As filed with the Securities and Exchange Commission on July 31, 1998
File Nos. 2-67052 and 811-3023
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 64
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 66
FORUM FUNDS
(Formerly "Forum Funds, Inc.")
Two Portland Square
Portland, Maine 04101
(207) 879-1900
Leslie K. Klenk, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
Copies to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on ______ pursuant to Rule 485, paragraph (b)
[ ] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on ______ pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on ______ pursuant to Rule 485, paragraph (a)(2)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being registered: Shares of Investors High Grade Bond Fund,
Investors Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Payson Value Fund, Payson Balanced Fund, Austin Global
Equity Fund, Oak Hall Small Cap Contrarian Fund, Investors Growth Fund, Quadra
Value Equity Fund and Quadra Growth Fund.
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(Prospectuses offering shares of Investors High Grade Bond Fund, Investors
Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond
Fund, Payson Value Fund, Payson Balanced Fund, Austin Global Equity Fund,
Oak Hall Small Cap Contrarian Fund, Investors Growth Fund, Quadra Value
Equity Fund and Quadra Growth Fund )
PART A
<TABLE>
<S> <C> <C>
Form N-1A
Item No. Location in Prospectus
- -------- ----------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Prospectus Summary; Investment Objectives and
Policies; Additional Investment Policies; Other
Information - The Trust and It's Shares
Item 5. Management of the Fund Prospectus Summary; Management
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Investment Objectives and Policies; Distributions and
Tax Matters; Management - Shareholder Servicing;
Other Information - The Trust and
its Shares
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; Other
Information - Determination of Net Asset Value
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(All other Prospectuses)
PART A
Not Applicable in this Filing
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(SAIs offering shares of Investors High Grade Bond Fund, Investors Bond Fund,
TaxSaver Bond Fund, Maine Municipal Bond Fund; New Hampshire Bond Fund,
Investors Growth Fund, Payson Value Fund, Payson Balanced Fund, Austin Global
Equity Fund and Oak Hall Small Cap Contrarian Fund)
PART B
<TABLE>
<S> <C> <C>
Form N-1A
Item No. Location in Statement of Additional Information
- -------- -----------------------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History General; Management
Item 13. Investment Objectives and Other Policies Investment Policies; Additional Investment
Policies
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of General
Securities
Item 16. Investment Advisory and Other Services Management; Other Information - Counsel,
Custodian, Independent Auditors
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities General; Determination of Net Asset Value
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value; Additional
Securities Being Offered Purchase and Redemption Information
Item 20. Tax Status Tax Matters
Item 21. Underwriters Management
Item 22. Calculation of Performance Data Performance Data
Item 23. Financial Statements Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(SAI offering shares of Quadra Value Equity Fund and Quadra Growth Fund)
PART B
<TABLE>
<S> <C> <C>
Form N-1A
Item No. Location in Statement of Additional Information
- -------- -----------------------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Management
Item 13. Investment Objectives and Other Policies Investment Policies; Additional Investment
Policies
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of General
Securities
Item 16. Investment Advisory and Other Services Management; Other Information - Counsel,
Custodian, Independent Accountants
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities General; Determination of Net Asset Value
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value; Additional
Securities Being Offered Purchase and Redemption Information
Item 20. Tax Status Tax Matters
Item 21. Underwriters Management
Item 22. Calculation of Performance Data Performance Data
Item 23. Financial Statements Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(All other SAIs)
PART B
Not Applicable in this Filing
<PAGE>
<PAGE>
[GRAPHIC]
PROSPECTUS
PAYSON
VALUE FUND
PAYSON
BALANCED FUND
FORUM
FUNDS
AUGUST 1, 1998
<PAGE>
FORUM FUNDS
PAYSON VALUE FUND
PAYSON BALANCED FUND
PROSPECTUS
August 1, 1998
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 805-8258
- --------------------------------------------------------------------------------
This Prospectus offers shares of Payson Value Fund and Payson Balanced Fund (the
"Funds"), diversified portfolios of Forum Funds (the "Trust"), which is an
open-end, management investment company.
PAYSON VALUE FUND. The investment objective of Payson Value Fund is to seek
high total return (capital appreciation and current income) by investing in
a diversified portfolio of common stock and securities convertible into
common stock which appear to be undervalued in the marketplace.
PAYSON BALANCED FUND. The investment objective of Payson Balanced Fund is
to seek a combination of high current income and capital appreciation by
investing in common stock and securities convertible into common stock
which appear to be undervalued and in high grade senior debt securities,
including U.S. Government, government agency and corporate obligations.
Shares of the Funds are offered to investors at a price equal to the next
determined net asset value plus a maximum sales charge of 4.0% of the total
public offering price (4.17% of the amount invested).
This Prospectus sets forth concisely the information a prospective investor
should know about the Trust and the Funds before investing. The Trust has filed
with the Securities and Exchange Commission ("SEC") a Statement of Additional
Information dated August 1, 1998, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Trust and the Funds
and is available together with other related materials for reference on the
SEC's Internet Web Site (http://www.sec.gov). The SAI, which is incorporated by
reference into this Prospectus, is also available, without charge, by contacting
Forum Shareholder Services, LLC, the Trust's transfer agent, at the address and
telephone numbers printed above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
1. Prospectus Summary.......................... 2
2. Financial Highlights........................ 4
3. Investment Objectives and Policies.......... 6
4. Additional Investment Policies.............. 12
<CAPTION>
Page
-----
<C> <S> <C>
5. Management.................................. 15
6. Purchases and Redemptions of Shares......... 17
7. Distributions and Tax Matters............... 23
8. Other Information........................... 25
</TABLE>
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
FUND SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, OR ANY OTHER FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Payson Value Fund is to seek high total
return (capital appreciation and current income) by investing in a diversified
portfolio of common stock and securities convertible into common stock which
appear to be undervalued in the marketplace. See "Investment Objective and
Policies -- Payson Value Fund."
The investment objective of the Payson Balanced Fund is to seek a
combination of high current income and capital appreciation by investing in
common stock and securities convertible into common stock which appear to be
undervalued and in high grade senior debt securities, including U.S. Government,
government agency and corporate obligations. See "Investment Objectives and
Policies -- Payson Balanced Fund."
INVESTMENT ADVISER
H.M. Payson & Co. (the "Adviser"), founded in 1854, serves as each Fund's
investment adviser. See "Management -- The Advisor."
FUND MANAGEMENT
The administrator of the Trust is Forum Administrative Services, LLC
("FAdS") and the distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Financial Services, LLC ("FSS") serves as the Trust's transfer
agent, dividend disbursing and shareholder servicing agent and Forum Accounting
Services, LLC ("FAcS") provides portfolio accounting services for the Trust. The
address of each of FAdS, FFSI, FSS and FAcS is Two Portland Square, Portland,
Maine 04101. See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Funds are offered at the next-determined net asset value per
share plus any applicable sales charge. Shares may be purchased or redeemed by
mail, by bank-wire or through an investor's broker-dealer or other financial
institution. The minimum initial investment is $2,000 ($1,000 for IRAs) and the
minimum subsequent investment is $250. Shares may be redeemed without charge.
See "Purchases and Redemptions of Shares."
Shares of the Fund are not offered for sale in every state. To determine
whether the Fund is available for purchase in a particular state, contact FSS at
the numbers listed on the first page of this Prospectus,
EXCHANGE PROGRAM
Shareholders of the Funds may exchange their shares without charge for the
shares of certain other funds of the Trust. See "Purchases and Redemptions of
Shares -- Exchanges."
DISTRIBUTIONS
Each Fund distributes its net investment income, if any, quarterly and its
net capital gain, if any, at least annually. All distributions are automatically
reinvested in additional shares of the Funds at net asset value unless the
shareholder has notified the Funds in his or her Account Application or
otherwise in writing of the shareholder's election to receive dividends or
distributions in cash. See "Distributions and Tax Matters."
CERTAIN RISK FACTORS
There can be no assurance that either Fund will achieve its investment
objective. The net asset value of each Fund and their total return will
fluctuate as the value of the securities in which each Fund invests changes.
Investments in equity securities may change in value rapidly and to a great
degree. Accordingly, the Funds' net asset values may change similarly. The
foreign securities in which the Funds may invest entail certain risks not
associated with domestic investments. Investments in lower rated debt securities
(including convertible securities) may entail certain risks. Investors in the
Funds should be willing to accept the risks of the stock and bond markets and
should not consider their investment in either Fund as a complete investment
program. See
2
<PAGE>
"Investment Objectives and Policies" and "Additional Investment Policies" below.
EXPENSES OF INVESTING IN THE FUNDS
The purpose of the following table is to assist investors in understanding
the various expenses that an investor in a Fund will bear directly or
indirectly.
<TABLE>
<CAPTION>
Payson
Payson Balanced
Value Fund Fund
----------- -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of public
offering price) (1)................... 4.0% 4.0%
Exchange Fee........................... None None
ANNUAL FUND OPERATING EXPENSES (2) (as
a percentage of average net assets
after applicable expense
reimbursements and fee waivers)
Advisory Fees......................... 0.80% 0.60%
12b-1 Fees............................. None None
Other Expenses......................... 0.65% 0.56%
----------- -----------
Total Fund Operating Expenses.......... 1.45% 1.16%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares -- Reduced Sales Charges".
(2) The Annual Fund Operating Expenses are based on expenses and assets of
each Fund during the Fund's most recent fiscal year ending March 31, 1998.
Absent certain expense reimbursements and fee waivers during the most recent
fiscal year, Advisory Fees, Other Expenses and Total Fund Operating Expenses
would be 0.80%, 1.07%, and 1.87%, respectively, in the case of Payson Value Fund
and 0.60%, 0.97%, and 1.57%, respectively, in the case of Payson Balanced Fund.
Expense reimbursements and fee waivers are voluntary and may be reduced or
eliminated at any time. For a further description of the various expenses
incurred in the operation of the Funds, see "Management."
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in each Fund would pay assuming (1) a $1,000
investment in the Fund, (2) a 5% annual return, (3) the reinvestment of all
distributions (4) the payment of the maximum initial sales charge and (5) full
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Payson
Value Fund.............. $54 $84 $116 $207
Payson
Balanced Fund........... $51 $75 $101 $174
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. Actual expenses may be greater or less than indicated. The example is
based on the expenses listed in the table. The 5% annual return is not
predictive of and does not represent the Funds' projected returns; rather, it is
required by government regulation.
3
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of each Fund. This information has been audited in connection with
an audit of the Funds' financial statements by Deloitte & Touche LLP,
independent auditors. The financial statements and independent auditors' report
thereon are incorporated by reference into the SAI. Further information about a
Funds' performance is contained in the Funds' annual report to shareholders,
which may be obtained from the Trust without charge by contacting the Funds'
transfer agent.
PAYSON VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994 1993(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 16.10 $ 15.99 $ 12.71 $ 12.11 $ 11.01 $ 10.00
--------- --------- --------- --------- --------- ---------
Investment Operations:
Net Investment Income................. 0.12 0.21 0.21 0.18 0.13 0.08
Net Realized and Unrealized Gain
(Loss) on Investments............... 6.93 1.80 3.29 0.60 1.12 1.02
--------- --------- --------- --------- --------- ---------
Total from Investment Operations........ 7.05 2.01 3.50 0.78 1.25 1.10
Distributions From:
Net Investment Income................. (0.12) (0.20) (0.21) (0.18) (0.15) (0.09)
Net Realized Gain on Investments...... (1.36) (1.70) (0.01) -- -- --
--------- --------- --------- --------- --------- ---------
Total Distributions..................... (1.48) (1.90) (0.22) (0.18) (0.15) (0.09)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 21.67 $ 16.10 $ 15.99 $ 12.71 $ 12.11 $ 11.01
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Total Return(b)......................... 45.28% 13.01% 27.77% 6.52% 11.38% 17.05%(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's
omitted).............................. $ 19,918 $ 13,109 $ 10,319 $ 7,960 $ 5,060 $ 2,145
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver................ 1.45% 1.45% 1.45% 1.46% 1.45% 1.44%(c)
Expenses Excluding
Reimbursement/Waiver................ 1.87% 2.07% 2.16% 2.25% 3.04% 5.53%(c)
Net Investment Income (Loss) Including
Reimbursement/Waiver................ 0.62% 1.30% 1.47% 1.59% 1.38% 1.63%(c)
Portfolio Turnover Rate................. 38.85% 24.13% 53.06% 27.20% 32.15% 23.95%
Average Commission Rate(d).............. $ 0.0807 $ 0.0979 $ 0.0993 -- -- --
</TABLE>
(a) Payson Value Fund commenced operations on July 31, 1992.
(b) Total return calculations do not include sales charges.
(c) Annualized.
(d) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
4
<PAGE>
PAYSON BALANCED FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992(a)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 13.20 $ 13.70 $ 11.90 $ 11.71 $ 11.40 $ 10.21 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Investment Operations:
Net Investment Income (Loss).......... 0.37 0.42 0.43 0.44 0.34 0.31 0.10
Net Realized and Unrealized Gain
(Loss) on Investments............... 3.52 0.84 2.12 0.24 0.46 1.20 0.21
Total from Investment Operations........ 3.89 1.26 2.55 0.68 0.80 1.51 0.31
--------- --------- --------- --------- --------- --------- ---------
Distributions From:
Net Investment Income................. (0.37) (0.42) (0.43) (0.44) (0.35) (0.31) (0.10)
Net Realized Gain on Investments...... (1.93) (1.34) (0.32) (0.05) (0.14) (0.01) --
--------- --------- --------- --------- --------- --------- ---------
Total Distributions..................... (2.30) (1.76) (0.75) (0.49) (0.49) (0.32) (0.10)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 14.79 $ 13.20 $ 13.70 $ 11.90 $ 11.71 $ 11.40 $ 10.21
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Return(b)......................... 31.27% 9.42% 21.70% 6.00% 6.99% 15.12% 9.15%(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's
omitted).............................. $ 24,440 $ 18,163 $ 17,455 $ 13,872 $ 11,355 $ 5,396 $ 2,667
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver................ 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.13%(c)
Expenses Excluding
Reimbursement/Waiver................ 1.57% 1.67% 1.70% 1.72% 1.95% 2.60% 4.88%(c)
Net Investment Income (Loss) Including
Reimbursement/ Waiver............... 2.58% 3.07% 3.25% 3.91% 4.37% 3.27% 3.46%(c)
Portfolio Turnover Rate............... 66.13% 52.93% 61.77% 50.06% 80.13% 30.77% 1.53%
Average Commission Rate(d)............ $ 0.0647 $ 0.0806 $ 0.0973 -- -- -- --
</TABLE>
(a) Payson Balanced Fund commenced operations on November 25, 1991.
(b) Total return calculations do not include sales charges.
(c) Annualized.
(d) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
5
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
PAYSON VALUE FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek high total return (capital
appreciation and current income) by investing in a diversified portfolio of
common stock and securities convertible into common stock which appear to be
undervalued in the marketplace. Except to the degree that is necessary to
provide liquidity, and during periods when the Fund assumes a temporary
defensive position, the Fund will have all of its assets invested in common
stock and securities convertible into common stock. There can be no assurance
that the Fund will achieve its investment objective.
INVESTMENT POLICIES
The Fund intends to invest principally in securities which, in the Adviser's
opinion, are undervalued relative to the stock market as a whole. This opinion
will be based upon a number of valuation measures, including but not limited to
an analysis of price/earnings ratios, price/book ratios, dividend yields and
measures of current profitability. The Adviser will also consider both the
near-term and long-term fundamental prospects of the companies identified. The
Fund invests primarily in large and medium capitalization stocks that are widely
held by the public.
The Fund will invest in common stock and convertible securities, including
convertible debt and convertible preferred stock, that are rated in one of the
four highest rating categories by a nationally recognized statistical rating
organization ("NRSRO") or which are unrated by any NRSRO and are judged by the
Adviser to be of comparable quality. Unrated securities may not be as actively
traded as rated securities. A further description of Moody's Investors Service,
Standard & Poor's and other NRSRO ratings is included in the SAI.
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.
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.
CERTAIN RISK FACTORS. The value of the equity securities in which the Fund
invests may change rapidly and to a great degree depending upon many factors,
including the market's perception of the value of the securities. Accordingly,
the net asset value of the Fund may change similarly. Investors in the Fund
should be willing to accept the risks of the stock market and should consider
6
<PAGE>
an investment in the Fund only as a part of their overall investment portfolio.
PAYSON BALANCED FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek a combination of high
current income and capital appreciation by investing in common stock and
securities convertible into common stock which appear to be undervalued and in
high grade senior debt securities, including U.S. Government, government agency
and corporate obligations. The Fund will seek to achieve its investment
objective while reducing volatility through the allocation of its assets among
the available types of securities based upon the Adviser's opinion of the risk
in each. There can be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
Under normal circumstances the Fund will invest in common stock and
securities convertible into common stock in a manner similar to that of Payson
Value Fund and in investment grade debt securities which the Adviser identifies
as providing high levels of income with safety and appreciation potential. For a
description of the investment policies and risk considerations of the Fund's
equity investments, see "Investment Objectives and Policies -- Payson Value
Fund." The debt securities in which the Fund intends to invest include U.S.
Government, government agency, and corporate obligations.
The Fund will not purchase a security if as a result of the purchase less
than 25% of its total assets would be in fixed-income senior securities
(including debt securities, preferred stocks, and convertible debt securities
and convertible preferred stocks to the extent their value is attributable to
their fixed-income characteristics). This investment policy may be changed by
the Board, but only upon 60 days' notice to shareholders. Subject to this
restriction, the percentage of the Fund's assets invested in each type of
security at any time will be in accordance with the judgment of the Adviser.
The Fund may invest in the following types of fixed income securities:
(1) Debt securities which are rated in one of the three highest rating
categories by an NRSRO or which are unrated by any NRSRO and judged by the
Adviser to be of comparable quality;
(2) Obligations issued or guaranteed as to principal and interest by the United
States Government or by any of its agencies or instrumentalities ("U.S.
Government Securities");
(3) Mortgage-backed securities which are U.S. Government Securities or are
otherwise rated in one of the two highest rating categories by an NRSRO or
which are unrated by any NRSRO and judged by the Adviser to be of comparable
quality;
(4) Commercial paper and other money market instruments rated in one of the two
highest short-term rating categories by an NRSRO or which are unrated by any
NRSRO and judged by the Adviser to be of comparable quality;
(5) Banker's acceptances or negotiable certificates of deposit issued by the
commercial banks doing business in the United States that have, at the time
of investment, total assets in excess of one billion dollars and that are
insured by the Federal Deposit Insurance Corporation; and
(6) Convertible securities rated in one of the four highest rating categories by
an NRSRO or which are unrated by any NRSRO and judged by the Adviser to be
of comparable quality. For a description of convertible securities, see
"Investment Objectives and Policies -- Payson Value Fund."
It is currently anticipated that the Fund will invest in debt obligations
with maturities ranging from short-term (including overnight) to thirty
7
<PAGE>
years, and that the Fund's portfolio of debt securities will have an average
dollar-weighted maturity of between five and 15 years.
DEBT SECURITIES CONSIDERATIONS AND RISKS. The market value of debt
securities depends upon, among other things, conditions in the market for the
security and the fixed income markets generally, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
market value of the interest-bearing debt securities held by the Fund will be
affected by changes in interest rates. Normally, a decline in interest rates
produces an increase in market value, while an increase in interest rates
produces a decrease in market value. Moreover, the longer the remaining maturity
of a security, the greater will be the effect of interest rate changes on the
market value of that security. Changes in the ability of an issuer to make
payments of interest and principal and in the market's perception of an issuer's
creditworthiness will also affect the market value of the debt securities of
that issuer. Obligations of issuers of debt securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. The possibility exists, therefore, that, as a result of
litigation or other conditions, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may be materially impaired.
Securities rated in one of the four highest rating categories of an NRSRO
are generally considered to be investment grade securities, although securities
rated in the fourth highest-rating category have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity by the issuer to make principal and interest payments with
respect to debt rated in that category than is the case with higher rated debt.
A further description of the ratings used by Moody's, Standard & Poor's and
other NRSROs is contained in the SAI. Unrated securities may not be as actively
traded as rated securities. An unrated security will be considered for
investment by the Fund when the Adviser believes that the financial condition of
the issuer of such obligation and the protection afforded by the terms of the
obligation limit the risk to the Fund to a degree comparable to that of rated
securities in which the Fund may invest. The Fund may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and determined by the Adviser to be of comparable quality) only if
the Adviser determines that retaining the security is in the best interests of
the Fund.
