is the
Fund's investment adviser and makes investment decisions for the Fund. Forum
Financial Services, Inc., ("FFSI") distributes the Fund's shares, and Forum
Administrative Services, LLC ("FAS") administers the Fund. See "Management" and
" - Distribution."
PURCHASES AND REDEMPTIONS. Shares of the Fund are offered at the
next-determined net asset value without a sales charge to investors who plan to
invest a minimum of $10,000 in the Fund directly and a $5,000 minimum initial
investment on shares purchased through certain broker-dealers. Shares of the
Fund may be redeemed from the Fund at their next-determined net asset value on
any Business Day. See "Purchases and Redemptions of Shares."
DIVIDENDS. Dividends representing the net investment income of the Fund are
declared and paid at least annually. Net capital gains realized by the Fund, if
any, also are distributed annually. Dividends and distributions are reinvested
in additional shares of the Fund unless a shareholder elects to have them paid
in cash. See "Dividends and Tax Matters."
CERTAIN RISK FACTORS. There can be no assurance that the Fund will
achieve its investment objective; the Fund's net asset value will fluctuate
based upon changes in the value of its portfolio securities. An investment in
the Fund may be an appropriate investment for investors willing to tolerate
possibly significant fluctuations in the Fund's net asset value while seeking
long-term returns that are potentially higher than market averages. A company's
market capitalization is the total market value of its outstanding common stock.
The securities of small capitalization companies typically are more thinly
traded than those of larger companies. Small capitalization securities may have
greater growth potential in the long-run than other types of securities. In the
shorter term, however, the prices of small capitalization securities may
fluctuate significantly in response to news about the company, the markets or
the economy. See "Investment Objective, Policies and Limitations." The Fund is
not intended to provide a complete or balanced investment program for all
investors.
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. There are no transaction or sales charges
associated with purchases and redemptions.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after fee waivers)................................. 0.75%
12b-1 Fees........................................................ None
Other Expenses (after expense reimbursements)..................... 0.75%
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Total Fund Operating Expenses (after expense reimbursements)...... 1.50%
As of the date of this prospectus, the Adviser has voluntarily undertaken
to waive a portion of its fees and assume certain expenses of the Fund to the
extent that total expenses exceed 1.50%. The expense amounts are based on actual
amounts incurred during the Fund's most recent fiscal year ended March 31, 1997.
Absent certain expense reimbursements and fee waivers, during the most recent
fiscal year Investment Advisory Fees, Other Expenses, and Total Operating
Expenses of the Fund would have been 0.75%, 2.16%, and 2.93%, respectively.
Expense reimbursements and fee waivers are voluntary and may be reduced or
eliminated at any time. For a further description of the various costs and
expenses incurred in the Fund's operation, see "Management."
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EXAMPLE
The following is a hypothetical example that indicates the dollar
amount of expenses an investor would pay assuming a $1,000 investment, a 5%
annual return, reinvestment of all dividends and distributions and full
redemption at the end of each period:
1 Year 3 Years 5 Years 10 Years
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$15 $48 $82 $179
The example is based on the expenses listed in the "Annual Fund Operating
Expenses" table above. The 5% annual return is not a prediction of and does not
represent the Fund's projected returns; rather it is required by government
regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN THOSE INDICATED.
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2. FINANCIAL HIGHLIGHTS
The following represents selected data for a single share outstanding
of the Fund for the periods indicated. The information for the periods ended
March 31, 1997 and June 30, 1996, 1995 and 1994 was audited in connection with
an audit of the Trust's financial statements by Deloitte & Touche, independent
auditors. The information for the period ended June 30, 1993 was audited by
other independent auditors. The information for the six month period ended
September 30, 1997, is unaudited. The financial statements and auditors' report
thereon are contained in the Annual Report, which is incorporated by reference
into the Statement of Additional Information. Further information about the
Fund's performance is contained in the Annual Report, which may be obtained
without charge by contacting the Fund's transfer agent.
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OAK HALL SMALL CAP CONTRARIAN FUND
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SIX MONTHS NINE MONTHS YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1997 1996 1995 1994 1993(A)
------------- ------------- ----------- ------------ ------------ ------------
Net Asset Value, Beginning of Period $13.80 $13.61 $11.33 $12.55 $14.30 $10.00
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Investment Operations:
Net Investment Income (Loss) (0.13) (0.15) (0.32)(b) (0.03)(b) (0.09) _
Net Realized and Unrealized Gain (Loss) on
Investments 4.50 0.34 2.60 (0.10) (0.52) 4.31
------------- ------------- ----------- ------------ ------------ ------------
Total from Investment Operations 4.37 0.19 2.28 (0.13) (0.61) 4.31
Distributions From:
Net Realized Gain on Investments _ _ _ (1.09) (1.14) (0.01)
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Net Asset Value, End of Period $18.17 $13.80 $13.61 $11.33 $12.55 $14.30
============= ============= =========== ============ ============ ============
Total Return 31.67%(c) 1.40%(c) 20.12% (1.07%) (5.14%) 45.12%(d)
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted) $6,950 $7,310 $12,257 $16,399 $35,470 $12,581
Ratios to Average Net Assets:
Expenses Including Reimbursement/Waiver 2.00%(d) 2.00%(d) 2.00% 2.00% 2.01% 1.23%(d)
Expenses Excluding Reimbursement/Waiver 2.75%(d) 2.93%(d) 2.44% _ 2.17% 5.91%(d)
Net Investment Income (Loss) Including
Reimbursement/Waiver (1.46%)(d) (1.13%)(d) (1.14%) (0.23%) (0.96%) (0.07%)(d)
Average Commission Rate (e) $0.0657 $0.0673 $0.0601 N/A N/A N/A
Portfolio Turnover Rate 52.13% 95.05% 157.01% 115.33% 168.61% 187.94%
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(a) The Fund commenced operations on July 13, 1992.
(b) Calculated using the weighted average shares outstanding.
(c) Not annualized.
(d) Annualized.
(e) Amount represents the average commission per share paid to brokers on
the purchase or sale of equity securities.
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3. INVESTMENT OBJECTIVE, POLICIES AND LIMITATIONS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. The Fund seeks to achieve its objective by investing
primarily in equity securities of companies with small market capitalizations.
Except during periods when the Fund assumes a temporary defensive position, the
Fund will have at least 65% of its total assets invested in common stock and
securities convertible into common stock. There can be, of course, no assurance
that the Fund will achieve its investment objective.
The Fund intends to invest principally in small capitalization
companies that, in the view of the Adviser, are temporarily out of favor or
simply undiscovered yet possess upside growth potential coupled with attractive
valuations. The Adviser seeks to identify and invest in companies it believes
have a minimum of downside risk and whose stock is selling at a substantial
discount from previous peak prices. In addition, the Adviser seeks to invest in
companies whose fundamental attributes, in the Adviser`s opinion, are improving
but whose improvement has not been fully recognized by the investment community.
In the vernacular of investment management the Adviser would be characterized as
a small cap value contrarian manager. In seeking investment opportunities, the
Adviser relies primarily on a company by company analysis (rather than broader
analysis of industry or economic trends) with the bulk of the research being
done in-house. The Fund may invest in the securities of issuers in any industry,
but the Adviser emphasizes investments in those industries for which the Adviser
believes the economic cycle is improving or where the economic cycle has less
impact. While the stocks of the companies the Adviser normally focuses on are
actively traded, the Fund may purchase the shares of small companies whose stock
is less actively traded and which have greater appreciation potential and a
correspondingly higher level of risk and volatility than larger companies whose
shares are actively traded. The securities in which the Fund invests may be
traded on securities exchanges or in the over-the-counter exchanges.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities,
including convertible debt and convertible preferred stock. The Fund will invest
only in convertible debt that is rated "B" or higher by Moody's Investors
Service, Inc. ("Moody's") or by Standard & Poor's Corporation ("S&P") and in
preferred stock that is rated b or "B" or higher by S&P. The Fund may purchase
unrated convertible securities if the Adviser determines the security is
comparable in credit quality to a rated security that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. Securities
in the lowest permissible rating categories are characterized by Moody's as
generally lacking characteristics of a desirable investment and by S&P as being
predominantly speculative. The Fund may retain securities whose rating has been
lowered below the lowest permissible rating category (or that are unrated and
determined by the Adviser to be of comparable quality) if the Adviser determines
that retaining such security is in the best interests of the Fund. A further
description of the various rating categories is included in the Statement of
Additional Information.
ADDITIONAL INVESTMENT POLICIES
FOREIGN SECURITIES. The Fund may invest up to 30% of the value of its
total assets in securities of foreign issuers, in American Depositary Receipts
("ADRs") and in securities denominated in foreign currencies (collectively,
"foreign securities"). Investments in foreign securities involve certain risks,
such as exchange rate fluctuations, political or economic instability of the
issuer or the country of issue and the possible imposition of exchange controls,
withholding taxes on dividends or interest payments, confiscatory taxes or
expropriation. Securities registration, custody and settlements of foreign
securities may in some instances be subject to delays and legal and
administrative uncertainties. Foreign securities may also be subject to greater
fluctuations in price than securities of domestic corporations denominated in
U.S. dollars. Foreign securities and their markets may not be as liquid as
domestic securities and their markets, and foreign brokerage commissions and
custody fees are generally higher than
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those in the United States. In addition, less information may be publicly
available about a foreign company than about a domestic company, and foreign
companies may not be subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. With
respect to its permitted investments in foreign securities, currently the Fund
limits the amount of its assets that may be invested in one country or
denominated in one currency (other than the U.S. dollar) to 25%. The Fund may
invest in sponsored and unsponsored ADRs, which are receipts issued by an
American bank or trust company evidencing ownership of underlying securities
issued by a foreign issuer. Unsponsored ADRs may be created without the
participation of the foreign issuer. Holders of these ADRs generally bear all
the costs of the ADR facility, whereas foreign issuers typically bear certain
costs in a sponsored ADR. The bank or trust company depository of an unsponsored
ADR may be under no obligation to distribute shareholder communications received
from the foreign issuer or to pass through voting rights.
The Fund may utilize foreign currency forward contracts in order to
hedge against uncertainty in the level of future foreign exchange rates. The
Fund will not enter into these contracts for speculative purposes. These
contracts involve an obligation to purchase or sell a specific currency at a
specified future date, usually less than one year from the date of the contract,
at a specified price. The Fund may enter into foreign currency forward contracts
to manage currency risks and to facilitate transactions in foreign securities.
These contracts involve a risk of loss if the Adviser fails to predict currency
values correctly and also involve similar risks to those described under
"Hedging Strategies." The Fund may also buy and sell foreign currency options
and other derivatives, foreign currency futures contracts and options on those
futures contracts. See "Hedging Strategies."
TEMPORARY DEFENSIVE POSITION. When the Adviser believes that business
or financial conditions warrant, the Fund may assume a temporary defensive
position. For temporary defensive purposes, the Fund may invest without limit in
cash or in investment grade cash equivalents, including: (1) short-term
obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities ("U.S. Government Securities"); (2) prime quality
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States; (3) prime
quality commercial paper; and (4) repurchase agreements covering any of the
securities in which the Fund may invest directly, and, subject to the limits of
the Investment Company Act of 1940 (the "Investment Company Act,"), money market
mutual funds. During periods when and to the extent that the Fund has assumed a
temporary defensive position, it is not pursuing its investment objective.
GENERAL
PORTFOLIO TRANSACTIONS. The frequency of portfolio transactions (the
portfolio turnover rate) will vary from year to year depending on market
conditions. From time to time, the Fund may engage in active short-term trading
to take advantage of price movements affecting individual issues, groups of
issues or markets. Short-term trading may increase the Fund's rate of turnover,
which results in higher total brokerage costs for the Fund. An annual turnover
rate of 100% would occur, for example, if all of the securities in the Fund were
replaced once in a one-year period. The Adviser weighs the anticipated benefits
of short-term investments against these consequences.
The Fund has no obligation to deal with any specific broker or dealer
in the execution of portfolio transactions. Consistent with its policy of
obtaining the best net results, the Fund may conduct brokerage transactions
through certain affiliates of the Adviser. The Trust's Board of Trustees has
adopted policies to ensure that these transactions are reasonable and fair and
that the commissions charged are comparable to those charged by non-affiliated
qualified broker-dealers.
CHANGES IN INVESTMENT OBJECTIVE AND POLICIES. The Fund's investment
objective is a fundamental policy and, along with any other fundamental policies
of the Fund, may not be changed without approval of the holders of a majority of
the Fund's outstanding voting securities, as defined in the Investment Company
Act. A majority of the Fund's outstanding voting securities means the lesser of
67% of the shares of the Fund present or represented at a meeting at
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which the holders of more than 50% of the outstanding shares of the Fund are
present or represented or more than 50% of the outstanding shares of the Fund.
Except as otherwise indicated, investment policies of the Fund are not
fundamental and may be changed by the Board of Trustees without shareholder
approval. A further description of the Fund's investment policies is contained
in the Statement of Additional Information.
INVESTMENT LIMITATIONS. The Fund has adopted the following investment
limitations which, except for No. (5), are fundamental policies. Additional
fundamental and nonfundamental limitations are listed in the Statement of
Additional Information. The Fund may not:
(1) Borrow money, except the Fund may enter into commitments to
purchase securities in accordance with its investment program, including
delayed-delivery and when-issued securities and reverse repurchase agreements,
provided that the total amount of any such borrowing does not exceed 33 1/3% of
the Fund's total assets.
(2) Make loans to other persons except for loans of portfolio
securities, through the use of repurchase agreements, and through the purchase
of debt securities that are otherwise permitted investments.
(3) Purchase the securities of issuers (other than U.S. Government
Securities) conducting their business activity in the same industry if,
immediately after such purchase, the value of investments in such industry would
comprise 25% or more of the value of the Fund's total assets.
(4) Purchase a security if, as a result (a) more than 5% of the Fund's
total assets would be invested in the securities of a single issuer, or (b) the
Fund would own more than 10% of the outstanding voting securities of a single
issuer. This limitation applies only with respect to 75% of the Fund's total
assets and does not apply to U.S. Government Securities.
(5) Invest more than 15% of its net assets in securities that are not
readily marketable, including repurchase agreements maturing in more than seven
days.
If a percentage restriction on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from a change in the market values of the Fund's assets
or redemptions of Fund shares will not be considered a violation of the
limitation.
4. MANAGEMENT
The business of the Trust is managed under the direction of the Board
of Trustees. The Board formulates the general policies of the Fund and generally
meets quarterly to review the results of the Fund, monitor investment practices
and discuss other matters affecting the Fund and the Trust.
INVESTMENT ADVISER
Oak Hall(R) Capital Advisors, L.P. is the investment adviser of the
Fund under an Investment Advisory Agreement with the Trust. Subject to the
general control of the Board of Trustees, the Adviser makes investment decisions
for the Fund. For its services under the Advisory Agreement, the Adviser is
entitled to receive an advisory fee, accrued daily and payable monthly, at an
annual rate of 0.75% of the Fund's average daily net assets. The Adviser, in its
sole discretion, may waive all or any portion of its advisory fee. Any waiver
would have the effect of increasing the Fund's yield for the period during which
the waiver was in effect and would not be recouped by the Adviser at a later
date.
Ed Cimilluca, Co-Chief Executive of the Adviser, has been the Fund's
co-portfolio manager since January 1, 1997. Prior to his association with the
Adviser, Mr. Cimilluca was Director of Research at J. & W. Seligman and, prior
thereto, was a Managing Director of Lehman Brothers, Inc. Mr. Cimilluca has
approximately 25 years in the investment business. His approach to investing is
consistent with the Fund's emphasis on value investing in out-of-favor sectors
of the market.
John W. Morosani, Co-Chief Executive of the Adviser, also has been the
Fund's co-portfolio manager since January 1, 1997. Prior to his association with
the Adviser, Mr. Morosani was Director of Research at S. G. Warburg & Co., Inc.
and, prior
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thereto, was an Associate Director at C. J. Lawrence, Inc. Mr. Morosani has
approximately 20 years in the investment business. His approach to investing is
consistent with the Fund's emphasis on value investing in out-of-favor sectors
of the market.
The Adviser, which is located at 122 East 42nd Street, 24th Floor, New
York, New York 10168, is a registered investment adviser and provides investment
management services to pension plans, endowment funds, institutional and
individual accounts. As of the date of this Prospectus, the Adviser had
approximately $135 million of assets under management. The Adviser was
incorporated under the laws of the State of New York in 1984 and is a wholly
owned subsidiary of American Securities Holding Corporation ("ASHC"). ASHC is
wholly owned by a trust, the beneficiaries of which are members of the William
Rosenwald family.
ADMINISTRATION
On behalf of the Fund, the Trust has entered into an Administration
Agreement with FAS. Under this agreement, FAS is responsible for the
supervision of the overall management of the Trust (including the Trust's
receipt of services for which the Trust is obligated to pay), providing the
Trust with general office facilities and providing persons satisfactory to the
Board of Trustees to serve as officers of the Trust. For these services, FAS is
entitled to receive a fee computed and paid monthly at an annual rate of 0.25%
of the Fund's average daily net assets. Like the Adviser, FAS, in its sole
discretion, may waive all or any portion of its fees. FAS was organized under
the laws of the State of Delaware on December 29, 1995 and, as of the date of
this Prospectus, FAS and FFSI provided management, administrative and
distribution services to registered investment companies and collective
investment funds with assets of approximately $32 billion.
DISTRIBUTION
FFSI, the Fund's distributor, is a registered broker-dealer and
investment adviser and is a member of the National Association of Securities
Dealers, Inc.
SHAREHOLDER SERVICES
The Trust has adopted a shareholder services plan for the Fund
providing that the Trust may obtain the services of the Adviser and other
qualified financial institutions to act as shareholder servicing agents for
their customers. Under this plan, the Trust has authorized Forum to enter into
agreements pursuant to which the shareholder servicing agent performs certain
shareholder services for Fund shareholders not otherwise provided by the Trust's
transfer agent. For these services, the Trust pays the shareholder servicing
agent a fee of up to 0.25% of the average daily net assets of the Fund shares
owned by investors for which the shareholder servicing agent maintains a
servicing relationship.
Among the services provided by shareholder servicing agents are:
answering customer inquiries regarding account matters; assisting shareholders
in designating and changing various account options; aggregating and processing
purchase and redemption orders and transmitting and receiving funds for
shareholder orders; transmitting, on behalf of the Trust, proxy statements,
prospectuses and shareholder reports to shareholders and tabulating proxies;
processing dividend payments and providing subaccounting services for Fund
shares held beneficially; and providing such other services as the Trust or a
shareholder may request.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Forum
Financial Corp. (the "Transfer Agent") under which the Transfer Agent acts as
the Fund's transfer agent and dividend disbursing agent. The Transfer Agent
maintains for each shareholder of record, an account (unless such accounts are
maintained by sub-transfer agents) to which all shares purchased are credited,
together with any distributions that are reinvested in additional shares. The
Transfer Agent also performs other transfer agency functions and acts as
dividend disbursing agent for the Trust. Under an agreement with the Trust,
Forum Accounting Services, LLC ("FAcS") performs portfolio accounting services
for the Fund, including determination of the Fund's net asset value. As of the
date of this Prospectus, FAS, FFSI, the Transfer Agent and FAcS were each
controlled by
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John Y. Keffer, President and Chairman of the Trust and were located at Two
Portland Square, Portland, Maine 04101.
EXPENSES OF THE TRUST
The Adviser has voluntarily undertaken to assume certain Fund expenses
(or waive its fees). This undertaking is designed to place a maximum limit on
expenses (including all fees to be paid to the Adviser but excluding taxes,
interest, brokerage commissions and other portfolio transaction expenses and
extraordinary expenses) of 1.50% of the Fund's average daily net assets. Fee
waivers are voluntary and may be reduced or eliminated at any time.
5. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL
PURCHASES. Investments in the Fund may be made by an investor either
directly or through certain brokers and financial institutions of which the
investor is a customer. All transactions in Fund shares are effected through the
Transfer Agent, which accepts orders for purchases and redemptions from
shareholders of record and new investors. Shareholders of record will receive
from the 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.