U.S. GOVERNMENT SECURITIES. The U.S. Government Securities in which the
Fund may invest include direct obligations of the U.S. Treasury (such as
Treasury bills and notes) and other securities backed by the full faith and
credit of the U.S. Government, such as those issued by the Federal Housing
Administration and Government National Mortgage Association ("GNMA"). The Fund
may also invest in U.S. Government Securities that have lesser degrees of
government backing. For instance, the Fund may invest in obligations of the
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") (which are supported by the right of the issuer to borrow
from the Treasury under certain circumstances) and obligations of the Student
Loan Marketing Association and the Federal Home Loan Banks (which are supported
only by the credit of the agency or instrumentality). There is no guarantee that
the U.S. Government will support securities not backed by its full faith and
credit and, accordingly, these securities may involve more risk than other U.S.
Government Securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
interest in a pool of mortgages originated by lenders such as commercial banks,
savings associations and mortgage bankers and brokers. Mortgage-backed
securities may be issued by governmental or government-
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related entities or by non-governmental entities such as special purpose trusts
created by banks, savings associations, private mortgage insurance companies or
mortgage bankers.
Interests in mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or on specified call dates. In
contrast, mortgage-backed securities provide monthly payments which consist of
interest and, in most cases, principal. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of the
securities or a mortgage loan servicer. Additional payments to holders of these
securities are caused by prepayments resulting from the sale or foreclosure of
the underlying property or refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics or the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, the Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and mortgages of other types. Mortgage servicers impose qualification
standards for local lending institutions which originate mortgages for the pools
as well as credit standards and underwriting criteria for individual mortgages
included in the pools. In addition, many mortgages included in pools are insured
through private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged.
However, the market for conventional pools is smaller and less liquid that the
market for government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pools
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's terms may be shortened by unscheduled or early payments of principal
and interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of the
Fund and may even result in losses to the Fund if the securities were acquired
at a premium. The occurrence of mortgage prepayments is affected by various
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted
by investment dealers based on the maturity of the underlying instruments and
the associated average life assumption.
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In periods of falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of a pool of mortgages. Conversely,
in periods of rising rates, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. Actual prepayment experience
may cause the yield to differ from the assumed average life yield. Reinvestment
of prepayments may occur at higher or lower interest rates than the original
investment, thus affecting the yield of the Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government
guarantor of mortgage-backed securities is GNMA, a wholly-owned United States
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the United
States Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA and backed by pools of FHA-insured or
VA-guaranteed mortgages.
FNMA is a government-sponsored corporation owned entirely by private
stockholders that is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases residential mortgages from a list of
approved sell-servicers. FHLMC is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMC's
national portfolio. FNMA and FHLMC each guarantee the payment of principal and
interest on the securities they issue. These securities, however, are not backed
by the full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Mortgage-backed securities
offered by private issuers include pass-through securities comprised of pools of
conventional mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and which are
collateralized by mortgage loans; and collateralized mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a
higher rate of interest than securities issued by government issuers because of
the absence of direct or indirect government guarantees of payment. Many non-
governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because or the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
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securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly
rising rates, but they may also have less potential for capital appreciation
than other debt securities of comparable maturities due to the periodic
adjustment of the interest rate on the underlying mortgages and due to the
likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to the Fund will
decrease as the coupon rate resets to reflect the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying the Fund's ARMs may lag behind changes in market interest
rates. This may result in slightly lower net value until the interest rate
resets to market rates. Thus, investors could suffer some principal loss if they
sold Fund Shares before the interest rates on the underlying mortgages were
adjusted to reflect current market rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Payments of principal and interest on the Mortgage Assets
are passed through to the holders of the CMOs on the same schedule as they are
received, although, certain classes (often referred to as tranches) of CMOs have
priority over other classes with respect to the receipt of payments. Multi-class
mortgage pass-through securities are interests in trusts that hold Mortgage
Assets and that have multiple classes similar to those of CMOs. Unless the
context indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide funds to pay debt service on the CMOs or to make scheduled distributions
on the multi-class mortgage pass-through securities. Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as with
other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. Planned amortization class
mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO. PAC
Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a Z-tranche). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the
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other aspects of the CMO offering. Interest on accrual bonds is taxable when
accrued even though the holders receive no accrual payment. The Fund distributes
all of its net investment income, and may have to sell portfolio securities to
distribute imputed income, which may occur at a time when the Adviser would not
have chosen to sell such securities and which may result in a taxable gain or
loss. The Adviser's analyses of particular CMO issues and estimates of future
economic indicators (such as interest rates) become more important to the
performance of the Fund as the securities become more complicated.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are
classes of mortgage-backed securities that receive different proportions of the
interest and principal distributions from the underlying Mortgage Assets. They
may be may be privately issued or U.S. Government Securities. In the most
extreme case, one class will be entitled to receive all or a portion of the
interest but none of the principal from the Mortgage Assets (the interest-only
or "IO" class) and one class will be entitled to receive all or a portion of the
principal, but none of the interest (the "PO" class).
VARIABLE AND FLOATING RATE SECURITIES. The securities in which the Fund
invests may have variable or floating rates of interest. These securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of the Fund to maintain a
stable net asset value. Similar to fixed rate debt instruments, variable and
floating rate instruments are subject to changes in value based on changes in
market interest rates or changes in the issuer's creditworthiness. The rate of
interest on securities purchased by the Fund may be tied to various rates of
interest or index.
There may not be an active secondary market for certain floating or variable
rate instruments, which could make it difficult for the Fund to dispose of an
instrument during periods that the Fund is not entitled to exercise and demand
rights it may have. The Fund could, for this or other reasons, suffer a loss
with respect to an instrument. The Adviser monitors the liquidity of the Fund's
investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of a Fund that are
designated as a fundamental and each Fund's investment objective may only be
changed with the approval of the holders of a majority of that Fund's
outstanding voting securities. A majority of a Fund's outstanding voting
securities means the lesser of (1) 67% of the shares of that Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the shares are present or represented, or (2) more than 50% of the outstanding
shares of the Fund. Except as otherwise indicated, investment policies of the
Funds are not fundamental and may be changed by the Board of Trustees (the
"Board") without shareholder approval. For more information concerning
shareholder voting, see "Other Information -- The Trust and Its Shares."
The Funds may borrow money for temporary or emergency purposes (including
the meeting of redemption requests), but, as a fundamental policy, not in excess
of 331/3% of the value of a Fund's total assets. Borrowing for purposes other
than meeting redemption requests may not exceed 10% of the value of the Fund's
total assets. The Funds may not invest more than 15% of their net assets in
illiquid securities, including repurchase
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agreements maturing in more than seven days, and, with respect to 75% of their
total assets, may not invest more than 5% of their assets in the securities of a
single issuer. In order to avoid maintaining idle cash, the Funds may invest up
to 10% of their total assets in money market mutual funds.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES
Each Fund may seek additional income by entering into repurchase agreements
or by lending securities from its portfolio to brokers, dealers and other
financial institutions. These investments may entail certain risks not
associated with direct investments in securities. For instance, in the event
that bankruptcy or similar proceedings were commenced against a counterparty in
these transactions or a counterparty defaulted on its obligations, a Fund might
suffer a loss. The Adviser monitors the creditworthiness of counterparties to
these transactions and intends to enter into these transactions only when it
believes the counterparties present minimal credit risks and the income to be
earned from the transaction justifies the attendant risks.
Repurchase agreements are transactions in which a Fund purchases a security
and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not related
to the coupon rate or maturity of the purchased security. When a Fund lends a
security it receives interest from the borrower or from investing cash
collateral. The Trust maintains possession of the purchased securities and any
underlying collateral in these transactions, the total market value of which on
a continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will, as a fundamental policy, limit securities
lending to not more than 10% of the value of its total assets.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction. The Funds purchase securities on a
when-issued or forward commitment basis only with the intention of actually
receiving or delivering the securities, as the case may be. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event, such as approval of a proposed financing by appropriate municipal
authorities.
During the period between a commitment and settlement, no payment is made
for the securities purchased and, thus, no dividends or interest accrues to the
purchaser from the transaction. However, at the time a Fund makes a commitment
to purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver or
pay for a security purchased or sold by the Fund may result in a loss or a
missed opportunity to make an alternative investment. Any significant commitment
of a Fund's assets committed to the purchase of securities on a when-issued or
forward commitment basis may increase the volatility of its net asset value.
The use of when-issued transactions and forward commitments may enable a
Fund to hedge against anticipated changes in interest rates and prices. If the
Adviser were to forecast incorrectly the direction of interest rate movements,
however, the Fund might be required to complete these
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transactions at prices inferior to the current market values. No when-issued or
forward commitments will be made by a Fund if, as a result, more than 15% of the
value of the Fund's total assets would be committed to such transactions.
FOREIGN SECURITIES
The Funds may invest up to 20% of their assets in securities of foreign
issuers and in American Depositary Receipts ("ADRs"). In addition to the debt
securities of domestic corporations, Payson Balanced Fund may invest in debt
securities registered and sold in the United States by foreign issuers (Yankee
Bonds) and debt securities sold outside the United States by foreign or U.S.
issuers (Euro-bonds). The Funds intend to restrict their purchases of debt
securities to issues denominated and payable in United States dollars.
Investments in foreign companies involve certain risks, such as exchange
rate fluctuations, political or economic instability of the issuer or the
country of issue and the possible imposition of exchange controls, withholding
taxes on dividends or interest payments, confiscatory taxes or expropriation.
Foreign securities may also be subject to greater fluctuations in price than
securities of domestic corporations denominated in U.S. dollars. Foreign
securities and their markets may not be as liquid as domestic securities and
their markets, and foreign brokerage commissions and custody fees are generally
higher than those in the United States. In addition, less information may be
publicly available about a foreign company than about a domestic company, and
foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. With respect to their permitted investments in foreign securities,
the Funds do not limit the amount of their assets that may be invested in one
country or, in the case of Payson Value Fund, denominated in one currency.
The Funds 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.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, such as, for example, when
issues of sufficient quality and liquidity are not available or the Adviser
believes the equity markets are overvalued, a Fund may assume a temporary
defensive position and invest all or part of its assets in cash or prime quality
cash equivalents, including (1) short-term U.S. Government Securities, (2)
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States, (3) commercial
paper, (4) repurchase agreements covering any of the securities in which the
Fund may invest directly and (5) to the extent permitted by the Investment
Company Act of 1940, money market mutual funds. During periods when and to the
extent that the Fund has assumed a temporary defensive position, it may not be
pursuing its investment objective.
CORE AND GATEWAY-REGISTERED TRADEMARK-
The Fund may seek to achieve its investment objective by converting to a
Core and Gateway structure. The Fund, upon future action by the Board and notice
to shareholders, may convert to this structure, in which the Fund would hold as
its only investment securities the shares of another investment company having
substantially the same investment objective and policies as the Fund. The Board
will not authorize conversion to a Core and
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Gateway structure if it would materially increase costs to a Fund's
shareholders.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Funds (the portfolio turnover
rate) will vary from year to year depending on market conditions. Higher rates
of turnover will result in higher brokerage costs for the Funds. The Adviser
weighs the anticipated benefits of short-term investments against these
consequences. The Fund's portfolio turnover rate is reported under "Financial
Highlights."
The Funds have no obligation to deal with any specific broker or dealer in
the execution of portfolio transactions. Consistent with their policy of
obtaining the best net results, the Funds may conduct brokerage transactions
through the Adviser or its affiliates. The Board has adopted policies, as
required by law, 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.
5. MANAGEMENT
The business and affairs of the Funds are managed under the direction of the
Board. The Board formulates the general policies of the Funds and generally
meets quarterly to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. Information about the Trustees and the officers of the Trust is in the
SAI under "Management -- Trustees and Officers."
THE ADVISER
H.M. Payson & Co., located at One Portland Square, Portland, Maine 04101,
serves as investment adviser to the Funds under an investment advisory agreement
with the Trust. Subject to the general supervision of the Board, the Adviser
makes investment decisions for the Funds and is responsible for, among other
things, developing a continuing investment program for each Fund in accordance
with their investment objective and reviewing the investment strategies and
policies of each Fund. For its services, the Adviser receives an advisory fee at
an annual rate of 0.80% for Payson Value Fund and 0.60% for Payson Balanced Fund
of the Funds' average daily net assets.
The Adviser is registered under the Investment Adviser Act of 1940 and
provides investment management services to pension plans, endowment funds and
institutional and individual accounts. The Adviser was founded in Portland,
Maine in 1854 and was incorporated in Maine in 1987, making it one of the oldest
investment firms in the United States operating under its original name. The
Adviser is a registered broker-dealer and is a member of the National
Association of Securities Dealers, Inc. The Adviser provides investment
management services through an investment advisory division and a trust
division. As of the date of this Prospectus, the Adviser had approximately $1.15
billion in assets under management.
John C. Knox, a Managing Director and Senior Research Analyst of the
Adviser, has been primarily responsible for the day-to-day management of Payson
Value Fund's portfolio since July 10, 1995. Peter E. Robbins, a Managing
Director and Director of Research of the Adviser, has been primarily responsible
for the day-to-day management of Payson Balanced Fund's portfolio since April 1,
1993. Mr. Knox is a Chartered Financial Analyst and has been associated with the
Advisor since 1981. Mr. Robbins is a Chartered Financial Analyst and has been
associated with the Adviser since 1982, except for the period from January 1988
to October 1990. During that period Mr. Robbins was president of Mariner Capital
Group, a real estate development and non-financial asset management business.
THE ADMINISTRATOR
On behalf of the Funds, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
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supervision of the overall management of the Trust (including the Trust's
receipt of services for which it must pay) and providing the Trust with general
office facilities, necessary personnel to ensure the effective operation of the
Trust as well as persons satisfactory to the Board to serve as officers of the
Trust. For these services, FAdS is entitled to receive a fee from the Funds at
an annual rate of .20% of the Fund's average net asset value.
Under a Fund Accounting Agreement with the Trust, FAcS performs portfolio
accounting services for the Funds, including determination of the Funds' net
asset value. For its services, FAcS is entitled to receive a fee at an annual
rate of $36,000 subject to adjustments for the number and type of portfolio
transactions.
As of June 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies and
collective investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, acts as distributor of the
Funds' shares. FFSI acts as the agent of the Trust in connection with the
offering of shares of the Funds. For these services, FFSI receives, and may
reallow to certain financial institutions, the sales charge paid by the
purchasers of each Fund's shares. FFSI may enter into arrangements with banks,
broker-dealers or other financial institutions ("Processing Organizations")
through which investors may purchase or redeem shares. FFSI may, at its own
expense and from its own resources, compensate certain persons who provide
services in connection with the sale or expected sale of shares of the Funds.
Investors purchasing shares of the Funds through another financial institution
should read any materials and information provided by the financial institution
to acquaint themselves with its procedures and any fees that it may charge. FFSI
is a registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
SHAREHOLDER SERVICES
Shareholder inquiries and communications concerning the Funds may be
directed to FSS. Under a Transfer Agency and Services Agreement with the Trust,
FSS acts as the Funds' transfer agent and dividend disbursing agent. FSS
maintains an account for each shareholder of record where all shares purchased
are credited, together with any distributions that are reinvested in additional
shares. FSS also performs other transfer agency functions and acts as dividend
disbursing agent for the Trust. For its services, FSS is entitled to receive a
fee at an annual rate of 0.25% of each Fund's average daily net assets plus
$12,000 per year ad annual shareholder account fees of $18.00 per shareholder
account.
As of the date of this Prospectus each of FAdS, FFSI, FSS and FAcS was
controlled by John Y. Keffer, President and Chairman of the Trust and were
located at Two Portland Square, Portland, Maine, 04101.
EXPENSES OF THE TRUST
The Trust is obligated to pay for all of its expenses. The Funds' expenses
comprise Trust expenses attributable to the Funds and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Funds
and the portfolios in proportion to their average net assets. The Funds'
expenses include: interest charges; taxes; brokerage fees and commissions;
certain insurance premiums; applicable fees and expenses under the Trust's
contracts with the Adviser, FAdS, FSS, FAcS and any custodian; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; auditing, legal and compliance expenses; costs of preparing
and printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
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of certain of the Trust's trustees, officers and employees and other personnel
performing services for the Trust; and registration fees and related expenses.
The Adviser, FAdS, FAcS and FSS, in their sole discretion, may waive all or
any portion of their respective fees, which are accrued daily and paid monthly.
Any such waiver, which could be discontinued at any time, would have the effect
of increasing the Funds' performance for the period during which the waiver was
in effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers to the Funds do
not properly process and calculate date related information and data from and
after January 1, 2000. The Adviser and FAdS are taking steps to address the Year
2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Funds from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in the Funds may be made either by an investor directly or through
certain brokers and financial institutions of which the investor is a customer.
All transactions in Fund shares are effected through FSS, which accepts orders
for purchases and redemptions from shareholders of record and new investors.
Shareholders of record will receive from the Trust periodic statements listing
all account activity during the statement period. The Trust reserves the right
in the future to modify, limit or terminate any shareholder privilege upon
appropriate notice to shareholders and charge a fee for certain shareholder
services, although no such fees are currently contemplated.
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined plus any applicable sales charge on all weekdays except days
when the New York Stock Exchange is closed ("Business Day"). Normally, the New
York Stock Exchange is closed on New Year's Day, Dr. Martin Luther King Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. Fund shares are issued immediately after an
order for the shares in proper form is accepted by FSS. Each Fund's net asset
value is calculated at 4:00 p.m., Eastern time on each Business Day. Fund shares
become entitled to receive dividends on the next Business Day after the order is
accepted.
The Funds reserve the right to reject any subscription for the purchase of
their shares. Share certificates are only issued to shareholders of record upon
their written request and no certificates are issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of the Fund's
next-determined net asset value after FSS receives the redemption order in
proper form (and any supporting documentation which FSS may require). Shares
redeemed are not entitled to receive dividends declared after the day on which
the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used for
investment has been cleared by the shareholder's bank, which may take up to 15
calendar days. This delay
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<PAGE>
may be avoided by investing through wire transfers. Unless otherwise indicated,
redemption proceeds normally are paid by check and mailed to the shareholder's
record address. The right of redemption may not be suspended nor the payment
dates postponed except when the New York Stock Exchange is closed (or when
trading is restricted) for any reason other than its customary weekend or
holiday closings or under any emergency or other circumstance as -determined by
the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of the Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine, including the recording of certain transactions. If the Trust did not
employ such procedures it could be liable for any losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Funds directly. These investors may open an
account by completing the account application at the back of this Prospectus or
by contacting FSS at the address on the first page of this Prospectus. For those
shareholder services not referenced on the account application or to change
information on a shareholder's account (such as addresses), investors should
request an Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $2,000 minimum for initial investments in either Fund ($1,000 for
individual retirement accounts).
MAIL. Investors may send a check made payable to the Trust along with a
completed account application for the Fund to FSS 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, FSS or
FFSI.
BANK WIRE. To make an initial investment in either Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Trust at (207) 879-0001 or 800-805-8258 to obtain an account number. The
investor should then instruct a bank to wire the investor's money immediately
to:
BankBoston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: (Name of Fund)
(Investor's Name)
(Investor's Account Number)
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The investor should then promptly complete and mail the account application.
Investors planning to wire funds should instruct the bank early in the day so
the wire transfer can be accomplished prior to 4:00 p.m., Eastern time, on the
same day. The bank may impose a charge for transmitting payment by wire, and
there also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $250 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check, by sending a wire as indicated above. Shareholders
using the wire system for subsequent purchases should first telephone the Trust
at (207) 879-0009 or 800-805-8258 to notify it of the wire transfer. All
payments should clearly indicate the shareholder's name and account number.
AUTOMATIC INVESTMENT. Shareholders may purchase Fund shares at regular,
preselected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an Automated Clearing House member. Under the program, existing
shareholders may authorize amounts of $250 or more to be debited from their bank
account and invested in a Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the applicable forms from FSS.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by 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.
MAIL. Shareholders may make a redemption in any amount by sending a written
request to FSS accompanied by any share certificate that was issued to the
shareholder. All share certificates submitted for redemption must be signed by
the shareholder with a signature guarantee. All written requests for redemption
must be signed by the shareholder and, in certain cases, must have a signature
guaranteed. See "Purchase and Redemption of Shares-Other Redemption Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling FSS at (207) 879-0001 or
800-805-8258 and providing the shareholder's account number, the exact name in
which the shares are registered, the shareholder's social security or taxpayer
identification number. The Trust or FSS may employ other procedures such as
recording certain transactions to ensure telephone instructions are genuine. If
such procedures are followed, neither the Trust nor FSS will be liable for any
losses due to unauthorized or fraudulent redemption requests. 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.
BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege on the
account application. Redemption proceeds are transmitted by wire on the next
business day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds are sent either by check or by automatic
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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 FSS.
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 stock 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)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a bank, a broker, a dealer, a national securities exchange, a
credit union, or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
SALES CHARGES
The public offering price for shares of a Fund is the sum of the net asset
value of the shares being purchased plus any applicable sales charge. No sales
charge is assessed on the reinvestment of dividends or other distributions. The
sales charge is assessed as follows:
<TABLE>
<CAPTION>
SALES CHARGE
AS % OF
------------------------
PUBLIC
OFFERING NET ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- ------------------------- ----------- ----------- ---------------
<S> <C> <C> <C>
less than $100,000....... 4.00% 4.17% 3.50%
$100,000 but less than
$200,000................ 3.50 3.63 3.10
$200,000 but less than
$400,000................ 3.00 3.09 2.70
$400,000 but less than
$600,000................ 2.50 2.56 2.25
$600,000 but less than
$800,000................ 2.00 2.04 1.75
$800,000 but less than
$1,000,000.............. 1.50 1.52 1.30
$1,000,000 and up........ 0.50 0.50 0.40
</TABLE>
* Rounded to the nearest one-hundredth percent.
FFSI's commission is the sales charge shown above less any applicable
discount reallowed to Processing Organizations (including banks and bank
affiliates purchasing shares as principal or agent). Normally, FFSI will reallow
discounts to Processing Organizations in the amounts indicated in the table
above. From time to time, however, FFSI may elect to reallow the entire sales
charge to Processing Organizations for all sales with respect to which orders
are placed with FFSI during a particular period. The dealers' reallowance may be
changed from time to time.
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<PAGE>
In addition, from time to time and at its own expense, FFSI may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
No sales charge will be assessed on purchases made for investment purposes
by: (1) any bank, trust company, savings association or similar institution with
whom FFSI has entered into a share purchase agreement acting on behalf of the
institution's fiduciary customer accounts or any account maintained by its trust
department (including a pension, profit sharing or other employee benefit trust
created pursuant to a qualified retirement plan); (2) any registered investment
adviser with whom FFSI has entered into a share purchase agreement and which is
acting on behalf of its fiduciary customer accounts; (3)any registered
investment adviser which is acting on behalf of its fiduciary customer accounts
and for which it provides additional investment advisory services; (4) any
broker-dealer with whom FFSI has entered into a Processing Organization
Agreement and a Fee-Based or Wrap Account Agreement and which is acting on
behalf of its fee-based program clients; (5) directors and officers of the
Trust; directors, officers and full-time employees of the Adviser, FFSI, any of
their affiliates or any organization with which FFSI has entered into a
Processing Organization Agreement; the spouse, sibling, direct ancestor or
direct descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the benefit
of any such person or relative; or the estate of any such person or relative;
(6) any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and completes a
reinstatement form upon investment; (7) persons who exchange into a Fund from a
mutual fund other than a fund of the Trust that participates in the Trust's
exchange program, See "Purchases and Redemptions of Shares -- Exchange Program;"
and (8) employee benefit plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended. The Trust may require appropriate
documentation from an investor concerning that investor's eligibility to
purchase Fund shares without a sales charge. Any shares so purchased may not be
resold except to the Fund.
REDUCED SALES CHARGES
For an investor to qualify for a reduced sales charge as described below,
the investor must notify FSS at the time of purchase. Programs for reduced sales
charges may be modified or terminated at any time and are subject to
confirmation of an investor's holdings.
RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of a
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Fund Business Day) of shares of that
Fund held by the investor. For example, if an investor owned shares of a Fund
worth $400,000 at the then current net asset value and purchased shares of the
Fund worth an additional $50,000, the sales charge for the $50,000 purchase
would be at the 2.50% rate applicable to a single $450,000 purchase, rather than
at the 4.0% rate. To qualify for ROA on a purchase, the investor must inform the
Transfer Agent and supply sufficient information to verify that each purchase
qualifies for the privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based on
cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of a Fund. Each purchase of shares under a LOI will be made
at the public
21
<PAGE>
offering price applicable at the time of the purchase to a single transaction of
the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the full
amount indicated. Shares purchased with the first 5% of the amount indicated in
the LOI will be held subject to a registered pledge (while remaining registered
in the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased within 13 months. Pledged shares will be involuntarily redeemed to pay
the additional sales charge, if necessary. When the full amount indicated has
been purchased, the shares will be released from pledge. Share certificates are
not issued for shares purchased under an LOI. Investors wishing to enter into an
LOI can obtain a form of LOI from their broker or financial institution or by
contacting FSS.
EXCHANGES
EXCHANGE PROCEDURES
Fund shareholders are entitled to exchange their shares for shares of the
other Fund, any other fund of the Trust or any other fund that participates in
the exchange program and whose shares are eligible for sale in the shareholder's
state of residence. Exchanges may only be made between accounts registered in
the same name. When a shareholder exchanges shares, a completed account
application must be submitted to open a new account if the shareholder requests
any shareholder privilege not associated with the existing account. Exchanges
are subject to the fees and the restrictions including minimum investment
requirements listed in the prospectus for the fund into which a shareholder is
exchanging. The Funds do not charge for exchanges, and there is currently no
limit on the number of exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and any necessary
supporting documents by the fund whose shares are being exchanged are received
by FSS.
If a shareholder exchanges into a fund that imposes a sales charge, that
shareholder is required to pay the difference between that fund's sales charge
and any sales charge the shareholder has previously paid in connection with the
shares being exchanged. For example, if a shareholder paid a 2% sales charge in
connection with the purchase of the shares of a fund and then exchanged those
shares into another fund with a 3% sales charge, that shareholder would pay an
additional 1% sales charge on the exchange. Shares acquired through the
reinvestment of dividends and distributions are deemed to have been acquired
with a sales charge rate equal to that paid on the shares on which the dividend
or distribution was paid. The exchange privilege may be modified materially or
terminated by the Trust at any time upon 60 days' notice to shareholders.
MAIL. Exchanges may be accomplished by written instructions to FSS
accompanied by any share certificate that may have been issued to the
shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with a signature
guarantee.
TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling FSS at (207) 879-0009
or 800-805-8258 and providing the shareholder's account number, the exact name
in which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number.
22
<PAGE>
RETIREMENT PROGRAMS
INDIVIDUAL RETIREMENT ACCOUNTS
Neither of the Funds should be considered as a complete investment vehicle
for the assets held in individual retirement accounts ("IRAs"). The minimum
initial investment for an IRA is $1,000, and the minimum subsequent investment
is $250. Individuals may make tax-deductible IRA contributions of up to a
maximum of $2,000 annually. However, this deduction will be reduced if the
individual or, in some cases the individual's spouse, is an active participant
in an employer-sponsored retirement plan and the individual (or the married
couple) has adjusted gross income above certain levels.
EMPLOYEE BENEFIT PLANS
The Funds may be a suitable investment vehicle for part or all of the assets
held in various employee benefit plans, including 401(k) plans, 403(b) plans and
SARSEPs.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of FSS ("Processing Organizations"). Processing
Organizations may receive as a dealer's reallowance a portion of the sales
charge paid by their customers who purchase Fund shares. In addition, Processing
Organizations may charge their customers a fee for their services and are
responsible for promptly transmitting purchase, redemption and other requests to
the Fund. The Trust is not responsible for the failure of any Processing
Organization to promptly forward these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in the Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Customers who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and the Fund's procedures, may have Fund shares
transferred into their name. Under their arrangements with the Trust,
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several business days after a purchase order
has been received by a Fund. Certain other Processing Organizations may also
enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of each Fund's net investment income, if any, are declared and
paid quarterly.
23
<PAGE>
Any distributions of net capital gain realized by the Funds are distributed
annually.
Shareholders may choose either to have all distributions of net investment
income reinvested in additional Fund shares or paid in cash or to have
distributions of net capital gain reinvested in additional Fund shares or paid
in cash. All distributions are treated in the same manner for Federal income tax
purposes whether paid in cash or reinvested in Fund shares.
All distributions are reinvested at the Fund's net asset value as of the
payment date of the distribution. All distributions are reinvested unless
another option is selected. All distributions not reinvested are paid to the
shareholder in cash and may be paid more than seven days following the date on
which distributions would otherwise be reinvested.
TAXES
Each Fund intends to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Funds will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to its shareholders.
Because the Funds intend to distribute substantially all of their net investment
income and net capital gain each year, the Funds should avoid all Federal income
and excise taxes.
Dividends paid by the Funds out of their net investment income (including
any realized net short-term capital gain) are taxable to shareholders as
ordinary income. Distributions of net capital gain (i.e., the excess of net gain
from capital assets held for more than one year over net loss from capital
assets held for not more than one year) will be treated in the hands of
shareholders as long-term capital gain, regardless of how long a shareholder has
held shares in the Fund. If Fund shares are sold at a loss after being held for
six months or less, the loss will be treated as long-term capital loss to the
extent of any distribution of net capital gain received on those shares.
Any dividend or distribution received by a shareholder reduces the net asset
value of the shareholder's shares by the amount of the dividend or distribution.
To the extent that the income or gain comprising a dividend or distribution was
accrued by a Fund before the shareholder purchased the shares, the dividend or
distribution would be in effect a return of capital to the shareholder. All
dividends and distributions, including those that operate as a return of
capital, however, are taxable as described above to the shareholder receiving
them regardless of the length of time he may have held shares prior to the
dividend or distribution.
It is expected that a portion of a Fund's dividends to shareholders will
qualify for the dividends received deduction for corporations.
The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Funds will be mailed to shareholders shortly after the close of each year.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisers.
24
<PAGE>
8. OTHER INFORMATION
PERFORMANCE INFORMATION
Each Fund's performance may be quoted in advertising in terms of yield or
total return. Both types of performance are based on a Fund's historical results
and are not intended to indicate future performance. A Fund's yield measures the
rate of income earned by the Fund as a percentage of the Fund's share price.
Yield is calculated by dividing the net investment income of a Fund for the
stated period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end the period. A Fund's total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period. A
Fund also may advertise its total return over different periods of time or by
means of aggregate, average, year by year, or other types of total return
figures. Because average annual returns tend to smooth out variations in a
Fund's returns, shareholders should recognize that they are not the same as
actual year-by-year results. A Fund's advertised yield and total return may or
may not reflect the maximum sales load applicable to the Fund. A computation of
yield or total return that does not take into account the sales load paid by an
investor will be higher than a computation based on the public offering price of
the shares purchased that does not take into account payment of a sales load.
Each Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Funds may be
compared to recognized indices of market performance. The comparative material
found in a Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FAdS would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them would be sought. It is not expected that
shareholders would suffer adverse financial consequences as a result of any
changes in bank or bank affiliate service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of each Fund as of 4:00
p.m., Eastern time, on each Business Day by dividing the value of the Fund's net
assets (i.e., the value of its portfolio securities and other assets less its
liabilities) by the number of the Fund's shares outstanding at the time the
determination is made. Securities owned by a Fund for which market quotations
are readily available are valued at current market value or, in their absence,
at fair value as determined by procedures approved by the Board. Purchases and
redemptions are effected at the net asset value next-determined after any
purchase or redemption order is accepted.
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 reorga-
25
<PAGE>
nized 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
Funds) and may in the future divide portfolios or series into two or more
classes of shares (such as Investor and Institutional Shares). Currently the
authorized shares of the Trust are divided into 23 separate series.
Each share of each fund of the Trust has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately, except that expenses related to the distribution of the shares
of each class (and certain other expenses such as transfer agency and
administrative expenses) are borne solely by those shares and each class votes
separately with respect to the provisions of any Rule 12b-1 plan which pertain
to the class and other matters for which separate class voting is appropriate
under applicable law. Generally, shares will be voted in the aggregate without
reference to a particular portfolio or class, except if the matter affects only
one portfolio or class or voting by portfolio or class is required by law, in
which case shares will be voted separately by portfolio or class, as
appropriate. Delaware law does not require the Trust to hold annual meetings of
shareholders, and it is anticipated that shareholder meetings will be held only
when specifically required by Federal or state law. Shareholders (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI 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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[APPLICATION FORM
PAGE 1]
<PAGE>
[APPLICATION FORM
PAGE 2]
<PAGE>
[GRAPHIC]
[LOGO]
INVESTMENT ADVISOR INFORMATION:
H.M. PAYSON & CO.
ONE PORTLAND SQUARE
P.O. BOX 31
PORTLAND, ME 04112
207-772-3761
800-456-6710
[LOGO]
SHAREHOLDER INFORMATION:
FORUM SHAREHOLDER SERVICES, LLC
P.O. BOX 446
PORTLAND, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
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[GRAPHIC]
PROSPECTUS
MAINE
MUNICIPAL
BOND FUND
FORUM
FUNDS
AUGUST 1, 1998
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FORUM FUNDS
MAINE MUNICIPAL BOND FUND
PROSPECTUS
August 1, 1998
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ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
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This Prospectus offers shares of Maine Municipal Bond Fund (the "Fund"), a
non-diversified series of Forum Funds (the "Trust"), an open-end, management
investment company.
MAINE MUNICIPAL BOND FUND seeks to provide shareholders with a high level of
current income exempt from both Federal and Maine state income taxes (other
than the alternative minimum tax), without assuming undue risk. The Fund
invests principally in investment grade Maine municipal securities.
Shares of the Fund are offered to investors at a price equal to the next
determined net asset value plus a maximum sales charge of 2.50% of the total
public offering price (2.56% of the net amount invested).
This Prospectus sets forth concisely the information a prospective investor
should know about the Trust and the Fund before investing. The Trust has filed
with the Securities and Exchange Commission ("SEC") a Statement of Additional
Information dated August 1, 1998, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Trust and the Fund
and is available together with other related materials for reference on the
SEC's Internet Web Site (http://www.sec.gov). The SAI, which is incorporated
into this Prospectus by reference, is also available without charge by
contacting Forum Shareholder Services, LLC, the Trust's transfer agent at the
address and telephone numbers printed above.
SHARES OF THE FUND ARE OFFERED ONLY TO RESIDENTS OF THE STATE OF MAINE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<C> <S> <C>
1. Prospectus Summary.......................... 2
2. Financial Highlights........................ 4
3. Investment Objective and Policies........... 5
4. Additional Investment Policies.............. 9
<CAPTION>
Page
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<C> <S> <C>
5. Management.................................. 11
6. Purchases and Redemptions of Shares......... 13
7. Distributions and Tax Matters............... 20
8. Other Information........................... 21
Account Application.........................
</TABLE>
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
FUND SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, OR ANY OTHER FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR 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
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from both Federal and Maine state income taxes
(other than the alternative minimum tax), without assuming undue risk. The Fund
invests principally in investment grade Maine municipal securities. It is
anticipated that the average weighted maturity of all municipal securities in
the Fund will normally range between five and 15 years. See "Investment
Objective and Policies."
INVESTMENT ADVISER
Forum Investment Advisors, LLC (the "Adviser") serves as the investment
adviser to the Fund. The Adviser is located at Two Portland Square, Portland,
Maine 04101. See "Management -- The Adviser."
FUND MANAGEMENT
The administrator of the Trust is Forum Administrative Services, LLC
("FAdS") and the distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC (the "FSS") serves as the Trust's
transfer agent, dividend disbursing agent and shareholder servicing agent and
Forum Accounting Services, LLC ("FAcS') provides portfolio accounting services
for the Trust. Each of FAdS, FFSI, FSS, and FAcS are located at Two Portland
Square, Portland, Maine 04101. See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at the next-determined net asset value per
share plus any applicable sales charge. Shares may be purchases or redeemed by
mail, by bank-wire and through an investor's broker-dealer or other financial
institution. The minimum initial investment is $2,000 and the minimum subsequent
investment is $250. Shares may be redeemed without charge. See "Purchases and
Redemptions of Shares."
EXCHANGE PROGRAM
Shareholders of the Fund may exchange their shares without charge for the
shares of certain other funds of the Trust. See "Purchases and Redemptions of
Shares -- Exchanges."
DISTRIBUTIONS
The Fund distributes its net investment income, if any, monthly and its net
capital gain, if any, at least annually. All distributions are reinvested
automatically in additional shares of the Fund at net asset value unless the
shareholder has notified the Fund in his or her Account Application or otherwise
in writing of the shareholder's election to receive distributions in cash. It is
anticipated that substantially all of the dividends paid by the Fund will be
exempt from Federal income tax and from Maine personal income tax. See
"Distributions 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 as the value of the
securities in which the Fund invests changes and will tend to vary inversely
with movements in interest rates. The Fund is non-diversified and, therefore,
has greater freedom to concentrate its investments in a limited number of issues
than if it were a diversified fund. The Fund invests principally in the
securities of Maine municipal issuers, which entails more risk than if the Fund
were to invest in issuers with greater geographic diversity. See "Investment
Objective and Policies -- Certain Risk Factors."
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EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of
public offering price) (1)...... 2.50%
Exchange Fee...................... None
ANNUAL FUND OPERATING EXPENSES (2)
(as a percentage of average net
assets after applicable expense
reimbursements and fee waivers)
Management Fees................... 0.40%
12b-1 Fees........................ None
Other Expenses.................... 0.20%
---------
Total Fund Operating Expenses 0.60%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares -- Reduced Sales Charges."
(2) The Annual Fund Operating Expenses are based upon expenses and assets of
the Fund during its most recent fiscal year ended March 31, 1998. Management
Fees include all investment advisory fees and administration fees. Absent
certain expense reimbursements and fee waivers, Management Fees, Other Expenses
and Total Fund Operating Expenses would be 0.67%, 0.81% and 1.48%, respectively.
Expense reimbursements and fee waivers are voluntary and may be reduced or
eliminated at any time. For a further description of the various expenses
incurred in the operation of the Fund, see "Management."
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in the Fund would pay assuming (1) a $1,000 investment
in the Fund, (2) a 5% annual return, (3) the reinvestment of all distributions,
(4) the payment of the maximum initial sales charge and (5) full redemption at
the end of each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C>
$31 $44 $58 $98
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN
INDICATED. The example is based on the expenses listed in the table. The 5%
annual return is not a prediction of the Fund's projected returns; rather, it is
required by government regulation.
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2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Fund. This information has been audited by Deloitte & Touche
LLP, independent auditors. The financial statements and independent auditors'
report thereon are incorporated by reference into the SAI. Further information
about the Fund's performance is contained in the Fund's annual report to
shareholders, which may be obtained from the Trust without charge by contacting
the Fund's transfer agent.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992(a)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.73 $ 10.72 $ 10.47 $ 10.37 $ 10.55 $ 9.98 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Investment Operations:
Net Investment Income (Loss).......... 0.51 0.51 0.51 0.52 0.52 0.58 0.19
Net Realized and Unrealized Gain
(Loss) on Investments............... 0.33 0.01 0.25 0.11 (0.16) 0.57 (0.02)
--------- --------- --------- --------- --------- --------- ---------
Total from Investment Operations........ 0.84 0.52 0.76 0.63 0.36 1.15 0.17
--------- --------- --------- --------- --------- --------- ---------
Distributions from:
Net Investment Income................. (0.51) (0.51) (0.51) (0.52) (0.52) (0.58) (0.19)
Net Realized Gain on Investments...... (0.01) -- -- (0.01) (0.02) -- --
--------- --------- --------- --------- --------- --------- ---------
Total Distributions..................... (0.52) (0.51) (0.51) (0.53) (0.54) (0.58) (0.19)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 11.05 $ 10.73 $ 10.72 $ 10.47 $ 10.37 $ 10.55 $ 9.98
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Return(b)......................... 7.94% 4.98% 7.34% 6.31% 3.42% 11.80% 5.27%(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's
omitted).............................. $ 28,196 $ 25,827 $ 26,044 $ 25,525 $ 26,310 $ 16,518 $ 1,968
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver................ 0.60% 0.60% 0.60% 0.50% 0.50% 0.40% 0.46%(c)
Expenses Excluding
Reimbursement/Waiver................ 1.48% 1.56% 1.48% 1.40% 1.44% 1.98% 6.83%(c)
Net Investment Income (Loss) Including
Reimbursement/ Waiver............... 4.65% 4.77% 4.73% 5.08% 4.81% 5.25% 5.65%(c)
Portfolio Turnover Rate................. 16.34% 21.18% 34.07% 31.55% 13.47% 7.82% 15.24%
</TABLE>
(a) The Fund commenced operations on December 5, 1991.