Fund shares may be purchased at their net asset value next determined
without a sales charge on any weekday except days when the New York Stock
Exchange (the "Exchange") is closed, normally, New Year's Day, Martin Luther
King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas ("Business Day"). See "Other
Information - Determination of Net Asset Value." Fund shares are issued
immediately after an order for the shares in proper form is received by the
Transfer Agent. The Fund's net asset value is calculated as of the close of the
Exchange (normally, 4:00 p.m., Eastern time) on each Business Day. Fund shares
become entitled to receive dividends on the next Business Day after the order is
accepted.
The Adviser and the Trust reserve the right to reject any subscription
for the purchase of Fund shares, including subscriptions by those deemed to be
"market timers" and may, in the Adviser's discretion, accept portfolio
securities in lieu of cash as payment for Fund shares. "Market timers" generally
include market timing or allocation services, accounts administered so as to
buy, sell or exchange shares based on predetermined market indicators, or any
person or group whose transactions seem to follow a timing pattern. Share
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 on any Business
Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed at the Fund's net asset value
next determined following receipt by the Transfer Agent of the redemption order
in proper form (and any supporting documentation that the Transfer Agent may
require). Shares redeemed are not entitled to receive dividends declared after
the day on which the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in any event
within seven days, following receipt of a redemption order in proper form by the
Transfer Agent. Redemption proceeds, however, are not paid unless any check used
for investment has been cleared by the shareholder's bank, which may take up to
15 calendar days. This delay may be avoided by investing through wire transfers.
Unless otherwise indicated, redemption proceeds normally are paid by check
mailed to the shareholder's record address. Redemption rights may not be
suspended nor may payment dates be postponed except when the 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.
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Redemption proceeds normally are paid in cash. Payments may be made
wholly or partially in portfolio securities, however, if the Board determines
that payment in cash would be detrimental to the best interests of the Fund. The
Trust may 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 and its Transfer Agent employ reasonable procedures to insure
that telephone orders are genuine (which include recording certain transactions
and the use of shareholder security codes). If the Trust and Transfer Agent did
not employ such procedures, either 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 privilege may be difficult to implement. In the event that a
shareholder is unable to reach the Transfer Agent by telephone, these requests
may be mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60-days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$10,000 ($2,000 for IRAs).
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder
services apply to investors who invest in the Fund directly. These investors may
open an account by completing the application at the back of this Prospectus or
by contacting the Transfer Agent at the address on the first page of this
prospectus. For shareholder services described in this Prospectus but not
referenced on the account application or to change information regarding a
shareholder's account (such as addresses), investors should request an Optional
Services Form from the Transfer Agent.
There is a $10,000 minimum for initial investments in the Fund and a
$5,000 minimum for subsequent purchases, except for individual retirement
accounts (see "Individual Retirement Accounts"). There is a $5,000 minimum
initial investment on purchases made through certain broker-dealers.
INITIAL PURCHASE OF SHARES
BY MAIL. Investors may send a check made payable to the Trust along
with a completed account application to the Fund at the address on the first
page of this prospectus. Checks are accepted at full value subject to
collection. If a check does not clear, the purchase order will be canceled, and
the investor will be liable for any losses or fees incurred by the Trust, the
Transfer Agent or FFSI.
BANK WIRE. To make an initial investment in the Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Fund at 1-800-625-4255 or the Transfer Agent at 207-879-0001 to obtain an
account number for an initial investment. The investor should then instruct a
bank to wire the money immediately to:
BankBoston
Boston, Massachusetts
ABA # 011000390
For Credit to: Forum Financial Corp.
Account # 541-54171
Oak Hall Small Cap Contrarian Fund
(Investor's Name)
(Investor's Account Number)
The investor should then promptly complete and mail the account
application. Investors planning to wire funds should instruct their bank early
in the day so the wire transfer can be accomplished the same day. An investor's
bank may impose a charge for transmitting the money by bank wire, and there also
may be a charge for use of federal funds. The Trust does not charge investors
for the receipt of wire transfers.
THROUGH BROKERS AND OTHER FINANCIAL INSTITUTIONS. Shares may be
purchased and redeemed through brokers and other financial institutions that
have entered into sales agreements with Forum. These institutions may charge
their customers a fee for their services and are responsible for promptly
transmitting purchase, redemption and other requests to the Trust. The Trust is
not responsible for the failure of any institution to promptly forward these
requests or otherwise carry out its obligations to its customers.
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Investors who purchase shares through a financial institution will be
subject to the procedures of their financial institution, which may include
charges, limitations, investment minimums, cutoff times and restrictions in
addition to, or different from, those applicable to shareholders who invest in
the Fund directly. These investors should acquaint themselves with their
financial institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their institution.
Customers who purchase Fund shares in this manner may or may not be the
shareholder of record and, subject to their institution's and the Fund's
procedures, may have Fund shares transferred into their name. There is typically
a three-day settlement period for purchases and redemptions through
broker-dealers. Certain other institutions may also enter purchase orders with
payment to follow.
Certain shareholder services may not be available to shareholders who
have purchased shares through an institution. These shareholders should contact
their institution for further information. The Trust may confirm purchases and
redemptions of an institution's customers directly to the 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 institution and its
customers. The Trust is not responsible for the failure of any institution to
carry out its obligations to its customers. Certain states permit Fund shares to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases may be made by sending a bank wire or by mailing a
check as indicated above. Shareholders using the wire system for subsequent
purchases should first telephone the Fund at 1-800-625-4255 or the Transfer
Agent at 207-879-0001 to notify it of the wire transfer. All payments should
clearly indicate the shareholder's name and account number.
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 that
is an Automated Clearing House member. Under the program, existing shareholders
may authorize amounts of $250 or more to be debited from their bank account and
invested in a Fund monthly or quarterly. Shareholders wishing to participate in
this program may obtain the applicable forms from the Transfer Agent.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to the Transfer Agent.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application. These privileges may not
be available until several weeks after a shareholder's application is received.
Shares for which certificates have been issued may not be redeemed by telephone.
REDEMPTION BY MAIL. Shareholders may make a redemption in any amount by
sending a written request to the Transfer Agent accompanied by any share
certificate that was issued to the shareholder. All share certificates submitted
for redemption, and all written requests for redemption, must be endorsed by the
shareholder with signature guaranteed.
TELEPHONE REDEMPTION. A shareholder that has elected telephone
redemption privileges may make a telephone redemption request by calling the
Fund at 1-800-625-4255 or the Transfer Agent at 207-879-0001. Shareholders must
provide the Transfer Agent with the shareholder's account number, the exact name
in which the 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.
Shares for which certificates have been issued may not be redeemed by telephone.
BANK WIRE REDEMPTION. For redemption of more than $10,000, a
shareholder who has elected wire redemption privileges may request the Fund to
transmit the redemption proceeds by federal funds
11
<PAGE>
wire to a bank account designated on the shareholder's account application. To
request bank wire redemptions by telephone, the shareholder also must have
elected the telephone redemption privilege. Redemption proceeds are transmitted
by wire on the day the redemption request in proper form is received by the
Transfer Agent.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds are sent either by check or by automatic
transfer to a designated bank account maintained with a United States banking
institution that is an Automated Clearing House member. Under this program,
shareholders may authorize the redemption of shares in amounts of $250 or more
from their account monthly or quarterly. Shareholders may terminate their
automatic redemptions or change the amount to be redeemed at any time by written
notification to the Transfer Agent.
OTHER REDEMPTION MATTERS. To protect shareholders and the Fund 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 share certificate; (2) written
instruction to redeem shares whose value exceeds $50,000; (3) instructions to
change a shareholder's record name; (4) redemption in an account in which the
account address or account registration has changed within the last 30 days; (5)
redemption proceeds to be sent to other than the address of record,
preauthorized bank account, or preauthorized brokerage firm account; (6)
redemption proceeds to be paid to someone other than the record owners or to an
account with a different registration; or (7) change of automatic investment or
redemption, dividend election, telephone redemption option election or any other
option election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution
acceptable to the Transfer Agent, including a bank, a broker, a dealer, a
national securities exchange, a credit union, or a savings association that is
authorized to guarantee signatures. Whenever a signature guarantee is required,
the signature of each person required to sign for the account must be
guaranteed. A notarized signature is not sufficient.
The Transfer Agent may deem a shareholder's account "lost" if
correspondence to the shareholder's address of record is returned for six
months, unless the Transfer Agent determines the shareholder's new address. When
an account is deemed lost, all distributions on the account are reinvested in
additional shares of the Fund. In addition, the amount of any outstanding
(unpaid for six months or more) checks for distributions that have been returned
to the Transfer Agent will be reinvested, and the checks will be canceled.
INDIVIDUAL RETIREMENT ACCOUNTS
A single Fund should not be considered as a complete investment vehicle
for the assets held in individual retirement accounts. The Fund may be a
suitable investment for part or all of the assets held in traditional or Roth
individual retirement accounts (collectively, "IRAs"). An IRA account
application form may be obtained by contacting the Trust at 1-800-625-4255 or
its Transfer Agent at 207-879-0001. Generally, all contributions and investment
earnings in an IRA will be tax-deferred until withdrawn. In the case of a Roth
IRA, if certain requirements are met, investment earnings will not be taxed even
when withdrawn. Individuals may make IRA contributions of up to a maximum of
$2,000 annually. Only contributions to traditional IRAs are tax-deductable.
However, the deduction will be reduced if the individual or, in the case of a
married individual filing jointly, either the individual or the individual's
spouse is an active participant in an employer-sponsored retirement plan and has
adjusted gross income above certain levels. The ability of an individual to make
contributions to a Roth IRA is restricted if the individual (or, in some cases,
a married couple) has adjusted gross income above certain levels. The Fund's
minimum initial investment for investors opening an IRA or investing through
their own IRA is $2,000, and its minimum subsequent investment is $250.
An employer may also contribute to an individual's IRA as part of a Savings
Incentive Match Plan
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for Employees, or "SIMPLE plan," established after December 31, 1996. Under a
SIMPLE plan, an employee may contribute up to $6,000 annually to the employee's
IRA, and the employer must generally match such contributions up to 3% of the
employee's annual salary. Alternatively, the employer may elect to contribute to
the employee's IRA 2% of the lesser of the employee's earned income or $160,000.
The foregoing discussion regarding IRAs is based on regulations in effect as of
January 1, 1998 and summarizes only some of the important federal tax
considerations generally affecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for tax planning. Investors
should consult their tax advisors with respect to their specific tax situations
as well as with respect to state and local taxes.
6. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are declared and paid
annually. Any net capital gain realized by the Fund also is distributed
annually. Shareholders may choose either to have dividends reinvested in
additional Fund shares or paid in cash and, similarly, may have capital gain
distributions reinvested in additional Fund shares or paid in cash. For a brief
summary of the tax treatment of dividends and distributions paid by the Fund,
see "Taxes". All dividends and distributions are reinvested in additional shares
unless another option is selected. Income dividends are reinvested at the Fund's
net asset value as of the last day of the period with respect to which the
dividends are paid, and capital gain is reinvested at the Fund's net asset value
on the payment date for the capital gain. Cash payments may be made more than
seven days following the date on which dividends would otherwise be reinvested.
TAXES
The Fund qualified for its last fiscal year as a "regulated investment
company" under the Internal Revenue Code of 1986 (the "Code") and intends to
continue to so qualify each fiscal year so long as such qualification is
determined to be in the best interest of Fund shareholders. As a regulated
investment company, the Fund will not be liable for federal income and excise
taxes on the net investment income and capital gains distributed to its
shareholders in accordance with the applicable Code provisions. The Fund intends
to distribute all of its net income and net capital gains each year.
Accordingly, the Fund should thereby avoid all federal income and excise taxes.
Dividends paid by the Fund out of its net investment income (including
realized net short term capital gain) are taxable to Fund shareholders as
ordinary income notwithstanding that such dividends are reinvested in additional
Fund shares. Distributions of any net long-term capital gains realized by the
Fund are taxable to the shareholders as long-term capital gain, regardless of
the length of time a shareholder may have held Fund shares at the time of
distribution. A portion of the Fund's dividends may qualify for the
dividends-received deduction available to corporations.
If a shareholder holds shares for six months or less and during that
period receives a distribution taxable as a long-term capital gain, any loss
realized on the sale of his shares during that six-month period would be a long-
term loss to the extent of the distribution. Distributions to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional Fund shares.
Any dividend or distribution received by a shareholder on Fund shares
will have the effect of reducing the net asset value of his or her shares by the
amount of the dividend or distribution. Furthermore, a dividend or distribution
made shortly after a shareholder's purchase of shares, although in effect a
return of capital to that particular shareholder, would be taxable to the
shareholder as described above.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital-gain distributions and
redemptions) paid to a non-corporate shareholder unless such shareholder
certifies in writing that the social security or tax identification number
provided is correct and that the shareholder is not subject to
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<PAGE>
backup withholding for prior underreporting to the Internal Revenue Service.
Reports containing appropriate information with respect to the federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year.
7. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of
4:00 p.m., Eastern time, on each Business Day by dividing the value of the
Fund's net assets (I.E., the value of its securities and other assets less its
liabilities, including expenses payable or accrued but excluding capital stock
and surplus) by the number of shares outstanding at the time the determination
is made. Securities owned by the Fund for which market quotations are readily
available are valued at current market value, or, in their absence, at fair
value as determined by procedures approved by the Board of Trustees. Purchases
and redemptions are effected at the net asset value next determined following
the receipt of any purchase or redemption order as described under "Purchases
and Redemptions of Shares."
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and
assumed the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996,
Forum Funds, Inc. was reorganized as a Delaware business trust 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. Currently the authorized shares of the Trust are divided
into 23 separate series. Prior to November 25, 1996, the Fund was a separate
portfolio, Oak Hall(R) Equity Fund, of Stone Bridge Funds, Inc., a Maryland
corporation. On February 12, 1998, the Fund's name was changed to the Oak
Hall(R) Small Cap Contrarian Fund.
Each share of each fund of the Trust and, for funds with multiple
classes, each class of shares, has equal dividend, distribution, liquidation and
voting rights, and fractional shares have those rights proportionately, except
that certain expenses such as expenses related to the distribution of shares and
certain other expenses such as transfer agency and administration expenses are
borne solely by a fund or class. Each fund or class votes separately with
respect to the provisions of any Rule 12b-1 plan which pertains to the fund or
class and other matters for which separate class voting is appropriate under
applicable law. Generally, shares are voted in the aggregate without reference
to a particular fund or class, except if the matter affects only one fund or
class (or voting by fund or class is required by law), shares will vote
separately by fund or class, as appropriate. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by federal or
state law. Shareholders have available certain procedures for the removal of
Trustees. There are no conversion or preemptive rights in connection with shares
of the Trust. All shares when issued in accordance with the terms of the
offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A fund shareholder is entitled to the
shareholder's pro rata share of all dividends and distributions arising from
that fund's assets and, upon redeeming shares, will receive the portion of the
fund's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of
the Fund's shares. In that event, those shareholders may be able to greatly
affect or determine the outcome of a shareholder vote.
YEAR 2000 COMPLIANCE. Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and other service providers
to the Fund do not properly process and calculate date-related information and
data from and after January 2000. The Adviser has taken steps to address the
Year 2000 issue with respect to the computer systems that it
14
<PAGE>
uses and to obtain reasonable assurances that comparable steps are being taken
by the Fund's other major service providers. The Adviser does not anticipate
that the arrival of the Year 2000 will have a material impact on its ability to
continue to provide the Fund with service at current levels.
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield
or total return. Performance calculations are based on the Fund's historical
results and are not intended to indicate future performance. Yield is a way of
showing the rate of income earned on the Fund's investments as a percentage of
the Fund's share price. To calculate yield, the dividends and interest income
the Fund has earned from its portfolio of investments for a 30-day period (net
of expenses) is divided by the average number of shares entitled to receive
dividends and expressed the result as an annualized percentage rate based on the
Fund's share price at the beginning of the period. Total return shows the Fund's
overall change in value, including changes in share price and assuming all the
Fund's distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the hypothetical annually compounded return that would have produced the same
cumulative total return if the Fund's performance had been constant over the
entire period. Because average annual returns tend to smooth out variations in
the Fund's returns, shareholders should recognize that these returns are not the
same as actual year-by-year returns. To illustrate the components of overall
performance, the Fund may separate its cumulative and average annual returns
into income results and capital gain or loss.
The Fund's advertisements may refer to ratings and rankings among
similar funds by independent evaluators such as Morningstar, Lipper Analytical
Services, Inc. or CDA/Weisenberger. In addition, the Fund's performance may be
compared to recognized indices or market performance. Comparative material found
in the Fund's advertisements, sales literature or reports to shareholders may
contain performance ratings. These are not to be considered representative or
indicative of future performance.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
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<PAGE>
OAK HALL(R)
SMALL CAP
CONTRARIAN
FUND
Prospectus
February 12, 1998
[LOGO]
<PAGE>
OAK HALL(R) SMALL CAP CONTRARIAN FUND
- --------------------------------------------------------------------------------
Investment Advisor: Account Information and
Oak Hall Capital Advisors, L.P. Shareholder Servicing:
122 East 42nd Street Forum Financial Corp.
New York, New York 10005 Two Portland Square
(212) 622-1996 Portland, Maine 04101
800-625-4255
207-879-0001
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
February 12, 1998
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information ("SAI") supplements the Prospectus dated
February 12, 1998 offering shares of Oak Hall Small Cap Contrarian Fund (the
"Fund") (formerly, Oak Hall Equity Fund) and should be read only in conjunction
with the Fund's Prospectus, a copy of which may be obtained without charge by
contacting Forum Financial Corp. at the address listed above.
TABLE OF CONTENTS
PAGE
1. Investment Policies
and Limitations.................................. 2
2. Performance Data................................... 11
3. Management......................................... 12
4. Determination of Net Asset Value................... 16
5. Portfolio Transactions............................. 17
6. Custodian.......................................... 17
7. Additional Purchase and
Redemption Information........................... 18
8. Taxation........................................... 18
9. Other Matters...................................... 19
Appendix A - Description of Securities Ratings
Appendix B - Control Persons and Principal Holders of Securities
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. INVESTMENT POLICIES AND LIMITATIONS
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P") are private services that provide ratings of the credit quality of debt
obligations, including convertible securities. A description of the range of
ratings assigned to corporate bonds, including convertible securities by Moody's
and S&P is included in Appendix A to this Statement of Additional Information.
The Fund may use these ratings in determining whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced. Oak Hall Capital Advisors, L.P. (the "Adviser") will
consider such an event in determining whether the Fund should continue to hold
the obligation. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Also, rating agencies may fail to make timely changes in credit ratings in
response to subsequent events, so that an issuer's current financial condition
may be better or worse than the rating indicates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Although no
securities investment is without some risk, investment in convertible securities
generally entails less risk than in the issuer's common stock. However, the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
2
<PAGE>
Convertible securities which are rated b by Moody's generally lack
characteristics of a desirable investment. Convertible securities which are
rated B by S&P are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation.
WARRANTS
The Fund may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. To the extent
that the market value of the security that may be purchased upon exercise of the
warrant rises above the exercise price, the value of the warrant will tend to
rise. To the extent that the exercise price equals or exceeds the market value
of such security, the warrants will have little or no market value. If a warrant
is not exercised within the specified time period, it will become worthless and
the Fund will lose the purchase price paid for the warrant and the right to
purchase the underlying security. The Fund may not invest more than 2% of its
net assets in warrants not traded on the American or New York Stock Exchange.
TEMPORARY DEFENSIVE POSITION
When the Adviser believes that business or financial conditions warrant, the
Fund may assume a temporary defensive position. For temporary defensive
purposes, the Fund may invest without limit in cash or in investment grade cash
equivalents, including (i) short-term obligations of the U.S. Government and its
agencies or instrumentalities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of commercial banks doing
business in the United States that have, at the time of investment, total assets
in excess of one billion dollars (or the equivalent in other currencies) and
that are members of the Federal Deposit Insurance Corporation, (iii) commercial
paper of prime quality rated A-2 or higher by S&P or Prime-2 or higher by
Moody's or, if not rated, determined by the Adviser to be of comparable quality,
(iv) repurchase agreements covering any of the securities in which the Fund may
invest directly and (v) money market mutual funds.
FOREIGN CURRENCY FORWARD CONTRACTS
Investments in foreign companies will usually involve currencies of foreign
countries. In addition, the Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs. Accordingly,
the value of the assets of the Fund as measured in United States dollars may be
affected by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into foreign currency forward
contracts ("forward contracts") to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers and involve the risk that the other party to the contract may
fail to deliver currency when due, which could result in losses to the Fund. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Foreign exchange dealers realize a profit based
on the difference between the price at which they buy and sell various
currencies.
The Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
3
<PAGE>
Second, the Fund may enter into forward currency contracts in connection with
existing portfolio positions. For example, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Adviser does
not intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such contracts or the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
At or before the settlement of a forward currency contract, the Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been a change in forward contract prices. Additionally, although forward
contracts may tend to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
There is no systematic reporting of last sale information for foreign currencies
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market. The interbank market in foreign currencies is a global,
around-the-clock market.
Under normal circumstances, consideration of the prospect for currency parities
will be incorporated in a longer term investment decision made with regard to
overall diversification strategies. When required by applicable regulatory
guidelines, the Fund will set aside cash, U.S. Government securities or other
liquid assets in a segregated account with its custodian in the prescribed
amount.
HEDGING STRATEGIES
The Adviser may engage in certain options and futures strategies to attempt to
hedge the Fund's portfolio. The instruments in which the Fund may invest include
(i) options on securities, stock indexes and foreign currencies, (ii) stock
index and foreign currency futures contracts ("futures contracts"), and (iii)
options on futures contracts. Use of these instruments is subject to regulation
by the Securities and Exchange Commission (the "SEC"), the several options and
futures exchanges upon which options and futures are traded, and the Commodities
Futures Trading Commission (the "CFTC"). No assurance can be given, however,
that any strategies will succeed.
The Fund will not use leverage in its hedging strategies. In the case of
transactions entered into as a hedge, the Fund will hold securities, currencies
or other options or futures positions whose values are expected to offset
("cover") its obligations thereunder. The Fund will not enter into a hedging
strategy that exposes the Fund to an obligation to another party unless it owns
either: (1) an offsetting ("covered") position or (2) cash, U.S. Government
securities or other liquid assets with a value sufficient at all times to cover
its potential obligations. When required by applicable regulatory guidelines,
the Fund will set aside cash, U.S. Government securities or other liquid assets
in a segregated account with its custodian in the prescribed amount. Any assets
used for cover or held in a segregated account cannot be sold or closed out
while the hedging strategy is outstanding, unless they are
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replaced with similar assets. As a result, there is a possibility that the use
of cover or segregation involving a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
The Fund is subject to the following restrictions in its use of options and
futures contracts. The Fund will not: (1) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the Fund's
total assets would be hedged through the use of options or futures contracts;
(2) purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets; or (3) purchase call
options if, as a result, the current value of options premiums for options
purchased would exceed 5% of the Fund's total assets.
OPTIONS STRATEGIES. The Fund may purchase put and call options written by others
and write (sell) put and call options covering specified securities, stock
index-related amounts or currencies. A put option (sometimes called a "standby
commitment") gives the buyer of the option, upon payment of a premium, the right
to deliver a specified amount of a security or currency to the writer of the
option on or before a fixed date at a predetermined price. A call option
(sometimes called a "reverse standby commitment") gives the purchaser of the
option, upon payment of a premium, the right to call upon the writer to deliver
a specified amount of a security or currency on or before a fixed date, at a
predetermined price. The predetermined prices may be higher or lower than the
market value of the underlying currency or security. The Fund may buy or sell
both exchange-traded and over-the-counter ("OTC") options. The Fund will
purchase or write an option only if that option is traded on a recognized U.S.
options exchange or if the Adviser believes that a liquid secondary market for
the option exists. When the Fund purchases an OTC option, it relies on the
dealer from which it has purchased the OTC option to make or take delivery of
the securities or currency underlying the option. Failure by the dealer to do so
would result in the loss of the premium paid by the Fund as well as the loss of
the expected benefit of the transaction. OTC options and the securities
underlying these options, currently are treated as illiquid securities.
The Fund may purchase call options on equity securities that the Adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. The Fund may similarly purchase put options
in order to hedge against a decline in market value of securities held in its
portfolio. The put enables the Fund to sell the underlying security at the
predetermined exercise price; thus the potential for loss to the Fund is limited
to the option premium paid. If the market price of the underlying security is
higher than the exercise price of the put, any profit the Fund realizes on the
sale of the security would be reduced by the premium paid for the put option
less any amount for which the put may be sold.
The Fund may write covered call options. The Fund may write call options on
behalf of the Fund when the Adviser believes that the market value of the
underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs. The Fund may
write covered put options only to effect closing transactions.
The Fund may purchase and write put and call options on stock indices in much
the same manner as the equity security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS. The Fund may take positions in
options on foreign currencies in order to hedge against the risk of foreign
exchange fluctuation on foreign securities the Fund holds in its portfolio or
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which it intends to purchase. Options on foreign currencies are affected by the
factors discussed in "Foreign Currency Forward Transactions" which influence
foreign exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, the Fund may be disadvantaged
by having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Fund may effectively
terminate its right or obligation under an option contract by entering into a
closing transaction. For instance, if the Fund wished to terminate its potential
obligation to sell securities or currencies under a call option it had written,
a call option of the same type would be purchased by the Fund. Closing
transactions essentially permit the Fund to realize profits or limit losses on
its options positions prior to the exercise or expiration of the option. In
addition:
(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of a stock index option, fluctuations in the
market sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, the Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by the Fund may result in material losses to
the Fund.
(4) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. A futures contract is a bilateral agreement wherein one
party agrees to accept, and the other party agrees to make, delivery of cash,
securities or currencies as called for in the contract at a specified future
date and at a specified price. For stock index futures contracts, delivery is of
an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the time of the contract and the close of
trading of the contract.
The Fund may sell stock index futures contracts in anticipation of a general
market or market sector decline that may adversely affect the market values of
the Fund's securities. To the extent that the Fund's portfolio correlates with a
given stock index, the sale of futures contracts on that index could reduce the
risks associated with a market decline and thus provide an alternative to the
liquidation of securities positions. The Fund may purchase a stock index futures
contract if a significant market or market sector advance is anticipated. These
purchases would serve as a temporary substitute for the purchase of individual
stocks, which stocks may then be purchased in the future.
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The Fund may purchase call options on a stock index future as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. The Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Fund may write covered call options on
stock index futures contracts as a partial hedge against a decline in the prices
of stocks held in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, the Fund may sell foreign currency futures contracts when
the Adviser anticipates a general weakening of foreign currency exchange rates
that could adversely affect the market values of the Fund's foreign securities
holdings. The Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited risk. The Fund may write call options on foreign currency
futures contracts as a partial hedge against the effects of declining foreign
exchange rates on the value of foreign securities.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING. No
price is paid upon entering into futures contracts; rather, the Fund is required
to deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash or U.S. Government securities generally equal to 5% or
less of the contract value. This amount is known as initial margin. Subsequent
payments, called variation margin, to and from the broker, would be made on a
daily basis as the value of the futures position varies. When writing a call on
a futures contract, variation margin must be deposited in accordance with
applicable exchange rules. The initial margin in futures transactions is in the
nature of a performance bond or good-faith deposit on the contract that is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied.
Holders and writers of futures and options on futures contracts can enter into
offsetting closing transactions, similar to closing transactions on options, by
selling or purchasing, respectively, a futures contract or related option with
the same terms as the position held or written. Positions in futures contracts
may be closed only on an exchange or board of trade providing a secondary market
for such futures contracts. For example, futures contracts on broad-based stock
indices can currently be entered into with respect to the Standard & Poor's 500
Stock Index on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Stock Index on the New York Futures Exchange, the Value Line Composite
Stock Index on the Kansas City Board of Trade and the Major Market Index of the
Chicago Board of Trade.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions. In such event, it may not be possible for the Fund to close a
position, and in the event of adverse price movements, the Fund would have to
make daily cash payments of variation margin. In addition:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
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(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying securities or currencies which causes
this situation to occur. As a result, a correct forecast of general market
trends still may not result in successful hedging through the use of future
contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. The Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, the Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents, and
the Fund may be required to pay any fees, taxes or charges associated with such
delivery which are assessed in the issuing country.
REGULATORY COMPLIANCE WITH RESPECT TO COMMODITY FUTURES CONTRACTS
AND COMMODITY OPTIONS
The Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. The Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however. that in
addition, with respect to positions in commodity futures and option contracts
not for bona fide hedging purposes, the Fund represents that the aggregate
initial margin and premiums required to establish these positions (subject to
certain exclusions) will not exceed 5% of the liquidation value of the Fund's
assets after taking into account unrealized profits and losses on any such
contract the Fund has entered into.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Fund sells a security
and simultaneously commits to repurchase that security from the buyer at an
agreed upon price on an agreed upon future date. The resale price in a reverse
repurchase agreement reflects a market rate of interest that is not related to
the coupon rate or maturity of the sold security. For certain demand agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based upon the prevailing overnight repurchase rate.
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Generally, a reverse repurchase agreement enables the 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 the 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
The Fund may purchase portfolio securities on a when-issued and purchase or sell
portfolio securities on forward commitment basis. When-issued or forward
commitment transactions arise when securities are purchased by the Fund with
payment and delivery to take place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time it
enters into the transaction. In those cases, the purchase price and the interest
rate payable on the securities are fixed on the transaction date and delivery
and payment may take place a month or more after the date of the transaction.
When the Fund enters into a forward commitment transaction, it becomes obligated
to purchase securities and it has all of the rights and risks attendant to
ownership of the security, although delivery and payment occur at a later date.
To facilitate such acquisitions, the Fund will maintain with its custodian a
separate account with portfolio securities in an amount at least equal to such
commitments.
At the time the Fund makes the commitment to purchase securities on a
when-issued or forward commitment basis, the Fund will record the transaction as
a purchase and thereafter reflect the value each day of such securities in
determining its net asset value. The value of the fixed income securities to be
delivered in the future will fluctuate as interest rates and the credit of the
underlying issuer vary. On delivery dates for such transactions, the Fund will
meet its obligations from maturities, sales of the securities held in the
separate account or from other available sources of cash. The Fund generally has
the ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition, it could, as with
the disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent the Fund engages in when-issued or delayed delivery transactions,
it will do so for the purpose of acquiring securities consistent with the Fund's
investment objectives and policies and not for the purpose of investment
leverage or to speculate in interest rate changes. The Fund will only make
commitments to purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund reserves
the right to dispose of the right to acquire these securities before the
settlement date if deemed advisable.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, the Fund might sell
securities which it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices, a
Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices inferior to the
current market values.