(b) Total return calculations do not include sales charges.
(c) Annualized.
4
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3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from both Federal and Maine state income taxes
(other than the alternative minimum tax), without assuming undue risk. Except
during periods when the Fund assumes a temporary defensive position, the Fund
will invest at least 80% of its total assets in securities the interest on which
is exempt from Federal and Maine income tax. There can be no assurance that the
Fund will achieve its investment objective.
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in investment grade
debt obligations issued by the state of Maine and its political subdivisions,
duly constituted authorities and corporations. These securities are generally
known as "municipal securities" and include municipal bonds, notes and leases.
It is anticipated that under normal circumstances substantially all of the
Fund's assets will be invested in municipal securities the interest income from
which is exempt from Federal income taxes and Maine state personal income taxes
except when received by a shareholder in a taxable year for which the
shareholder will be subject, for Federal or Maine income tax purposes, to the
alternative minimum tax ("AMT").
The market value of the municipal securities held by the Fund will be
affected by changes in interest rates. Normally, a decline in interest rates
produces an increase in market value, while an increase in interest rates
produces a decrease in market value. Moreover, the longer the remaining maturity
of a security, the greater will be the effect of interest rate changes on the
market value of that security. Changes in the ability of an issuer to make
payments of interest and principal and in the market's perception of an issuer's
creditworthiness will also affect the market value of the debt securities of
that issuer. Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. The possibility exists, therefore, that, as a result of
litigation or other conditions, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may be materially impaired.
The yields of municipal securities depend on, among other things, conditions
in the municipal securities market and fixed income markets generally, the size
of a particular offering, the maturity of the obligation, and the rating of the
issue. Maine municipal securities may have yields slightly less than the
municipal obligations of issuers located in other states because of the Maine
state tax exemption on Maine issues.
In general, the longer the maturity of a municipal security, the higher the
rate of interest it pays. However, a longer average maturity is generally
associated with a higher level of volatility in the market value of a municipal
security. The average maturity of the Fund's portfolio will vary depending on
anticipated market conditions. It is anticipated, however, that the average
weighted maturity of all municipal securities in the Fund will normally range
between five and 15 years.
In addition to Maine municipal securities, the term municipal securities, as
used in this Prospectus and in the SAI, also include securities issued by Puerto
Rico, other United States territories or possessions and their subdivisions,
authorities and corporations the income from which is not subject to Federal or
Maine State income tax. No more than 25% of the Fund's total assets may be
invested in issuers located in any one territory or possession of the United
States.
Under current Federal tax law, a distinction is drawn between municipal
securities issued after August 7, 1986 to finance certain "private activi-
5
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ties" and other municipal securities. Private activity securities include
securities issued to finance such projects as certain solid waste disposal
facilities, student loan programs, and water and sewage projects. Interest
income from certain of these securities is subject to the Federal AMT and
similar treatment may apply for Maine AMT purposes. See "Dividends and Tax
Matters." Because interest income on securities subject to the AMT is taxable to
certain investors, it is expected, although there can be no guarantee, that
these municipal securities generally will provide somewhat higher yields than
other municipal securities of comparable quality and maturity that are not
subject to the AMT.
CREDIT MATTERS
Normally, at least 80% of the Fund's total assets will be invested in
municipal bonds rated at the time of purchase within the four highest rating
categories assigned by a nationally recognized statistical rating organization
("NRSRO") such as Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A and
Baa), Standard & Poor's Corporation ("S&P") (AAA, AA, A and BBB) or Fitch IBCA,
Inc. ("Fitch") (AAA, AA, A and BBB) or which are unrated and determined by the
Adviser to be of comparable quality. Securities in those ratings are generally
considered to be investment grade securities, although Moody's indicates that
municipal securities rated Baa have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity by the issuer to make principal and interest payments with respect to
debt rated in that category than is the case with higher grade debt. Unrated
securities may not be as actively traded as rated securities. A further
description of the ratings used by Moody's, S&P and Fitch is included in the
SAI. The Fund only invests in municipal notes and other short-term municipal
obligations in the two highest rating categories assigned by an NRSRO or which
are unrated and determined by the Adviser to be of comparable quality. The Fund
may invest up to 20% of its total assets in municipal bonds rated in the fifth
or sixth highest rating category by an NRSRO or that are unrated and determined
by the Adviser to be of comparable quality. These securities are not considered
to be investment grade, have speculative or predominantly speculative
characteristics and are commonly known as "Junk Bonds. "The Fund may retain
securities whose rating has been lowered below the lowest permissible rating
category (or that are unrated and determined by the Advisor to be of comparable
quality) only if the Adviser determines that retaining the security is in the
best interests of the Fund.
An unrated municipal security will be considered for investment by the Fund
when the Adviser believes that the financial condition of the issuer of the
obligation and the protection afforded by the terms of the obligation limit the
risk to the Fund to a degree comparable to that of rated securities in which the
Fund may invest. During its last fiscal year, the Fund had 75.85% of its average
annual assets in municipal securities rated by Moody's or S&P and 10.91%% of its
average annual assets in unrated investments, including cash and short-term cash
equivalents which are often unrated. For that year, the Fund had the following
percentages of its average annual net assets invested in rated securities:
Aaa/AAA -- 34.72%%, Aa/AA -- 41.41%%, A/A -- 2.25%%, and B/B -- 0.71%. For this
purpose, securities with different ratings from Moody's and S&P were assigned
the higher rating. This information reflects the average month end composition
of the Fund's assets for the Fund's last fiscal year and is not necessarily
representative of the Fund as of the end of last year, the current fiscal year
or any other time.
MUNICIPAL BONDS
Municipal bonds intended to meet longer term capital needs of the issuer can
be classified as either "general obligation" or "revenue" bonds. General
obligation bonds are secured by a municipality's pledge of its full faith,
credit and taxing
6
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power for the payment of principal and interest. Revenue bonds are generally
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
tax, but not from general tax revenues. Municipal bonds also include private
activity bonds ("PABs"), which are bonds issued by or on behalf of public
authorities to finance various privately operated facilities. PABs are in most
cases revenue bonds. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for payment. The Fund will acquire only PABs whose interest payments, in the
opinion of the issuer's counsel, are exempt from Federal and Maine state income
taxation (other than the AMT).
MUNICIPAL NOTES AND LEASES
Municipal notes, which may be either "general obligation" or "revenue"
securities, are intended to fulfill short-term capital needs and generally have
original maturities of 397 days or less. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper. Municipal leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased
assets to pass eventually to the government issuer) are a means for governmental
issuers to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of long-term debt as described in the
SAI. Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds or notes as described in the SAI.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Fund invests may have variable or floating rates
of interest. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to some
interest rate index or market interest rate (the "underlying index"). The
interest paid on these securities is a function primarily of the underlying
index upon which the interest rate adjustments are based. Such adjustments
minimize changes in the market value of the obligation and, accordingly, enhance
the ability of the Fund to maintain a stable net asset value. Similar to fixed
rate debt instruments, variable and floating rate instruments are subject to
changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. The rate of interest on securities purchased by the
Fund may be tied to various rates of interest or index.
There may not be an active secondary market for certain floating or variable
rate instruments, which could make it difficult for the Fund to dispose of an
instrument during periods that the Fund is not entitled to exercise any demand
rights it may have. The Fund could, for this or other reasons, suffer a loss
with respect to an instrument. The Adviser monitors the liquidity of the Fund's
investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
PARTICIPATION INTERESTS
The Fund may purchase participation interests in municipal securities that
are owned by banks or other financial institutions. Participation interests
carry a demand feature backed by a letter of credit or guarantee of the bank or
other institution permitting the holder to tender them back to the bank or other
institution. The Fund will only purchase participation interests from Federal
Deposit Insurance Corporation ("FDIC") insured banks having total assets of more
than one billion dollars or from other financial institutions whose long-term
debt securities are rated within the four highest rating categories of an NRSRO
or which are unrated and determined by the Adviser to be of comparable quality.
Prior to purchasing any
7
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participation interest, the Fund will obtain appropriate assurances from counsel
retained by the Trust that the interest to be earned by the Fund from the
obligations in which it expects to hold participation interests is exempt from
Federal income tax.
STAND-BY COMMITMENTS
The Fund may purchase municipal securities together with the right to resell
them to the seller at an agreed upon price or yield within specified periods
prior to their maturity dates. These rights to resell are commonly known as
"stand-by commitments." The aggregate price which the Fund pays for securities
with a stand-by commitment may be higher than the price which otherwise would be
paid. The primary purpose of this practice is to permit the Fund to be as fully
invested as practicable in municipal securities while preserving the necessary
flexibility and liquidity to meet unanticipated redemptions. The Fund will enter
into stand-by commitments only with banks or municipal securities dealers that
in the opinion of the Adviser present minimal credit risks. The value of a
stand-by commitment is dependent on the ability of the writer to meet its
repurchase obligation.
CERTAIN RISK FACTORS
GEOGRAPHIC CONCENTRATION
Because the Fund invests principally in Maine municipal securities, the Fund
is more susceptible to factors adversely affecting issuers of those municipal
securities than would be a comparable municipal securities portfolio having a
lesser degree of geographic concentration. These risks arise from the financial
condition of the state of Maine and its political subdivisions. To the extent
state or local governmental entities are unable to meet their financial
obligations, the income derived by the Fund, its ability to preserve or realize
appreciation of its portfolio assets or its liquidity could be impaired.
To the extent the Fund's investments are primarily concentrated in issuers
located in Maine, the value of the Fund's shares may be especially affected by
factors pertaining to Maine's economy and other factors specifically affecting
the ability of issuers in Maine to meet their obligations. As a result, the
value of the Fund's assets may fluctuate more widely than the value of shares of
a portfolio investing in securities relating to a number of different states.
The ability of state, county or local governments and quasi-governmental
agencies to meet their obligations will depend primarily on the availability of
tax and other revenues to those governments and on their fiscal conditions
generally. The amounts of tax and other revenues available to governmental
issuers may be affected from time to time by economic, political and demographic
conditions within the state. In addition, constitutional or statutory
restrictions may limit a government's power to raise revenues or increase taxes.
The availability of Federal, state and local aid to governmental issuers may
also affect their ability to meet obligations. Payments of principal of and
interest on private activity securities will depend on the economic condition of
the facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political or demographic
conditions in the state.
DIVERSIFICATION MATTERS
The Fund is non-diversified, which means that it has greater latitude than a
diversified fund with respect to the investment of its assets in the securities
of a relatively small number of municipal issuers. As a non-diversified
portfolio, the Fund may present greater risks than a diversified fund. The
Fund's diversification requirements provide that, as of the last day of each
fiscal quarter, with respect to 50% of its assets, the Fund may not own the
securities of a single issuer, other than a U.S. Government Security, with a
value of more than 5% of the Fund's total assets. "U.S. Govern-
8
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ment Securities" means any obligation issued or guaranteed as to principal and
interest by the United States Government or by any of its agencies or
instrumentalities. Except for U.S. Government securities, no more than 25% of
the total assets of the Fund may be invested in securities of any one issuer.
These limitations do not apply to securities of an issuer payable solely from
the proceeds of escrowed U.S. Government securities. The Fund will be subject to
a greater risk of loss if an issuer in which the Fund invests a substantial
amount of its assets is unable to make interest or principal payments or if the
market value of securities declines.
INFORMATION CONCERNING THE STATE OF MAINE
In 1991, citing declines in key financial indicators and continued softness
in the Maine economy, S&P lowered its credit rating for Maine general
obligations from AAA to AA+, and at the same time lowered its credit rating on
bonds issued by the Maine Municipal Bond Bank and the Maine Court Facilities
Authority, and on State of Maine Certificates of Participation for highway
equipment from AA to A+. In August 1993, citing the "effects of protracted
economic slowdown and the expectation that Maine's economy will not soon return
to the pattern of robust growth evident in the mid-1980s," Moody's lowered its
credit rating for Maine general obligations from Aa1 to Aa. At the same time,
Moody's lowered from Aa1 to Aa the ratings assigned to state-guaranteed bonds of
the Maine School Building Authority and the Finance Authority of Maine, and
confirmed at A1 the ratings assigned to the bonds of the Maine Court Facilities
Authority and State of Maine Certificates of Participation. On May 13, 1997,
Moody's "confirmed and refined from Aa to Aa3" Maine's general obligation bond
rating in accord with a new national rating system published by Moody's on
January 13, 1997. On June 5, 1998, Moody's raised its credit rating on Maine
general obligations bonds from Aa3 to Aa2. Since 1996, Maine general obligation
bonds also have been rated by Fitch. Fitch has assigned a rating of AA to Maine
general obligation bonds. There can be no assurance that Maine general
obligations or the securities of any Maine political subdivision, authority or
corporation owned by the Fund will be rated in any category or will not be
downgraded by an NRSRO. Further information concerning the State of Maine is
contained in the SAI.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may not only be changed with the approval of the
holders of a majority of the outstanding voting securities of the Fund. A
majority of the Fund's outstanding voting securities 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. Unless otherwise
indicated, investment policies of the Fund are not fundamental and may be
changed by the Board of Trustees of the Trust (the "Board") without shareholder
approval. For more information concerning shareholder voting, see "Other
Information -- The Trust and Its Shares."
The Fund may borrow money for temporary or emergency purposes (including the
meeting of redemption requests), but, as a fundamental policy, not in excess of
33 1/3% of the value of the Fund's total assets. Borrowing for purposes other
than meeting redemption requests may not exceed 10% of the value of the Fund's
total assets. The Fund may invest no more than 15% of its net assets in illiquid
securities, including repurchase agreements not entitling the Fund to the
payment of principal within seven days. The Fund may hold cash pending
investment and may invest up to 10% of its total assets in money market mutual
funds that invest in municipal securities exempt from Federal income taxes. The
Fund may enter into repurchase agreements, which are transactions in which the
Fund purchases a security and
9
<PAGE>
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later, and may
lend its securities to other persons.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within three months after the transaction. The Fund purchases securities on a
when-issued or forward commitment basis only with the intention of actually
receiving or delivering the securities, as the case may be. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event, such as approval of a proposed financing by appropriate municipal
authorities.
During the period between a commitment and settlement, no payment is made
for the securities purchased and, thus, no dividend or interest accrues to the
purchaser from the transaction. However, at the time the Fund makes a commitment
to purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver or
pay for a security purchased or sold by the Fund may result in a loss or a
missed opportunity to make an alternative investment. Any significant commitment
of the Fund's assets committed to the purchase of securities on a when-issued or
forward commitment basis may increase the volatility of its net asset value.
The use of when-issued transactions and forward commitments may enable the
Fund to hedge against anticipated changes in interest rates and prices. If the
Adviser were to forecast incorrectly the direction of interest rate movements,
however, the Fund might be required to complete these transactions at prices
inferior to the current market values. No when-issued or forward commitments
will be made by the Fund if, as a result, more than 15% of the value of the
Fund's total assets would be committed to such transactions.
The Fund's use of when-issued securities and forward commitments entails
certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty in these transactions or a counterparty defaulted on its
obligations, the Fund might suffer a loss. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when it believes the counterparties present minimal
credit risks and the income to be earned from the transaction justifies the
attendant risks.
TEMPORARY DEFENSIVE POSITION
Generally, the Fund may invest up to 20% of its net assets in cash or cash
equivalents. When business or financial conditions warrant (i.e. when issues of
sufficient quality and liquidity are not available), the Fund may assume a
temporary defensive position and invest up to all of its assets in cash or prime
quality cash equivalents, including (1) short-term U.S. Government securities,
(2) certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States, (3) commercial
paper, (4) repurchase agreements covering any of the securities in which the
Fund may invest directly and (5) to the extent permitted by the Investment
Company Act of 1940, money market mutual funds. During periods when and to the
extent that the Fund has assumed a temporary defensive position, it will not be
pursuing its investment objective and shareholders may be subject to Federal and
Maine tax on a portion of their income dividends received from the Fund.
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CORE AND GATEWAY-REGISTERED TRADEMARK-
The Fund may seek to achieve its investment objective by converting to a
Core and Gateway structure. The Fund, upon future action by the Board and notice
to shareholders, may convert to this structure, in which the Fund would hold as
its only investment securities the shares of another investment company having
substantially the same investment objective and policies as the Fund. The Board
will not authorize conversion to a Core and Gateway structure if it would
materially increase costs to the Fund's shareholders.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (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 benefit from yield
disparities among different issues of debt securities, to seek short-term
profits during periods of fluctuating interest rates, or for other reasons. This
type of trading will increase the Fund's portfolio turnover rate and transaction
costs and may increase the Fund's capital gains, which are not tax-exempt when
distributed to shareholders. The Adviser weighs the anticipated benefits of
short-term investments against these consequences. The Fund's portfolio turnover
rate is reported under "Financial Highlights."
5. MANAGEMENT
The business and affairs of the Fund are managed under the direction of the
Board. The Board formulates the general policies of the Fund and generally meets
quarterly to review the results of the Fund, monitor investment activities and
practices and discuss other matters affecting the Fund and the Trust.
Information about the Trustees and the officers of the Trust is in the SAI under
"Management -- Trustees and Officers."
THE ADVISER
Forum Investment Advisors, LLC, serves as investment adviser to the Fund
under an investment advisory agreement with the Trust. Subject to the general
supervision of the Board, the Adviser makes investment decisions for the Fund
and is responsible for, among other things, developing a continuing investment
program for the Fund in accordance with its investment objective and reviewing
the investment strategies and policies of the Fund. For its services, the
Adviser receives an advisory fee at an annual rate of 0.40% of the Fund's
average daily net assets.
Leslie C. Berthy is Managing Director of the Adviser and has been
responsible for the day-to-day management of the Fund's portfolio since its
inception in 1989. Prior to his association with the Adviser, Mr. Berthy was
Managing Director and Co-Chief Executive Officer of Irwin Union Capital Corp.,
an affiliate of Irwin Union Bank & Trust Co.
As of the date of this Prospectus, each of the Adviser, FAdS, FFSI, FSS and
FAcS was controlled by John Y. Keffer, President and Chairman of the Trust and
was located at Two Portland Square, Portland, Maine, 04101. As of June 30, 1998,
the Adviser provided investment advisory services to registered investment
companies with assets of approximately $1.7 billion.
THE ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
supervision of the overall management of the Trust and providing the Trust with
general office facilities, necessary personnel to help ensure the effective
operation of the Trust as well as persons satisfactory to the Board to serve as
officers of the Trust. For these services, FAdS is entitled to receive a fee
from the Fund computed and paid monthly at an annual rate of 0.20% of the Fund's
average daily net assets.
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<PAGE>
Under a Fund Accounting 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. For its services FAcS is entitled
to receive a fee at an annual rate of $36,000 subject to adjustments for the
number and type of portfolio transactions.
As of June 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies and
collective investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, FFSI acts as distributor of
the Fund's shares and is the agent of the Trust in connection with the offering
of shares of the Fund. For these services, FFSI receives, and may reallow to
certain financial institutions, the sales charge paid by the purchasers of the
Fund's shares. FFSI may enter into arrangements with banks, broker-dealers or
other financial institutions ("Processing Organizations") through which
investors may purchase or redeem shares. FFSI may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund. Investors purchasing
shares of the Fund through another financial institution should read any
materials and information provided by the financial institution to acquaint
themselves with its procedures and any fees that it may charge. FFSI is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
SHAREHOLDER SERVICES
Shareholder inquiries and communications concerning the Fund may be directed
to ("FSS"). Under a Transfer Agency and Services Agreement with the Trust, FSS
acts as the Fund's transfer agent and dividend disbursing agent. FSS maintains
an account for each shareholder of record, where all shares purchased are
credited, together with any distributions that are reinvested in additional
shares. FSS also performs other transfer agency functions and acts as dividend
disbursing agent for the Trust. For its services, FSS is entitled to receive a
fee at an annual rate of 0.25% of the Fund's average daily net assets plus
$12,000 per year and annual shareholder fees of $18.00 per shareholder account.
EXPENSES OF THE TRUST
The Trust is obligated to pay for all of its expenses. The Fund's expenses
comprise Trust expenses attributable to the Fund and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Fund and
the portfolios in proportion to their average net assets. The Fund's expenses
include: interest charges; taxes; brokerage fees and commissions; certain
insurance premiums; applicable fees and expenses under the Trust's contracts
with the Adviser, FAdS, FSS and any custodian; fees of pricing, interest,
dividend, credit and other reporting services; costs of membership in trade
associations; auditing, legal and compliance expenses; costs of preparing and
printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
of certain of the Trust's trustees, officers and employees and other personnel
performing services for the Trust; and registration fees and related expenses.