When-issued securities may include bonds purchased on a "when, as and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event, such as approval of a proposed financing by appropriate
municipal authorities. Any significant commitment of the Fund's assets committed
to the purchase of securities on a "when, as and if issued" basis may increase
the volatility of its net asset value. No when-issued or forward commitments
will be made by the Fund if, as a result, more than 10% of the value of the
Fund's total assets would be committed to such transactions.
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INVESTMENT LIMITATIONS
The Fund has adopted the following additional investment limitations which are
fundamental policies of the Fund and may not be changed without shareholder
approval. The Fund may not:
(1) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted to be incurred by the Fund. The deposit in
escrow of securities in connection with the writing of put and call
options, collateralized loans of securities and collateral arrangements
with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
(2) Borrow money, except that the Fund may enter into commitments to
purchase securities in accordance with its investment program,
including delayed-delivery and when-issued securities and reverse
repurchase agreements, provided that the total amount of any such
borrowing does not exceed 33 1/3% of the Fund's total assets.
(3) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purpose of
the Securities Act of 1933.
(4) Purchase or sell real estate or any interest therein, except that
the Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
(5) Purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent a Fund from purchasing or selling options and futures contracts
or from investing in securities or other instruments backed by physical
commodities).
(6) Issue senior securities except that: (a) the Fund may engage in
transactions that may result in the issuance of senior securities to
the extent permitted under applicable regulations and interpretations
of the Investment Company Act of 1940 ("1940 Act") or an exemptive
order; (b) the Fund may acquire securities to the extent otherwise
permitted by its investment policies, the acquisition of which may
result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; and
(c) subject to the restrictions set forth above, the Fund may borrow
money as authorized by the 1940 Act.
The Fund has adopted the following nonfundamental investment limitations that
may be changed by the Trust's Board of Trustees (the "Board of Trustees")
without shareholder approval. The Fund:
(1) May borrow money for temporary or emergency purposes in an amount
not exceeding 5% of the value of its total assets at the time when the
loan is made; provided that any such temporary or emergency borrowings
representing more than 5% of the Fund's total assets must be repaid
before the Fund may make additional investments.
(2) May not purchase securities on margin, except for the use of
short-term credit necessary for the clearance of purchases and sales of
portfolio securities, but the Fund may make margin deposits in
connection with permitted transactions in options, futures and options
on futures.
(3) May not invest in securities of another registered investment
company except to the extent permitted by the 1940 Act.
(4) May not invest in interests in oil or gas or interests in other
mineral exploration or development programs.
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(5) May not invest in or hold securities of any issuer if officers and
directors of the Trust or the Adviser, individually owning beneficially
more than 1/2 of 1% of the securities of the issuer, in the aggregate
own more than 5% of the issuer's securities.
(6) 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.
(7) May not invest more than 15% of its net assets in securities that
are not readily marketable, including repurchase agreements maturing in
more than seven days.
Except as required by the 1940 Act, whenever an amended or restated investment
policy or limitation states a maximum percentage of the Fund's assets that may
be invested, such percentage limitation will be determined immediately after and
as a result of the acquisition of such security or other asset. Any subsequent
change in values, assets or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment
limitations. If the Fund were to invest in money market funds as described in
limitation (c), it would indirectly incur its proportionate share of the
advisory and other expenses of the money market fund.
FUNDAMENTAL POLICIES
Those policies of the Fund which are deemed to be fundamental may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities. A majority of the Fund's outstanding voting securities, as
defined in the 1940 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.
2. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's net asset value, yield and total return will
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
The Fund's total return for the fiscal year ended March 31, 1997 was 1.40%. This
figure represents unannualized total return for the nine month period June 30,
1996 through March 31, 1997. Total return for the twelve months ending March 31,
1997 was 3.0%. For the period beginning July 13, 1992 (the commencement of
public operations) to March 31, 1997, the Fund's average annual total return was
10.92%.
In performance advertising the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). The Fund may also compare any of its performance
information with the performance of recognized stock, bond and other 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
Fund may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Fund may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of the
Fund and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
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TOTAL RETURN CALCULATIONS
The Fund may advertise total return. Total returns quoted in advertising reflect
all aspects of the Fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in the Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV; where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 payment made
at the beginning of the applicable period.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total
return above.
3. MANAGEMENT
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Chairman and President (age 56)
President and Director, Forum Financial Services, Inc. (a registered
broker-dealer), Forum Administrative Services, LLC (a mutual fund
administrator), Forum Financial Corp. (a registered transfer agent) and
Forum Advisors, Inc. (a registered investment adviser). Mr. Keffer is a
Trustee and/or officer of various registered investment companies for which
Forum Administrative Services, LLC serves as manager or administrator and
for which Forum Financial Services, Inc. serves as distributor. His address
is Two Portland Square, Portland, Maine 04101.
12
<PAGE>
Costas Azariadis, Trustee (age 53)
Professor of Economics, University of California, Los Angeles, since July
1992. Prior thereto, Dr. Azariadis was Professor of Economics at the
University of Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard Avenue, Los Angeles,
California 90024.
James C. Cheng, Trustee (age 54)
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. Prior thereto, Mr. Cheng was President and
Chief Executive Officer of Network Dynamics, Incorporated (a software
development company). His address is 27 Temple Street, Belmont,
Massachusetts 02178.
J. Michael Parish, Trustee (age 53)
Partner at the law firm of Winthrop Stimson Putnam & Roberts since 1989.
Prior thereto, he was a partner at LeBoeuf, Lamb, Leiby & MacRae, a law
firm of which he was a member from 1974 to 1989. His address is 40 Wall
Street, New York, New York 10005.
Mark D. Kaplan, Vice President, Assistant Treasurer and Assistant Secretary (age
42)
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.
David I. Goldstein, Secretary (age 36)
Counsel, Forum Financial Services, Inc., with which he has been associated
since 1991. Prior thereto, Mr. Goldstein was associated with the law firm
of Kirkpatrick & Lockhart. Mr. Goldstein is also Secretary or Assistant
Secretary of various registered investment companies for which Forum
Administrative Services, LLC or Forum Financial Services, Inc. serves as
manager, administrator and/or distributor. His address is Two Portland
Square, Portland, Maine 04101.
Max Berueffy, Assistant Secretary (age 46)
Senior Counsel, Forum Financial Services, Inc., with which he has been
associated since 1994. Prior thereto, Mr. Berueffy was on the staff of the
U.S. Securities and Exchange Commission for seven years, first in the
appellate branch of the Office of the General Counsel, then as a counsel to
Commissioner Grundfest and finally as a senior special counsel in the
Division of Investment Management. Mr. Berueffy is also Secretary or
Assistant Secretary of various registered investment companies for which
Forum Administrative Services, LLC or Forum Financial Services, Inc. serves
as manager, administrator and/or distributor. His address is Two Portland
Square, Portland, Maine 04101.
Cheryl O. Tumlin, Assistant Secretary (age 31)
Assistant Counsel, Forum Financial Services, Inc., with which she has been
associated since July 1996. Prior thereto, Ms. Tumlin was on the staff of
the U.S. Securities and Exchange Commission as an attorney in the Division
of Market Regulation and prior thereto Ms. Tumlin was an associate with the
law firm of Robinson Silverman Pearce Aronsohn & Berman in New York, New
York. Ms. Tumlin is also Assistant Secretary of various registered
investment companies for which Forum Administrative Services, LLC or Forum
Financial Services, Inc. serves as manager, administrator and/or
distributor. Her address is Two Portland Square, Portland, Maine 04101.
13
<PAGE>
M. Paige Turney, Assistant Secretary (age 28).
Fund Administrator, Forum Financial Services, Inc., with which she has been
associated since 1995. Ms. Turney was employed from 1992 as a Senior Fund
Accountant with First Data Corporation in Boston, Massachusetts. Ms. Turney
is also Assistant Secretary of various registered investment companies for
which Forum Administrative Services, LLC or Forum Financial Services, Inc.
serves as manager, administrator and/or distributor. Prior thereto she was
a student at Montana State University Her address is Two Portland Square,
Portland, Maine 04101.
TRUSTEE COMPENSATION. Each Trustee of the Trust (other than John Y. Keffer, who
is an interested person of the Trust) is paid $1,000 for each Board meeting
attended (whether in person or by electronic communication) and is paid $1,000
for each committee meeting attended on a date when a Board meeting is not held.
As of March 31, 1997, in addition to $1,000 for each Board meeting attended,
each Trustee receives $100 per active portfolio of the Trust. To the extent a
meeting relates to only certain portfolios of the Trust, Trustees are paid the
$100 fee only with respect to those portfolios. Trustees are also reimbursed for
travel and related expenses incurred in attending meetings of the Board. No
officer of the Trust is compensated by the Trust.
The following table provides the aggregate compensation paid to each Trustee.
The Trust has not adopted any form of retirement plan covering Trustees or
officers. Information is presented for the fiscal year ended March 31, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Accrued Annual
Aggregate Pension Benefits Upon Total
Trustee Compensation Benefits Retirement Compensation
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $4,000 None None $4,000
Mr. Cheng $4,000 None None $4,000
Mr. Parish $4,000 None None $4,000
</TABLE>
THE INVESTMENT ADVISER
Pursuant to an investment advisory agreement with the Trust (the "Advisory
Agreement"), the Fund's investment adviser, Oak Hall Capital Advisors, L.P.
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Fund's investments and effecting portfolio
transactions for the Fund. The Advisory Agreement will remain in effect for a
period of twelve months from the date of its effectiveness and will continue in
effect thereafter only if its continuance is specifically approved at least
annually by the Board of Trustees or by vote of the shareholders, and in either
case by a majority of the Trustees who are not parties to the Advisory Agreement
or interested persons of any such party, at a meeting called for the purpose of
voting on the Advisory Agreement.