The Adviser, FAdS, FSS, and FAcS, in their sole discretion, may waive all or
any portion of their respective fees, which are accrued daily and paid monthly.
Any such waiver, which could be discontinued at any time, would have the effect
of increasing the Fund's performance for the period during which the waiver was
in effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other business organizations and
individuals around the
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<PAGE>
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 1, 2000. The
Adviser and FAdS are taking steps to address the Year 2000 issue with respect to
the computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by the Fund's other major service providers.
There can be no assurance, however, that these steps will be sufficient to avoid
any adverse impact on the Fund from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in the Fund may be made either by an investor directly or through
certain brokers and financial institutions of which the investor is a customer.
All transactions in Fund shares are effected through FSS, which accepts orders
for purchases and redemptions from shareholders of record and new investors.
Shareholders of record will receive from the Trust periodic statements listing
all account activity during the statement period. The Trust reserves the right
in the future to modify, limit or terminate any shareholder privilege upon
appropriate notice to shareholders and charge a fee for certain shareholder
services, although no such fees are currently contemplated.
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined after acceptance of an order plus any applicable sales charge on
all weekdays except days when the New York Stock Exchange is closed ("Business
Day"). Normally, the New York Stock Exchange is closed on New Year's Day, Martin
Luther King Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas. Fund shares are issued
immediately after an order for the shares in proper form is accepted by FSS. The
Fund's net asset value is calculated at 4:00 p.m., Eastern Time on each Business
Day. Fund shares become entitled to receive dividends on the next Business Day
after the order is accepted.
The Fund reserves the right to reject any subscription for the purchase of
its shares. Share certificates are only issued to shareholders of record upon
their written request and no certificates are issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of the Fund's
next-determined net asset value after FSS receives the redemption order in
proper form (and any supporting documentation which FSS may require). Shares
redeemed are not entitled to receive dividends declared after the day on which
the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used for
investment has been cleared by the shareholder's bank, 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 and
mailed to the shareholder's record address. The right of redemption may not be
suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings or under any emergency or other
circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board deter-
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<PAGE>
mines that payment in cash would be detrimental to the best interests of the
Fund. The Trust will only effect a redemption in portfolio securities if the
particular shareholder is redeeming more than $250,000 or 1% of the Fund's net
assets, whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine, including the recording of certain transactions. If the Trust did not
employ such procedures it could be liable for any losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Fund directly. These investors may open an
account by completing the account application at the back of this Prospectus or
by contacting FSS at the address on the first page of this Prospectus. For those
shareholder services not referenced on the account application or to change
information on a shareholder's account (such as addresses), investors should
request an Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $2,000 minimum for initial investments in the Fund.
MAIL. Investors may send a check made payable to the Trust along with a
completed account application for the Fund to FSS 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, FSS 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
Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
BankBoston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: Maine Municipal Bond 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 the bank early in the day so
the wire transfer can be received prior to 4:00 p.m., Eastern time, on the same
day. The bank may impose a charge for transmitting payment by wire, and there
also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $250 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check, by sending a wire as indicated above. Shareholders
using the wire system for subsequent purchases should first telephone the
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<PAGE>
Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to notify it of the wire
transfer. All payments should clearly indicate the shareholder's name and
account number.
AUTOMATIC INVESTMENT. Shareholders may purchase Fund shares at regular,
preselected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an 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 the Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the applicable forms from FSS.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by 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.
MAIL. Shareholders may make a redemption in any amount by sending a written
request to FSS accompanied by any share certificate that was issued to the
shareholder. All share certificates submitted for redemption must be signed by
the shareholder with a signature guarantee. All written requests for redemption,
must be signed by the shareholder, and in some cases, must have a signature
guarantee. See "Purchases and Redemptions of Shares -- Other Redemption
Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling FSS at (207) 879-0001 or
800-94FORUM (800-943-6786) and providing the shareholder's account number, the
exact name in which the shares are registered, the shareholder's social security
or taxpayer identification number. The Trust or FSS may employ other procedures
such as recording certain transactions to ensure telephone instructions are
genuine. If such procedures are followed, neither the Trust nor FSS will be
liable for any losses due to unauthorized or fraudulent redemption requests. 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.
BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege on the
account application. Redemption proceeds are transmitted by wire on the next
business day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds 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 FSS.
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 fol-
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<PAGE>
lowing transactions: (1) any endorsement on a stock certificate; (2) written
instruction to redeem Shares whose value exceeds $50,000; (3) instructions to
change a shareholder's record name; (4) redemption in an account in which the
account address or account registration has changed within the last 30 days; (5)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a bank, a broker, a dealer, a national securities exchange, a
credit union, or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to FSS will be reinvested and
the checks will be canceled.
SALES CHARGES
The public offering price for shares of the Fund is the sum of the net asset
value of the shares being purchased plus any applicable sales charge. No sales
charge is assessed on the reinvestment of dividends or other distributions. The
sales charge is assessed for the Fund as follows:
<TABLE>
<CAPTION>
SALES CHARGE
AS % OF
------------------------
PUBLIC
OFFERING NET ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- ------------------------- ----------- ----------- ---------------
<S> <C> <C> <C>
less than $50,000........ 2.50% 2.56% 2.50%
$50,000 but less than
$100,000................ 2.25 2.30 2.25
$100,000 but less than
$500,000................ 2.00 2.04 2.00
$500,000 but less than
$1,000,000.............. 1.50 1.52 1.50
$1,000,000 and up........ 0.50 0.50 0.40
</TABLE>
* Rounded to the nearest one-hundredth percent.
FFSI's commission is the sales charge shown above less any applicable
discount reallowed to Processing Organizations (including banks and bank
affiliates purchasing shares as principal or agent). Normally, FFSI will reallow
discounts to Processing Organizations in the amounts indicated in the table
above. From time to time, however, FFSI may elect to reallow the entire sales
charge to Processing Organizations for all sales with respect to which orders
are placed with FFSI during a particular period. The dealers' reallowance may be
changed from time to time.
In addition, from time to time and at its own expense, FFSI may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
No sales charge will be assessed on purchases made for investment purposes
by: (1) any bank, trust company, savings association or similar institution with
whom FFSI has entered into a share purchase agreement acting on behalf of the
institution's fiduciary customer accounts or any account maintained by its trust
department (including a
16
<PAGE>
pension, profit sharing or other employee benefit trust created pursuant to a
qualified retirement plan); (2) any registered investment adviser with whom FFSI
has entered into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts; (3) any registered investment adviser which is
acting on behalf of its fiduciary customer accounts and for which it provides
additional investment advisory services; (4) any broker-dealer with whom FFSI
has entered into a Processing Organization Agreement and a Fee-Based or Wrap
Account Agreement and which is acting on behalf of its fee-based program
clients; (5) directors and officers of the Trust; directors, officers and
full-time employees of the Advisor, FFSI, any of their affiliates or any
organization with which FFSI has entered into a Processing Organization
Agreement; the spouse, sibling, direct ancestor or direct descendent
(collectively, "relatives") of any such person; any trust or individual
retirement account or self-employed retirement plan for the benefit of any such
person or relative; or the estate of any such person or relative; (6) any person
who has, within the preceding 90 days, redeemed Fund shares (but only on
purchases in amounts not exceeding the redeemed amounts) and completes a
reinstatement form upon investment; (7) persons who exchange into the Fund from
a mutual fund other than a fund of the Trust that participates in the Trust's
exchange program, See "Purchases and Redemptions of Shares - Exchange Program;"
and (8) employee benefit plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended. The Trust may require appropriate
documentation from an investor concerning that investor's eligibility to
purchase Fund shares without a sales charge. Any shares so purchased may not be
resold except to the Fund.
In addition to incurring a possible fee charge, investors who purchase
shares through a Processing Organization will be subject to the procedures of
their Processing Organization, which may include limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable to shareholders who invest in the Fund directly. These investors
should acquaint themselves with their Processing Organization's procedures and
should read this Prospectus in conjunction with any materials and information
provided by their Processing Organization. Investors who purchase Fund shares
through a Processing Organization may or may not be the shareholder of record
and, subject to their Processing Organization's and the Fund's procedures, may
have Fund shares transferred into their name. Under their arrangements with the
Trust, broker-dealer Processing Organizations are not generally required to
deliver payment for purchase orders until several business days after a purchase
order has been received by the Fund. Certain other Processing Organizations may
also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
REDUCED SALES CHARGES
For an investor to qualify for a reduced sales charge as described below,
the investor must notify FSS at the time of purchase. Programs for reduced sales
charges may be modified or terminated at any time and are subject to
confirmation of an investor's holdings.
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<PAGE>
RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of the
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Business Day) of all Fund shares held by
the investor. For example, if an investor owned shares of the Fund worth
$400,000 at the then current net asset value and purchased shares of the Fund
worth an additional $50,000, the sales charge for the $50,000 purchase would be
at the 2% rate applicable to a single $450,000 purchase, rather than at the
2.50% rate. To qualify for ROA on a purchase, the investor must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based on
cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of the Fund. Each purchase of shares under a LOI will be
made at the public offering price applicable at the time of the purchase to a
single transaction of the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the full
amount indicated. Shares purchased with the first 5% of the amount indicated in
the LOI will be held subject to a registered pledge (while remaining registered
in the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased within 13 months. Pledged shares will be involuntarily redeemed to pay
the additional sales charge, if necessary. When the full amount indicated has
been purchased, the shares will be released from pledge. Share certificates are
not issued for shares purchased under an LOI. Investors wishing to enter into an
LOI can obtain a form of LOI from their broker or financial institution or by
contacting FSS.
EXCHANGES
EXCHANGE PROCEDURES
Fund shareholders are entitled to exchange their shares for shares of any
other fund of the Trust or any other fund that participates in the exchange
program and whose shares are eligible for sale in the shareholder's state of
residence. Exchanges may only be made between accounts registered in the same
name. When a shareholder exchanges shares, a completed account application must
be submitted to open a new account in a fund if the shareholder requests any
shareholder privilege not associated with the existing account. Exchanges are
subject to the fees and the restrictions (including minimum investment
requirements) listed in the prospectus for, the fund into which a shareholder is
exchanging. The Fund does not charge for exchanges and there is currently no
limit on the number of exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and any necessary
supporting documents by the fund whose shares are being exchanged are received
by FSS.
If a shareholder exchanges into a fund that imposes a sales charge, that
shareholder is required to pay the difference between that fund's sales charge
and any sales charge the shareholder has previously paid in connection with the
shares being exchanged. For example, if a shareholder paid a 2% sales charge in
connection with the purchase of the shares of a fund and then exchanged those
shares into another fund with a 3% sales charge, that shareholder would pay an
additional 1% sales charge on the exchange.
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<PAGE>
Shares acquired through the reinvestment of dividends and distributions are
deemed to have been acquired with a sales charge rate equal to that paid on the
shares on which the dividend or distribution was paid. The exchange privilege
may be modified materially or terminated by the Trust at any time upon 60 days'
notice to shareholders.
MAIL. Exchanges may be accomplished by written instruction to FSS
accompanied by any share certificate that may have been issued to the
shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with a signature
guarantee.
TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling FSS at 800-94FORUM
(800-943-6786) or (207) 879-0001 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of FSS . Processing Organizations may receive as a dealer's
reallowance a portion of the sales charge paid by their customers who purchase
Fund shares. In addition, Processing Organizations may charge their customers a
fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund. The Trust is not responsible for the
failure of any Processing Organization to promptly forward these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in the Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Investors who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and the Fund's procedures, may have Fund shares
transferred into their name. Under their arrangements with the Trust,
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several business days after a purchase order
has been received by the Fund. Certain other Processing Organizations may also
enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
19
<PAGE>
7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of the Fund's net investment income, if any, are declared
daily and paid monthly. Any distributions of net capital gain realized by the
Fund are distributed annually.
Shareholders may choose either to have all distributions of net investment
income reinvested in additional Fund shares or paid in cash or to have
distributions of net capital gain reinvested in additional fund shares or paid
in cash. All distributions are treated in the same manner for Federal income tax
purposes whether paid in cash or reinvested in Fund shares.
All distributions are reinvested at the Fund's net asset value as of the
payment date. All distributions are reinvested unless another option is
selected. All distributions not reinvested are paid to the shareholder in cash
and may be paid more than seven days following the date on which distributions
would otherwise be reinvested.
TAXES
The Fund intends to continue to qualify for each fiscal year to be taxed as
a "regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Fund will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to its shareholders.
Because the Fund intends to distribute substantially all of its net investment
income and net capital gain each year, the Fund should avoid all Federal income
and excise taxes.
DIVIDENDS OF TAX-EXEMPT INTEREST AND RELATED MATTERS
Shareholders generally will not be subject to Federal income tax on
dividends paid by the Fund out of tax-exempt interest income earned by the Fund
("exempt-interest dividends"), assuming certain requirements are met by the
Fund. Substantially all of the dividends paid by the Fund are anticipated to be
exempt from Federal income taxes and from Maine personal income tax. However,
exempt-interest dividends paid by the Fund to shareholders that are financial
institutions are subject to the Maine franchise tax.
Persons who are "substantial users" or "related persons" thereof of
facilities financed by private activity bonds held by the Fund may be subject to
Federal income tax on their pro rata share of the interest income from these
bonds and should consult their tax advisors before purchasing shares of the
Fund. Under current Federal tax law, interest on certain private activity bonds
is treated as an item of tax preference for purposes of the Federal AMT imposed
on individuals and corporations. In addition, interest on all tax-exempt
obligations is included in the "adjusted current earnings" of corporations for
Federal AMT purposes. The Maine AMT is based in part on Federal AMT income.
OTHER DISTRIBUTIONS
Dividends paid by the Fund out of its taxable net investment income
(including any realized net short-term capital gain) are taxable to shareholders
as ordinary income for Federal income tax purposes. Distributions of realized
net long-term capital gain, if any, are taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder may have held
shares in the Fund. If Fund shares are sold at a loss after being held for six
months or less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares and will be treated as long-term capital loss
to the extent of any long-term capital gain distribution received on those
shares.
Any capital gain distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the distribution. To
the extent that capital gain was accrued by the Fund before the shareholder
purchased the shares, the distribution would be in effect a return of capital to
the shareholder. Capital gain distribu-
20
<PAGE>
tions, including those that operate as a return of capital, however, are taxable
to the shareholder receiving them.
OTHER TAX MATTERS
Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund generally is not deductible for Federal income tax purposes.
The Fund may be required by Federal law to withhold 31% of reportable
payments (which may include taxable dividends, capital gain distributions and
redemption proceeds) paid to individuals and certain other non-corporate
shareholders. Withholding is not required if a shareholder certifies that the
shareholder's social security or tax identification number provided to the Fund
is correct and that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year. This
includes a statement advising each shareholder of the portion of total dividends
paid into the shareholder's account that is exempt from Federal income tax and
that is derived from Maine municipal securities and from other sources. These
portions are determined for the entire year and on a monthly basis and, thus,
are an annual or monthly average, rather than a day-by-day determination for
each shareholder.
TAX-FREE INCOME VS. TAXABLE INCOME
The table below shows approximate equivalent taxable and tax-free yields at
various approximate combined marginal Federal and Maine tax bracket rates. For
example, an investor in the 39.5% combined tax bracket for 1998 whose
investments earn a 5% tax-free yield would have to earn a 8.3% taxable yield to
receive the same benefit from a non-tax-exempt investment.
1998 COMBINED FEDERAL AND MAINE
TAXABLE VS. TAX-FREE YIELDS
<TABLE>
<CAPTION>
A Tax Free Yield of
------------------------------
4.0% 4.5% 5.0% 5.5%
---- ---- ----- -----
Combined Marginal Federal and equals a taxable yield of
Maine Tax Bracket approximately
------------ ------------------------------
<S> <C> <C> <C> <C>
48.1% 7.7% 8.7% 9.6% 10.6%
44.5% 7.2% 8.1% 9.0% 9.9%
39.5% 6.6% 7.4% 8.3% 9.1%
36.5% 6.3% 7.1% 7.9% 8.7%
</TABLE>
The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. Although the Fund primarily invests in
securities the interest from which is exempt from both Federal and Maine state
income taxes, some of the Fund's investments may generate taxable income. An
investor's tax bracket will depend upon the investor's taxable income. The
figures set forth above do not reflect the Federal or Maine alternative minimum
taxes or any state or local income taxes other than Maine state individual
income taxes.
The foregoing is only a summary of some of the important Federal and Maine
tax considerations generally affecting the Fund and its shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisors.
8. OTHER INFORMATION
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended to
indicate future performance. The Fund's yield is a way of showing the rate of
income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
21
<PAGE>
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. The Fund may also quote tax equivalent yields,
which show the taxable yields a shareholder would have to earn to equal the
Fund's tax-free yields after taxes. A tax equivalent yield is calculated by
dividing the Fund's tax-free yield by one minus a stated Federal, state or
combined Federal and state tax rate. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period.
The Fund also may advertise its total return over different periods of time on a
before-tax or after-tax basis or by means of aggregate, average, year by year,
or other types of total return figures. Because average annual returns tend to
smooth out variations in the Fund's returns, shareholders should recognize that
they are not the same as actual year-by-year results. The Fund's advertised
yield and total return may or may not reflect the maximum sales load applicable
to the Fund. A computation of yield or total return that does not take into
account the sales load paid by an investor will be higher than a computation
based on the public offering price of shares purchased that does take into
account payment of a sales load.
The Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Fund may be
compared to recognized indices of market performance. The comparative material
found in the Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FAdS would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them would be sought. It is not expected that
shareholders would suffer adverse financial consequences as a result of any
changes in bank or bank affiliate service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00
p.m., Eastern Time, on each Business Day by dividing the value of the Fund's net
assets (i.e., the value of its portfolio securities and other assets less its
liabilities) by the number of the Fund's 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.
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
22
<PAGE>
more classes of shares (such as Investor and Institutional Shares). Currently
the authorized shares of the Trust are divided into 23 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio, except if the matter
affects only one portfolio or voting by portfolio or class is required by law,
in which case shares will be voted separately by portfolio. Delaware law does
not require the Trust to hold annual meetings of shareholders, and it is
anticipated that shareholder meetings will be held only when specifically
required by Federal or state law. Shareholders (and Trustees) have available
certain procedures for the removal of Trustees. There are no conversion or
preemptive rights in connection with shares of the Trust. All shares when issued
in accordance with the terms of the offering will be fully paid and
nonassessable. Shares are redeemable at net asset value, at the option of the
shareholders, subject to any contingent deferred sales charge that may apply. A
shareholder in a portfolio is entitled to the shareholder's pro rata share of
all dividends and distributions arising from that portfolio's assets and, upon
redeeming shares, will receive the portion of the portfolio's net assets
represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote.
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.
23
<PAGE>
[APPLICATION FORM
PAGE 1]
<PAGE>
[APPLICATION FORM
PAGE 2]
<PAGE>
[GRAPHIC]
[LOGO]
SHAREHOLDER INFORMATION:
FORUM SHAREHOLDER SERVICES, LLC
P.O. BOX 446
PORTLAND, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
<PAGE>
[GRAPHIC]
PROSPECTUS
NEW HAMPSHIRE
BOND FUND
FORUM
FUNDS
AUGUST 1, 1998
<PAGE>
FORUM FUNDS
NEW HAMPSHIRE BOND FUND
PROSPECTUS
August 1, 1998
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
- --------------------------------------------------------------------------------
This Prospectus offers shares of New Hampshire Bond Fund (the "Fund"), a
non-diversified series of Forum Funds (the "Trust"), an open-end, management
investment company.
NEW HAMPSHIRE BOND FUND seeks to provide shareholders with a high level of
current income exempt from both Federal income taxes (other than the
alternative minimum tax) and New Hampshire state interest and dividends
taxes. The Fund invests principally in investment grade New Hampshire
municipal securities.
Shares of the Fund are offered to investors at a price equal to the
next-determined net asset value plus a maximum sales charge of 2.50% of the
total public offering price (2.56% of the net amount invested).