The Advisory Agreement is terminable without penalty by the Trust with respect
to the Fund on 60 days' written notice when authorized either by vote of its
shareholders or by a vote of a majority of the Board of Trustees, or by the
Adviser on 60 days' written notice to the Trust, and will automatically
terminate in the event of its assignment. The Advisory Agreement also provides
that, with respect to the Fund, the Adviser shall not be liable for any error of
judgment or mistake of law or for any act or omission in the performance of its
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Adviser may render services to others.
In addition to receiving its advisory fee from the Fund of 0.75% of the Fund's
average daily net assets, the Adviser may also act and be compensated as
investment manager for its clients with respect to assets which are invested in
the Fund. In some instances the Adviser may elect to credit against any
investment management fee received from a client who is also a shareholder in
the Fund an amount equal to all or a portion of the fees received by the Adviser
or any affiliate of the Adviser from the Fund with respect to the client's
assets invested in the Fund.
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<PAGE>
The following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between the Fund and Oak Hall Capital Advisors, L.P., the
amount of fee that was waived by the Adviser, if any, and the actual fee
received by the Adviser. The data is for the past three fiscal years.
<TABLE>
<S> <C> <C> <C>
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
------- ------ --------
Oak Hall Small Cap Contrarian Fund
Year Ended March 31, 1997 $54,263 $54,263 $0
Year Ended June 30, 1996 110,257 64,502 45,755
Year Ended June 30, 1995 194,367 0 194,367
</TABLE>
ADMINISTRATION
Pursuant to an Administration Agreement approved by the Board of Trustees on
June 19, 1997, Forum Administrative Services, LLC ("FAdS") supervises the
overall management of the Trust (which includes, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent, fund accountant and custodian and arranging for
maintenance of books and records of the Trust). FAdS also provides persons
satisfactory to the Board of Trustees to serve as officers of the Trust. Those
officers, as well as certain other employees and Trustees of the Trust, may be
directors, officers or employees of (and persons providing services to the Trust
may include) FAdS, the Adviser or their respective affiliates. In addition,
under the Agreement, FAdS is directly responsible for managing the Trust's
regulatory and legal compliance and overseeing the preparation of its
registration statement.
Until May 31, 1994, Stone Bridge Trust Company ("SBTC"), as administrator, and
FFSI, as sub-administrator, supervised the overall management of the Fund, which
was then a series of The Stone Bridge Funds, Inc., a registered management
investment company (the "Company"), including the administrative duties
described above, pursuant to a Co-Administration Agreement and a Distribution
and Administration Agreement, respectively. Effective June 1, 1994, the Company
entered into an Administration and Distribution Agreement with FFSI under which
FFSI provided the administration and distribution services it has provided since
the Fund's inception and assumed the administrative responsibilities formerly
performed by SBTC. As of November 25, 1996, administrative services were
provided to the Fund pursuant to a Management and Distribution Agreement between
the Trust and FFSI. Effective June 19, 1997, administrative services are
provided by FAdS under the current Administration Agreement with the Trust.
For the fiscal years ending March 31, 1997 and June 30, 1996 and 1995, the fees
under the former Administration and Distribution Agreement and Management and
Distribution Agreement were $18,088, $36,752 and $75,871, respectively.
DISTRIBUTION
FFSI acts as distributor of the Fund's shares pursuant to a Distribution
Agreement with the Trust approved by the Board on June 19, 1997 (the
"Distribution Agreement"). The Distribution Agreement will remain in effect for
a period of twelve months from the date of its effectiveness and will continue
in effect thereafter only if its continuance is specifically approved at least
annually by the Board of Trustees or by the shareholders and, in either case, by
a majority of the Trustees who are not parties to the agreement or interested
persons of any such party and do not have any direct or indirect financial
interest in the Distribution Agreement.
The Distribution Agreement terminates automatically if it is assigned and may be
terminated without penalty with respect to the Fund by vote of the Fund's
shareholders or by either party to the agreement on 60 days' written notice to
the Trust. The Distribution Agreement also provides that FFSI shall not be
liable for any error of judgment or mistake of law or for any act or omission in
the administration or management of the Trust, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Distribution
Agreement.
15
<PAGE>
On December 5, 1997, the Board of Trustees terminated a distribution plan
previously adopted by the Board of Trustees in accordance with Rule 12b-1 under
the 1940 Act ("Plan"). The Plan required the Trust and FFSI to prepare, at least
quarterly, written reports setting forth all amounts expended for distribution
purposes by FFSI pursuant to the Plan and identifying the distribution
activities for which those expenditures were made. For the fiscal year ended
March 31, 1997, $1,184.01 was expended pursuant to the Plan for the printing and
mailing of prospectuses to other than current shareholders of the Fund and
$61.77 was expended in telephone charges related to prospective investors.
TRANSFER AGENT AND FUND ACCOUNTANT
Forum Financial Corp. (the "Transfer Agent") acts as transfer agent and dividend
disbursing agent of the Trust pursuant to a Transfer Agency Agreement. For its
services, the Transfer Agent receives with respect to the Fund an annual fee of
$12,000 plus $25 per shareholder account. Pursuant to a Fund Accounting
Agreement, the Forum Accounting Services, LLC provides the Fund with portfolio
accounting, including the calculation of the Fund's net asset value. For these
services, the Transfer Agent receives with respect to the Fund an annual fee of
$36,000 plus certain surcharges based upon the amount and type of the Fund's
portfolio transactions and positions.
Both the Transfer Agency Agreement and Fund Accounting Agreement were approved
by the Board of Trustees, including a majority of the Trustees who are not
parties to the respective agreements or interested persons of any such party, at
a meeting called for the purpose of voting on the respective agreements. Each of
these agreements will remain in effect for a period of one year and will
continue in effect thereafter only if its continuance is specifically approved
at least annually by the Board of Trustees or by a vote of the shareholders and
in either case by a majority of the Trustees who are not parties to the
respective agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the respective agreement.
EXPENSES
Subject to the obligations of the Adviser to reimburse the Trust for its excess
expenses as described in the Prospectus, the Trust has, under the Advisory
Agreement, confirmed its obligation to pay all its other expenses.
The Trust's expenses include: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Trust's custodian and transfer agent; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining corporate
existence; costs of preparing and printing the Trust's prospectuses, statements
of additional information and shareholder reports and delivering them to
existing shareholders; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; compensation of the Trust's trustees;
compensation of the Trust's officers and employees who are not employees of the
Adviser, FAdS or their respective affiliates and costs of other personnel
performing services for the Trust; costs of corporate meetings; Securities and
Exchange Commission registration fees and related expenses; state securities
laws registration fees and related expenses; the fees payable under the Advisory
Agreement, the Administration Agreement and the Distribution and
Sub-Administration Agreement; and any fees and expenses payable pursuant to the
Plan.
OTHER INFORMATION
As of February 10, 1998, the officers and directors of the Trust owned as a
group owned less than 1% of the outstanding shares of the Fund. Also as of that
date, Appendix 2 presents information as to control persons and principal
holders of shares of the Registrant's series.
4. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00 p.m.,
Eastern time, on each Business Day (as defined in the Prospectus), by dividing
the value of the Fund's net assets (i.e., the value of its securities and other
16
<PAGE>
assets less its liabilities, including expenses payable or accrued) by the
number of shares outstanding at the time the determination is made. The Trust
does not determine net asset value on the following holidays: New Year's Day,
Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
5. PORTFOLIO TRANSACTIONS
The Fund generally purchases and sells securities through brokers who charge
commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commission, including certain dealer spreads, paid
in connection with Fund transactions, the Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Adviser may also take into account
payments made by brokers effecting transactions for the Fund (i) to the Fund or
(ii) to other persons on behalf of the Fund for services provided to it for
which it would be obligated to pay.
In addition, the Adviser may give consideration to research services furnished
by brokers to the Adviser for its use and may cause the Fund to pay these
brokers a higher amount of commission than may be charged by other brokers. Such
research and analysis may be used by the Adviser in connection with services to
clients other than the Fund, and the Adviser's fee is not reduced by reason of
the Adviser's receipt of the research services.
Investment decisions for the Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, the Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by the Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for the Fund and for other investment companies and accounts
managed by the Adviser occur contemporaneously, the purchase or sale orders may
be aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
The Fund contemplates that, consistent with the policy of obtaining best net
results, brokerage transactions may be conducted through the Adviser's
affiliates, affiliates of those persons or Forum. The Advisory Agreement
authorizes the Adviser to so execute trades. The Board of Trustees has adopted
procedures in conformity with applicable rules under the Investment Company Act
to ensure that all brokerage commissions paid to these persons are reasonable
and fair. For the Trust's fiscal years ended March 31, 1997, and June 30, 1996
and 1995 the aggregate brokerage commissions incurred by the Fund were $66,316,
$198,598 and $450,930, respectively, of which 0%, 5.1% and 11.37% ($0, $10,095
and $51,250), respectively, was paid to American Securities Corporation, an
affiliate of the Adviser. During those periods, approximately 0%, 4.67% and
5.66%, respectively, of the total dollar amount of transactions by the Fund
involving the payment of commissions were effected through American Securities
Corporation.
6. CUSTODIAN
Pursuant to a Custodian Agreement (the "Custodian Agreement"), The First
National Bank of Boston, P.O. Box 1959, Boston, Massachusetts, 02105, acts as
the custodian of the Funds' assets. The custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, determining income
and collecting interest on Fund investments. The Fund's custodian employs
foreign subcustodians to provide custody of the Fund's foreign assets in
accordance with applicable regulations. The custodian is paid a fee at an annual
rate of 0.02% of the first $100 million of the average daily net assets of the
Fund, 0.015% on the next $100 million of the average daily net assets of the
Fund and . 01% of the average daily net assets over $200 million, and certain
transaction fees.
17
<PAGE>
7. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by FFSI at the net asset value
next determined without any sales charge. As of March 31, 1997, the Fund's net
asset value was $13.80.
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partly in portfolio securities if the Board of Trustees determines
economic conditions exist which would make payment in cash detrimental to the
best interests of the Fund. If payment for shares redeemed is made wholly or
partly in portfolio securities, brokerage costs may be incurred by the
shareholder in converting the securities to cash. The Trust has filed an
election with the Securities and Exchange Commission pursuant to which the Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily to reimburse
the Fund for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to transactions effected for the benefit of a shareholder which
is applicable to the Fund's shares as provided in the Prospectus from time to
time.