This Prospectus sets forth concisely the information a prospective investor
should know about the Trust and the Fund before investing. The Trust has filed
with the Securities and Exchange Commission ("SEC") a Statement of Additional
Information dated August 1, 1998, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Trust and the Fund
and is available together with other related materials for referenced on the
SEC's Internet Web Site (http://www.sec.gov). The SAI, which is incorporated by
reference into this prospectus, is available without charge by contacting Forum
Shareholder Services, LLC, the Fund's transfer agent, at the address and
telephone numbers printed above.
SHARES OF THE FUND ARE OFFERED ONLY TO RESIDENTS OF THE STATE OF NEW HAMPSHIRE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----------
<C> <S> <C>
1. Prospectus Summary.......................... 2
2. Financial Highlights........................ 4
3. Investment Objective and Policies........... 5
4. Additional Investment Policies.............. 9
<CAPTION>
PAGE
----------
<C> <S> <C>
5. Management.................................. 11
6. Purchases and Redemptions of Shares......... 12
7. Distributions and Tax Matters............... 19
8. Other Information........................... 21
</TABLE>
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
FUND SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, OR ANY OTHER FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from both Federal income taxes (other than the
alternative minimum tax) and New Hampshire state interest and dividends taxes.
The Fund invests principally in investment grade New Hampshire municipal
securities. It is anticipated that the average weighted maturity of all
municipal securities in the Fund's portfolio will normally range between five
and 15 years. See "Investment Objective and Policies."
INVESTMENT ADVISER
Forum Investment Advisors, LLC (the "Adviser") serves as the investment
adviser to the Fund. The Adviser is located at Two Portland Square, Portland,
Maine 04101. See "Management -- The Adviser".
FUND MANAGEMENT
The administrator of the Trust is Forum Administrative Services, LLC
("FAdS") and distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC (the "FSS") serves as the Trust's
transfer agent, dividend disbursing agent and shareholder servicing agent and
Forum Accounting Services, LLC (FAcS") provides portfolio accounting services
for the Trust. Each of the Adviser, FAdS, FFSI, FSS, and FAcS are located at Two
Portland Square, Portland, Maine 04101. See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at the next-determined net asset value per
share plus any applicable sales charge. Shares may be purchased or redeemed by
mail, by bank-wire and through an investor's broker-dealer or other financial
institution. The minimum initial investment is $2,000 and the minimum subsequent
investment is $250. Shares may be redeemed without charge. See "Purchases and
Redemptions of Shares."
EXCHANGE PROGRAM
Shareholders of the Fund may exchange their shares without charge for the
shares of certain other funds of the Trust. See "Purchases and Redemptions of
Shares -- Exchanges."
DISTRIBUTIONS
The Fund distributes its net investment income, if any, monthly and its net
capital gains, if any, at least annually. All distributions are reinvested
automatically in additional shares of the Fund at net asset value unless a
shareholder has notified the Fund in his or her Account Application or otherwise
in writing of the shareholder's intention to receive distributions in cash. It
is anticipated that substantially all of the dividends paid by the Fund will be
exempt from Federal income tax and from New Hampshire state interest and
dividends taxes. See "Distributions 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 and total return will fluctuate as the
value of the securities in which the Fund invests changes and will tend to vary
inversely with movements in interest rates. The Fund is non-diversified and,
therefore, has greater freedom to concentrate its investments in a limited
number of issues than if it were diversified. The Fund invests principally in
the securities of New Hampshire municipal issuers, which entails more risk than
if the Fund were to invest in issuers with greater geographic diversity. See
"Investment Objective and Policies -- Certain Risk Factors."
2
<PAGE>
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in understanding
the various expenses that an investor in the Fund will bear directly or
indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of
public offering price)(1)...... 2.50%
Exchange Fee..................... None
ANNUAL FUND OPERATING EXPENSES (2)
(as a percentage of average net
assets after applicable expense
reimbursements and fee waivers)
Management Fees.................. 0.40%
12b-1 Fees....................... None
Other Expenses................... 0.20%
-----------
Total Fund Operating Expenses.... 0.60%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares -- Reduced Sales Charges."
(2) The Annual Fund Operating Expenses are based upon expenses and assets of
the Fund during its most recent fiscal year ending March 31, 1998. Management
Fees includes all investment advisory fees and administration fees. Absent
certain expense reimbursements and fee waivers, Management Fees, Other Expenses
and Total Fund Operating Expenses would be 0.67%, 1.13% and 1.81%, respectively.
Expense reimbursements and fee waivers are voluntary and may be reduced or
eliminated at any time. For a further description of the various expenses
incurred in the operation of the Fund, see "Management."
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in the Fund would pay assuming (1) a $1,000 investment
in the Fund, (2) a 5% annual return, (3) the reinvestment of all distributions,
(4) the payment of the maximum initial sales charge and (5) full redemptions at
the end of each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C>
$31 $44 $58 $98
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN
INDICATED. The example is based on the expenses listed in the Annual Fund
Operating Expenses table. 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.
3
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Fund. This information has been audited by Deloitte & Touche
LLP, independent auditors. The financial statements and independent auditors'
report thereon are incorporated by reference into the SAI. Further information
about the Fund's performance is contained in the Fund's annual report to
shareholders, which may be obtained from the Trust without charge by contacting
the Fund's transfer agent.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993(a)
--------- ---------- ------------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.31 $ 10.33 $ 10.08 $ 9.96 $ 10.01 $10.00
Investment Operations:
Net Investment Income (Loss).......... 0.47 0.48 0.48 0.49 0.51 0.12
Net Realized and Unrealized Gain
(Loss) on Investments............... 0.43 (0.02) 0.25 0.12 (0.03) 0.01
Total from Investment Operations........ 0.90 0.46 0.73 0.61 0.48 0.13
Distributions from:
Net Investment Income................. (0.48) (0.48) (0.48) (0.49) (0.51) (0.12)
Net Realized Gain on Investments...... -- -- -- -- (0.02) --
Total Distributions..................... (0.48) (0.48) (0.48) (0.49) (0.53) (0.12)
Net Asset Value, End of Period.......... $ 10.73 $ 10.31 $ 10.33 $ 10.08 $ 9.96 $10.01
--------- ---------- ------ --------- -------- ---------
--------- ---------- ------ --------- -------- ---------
Total Return(b)......................... 8.84% 4.56% 7.36% 6.32% 4.75% 5.55%(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's
omitted).............................. $12,908 $ 8,691 $ 6,903 $ 5,276 $ 3,555 $442
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver................ 0.60% 0.60% 0.60% 0.46% 0.34% 0.50%(c)
Expenses Excluding
Reimbursement/Waiver................ 1.81% 2.22% 2.26% 2.19% 4.33% 30.85%(c)
Net Investment Income (Loss) Including
Reimbursement/Waiver................ 4.45% 4.65% 4.65% 4.95% 4.68% 4.96%(c)
Portfolio Turnover Rate............... 22.99% 53.46% 34.31% 37.59% 9.60% --
</TABLE>
(a) The Fund commenced operations on December 31, 1992.
(b) Total return calculations do not include sales charges.
(c) Annualized.
4
<PAGE>
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from both Federal income taxes (other than the
alternative minimum tax) and New Hampshire state interest and dividends taxes.
The Fund anticipates that all of its income will be exempt from New Hampshire
state interest and dividends taxes and that a substantial portion of its income
will be exempt from New Hampshire state business profits taxes. There can be no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in investment grade
debt obligations issued by the state of New Hampshire and its political
subdivisions, duly constituted authorities and corporations. These securities
are generally known as "municipal securities" and include municipal bonds, notes
and leases. It is anticipated that under normal circumstances substantially all
of the Fund's assets will be invested in municipal securities the interest on
which is exempt from New Hampshire state interest and dividends taxes and
Federal income taxes except when received by a shareholder in a taxable year for
which he will be subject to the Federal alternative minimum tax ("AMT"). The
Fund may also invest in United States government instruments the interest on
which is exempt from New Hampshire state interest and dividends taxes.
The market value of the municipal securities held by the Fund will be
affected by changes in interest rates. Normally, a decline in interest rates
produces an increase in market value, while an increase in interest rates
produces a decrease in market value. Moreover, the longer the remaining maturity
of a security, the greater will be the effect of interest rate changes on the
market value of that security. Changes in the ability of an issuer to make
payments of interest and principal and in the market's perception of an issuer's
creditworthiness will also affect the market value of the debt securities of
that issuer. Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. The possibility exists, therefore, that, as a result of
litigation or other conditions, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may be materially impaired.
The yields of municipal securities depend on, among other things, conditions
in the municipal securities markets and fixed income markets generally, the size
of a particular offering, the maturity of the obligation, and the rating of the
issue. New Hampshire municipal securities may have yields slightly less than the
municipal obligations of issuers located in other states because of the New
Hampshire state interest and dividends tax exemption.
In general, the longer the maturity of a municipal security, the higher the
rate of interest it pays. However, a longer average maturity is generally
associated with a higher level of volatility in the market value of a municipal
security. The average maturity of the Fund's portfolio will vary depending on
anticipated market conditions. It is anticipated, however, that the average
weighted maturity of all municipal securities in the Fund will normally range
between five and 15 years.
In addition to New Hampshire municipal securities, the term municipal
securities, as used in this Prospectus and in the SAI, also include securities
issued by Puerto Rico, other United States territories or possessions and their
subdivisions, authorities and corporations the income from which is not subject
to Federal income tax or New Hampshire state interest and dividends taxes. The
Fund may invest up to 25% of its total assets in these securities.
5
<PAGE>
Under current Federal tax law, a distinction is drawn between municipal
securities issued after August 7, 1986 to finance certain "private activities"
and other municipal securities. Private activity securities include securities
issued to finance such projects as certain solid waste disposal facilities,
student loan programs, and water and sewage projects. Interest income from
certain of these securities is subject to the Federal AMT and similar treatment
may apply for New Hampshire AMT purposes. See "Dividends and Tax Matters."
Because interest income on securities subject to the AMT is taxable to certain
investors, it is expected, although there can be no guarantee, that these
municipal securities generally will provide somewhat higher yields than other
municipal securities of comparable quality and maturity that are not subject to
the AMT.
CREDIT MATTERS
Normally, at least 80% of the Fund's total assets will be invested in
municipal bonds rated at the time of purchase within the four highest rating
categories assigned by a nationally recognized statistical rating organization
("NRSRO") such as Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A and
Baa), Standard & Poor's Corporation ("S&P") (AAA, AA, A and BBB) or Fitch IBCA,
Inc. ("Fitch") (AAA, AA, A and BBB) or which are unrated and determined by the
Adviser to be of comparable quality. Securities in those rating categories are
generally considered to be investment grade securities, although Moody's
indicates that municipal securities rated Baa have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity by the issuer to make principal and interest payments with
respect to debt rated in that category than is the case with higher grade debt.
Unrated securities may not be as actively traded as rated securities. A further
description of the ratings used by Moody's, S&P and Fitch is included in the
SAI. The Fund only invests in municipal notes and other short-term municipal
obligations in the two highest rating categories assigned by an NRSRO or which
are unrated and determined by the Adviser to be of comparable quality. The Fund
may invest up to 20% of its total assets in municipal bonds rated in the fifth
or sixth highest rating category by an NRSRO or which are unrated and determined
by the Adviser to be of comparable quality. These securities are not considered
to be investment grade and have speculative or predominantly speculative
characteristics and are commonly known as "Junk Bonds." The Fund may retain
securities whose rating has been lowered below the lowest permissible rating
category (or that are unrated and determined by the Advisor to be of comparable
quality) only if the Adviser determines that retaining the security is in the
best interests of the Fund.
An unrated municipal security will be considered for investment by the Fund
when the Adviser believes that the financial condition of the issuer of the
obligation and the protection afforded by the terms of the obligation limit the
risk to the Fund to a degree comparable to that of rated securities in which the
Fund may invest. During its last fiscal year, the Fund had 86.89% of its average
annual assets in municipal securities rated by Moody's or S&P and 6.10% of its
average annual assets in unrated investments, including cash and cash
equivalents. For that year the Fund had the following percentages of its average
annual net assets invested in rated securities: Aaa/AAA -- 40.93%, Aa/AA --
28.83%, A/A -- 15.94%, and Baa/BBB -- 1.19%. For this purpose, securities with
different ratings from Moody's and S&P were assigned the higher rating. This
information reflects the average month end composition of the Fund's assets for
the Fund's last fiscal year and is not necessarily representative of the Fund as
of the end of last year, the current fiscal year or any other time.
MUNICIPAL BONDS
Municipal bonds intended to meet longer term capital needs, can be
classified as either
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"general obligation" or "revenue" bonds. General obligation bonds are secured by
a municipality's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are generally payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise or other tax, but not from
general tax revenues. Municipal bonds also include private activity bonds
("PABs"), which are bonds issued by or on behalf of public authorities to
finance various privately operated facilities. PABs are in most cases revenue
bonds. The payment of the principal and interest on these bonds is dependent
solely on the ability of an initial or subsequent user of the facilities
financed by the bonds to meet its financial obligations and the pledge, if any,
of real and personal property financed by the bond as security for payment. The
Fund will acquire only PABs whose interest payments, in the opinion of the
issuer's counsel, are exempt from Federal income tax (other than the AMT) and
New Hampshire state interest and dividends taxation.
MUNICIPAL NOTES AND LEASES
Municipal notes, which may be either "general obligation" or "revenue"
securities, are intended to fulfill short-term capital needs and generally have
original maturities of 397 days or less. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper. Municipal leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased
assets to pass eventually to the government issuer) are a means for governmental
issuers to acquire property and equipment without meeting constitutional or
statutory requirements for the issuance of long-term debt as described in the
SAI. Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds or notes as described in the SAI.
VARIABLE AND FLOATING RATE SECURITIES
The securities in which the Fund invests may have variable or floating rates
of interest. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to some
interest rate index or market interest rate (the "underlying index"). The
interest paid on these securities is a function primarily of the underlying
index upon which the interest rate adjustments are based. Such adjustments
minimize changes in the market value of the obligation and, accordingly, enhance
the ability of the Fund to maintain a stable net asset value. Similar to fixed
rate debt instruments, variable and floating rate instruments are subject to
changes in value based on changes in market interest rates or changes in the
issuer's creditworthiness. The rate of interest on securities purchased by the
Fund may be tied to various rates of interest or indices.
There may not be an active secondary market for certain floating or variable
rate instruments, which could make it difficult for the Fund to dispose of an
instrument during periods that the Fund is not entitled to exercise any demand
rights it may have. The Fund could, for this or other reasons, suffer a loss
with respect to an instrument. The Adviser monitors the liquidity of the Fund's
investments in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
PARTICIPATION INTERESTS
The Fund may purchase participation interests in municipal securities that
are owned by banks or other financial institutions. Participation interests
carry a demand feature backed by a letter of credit or guarantee of the bank or
other institution permitting the holder to tender them back to the bank or
institution. The Fund will only purchase participation interests from Federal
Deposit Insurance Corporation ("FDIC") insured banks having total assets of more
than one billion dollars or from other financial institutions whose long-
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term debt securities are rated within the four highest rating categories of an
NRSRO (or are unrated and determined by the Adviser to be of comparable
quality). Prior to purchasing any participation interest, the Fund will obtain
appropriate assurances from counsel retained by the Trust that the interest
earned by the Fund from the obligations in which it holds participation
interests is exempt from Federal income and New Hampshire state interest and
dividends taxes.
STAND-BY COMMITMENTS
The Fund may purchase municipal securities together with the right to resell
them to the seller at an agreed-upon price or yield within specified periods
prior to their maturity dates. These rights to resell are commonly known as
"stand-by commitments." The aggregate price which the Fund pays for securities
with a stand-by commitment may be higher than the price which otherwise would be
paid. The primary purpose of this practice is to permit the Fund to be as fully
invested as practicable in municipal securities while preserving the necessary
flexibility and liquidity to meet unanticipated redemptions. The Fund will enter
into stand-by commitments only with banks or municipal securities dealers that
in the opinion of the Adviser present minimal credit risks. The value of a
stand-by commitment is dependent on the ability of the writer to meet its
repurchase obligation.
CERTAIN RISK FACTORS
GEOGRAPHIC CONCENTRATION
Because the Fund invests principally in New Hampshire municipal securities,
the Fund is more susceptible to factors adversely affecting issuers of those
municipal securities than would be a comparable municipal securities portfolio
having a lesser degree of geographic concentration. These risks arise from the
financial condition of the state of New Hampshire and its political
subdivisions. To the extent state or local governmental entities are unable to
meet their financial obligations, the income derived by the Fund, its ability to
preserve or realize appreciation of its portfolio assets or its liquidity could
be impaired.
To the extent the Fund's investments are primarily concentrated in issuers
located in New Hampshire, the value of the Fund's shares may be especially
affected by factors pertaining to New Hampshire's economy and other factors
specifically affecting the ability of issuers in New Hampshire to meet their
obligations. As a result, the value of the Fund's assets may fluctuate more
widely than the value of shares of a portfolio investing in securities relating
to a number of different states.
The ability of state, county or local governments and quasi-governmental
agencies to meet their obligations will depend primarily on the availability of
tax and other revenues to those governments and on their fiscal conditions
generally. The amounts of tax and other revenues available to governmental
issuers may be affected from time to time by economic, political and demographic
conditions within the state. In addition, constitutional or statutory
restrictions may limit a government's power to raise revenues or increase taxes.
The availability of Federal, state and local aid to governmental issuers may
also affect their ability to meet obligations. Payments of principal of and
interest on private activity securities will depend on the economic condition of
the facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political or demographic
conditions in the state.
DIVERSIFICATION MATTERS
The Fund is non-diversified, which means that it has greater latitude than a
diversified fund with respect to the investment of its assets in the securities
of a relatively few municipal issuers. As a non-diversified portfolio, the Fund
may present greater risks than a diversified fund. The Fund's diversification
requirements provide that, as of the last day of each fiscal quarter, with
respect to 50% of its assets, the Fund may not own the securities
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of a single issuer, other than a U.S. Government Security, with a value of more
than 5% of the Fund's total assets. "U.S. Government Security" means any
obligation issued or guaranteed as to principal and interest by the United
States Government or by any of its agencies or instrumentalities. Except for
U.S. Government securities, no more than 25% of the total assets of the Fund may
be invested in securities of any one issuer. These limitations do not apply to
securities of an issuer payable solely from the proceeds of escrowed U.S.
Government securities. The Fund will be subject to a greater risk of loss if an
issuer in which the Fund invests a substantial amount of its assets is unable to
make interest or principal payments or if the market value of securities
declines.
INFORMATION CONCERNING THE STATE OF NEW HAMPSHIRE
The major NRSROs have rated recent New Hampshire general obligation or
State-guaranteed bond issues as follows: Moody's -- Aa2 (refined from Aa in June
1997); S&P -- AA+ (stable) (revised from AA in November, 1995); Fitch -- AA+
(revised from AA in November 1995). S&P's rating revision cited sustained
employment recovery, improved financial position, low debt burden and high
wealth indicators. Fitch noted conservative debt and financial policies
underpinning the State's credit position, strengthened by economic buoyancy. A
recent bond issue by the New Hampshire Municipal Bond Bank without State
guarantee has been separately rated A1 by Moody's (stable) and A+ by S&P
(stable). Bond ratings of individual municipalities in New Hampshire vary in
accordance with rating agencies' estimates of the issuer's relative financial
strength and ability to support debt service. There can be no assurance that New
Hampshire general obligations or the securities of any New Hampshire political
subdivision, authority or corporation owned by the Fund will be rated in any
category or will not be downgraded by an NRSRO. Further information concerning
the State of New Hampshire is contained in the SAI.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may only be changed with the approval of the holders
of a majority of the outstanding voting securities of the Fund. A majority of
the Fund's outstanding voting securities 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 total 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 (the "Board") without shareholder approval. For
more information concerning shareholder voting, see "Other Information--The
Trust and Its Shares."
The Fund may borrow money for temporary or emergency purposes (including the
meeting of redemption requests), but, as a fundamental policy, not in excess of
331/3% of the value of the Fund's total assets. Borrowing for purposes other
than meeting redemption requests may not exceed 10% of the value of the Fund's
total assets. The Fund may not invest more than 15% of its net assets in
illiquid securities, including repurchase agreements not entitling the Fund to
the payment of principal within seven days. The Fund may hold cash pending
investment and enter into repurchase agreements, which are transactions in which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed-upon price on an agreed-upon future date, normally
one to seven days later, and may lend its securities to other persons.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis.
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When these transactions are negotiated, the price, which is generally expressed
in yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within three months after the transaction. The Fund purchases
securities on a when-issued or forward commitment basis only with the intention
of actually receiving or delivering the securities, as the case may be.