Shareholders' rights of redemption may not be suspended, except (i) for any
period during which the New York Stock Exchange, Inc. is closed (other than
customary weekend and holiday closings) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, (ii) for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by the Fund of its securities
is not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(iii) for such other period as the Securities and Exchange Commission may by
order permit for the protection of the shareholders of the Fund.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that (i) are not restricted as to transfer either by law
or liquidity of market and (ii) have a value which is readily ascertainable (and
not established only by valuation procedures).
8. TAXATION
The Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. Such qualification does not, of course, involve governmental
supervision of management or investment practices or policies. Investors should
consult their own counsel for a complete understanding of the requirements the
Fund must meet to qualify for such treatment. The information set forth in the
Prospectus and the following discussion relate solely to Federal income taxes on
dividends and distributions by the Fund and assumes that the Fund qualifies as a
regulated investment company. Investors should consult their own counsel for
further details and for the application of state and local tax laws to his or
her particular situation.
A portion of the dividends paid out of the Fund's net ordinary income may be
eligible for the dividends received deduction allowed to corporations.
For federal income tax purposes, gains and 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 receivables or
pays such liabilities are treated as ordinary income or ordinary loss.
Similarly, gains or losses from the disposition of foreign currencies, from the
disposition of debt securities denominated in a foreign currency, or from the
disposition of a forward contract denominated in a foreign currency which are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also are treated as
ordinary gain or loss.
18
<PAGE>
For federal income tax purposes, when equity or over-the-counter put and call
options which the Fund has purchased or sold or expire unexercised, the premiums
paid by the Fund give rise to short or long-term capital losses at the time of
sale or expiration (depending on the Fund's holding period with respect to the
put or call). When put and call options written by the Fund expire unexercised,
the premiums received by the Fund give rise to short-term capital gains at the
time of expiration. When the Fund exercises a call, the purchase price of the
security purchased is increased by the amount of the premium paid by the Fund.
When the Fund exercises a put, the proceeds from the sale of the related
security are decreased by the premium paid. When a put or call written by the
Fund is exercised, the purchase price (selling price in the case of a call) of
the security is decreased (increased in the case of a call) for tax purposes by
the premium received. There may be short or long term gains and losses
associated with closing purchase or sale transactions.
In addition, the use of certain hedging strategies such as writing and
purchasing options, futures contracts and options on futures contracts, and
entering into foreign currency forward contracts and other foreign instruments,
involves complex rules that will determine for income tax purposes the character
and timing of recognition of income received in connection therewith.
9. OTHER MATTERS
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Trust
are passed upon by Seward & Kissel, 1200 G. Street, NW, Washington, DC 20005.
Deloitte & Touche, LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, have been selected as auditors for the Trust.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended March 31,
1997 (included in the Annual Report to Shareholders), which are delivered along
with this Statement of Additional Information, are incorporated herein by
reference.
19
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE DEBT)
(A) MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues,
as follows:
Bonds which are rated Aaa are judged by Moody's to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1, and B1.
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<PAGE>
(B) STANDARD & POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as
follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas, they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds rated `BB' have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
Bonds rated `B' have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal payments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
Bonds rated `CCC' have currently identifiable vulnerability to default,
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
The `C' rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued. The rating
`Cl' is reserved for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor
has filed for bankruptcy. Bonds rated `D' are in payment default. The `D' rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
believes that such payments will made during such grace period. The `D' rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show the relative standing within the rating
category.
PREFERRED STOCK
(A) MOODY'S
Moody's rates preferred stock issues as follows:
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<PAGE>
An issue which is rated aaa is a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue which is rated "aa" is a high-grade preferred stock. This
rating indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "a" is an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated "baa" is a medium-grade preferred stock,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
An issue which is rated "ba" has speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor
prospects of ever attaining any real investment standing. This is the lowest
rated class of preferred or preference stock.
(B) STANDARD & POOR'S
Standard & Poor's rates preferred stock issues as follows:
"AAA" is the highest rating that is assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas if normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
22
<PAGE>
The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
To provide more detailed indications of preferred stock quality, the
ratings from "AA" to "B" may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
23
<PAGE>
APPENDIX B
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 10, 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 11.96% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 8.13% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.15% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.13% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
AUSTIN GLOBAL EQUITY FUND
- -------------------------
Administrative Data Management Corp. 95.46% 900,625.402
Attn: Sue Needell
581 Main Street
Woodbridge NJ 07095-1198
DAILY ASSETS TREASURY FUND
INSTITUTIONAL SERVICE SHARES
- ----------------------------
Forum Fi 100.00% 10.000
Forum Financial Group
Two Portland Square
Portland ME 04101
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
- --------------------
Forum Fi 100.00% 10.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co #02-6004105 100.00% 4,154,555.490
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
- --------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co #02-6004105 100.00% 70,805,935.890
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
INVESTORS BOND FUND
- -------------------
Firstrust Co. 73.33% 5,802,674.028
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 18.35% 1,452,104.356
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
FORUM TAXSAVER BOND FUND
- ------------------------
First Trust Co. 50.98% 1,823,877.187
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 25.55% 913,993.962
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 5.76% 206,021.417
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.16% 184,652.189
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
PAYSON BALANCED FUND
- --------------------
ALA & Co. 15.39% 248,375.143
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
Payse & Co. 15.13% 244,299.596
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
MAINE MUNICIPAL BOND FUND
- -------------------------
Administrative Data Management Corp. 40.63% 1,015,080.634
Attn: Sue Needell
581 Main Street
Woodbridge NJ 07095-1198
DAILY ASSETS TREASURY FUND
INSTITUTIONAL SERVICES SHARES
- -----------------------------
H.M. Payson & Co. Custody Account 40.07% 18,918,278.950
FBO Customer Funds Under Management
PO Box 31
Portland ME 04112
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
DAILY ASSETS TREASURY FUND
INSTITUTIONAL SERVICES SHARES (CONTINUED)
- -----------------------------------------
H.M. Payson & Co. Trust Account 39.63% 18,709,475.200
FBO Trust Funds Under Management
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
- -----------------
Payse & Co. 21.65% 194,687.710
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
ALA & Co. 17.47% 157,110.127
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
NEW HAMPSHIRE BOND FUND
- -----------------------
Independence Trust 43.00% 503,378.386
Attn: Linda Feliciano
200 Bedford Street 5th Floor
Manchester NH 03105-0119
Administrative Data Management Corp. 35.22% 412,367.462
Attn: Sue Needell
581 Main Street
Woodbridge NJ 07095-1198
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICES SHARES
- -----------------------------
H.M. Payson & Co. Custody Account 56.90% 7,166,186.340
FBO Customer Funds Under Management
PO Box 31
Portland ME 04112
H.M. Payson & Co. Trust Account 37.44% 4,715,126.140
FBO Trust Funds Under Management
PO Box 31
Portland ME 04112
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
INVESTORS EQUITY FUND
- ---------------------
Allagash & Co. 96.61% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
INTERNATIONAL EQUITY FUND
- -------------------------
Forum Fi 67.80% 500.000
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
INVESTORS GROWTH FUND
- ---------------------
Firstrust Co. 100.00% 2,863,713.851
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
- ----------------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICES SHARES
- -----------------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS TREASURY OBLIGATIONS
INSTITUTIONAL SERVICES SHARE
- ----------------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
EQUITY INDEX FUND
- -----------------
Allagash & Co. 99.83% 430,724.526
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
QUADRA VALUE EQUITY FUND
- ------------------------
HMK Enterprises, Inc. 45.47% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
Charlesgate West Management Inc. 17.79% 16,561.068
Attn: Paul Malnati
2 Charlesgate West
Boston MA 02215
Bank of Boston IRA R/O Custodian 9.02% 8,398.994
FBO Eileen Delasandro Levi
8 Paige Street
Hingham MA 02043
Bank of Boston IRA R/O Cust. 5.42% 5,047.801
FBO Howard H. Stevenson
PO Box 277
Southborough MA 01772-0003
Lester I. Tenney as Ttee 5.33% 4,962.848
FBO Lester I. Tenney & Betty S. Tenney
Living Trust U/A/D 09/13/83
4513 E. Walatown
Phoenix AZ 85044
A S Gibbs Ttee 5.02% 4,669.392
FBO The Alfred S. Gibbs Family Trust
U/A/D 03/01/1991
1980 Pine Tree Way NW
Stuart FL 34994-8834
QUADRA INTERNATIONAL EQUITY FUND
- --------------------------------
Bank of Boston IRA R/O Cust. 37.64% 12,040.312
FBO Howard H. Stevenson
PO Box 277
Southborough MA 01772-0003
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
QUADRA INTERNATIONAL EQUITY FUND (CONTINUED)
- --------------------------------------------
Bank of Boston SEP IRA Cust. 32.67% 10,450.397
FBO William Gould
116 Old Wharf Road
North Chatam MA 02650
Bank of Boston IRA Cust. 12.11% 3,874.428
FBO Nancy Hsiung
5 Ingraham Road
Wellesley MA 02181
Eileen Delasandro Levi Ttee 6.39% 2,045.028
FBO Eileen Delasandro Levi Keogh Plan
DTD 12/31/95
8 Paige Street
Hingham MA 02043
Donald A. Levi Ttee 6.39% 2,045.028
FBO Donald A. Levi Keogh Plan
DTD 12/31/95 Amended
8 Paige Street
Hingham MA 02043
QUADRA GROWTH FUND
- ------------------
John E. Rosenthal 71.49% 80,304.108
1212 West Street
Carlisle MA 01741
Nancy Hsiung 6.69% 7,512.935
5 Ingraham Road
Wellesley MA 02181
Bank of Boston IRA R/O Cust. 5.18% 5,821.412
FBO Howard H. Stevenson
PO Box 277
Southborough MA 01772-0003
Donald A. Levi Ttee 5.16% 5,792.573
FBO Donald A. Levi Keogh Plan
DTD 12/31/95 Amended
8 Paige Street
Hingham MA 02043
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
EMERGING MARKETS FUND
- ---------------------
Forum Fi 65.52% 500.000
Forum Financial Group
Two Portland Square
Portland ME 04101
Donaldson Lufkin & Jenrette Sec Corp. 34.48% 263.158
Mutual Funds Dept. - 5th Floor
PO Box 2052
Jersey City NJ 07303
</TABLE>
31