When-issued securities may include bonds purchased on a "when, as and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event, such as approval of a proposed financing by appropriate
municipal authorities.
During the period between a commitment and settlement, no payment is made
for the securities purchased and, thus, no dividends or interest accrues to the
purchaser from the transaction. However, at the time the Fund makes a commitment
to purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver or
pay for a security purchased or sold by the Fund may result in a loss or a
missed opportunity to make an alternative investment. Any significant commitment
of the Fund's assets committed to the purchase of securities on a when-issued or
forward commitment basis may increase the volatility of its net asset value.
The use of when-issued transactions and forward commitments may enable the
Fund to hedge against anticipated changes in interest rates and prices. If the
Adviser were to forecast incorrectly the direction of interest rate movements,
however, the Fund might be required to complete these transactions at prices
inferior to the current market values. No when-issued or forward commitments
will be made by the Fund if, as a result, more than 15% of the value of the
Fund's total assets would be committed to such transactions.
The Fund's use of when-issued securities and forward commitments entails
certain risks not associated with direct investments in securities. For
instance, in the event that bankruptcy or similar proceedings were commenced
against a counterparty in these transactions or a counterparty defaulted on its
obligations, the Fund might suffer a loss. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when it believes the counterparties present minimal
credit risks and the income to be earned from the transaction justifies the
attendant risks.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant (i.e. when issues of
sufficient quality and liquidity are not available), the Fund may assume a
temporary defensive position and invest without limit in cash and short-term
U.S. Government securities. During periods when and to the extent that the Fund
has assumed a temporary defensive position, it will not be pursuing its
investment objective and shareholders may be subject to Federal and New
Hampshire tax on a portion of their income dividends received from the Fund.
CORE AND GATEWAY-REGISTERED TRADEMARK-
The Fund may seek to achieve its investment objective by converting to a
Core and Gateway structure. The Fund, upon future action by the Board of
Trustees and notice to shareholders, may convert to this structure, in which the
Fund would hold as its only investment securities the shares of another
investment company having substantially the same investment objective and
policies as the Fund. The Board of Trustees will not authorize conversion to a
Core and Gateway structure if it would materially increase costs to the Fund's
shareholders.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on market conditions. From time to
time the Fund may engage in active
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short-term trading to benefit from yield disparities among different issues of
debt securities, to seek short-term profits during periods of fluctuating
interest rates, or for other reasons. This type of trading will increase the
Fund's portfolio turnover rate and transaction costs and may increase the Fund's
capital gains, which are not Federally tax-exempt when distributed to
shareholders. The Adviser weighs the anticipated benefits of short-term
investments against these consequences. The Fund's portfolio turnover rate is
reported under "Financial Highlights."
5. MANAGEMENT
The business and affairs of the Fund are managed under the direction of the
Board. The Board formulates the general policies of the Fund and generally meets
quarterly to review the results of the Fund, monitor investment activities and
practices and discuss other matters affecting the Fund and the Trust.
Information about the Trustees and the officers of the Trust is in the SAI under
"Management -- Trustees and Officers."
THE ADVISER
Forum Investment Advisors, LLC, serves as investment adviser to the Fund
under an Investment Advisory Agreement with the Trust. Subject to the general
control of the Board, the Adviser makes investment decisions for the Fund and is
responsible for, among other things, developing a continuing investment program
for the Fund in accordance with its investment objective and reviewing the
investment strategies and policies of the Fund. For its services, the Adviser
receives an advisory fee at an annual rate of 0.40% of the Fund's average daily
net assets. The Adviser voluntarily may waive all or any portion of its advisory
fee.
Leslie C. Berthy is Managing Director of the Adviser and has been
responsible for the day-to-day management of the Fund's portfolio since its
inception in 1989. Prior to his association with the Adviser, Mr. Berthy was
Managing Director and Co-Chief Executive Officer of Irwin Union Capital Corp.,
an affiliate of Irwin Union Bank & Trust Co.
As of the date of this Prospectus, each of the Adviser FAdS, FFSI, FSS and
FAcS was controlled by John Y. Keffer, President and Chairman of the Trust and
was located at Two Portland Square, Portland, Maine, 04101. As of June 30, 1998,
the Adviser provided investment advisory services to registered investment
companies with assets of approximately $1.7 billion.
THE ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
supervision of the overall management of the Trust and providing the Trust with
general office facilities, personnel necessary to help ensure the effective
operation of the Trust as well as persons satisfactory to the Board to serve as
officers of the Trust. For these services, FAdS is entitled to receive a fee
from the Fund computed and paid monthly at an annual rate of 0.20% of the Fund's
average daily net assets.
Under a Fund Accounting 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. For its services FAcS is entitled
to receive a fee at an annual rate of $36,000 subject to adjustments for the
number and type of portfolio transactions.
As of June 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies and
collective investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, FFSI acts as distributor of
the Fund's
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shares. FFSI acts as the agent of the Trust in connection with the offering of
shares of the Fund. For these services, FFSI receives, and may reallow to
certain financial institutions, the sales charge paid by purchases of the Fund's
shares. FFSI may enter into arrangements with banks, broker-dealers or other
financial institutions ("Processing Organizations") through which investors may
purchase or redeem shares. FFSI may, at its own expense and from its own
resources, compensate certain persons who provide services in connection with
the sale or expected sale of shares of the Fund. Investors purchasing shares of
the Fund through another financial institution should read any materials and
information provided by the financial institution to acquaint themselves with
its procedures and any fees that it may charge. FFSI is a registered
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
SHAREHOLDER SERVICES
Shareholder inquiries and communications concerning the Fund may be directed
to FSS. FSS acts as the Fund's transfer agent and dividend disbursing agent. FSS
maintains an account for each shareholder of record, where all shares purchased
are credited, together with any distributions that are reinvested in additional
shares. FSS also performs other transfer agency functions and acts as dividend
disbursing agent for the Trust. For its services, FSS is entitled to receive a
fee at an annual rate of 0.25% of the Fund's average daily net assets plus
$12,000 per year and annual shareholder fees of $18.00 per shareholder account.
EXPENSES OF THE TRUST
The Trust is obligated to pay for all of its expenses. The Fund's expenses
comprise Trust expenses attributable to the Fund and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Fund and
the portfolios in proportion to their average net assets. The Fund's expenses
include: interest charges; taxes; brokerage fees and commissions; certain
insurance premiums; applicable fees and expenses under the Trust's contracts
with the Adviser, FAdS, FSS and any custodian; fees of pricing, interest,
dividend, credit and other reporting services; costs of membership in trade
associations; auditing, legal and compliance expenses; costs of preparing and
printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
of certain of the Trust's trustees, officers and employees and other personnel
performing services for the Trust; and registration fees and related expenses.
The Adviser, FAdS, FSS, and FAcS, in their sole discretion, may waive all or
any portion of their respective fees, which are accrued daily and paid monthly.
Any such waiver, which could be discontinued at any time, would have the effect
of increasing the Fund's performance for the period during which the waiver was
in effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other 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 1, 2000. The Adviser and FAdS are taking steps to address the Year
2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Fund from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in the Fund may be made either by an investor directly or
through certain brokers
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and financial institutions of which the investor is a customer. All transactions
in Fund shares are effected through FSS, which accepts orders for purchases and
redemptions from shareholders of record and new investors. Shareholders of
record will receive from the Trust periodic statements listing all account
activity during the statement period. The Trust reserves the right in the future
to modify, limit or terminate any shareholder privilege upon appropriate notice
to shareholders and charge a fee for certain shareholder services, although no
such fees are currently contemplated.
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined plus any applicable sales charge on all weekdays except days
when the New York Stock Exchange is closed ("Business Day"). Normally, the New
York Stock Exchange is closed on New Year's Day, Martin Luther King Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. Fund shares are issued immediately after an
order for the shares in proper form is accepted by FSS. The Fund's net asset
value is calculated at 4:00 p.m., Eastern Time on each Business Day. Fund shares
become entitled to receive dividends on the next Business Day after the order is
accepted.
The Fund reserves the right to reject any subscription for the purchase of
its shares. Share certificates are only issued to shareholders of record upon
their written request and no certificates are issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of the Fund's
next-determined net asset value after FSS receives the redemption order in
proper form (and any supporting documentation which FSS may require). Shares
redeemed are not entitled to receive dividends declared after the day on which
the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used for
investment has been cleared by the shareholder's bank, 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 and
mailed to the shareholder's record address. The right of redemption may not be
suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings or under any emergency or other
circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of the Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine, including the recording of certain transactions. If the Trust did not
employ such procedures it could be liable for any losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach
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<PAGE>
FSS by telephone, requests may be mailed or hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Fund directly. These investors may open an
account by completing the account application at the back of this Prospectus or
by contacting FSS at the address on the first page of this Prospectus. For those
shareholder services not referenced on the account application or to change
information on a shareholder's account (such as addresses), investors should
request an Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $2,000 minimum for initial investments in the Fund.
MAIL. Investors may send a check made payable to the Trust along with a
completed account application for the Fund to FSS 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, FSS 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
Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
BankBoston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: New Hampshire Bond 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 the bank early in the day so
the wire transfer can be received prior to 4:00 p.m., Eastern time, on the same
day. The bank may impose a charge for transmitting payment by wire, and there
also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $250 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check, by sending a wire as indicated above. Shareholders
using the wire system for subsequent purchases should first telephone the Trust
at (207) 879-0001 or 800-94FORUM (800-943-6786) to notify it of the wire
transfer. All payments should clearly indicate the shareholder's name and
account number.
AUTOMATIC INVESTMENT. Shareholders may purchase Fund shares at regular,
preselected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an 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 the Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the applicable forms from FSS.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to FSS.
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<PAGE>
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by 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.
MAIL. Shareholders may make a redemption in any amount by sending a written
request to FSS accompanied by any share certificate that was issued to the
shareholder. All share certificates submitted for redemption must be signed by
the shareholder with a signature guarantee. All written requests for redemption,
must be signed by the shareholder and, in come case, must have a signature
guarantee. See "Purchase and Redemption Procedures--Other Redemption Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling FSS at (207) 879-0001 or
800-94FORUM (800-943-6786) and providing the shareholder's account number, the
exact name in which the shares are registered, the shareholder's social security
or taxpayer identification number. The Trust or FSS may employ other procedures
such as recording certain transactions to ensure telephone instructions are
genuine. If such procedures are followed, neither the Trust nor FSS will be
liable for any losses due to unauthorized or fraudulent redemption requests. 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.
BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege on the
account application. Redemption proceeds are transmitted by wire on the next
business day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds 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 FSS.
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 stock 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)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a
15
<PAGE>
bank, a broker, a dealer, a national securities exchange, a credit union, or a
savings association that is authorized to guarantee signatures. Whenever a
signature guarantee is required, the signature of each person required to sign
for the account must be guaranteed. A notarized signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to FSS will be reinvested and
the checks will be canceled.
SALES CHARGES
The public offering price for shares of the Fund is the sum of the net asset
value of the shares being purchased plus any applicable sales charge. No sales
charge is assessed on the reinvestment of dividends or other distributions. The
sales charge is assessed for the Fund as follows:
<TABLE>
<CAPTION>
SALES CHARGE
AS % OF
------------------------
PUBLIC
OFFERING NET ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- ------------------- ----------- ----------- -----------
<S> <C> <C> <C>
less than
$50,000........... 2.50% 2.56% 2.50%
$50,000 but less
than $100,000..... 2.25 2.30 2.25
$100,000 but less
than $500,000..... 2.00 2.04 2.00
$500,000 but less
than $1,000,000... 1.50 1.52 1.50
$1,000,000 and up.. 0.50 0.50 0.50
</TABLE>
* Rounded to the nearest one-hundredth percent.
FFSI's commission is the sales charge shown above less any applicable
discount reallowed to Processing Organizations (including banks and bank
affiliates purchasing shares as principal or agent). Normally, FFSI will reallow
discounts to Processing Organizations in the amounts indicated in the table
above. From time to time, however, FFSI may elect to reallow the entire sales
charge to Processing Organizations for all sales with respect to which orders
are placed with FFSI during a particular period. The dealers' reallowance may be
changed from time to time.
In addition, from time to time and at its own expense, FFSI may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
No sales charge will be assessed on purchases made for investment purposes
by: (1) any bank, trust company, savings association or similar institution with
whom FFSI has entered into a share purchase agreement acting on behalf of the
institution's fiduciary customer accounts or any account maintained by its trust
department (including a pension, profit sharing or other employee benefit trust
created pursuant to a qualified retirement plan); (2) any registered investment
adviser with whom FFSI has entered into a share purchase agreement and which is
acting on behalf of its fiduciary customer accounts; (3) any registered
investment adviser which is acting on behalf of its fiduciary customer accounts
and for which it provides additional investment advisory services; (4) any
broker-dealer with whom FFSI has entered into a Processing Organization
Agreement and a Fee-Based or Wrap Account Agreement and which is acting on
behalf of its fee-based program clients; (5) directors and officers of the
Trust; directors, officers and full-time employees of the Advisor, FFSI, any of
their affiliates or any organization with which FFSI has entered into a
Processing Organization Agreement; the spouse, sibling, direct ancestor or
direct descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the benefit
of any such person
16
<PAGE>
or relative; or the estate of any such person or relative; (6) any person who
has, within the preceding 90 days, redeemed Fund shares (but only on purchases
in amounts not exceeding the redeemed amounts) and completes a reinstatement
form upon investment; (7) persons who exchange into the Fund from a mutual fund
other than a fund of the Trust that participates in the Trust's exchange
program, See "Purchases and Redemptions of Shares -- Exchange Program;" and (8)
employee benefit plans qualified under Section 401 of the Internal Revenue Code
of 1986, as amended. The Trust may require appropriate documentation from an
investor concerning that investor's eligibility to purchase Fund shares without
a sales charge. Any shares so purchased may not be resold except to the Fund.
REDUCED SALES CHARGES
For an investor to qualify for a reduced sales charge, as described below,
the investor must notify FSS at the time of purchase. Programs for reduced sales
charges may be modified or terminated at any time and are subject to
confirmation of an investor's holdings.
RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of the
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Business Day) of all Fund shares held by
the investor. For example, if an investor owned shares of the Fund worth
$400,000 at the then current net asset value and purchased shares of the Fund
worth an additional $50,000, the sales charge for the $50,000 purchase would be
at the 2% rate applicable to a single $450,000 purchase, rather than at the
2.50% rate. To qualify for ROA on a purchase, the investor must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based on
cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of the Fund. Each purchase of shares under a LOI will be
made at the public offering price applicable at the time of the purchase to a
single transaction of the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the full
amount indicated. Shares purchased with the first 5% of the amount indicated in
the LOI will be held subject to a registered pledge (while remaining registered
in the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased within 13 months. Pledged shares will be involuntarily redeemed to pay
the additional sales charge, if necessary. When the full amount indicated has
been purchased, the shares will be released from pledge. Share certificates are
not issued for shares purchased under an LOI. Investors wishing to enter into an
LOI can obtain a form of LOI from their broker or financial institution or by
contacting FSS.
EXCHANGES
EXCHANGE PROCEDURES
Fund shareholders are entitled to exchange their shares for shares of any
other fund of the Trust or any other fund that participates in the exchange
program and whose shares are eligible for sale in the shareholder's state of
residence. Exchanges may only be made between accounts registered in the same
name. When a shareholder exchanges shares, a completed account application must
be submitted to open a new account in a Fund if the shareholder requests any
shareholder privilege not associated with the existing account. Exchanges are
subject to the fees and the restrictions (including minimum investment
requirements) listed in the prospectus for, the fund into which a shareholder is
exchanging. The Fund does not charge for exchanges and there is currently no
17
<PAGE>
limit on the number of exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and any necessary
supporting documents by the fund whose shares are being exchanged are received
by FSS.
If a shareholder exchanges into a fund that imposes a sales charge, that
shareholder is required to pay the difference between that fund's sales charge
and any sales charge the shareholder has previously paid in connection with the
shares being exchanged. For example, if a shareholder paid a 2% sales charge in
connection with the purchase of the shares of a fund and then exchanged those
shares into another fund with a 3% sales charge, that shareholder would pay an
additional 1% sales charge on the exchange. Shares acquired through the
reinvestment of dividends and distributions are deemed to have been acquired
with a sales charge rate equal to that paid on the shares on which the dividend
or distribution was paid. The exchange privilege may be modified materially or
terminated by the Trust at any time upon 60 days' notice to shareholders.
MAIL. Exchanges may be accomplished by written instruction to FSS
accompanied by any share certificate that may have been issued to the
shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with a signature
guarantee.
TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling FSS at 800-94FORUM
(800-943-6786) and providing the shareholder's account number, the exact name in
which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of FSS. Processing Organizations may receive as a dealer's
reallowance a portion of the sales charge paid by their customers who purchase
Fund shares. In addition, Processing Organizations may charge their customers a
fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund. The Trust is not responsible for the
failure of any Processing Organization to promptly forward these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in the Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Investors who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and the Fund's procedures, may have Fund shares
transferred into their name. Under their arrangements with the Trust,
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several business days after a purchase order
has been received by the Fund. Certain other Processing Organizations may also
enter purchase orders with payment to follow.
18
<PAGE>
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Dividends of the Fund's net investment income, if any, are declared daily
and paid monthly. Any distributions of net capital gain realized by the Fund are
distributed annually.
Shareholders may choose either to have all distributions of net investment
income reinvested in additional Fund shares or paid in cash or to have
distributions of net capital gain reinvested in addditional Fund shares or paid
in cash. All distributions are treated in the same manner for Federal income tax
purposes whether received in cash or reinvested in Fund shares.
All distributions are reinvested at the Fund's net asset value as of the
payment date of the distribution. All distributions are reinvested unless
another option is selected. All distributions not reinvested are paid to the
shareholder in cash and may be paid more than seven days following the date on
which distributions would otherwise be reinvested.
TAXES
The Fund intends to continue to qualify for each fiscal year to be taxed as
a "regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Fund will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to its shareholders.
Because the Fund intends to distribute all of its net investment income and net
capital gain each year, the Fund should avoid all Federal income and excise
taxes.
DISTRIBUTIONS OF TAX-EXEMPT INTEREST AND RELATED MATTERS
Shareholders generally will not be subject to Federal income tax on
dividends paid by the Fund out of tax-exempt interest income earned by the Fund
("exempt-interest dividends"), assuming certain requirements are met by the
Fund. Substantially all of the dividends paid by the Fund are anticipated to be
exempt from Federal income taxes and New Hampshire individual income tax.
Persons who are "substantial users" or "related persons" thereof of
facilities financed by private activity bonds held by the Fund may be subject to
Federal income tax on their pro rata share of the interest income from these
bonds and should consult their tax advisors before purchasing shares of the
Fund. Under current Federal tax law, interest on certain private activity bonds
is treated as an item of tax preference for purposes of the Federal AMT imposed
on individuals and corporations. In addition, interest on all tax-exempt
obligations is included in the "adjusted current earnings" of corporations for
Federal AMT purposes.
OTHER DISTRIBUTIONS
Dividends paid by the Fund out of its taxable net investment income
(including any realized net short-term capital gain) are taxable to shareholders
as ordinary income for Federal tax purposes. Distributions by the Fund of
realized net long-term capital gain, if any, are taxable to shareholders as
long-term capital gain, regardless of the
19
<PAGE>
length of time the shareholder may have held shares in the Fund. If Fund shares
are sold at a loss after being held for six months or less, the loss will be
disallowed to the extent of any exempt-interest dividends received on those
shares and will be treated as long-term capital loss to the extent of any
long-term capital gain distribution received on those shares.
Any capital gain distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the distribution. To
the extent that capital gain was accrued by the Fund before the shareholder
purchased shares, the distribution would be in effect a return of capital to the
shareholder. For Federal income tax purposes, however, capital gain
distributions, including those that operate as a return of capital, are taxable
to the shareholder receiving them.
OTHER TAX MATTERS
Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund generally is not deductible for Federal income tax purposes.
The Fund may be required by Federal law to withhold 31% of reportable payments
(which may include taxable dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal and
New Hampshire 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.
This includes a statement advising each shareholder of the portion of total
dividends paid into the shareholder's account that is exempt from Federal income
tax and that is derived from New Hampshire municipal securities and from other
sources. These portions are determined for the entire year and on a monthly
basis and, thus, are an annual or monthly average, rather than a day-by-day
determination for each shareholder.
NEW HAMPSHIRE TAXES
Substantially all of the dividends paid by the Fund are anticipated to be
exempt from New Hampshire interest and dividends taxes. The New Hampshire
interest and dividends tax applies to that portion of a dividend paid out of the
Fund's taxable ordinary income (but not short-term capital gain). In addition,
it is anticipated that a substantial amount of the dividends paid by the Fund
will be exempt from New Hampshire business profits taxes.
Shareholders who are individuals resident in New Hampshire will not be
subject to the New Hampshire interest and dividends or business profits tax on
dividends paid by the Fund, provided the Fund invests solely in New Hampshire
tax-exempt municipal securities or United States government obligations. If the
Fund invests in any other form of investment, then the entire amount of all of
the Fund's dividends (other than capital gain distributions) will be subject to
the interest and dividends tax.
Shareholders who are partnerships, limited liability companies, associations
or trusts, the beneficial interest in which is not represented by transferable
shares, and fiduciaries deriving their appointment from a New Hampshire court,
will generally be subject to the same interest and dividends tax rules as
shareholders who are individuals resident in New Hampshire. Special interest and
dividends tax rules will apply to dividends received by trusts, estates,
partnerships, limited liability companies, and "S" corporations and their
beneficiaries or owners, if the entity or some of its beneficiaries or owners
are not resident in the state of New Hampshire. Shareholders to whom these rules
might apply should consult a tax advisor knowledgeable in the field of New
Hampshire state taxation.
20
<PAGE>
Shareholders who are partnerships, limited liability companies, associations
or trusts the beneficial interest in which is represented by transferable
shares, are not subject to the New Hampshire interest and dividends tax. If,
however, such an organization is engaged in business activity within the state,
then it will be subject to the New Hampshire business profits tax on all income
earned by it in New Hampshire. Taxable business profits for this purpose will
include all dividends paid by the Fund to the business organization, except that
portion of a dividend that is attributable to interest on Fund investments in
notes, bonds, or other securities of the United States. Thus, dividends
representing income earned by the Fund on its investment in New Hampshire
municipal securities, and short-and long-term capital gains will be fully
taxable under the New Hampshire business profits tax.
TAX-FREE INCOME VS. TAXABLE INCOME
The table below shows approximate equivalent taxable and tax-free yields at
various approximate combined marginal Federal income tax and New Hampshire
interest and dividends tax bracket rates. For example, an individual investor in
the 36% combined tax bracket for 1998 whose investments earn a 5% tax-free yield
would have to earn a 7.8% taxable yield to receive the same benefit.
1998 COMBINED FEDERAL AND NEW HAMPSHIRE TAXABLE VS. TAX-FREE YIELDS
<TABLE>
<CAPTION>
A Tax Free Yield of
----------------------------
4.0% 4.5% 5.0% 5.5%
---- ---- ---- ----
Combined Marginal Federal and equals a taxable yield of
New Hampshire Tax Bracket approximately
------------ ----------------------------
<S> <C> <C> <C> <C>
44.6% 7.2% 8.1% 9.0% 10.0%
41% 6.8% 7.6% 8.5% 9.3%
36% 6.3% 7.0% 7.8% 8.6%
33% 6.0% 6.7% 7.5% 8.2%
</TABLE>
The yields listed are for illustration only and are not necessarily
representative of the Fund's yield. Although the Fund primarily invests in
securities the interest from which is exempt from both Federal and New Hampshire
state taxes, some of the Fund's investments may generate Federal taxable income
or capital gain. An investor's tax bracket will depend upon the investor's
taxable income. The figures set forth above do not reflect the Federal
alternative minimum taxes or any state or local income taxes other than New
Hampshire interest and dividends taxes.
The foregoing is only a summary of some of the important Federal and New
Hampshire tax considerations generally affecting the Fund and its shareholders.
There may be other Federal, state or local tax considerations applicable to a
particular investor. Prospective investors are urged to consult their tax
advisors.
8. OTHER INFORMATION
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended to
indicate future performance. The Fund's yield is a way of showing the rate of
income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. The Fund may also quote tax equivalent yields,
which show the taxable yields a shareholder would have to earn to equal the
Fund's tax-free yields after taxes. A tax equivalent yield is calculated by
dividing the Fund's tax-free yield by one minus a stated Federal, state or
combined Federal and state tax rate. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount
21
<PAGE>
invested at the beginning of a stated period to the ending redeemable value of
the investment, after giving effect to the reinvestment of all dividends and
distributions and deductions of expenses during the period. The Fund also may
advertise its total return over different periods of time on a before-tax or
after-tax basis or by means of aggregate, average, year by year, or other types
of total return figures. Because average annual returns tend to smooth out
variations in the Fund's returns, shareholders should recognize that they are
not the same as actual year-by-year results. The Fund's advertised yield and
total return may or may not reflect the maximum sales load applicable to the
Fund. A computation of yield or total return that does not take into account the
sales load paid by an investor will be higher than a computation based on the
public offering price of shares purchased that does take into account payment of
a sales load.
The Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Fund may be
compared to recognized indices of market performance. The comparative material
found in the Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FAdS would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them would be sought. It is not expected that
shareholders would suffer adverse financial consequences as a result of any
changes in bank or bank affiliate service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00
p.m., Eastern time, on each Fund Business Day by dividing the value of the
Fund's net assets (i.e., the value of its portfolio securities and other assets
less its liabilities) by the number of the Fund's 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.
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and
assumed the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996,
Forum Funds, Inc. was reorganized as a Delaware business trust under the name
Forum Funds.
The Trust has an unlimited number of authorized shares of beneficial
interest. The Board may, without shareholder approval, divide the authorized
shares into an unlimited number of separate portfolios or series (such as the
Fund) and may in the future divide portfolios or series into two or more classes
of shares (such as Investor and Institutional Shares). Currently the authorized
shares of the Trust are divided into 23 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any
22
<PAGE>
Rule 12b-1 plan which pertain to the class and other matters for which separate
class voting is appropriate under applicable law. Generally, shares will be
voted in the aggregate without reference to a particular portfolio, except if
the matter affects only one portfolio or voting by portfolio or class is
required by law, in which case shares will be voted separately by portfolio.
Delaware law does not require the Trust to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only when
specifically required by Federal or state law. Shareholders (and Trustees) have
available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote. As of July 1, 1998,
Independence Trust may be deemed to have controlled the Fund through investment
in the Fund by their customers.
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.
23
<PAGE>
[APPLICATION FORM
PAGE 1]
<PAGE>
[APPLICATION FORM
PAGE 2]
<PAGE>
[LOGO]
SHAREHOLDER INFORMATION:
FORUM SHAREHOLDER SERVICES, LLC
P.O. BOX 446
PORTLAND, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
[GRAPHIC]
<PAGE>
[GRAPHIC]
PROSPECTUS
INVESTORS
HIGH GRADE
BOND FUND
INVESTORS
BOND FUND
TAXSAVER
BOND FUND
FORUM
FUNDS
AUGUST 1, 1998
<PAGE>
FORUM FUNDS
INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
PROSPECTUS
TAXSAVER BOND FUND
August 1, 1998
- --------------------------------------------------------------------------------
This Prospectus offers shares of Investors High Grade Bond Fund, a diversified
Fund, and Investors Bond Fund and TaxSaver Bond Fund, two non-diversified Funds,
(collectively, the "Funds"), each a series of Forum Funds (the "Trust"), an
open-end, management investment company.
INVESTORS HIGH GRADE BOND FUND seeks to provide as high a level of current
income as is consistent with capital preservation and prudent investment
risk. The Fund invests primarily in obligations issued or guaranteed as to
principal and interest by the United States Government or by any of its
agencies or instrumentalities ("U.S. Government Securities") and high grade
debt securities, which are debt securities rated in one of the three highest
rating categories by a nationally recognized statistical rating organization
("NRSRO").
INVESTORS BOND FUND seeks to provide as high a level of current income as is
consistent with capital preservation and prudent investment risk. The Fund
invests primarily in a portfolio of investment grade debt securities.
TAXSAVER BOND FUND seeks to provide shareholders with a high level of
current income exempt from Federal income tax. The Fund invests primarily in
investment grade debt obligations issued by the states, territories and
possessions of the United States and their political subdivisions, agencies
and instrumentalities.
Shares of the Funds are offered to investors at a price equal to the next
determined net asset value plus a maximum sales charge of 3.75% of the total
public offering price (3.90% of the net amount invested).
This Prospectus sets forth concisely the information a prospective investor
should know about the Trust and the Funds before investing. The Trust has filed
with the Securities and Exchange Commission ("SEC") a Statement of Additional
Information dated August 1, 1998, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Trust and the Funds
and is available together with other related materials for reference on the
SEC's Internet Web Site (http://www.sec.gov). The SAI, which is incorporated by
reference into this Prospectus, is also available without charge by contacting
Forum Shareholder Services, LLC, the Funds' transfer agent the address and
telephone numbers printed above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
1. Prospectus Summary.......................... 2
2. Financial Highlights........................ 4
3. Investment Objectives and Policies.......... 6
4. Additional Investment Policies.............. 16
<CAPTION>
Page
-----
<C> <S> <C>
5. Management.................................. 19
6. Purchases and Redemptions of Shares......... 21
7. Distributions and Tax Matters............... 27
8. Other Information........................... 29
</TABLE>
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
FUND SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM OR ANY
OTHER FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
INVESTMENT OBJECTIVES AND POLICIES
INVESTORS HIGH GRADE BOND FUND
The investment objective of the Fund is to provide as high a level of
current income as is consistent with capital preservation and prudent investment
risk. The Fund invests primarily in U.S. Government Securities and high grade
debt securities.
INVESTORS BOND FUND
The investment objective of the Fund is to provide as high a level of
current income as is consistent with capital preservation and prudent investment
risk. The Fund invests primarily in a portfolio of investment grade debt
securities. It is anticipated that the Fund's portfolio of securities will have
a weighted average maturity of between five and 20 years.
TAXSAVER BOND FUND
The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from Federal income tax. The Fund invests
primarily in investment grade debt obligations issued by the states, territories
and possessions of the United States and their political subdivisions, agencies
and instrumentalities.
INVESTMENT ADVISER
Forum Investment Advisors, LLC (the "Adviser") serves as the investment
adviser to the Funds. The Adviser is located at Two Portland Square, Portland,
Maine 04101. See "Management -- The Adviser."
FUND MANAGEMENT
The administrator of the Trust is Forum Administrative Services, LLC
("FAdS") and the distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC ("FSS") serves as the Trust's transfer
agent, dividend disbursing agent and shareholder servicing agent and Forum
Accounting Services, LLC ("FAcS") provides portfolio accounting services for the
Trust. Each of FAdS, FFSI, FSS, and FAcS are located at Two Portland Square,
Portland, Maine 04101. See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Funds are offered at the next-determined net asset value per
share plus any applicable sales charge. Shares may be purchased or redeemed by
mail, by bank-wire and through an investor's broker-dealer or other financial
institution, The minimum initial investment is $2,000 ($1,000 for IRAs; $2,500
for exchanges) and the minimum subsequent investment is $250. Shares may be
redeemed without charge. See "Purchases and Redemptions of Shares."
Shares of the Funds are not offered for sale in every state. To determine
whether the Funds are available for purchase in a particular state, contact FSS.
EXCHANGE PROGRAM
Shareholders of the Funds may exchange their shares without charge for the
shares of certain other funds. See "Purchases and Redemptions of Shares --
Exchanges."
DISTRIBUTIONS
Each Fund distributes its net income, if any, monthly and net capital gain,
if any, at least annually. All distributions are reinvested automatically in
additional shares of the Funds at net asset value unless the shareholder has
notified the Funds in his or her Account Application or otherwise in writing of
the shareholder's election to receive distributions in cash. It is anticipated
that substantially all of the dividends paid by TaxSaver Bond Fund will be
exempt from Federal income taxes, including the Federal alternative minimum tax.
See "Distributions and Tax Matters."
2
<PAGE>
CERTAIN RISK FACTORS
There can be no assurance that any Fund will achieve its investment
objective, and a Fund's net asset value and total return will fluctuate based
upon changes in the value of its portfolio securities. Normally, the value of a
Fund's investments varies inversely with changes in interest rates. Upon
redemption, an investment in a Fund may be worth more or less than its original
value.
All investments made by the Funds entail some risk. The market value of
interest-bearing debt securities held by the Funds will be affected by changes
in interest rates. There is normally an inverse relationship between the market
value of securities sensitive to prevailing interest rates and actual changes in
interest rates. The Funds' investments also are subject to "credit risk"
relating to the financial condition of the issuers of the securities that each
Fund holds. Certain investment techniques such as the potential use of leverage
by a Fund through borrowings, and swap transactions entail additional risks. See
"Additional Investment Policies." Investors Bond Fund and TaxSaver Bond Fund are
non-diversified and, therefore, have greater freedom to concentrate their
investments than if they were diversified funds. See "Investment Objectives and
Policies -- Certain Risk Factors." Investors High Grade Bond Fund's and
Investors Bond Fund's use of mortgage- and asset-backed securities entails
certain risks different than those of other debt securities. See "Investment
Objective and Policies -- Fixed Income Securities." Investments in
non-investment grade debt securities ("junk bonds") by Investors Bond Fund and
TaxSaver Bond Fund entail certain risks.
EXPENSES OF INVESTING IN THE FUNDS
The purpose of the following table is to assist investors in understanding
the various expenses that an investor in a Fund will bear directly or
indirectly.
<TABLE>
<CAPTION>
Investors High Investors TaxSaver
Grade Bond Fund Bond Fund Bond Fund
--------------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of
public offering price) (1)..... 3.75% 3.75% 3.75%
Exchange Fee.................... None None None
ANNUAL FUND OPERATING EXPENSES
(2) (as a percentage of average
net assets after applicable
expense reimbursements and fee
waivers)
Management Fees (after fee
waivers) (3)................... 0.40% 0.40% 0.40%
12b-1 Fees...................... None None None
Other Expenses (after expense
reimbursements) (4)............ 0.30% 0.30% 0.20%
------ ----------- -----------
Total Fund Operating Expenses
(4)............................ 0.70% 0.70% 0.60%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares -- Reduced Sales Charges."
(2) The Annual Fund Operating Expenses are based on the expenses and assets
of each Fund during their most recent fiscal year ended March 31, 1998.
(3) Management Fees include all investment advisory fees and administration
fees. Absent certain expense reimbursements and fee waivers, Management Fees for
Investors High Grade Bond Fund, Investors Bond Fund, and TaxSaver Bond Fund
would have been 0.60%, 0.65%, and 0.66%, respectively. Expense reimbursements
and fee waivers are voluntary and may be reduced or eliminated at any time
(4) Absent expense reimbursements and fee waivers, Other Expenses and Total
Fund Operating Expenses would be 2.40% and 3.00%, respectively in the case of
Investors High Grade Bond Fund, 0.57% and 1.22% respectively, in the case of
Investors Bond Fund, and 0.70% and 1.36%, respectively, in the case of TaxSaver
Bond Fund. Expense reimbursements and fee waivers are voluntary and may be
reduced or eliminated at any time. For a further description of the various
expenses incurred in the operation of the Funds, see "Management."
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in each Fund would pay assuming (1) a $1,000
investment in the Fund, (2) a 5% annual return, (3) the reinvestment of
distributions, (4) the payment of the maximum sales charge and (5) full
3
<PAGE>
redemption at the end of each period and payment of the maximum initial sales
charge:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Investors High Grade Bond
Fund.................... $44 $59 $75 $121
Investors Bond Fund...... $44 $59 $75 $121
TaxSaver Bond Fund....... $43 $56 $70 $110
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN
INDICATED. The example is based on the expenses listed in the table. The five
percent annual return is not predictive of and does not represent the Funds'
projected returns; rather, it is required by government regulation.
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Funds. The information has been audited in connection with an
audit of the Funds' financial statements by Deloitte & Touche LLP, independent
auditors. The financial statements and independent auditors' report thereon are
incorporated by reference into the SAI. Further information about the Funds'
performance is contained in the Funds' annual report to shareholders, which may
be obtained from the Trust without charge by contacting the Funds' transfer
agent.
INVESTORS HIGH GRADE BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1998(a)
----------
<S> <C>
Net Asset Value, Beginning of Period.... $ 10.00
----------
Investment Operations:
Net Investment Income................. 0.02
Net Realized and Unrealized Gain
(Loss) on Investments............... (0.04)
----------
Total from Investment Operations........ (0.02)
----------
Distributions from:
Net Investment Income................. (0.02)
Net Realized Gain on Investments...... --
----------
Total Distributions..................... (0.02)
----------
Net Asset Value, End of Period.......... $ 9.96
----------
----------
Total Return(b)......................... (0.16%)
Ratio/Supplementary Data:
Net Assets at End of Period (000's
omitted).............................. $34,037
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver................ 0.70%(c)
Expenses Excluding
Reimbursement/Waiver................ 3.00%(c)
Net Investment Income Including
Reimbursement/Waiver................ 5.56%(c)
Portfolio Turnover Rate................. 0.00%
</TABLE>
(a) Investors High Grade Bond Fund commenced operations on March 16, 1998.
(b) Total return calculations do not include sales charge.
(c) Annualized
4
<PAGE>
INVESTORS BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990(a)
-------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 10.19 $ 10.21 $ 10.00 $ 10.38 $ 10.71 $ 10.43 $ 10.09 $ 9.82 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- -------
Investment Operations:
Net Investment Income....... 0.71 0.71 0.74 0.82 0.81 0.82 0.83 0.84 0.42
Net Realized and Unrealized
Gain (Loss) on
Investments............... 0.38 -- 0.21 (0.38) (0.30) 0.53 0.44 0.27 (0.14)
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total from Investment
Operations.................. 1.09 0.71 0.95 0.44 0.51 1.35 1.27 1.11 0.28
-------- -------- -------- -------- -------- -------- -------- -------- -------
Distributions from:
Net Investment Income....... (0.71) (0.71) (0.74) (0.82) (0.81) (0.82) (0.83) (0.84) (0.42)
Net Realized Gain on
Investments............... -- (0.02) -- -- (0.03) (0.25) (0.10) -- (0.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total Distributions........... (0.71) (0.73) (0.74) (0.82) (0.84) (1.07) (0.93) (0.84) (0.46)
-------- -------- -------- -------- -------- -------- -------- -------- -------
Net Asset Value, End of
Period...................... $ 10.57 $ 10.19 $ 10.21 $ 10.00 $ 10.38 $ 10.71 $ 10.43 $ 10.09 $ 9.82
-------- -------- -------- -------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------- -------- -------- -------
Total Return(b)............... 10.98% 7.18% 9.84% 4.55% 4.70% 13.53% 12.91% 11.76% 5.79%(c)
Ratio/Supplementary Data:
Net Assets at End of Period
(000's omitted)............. $ 85,598 $ 22,190 $ 25,676 $ 25,890 $ 26,083 $ 26,832 $ 24,336 $ 19,132 $19,400
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver...... 0.70% 0.70% 0.43% 0.75% 0.75% 0.75% 0.70% 0.64% 0.41%(c)
Expenses Excluding
Reimbursement/Waiver...... 1.22% 1.45% 1.36% 1.33% 1.31% 1.40% 1.51% 1.68% 1.52%(c)
Net Investment Income (Loss)
Including
Reimbursement/Waiver...... 6.52% 6.94% 7.29% 8.19% 7.49% 7.71% 7.93% 8.44% 8.51%(c)
Portfolio Turnover Rate..... 116.65% 79.42% 42.89% 48.17% 41.41% 193.21% 221.39% 73.32% 93.08%
</TABLE>
TAXSAVER BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990(a)
------- ------- ------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 10.49 $ 10.57 $ 10.39 $ 10.35 $ 10.63 $ 10.26 $ 10.10 $ 9.97 $ 10.00
------- ------- ------- ------- -------- -------- -------- ------- -------
Investment Operations:
Net Investment Income....... 0.53 0.56 0.57 0.57 0.57 0.63 0.68 0.67 0.33
Net Realized and Unrealized
Gain (Loss) on
Investments............... 0.27 (0.03) 0.18 0.04 (0.01) 0.49 0.20 0.13 (0.03)
------- ------- ------- ------- -------- -------- -------- ------- -------
Total from Investment
Operations.................. 0.80 0.53 0.75 0.61 0.56 1.12 0.88 0.80 0.30
------- ------- ------- ------- -------- -------- -------- ------- -------
Distributions from:
Net Investment Income....... (0.53) (0.56) (0.57) (0.57) (0.57) (0.63) (0.68) (0.67) (0.33)
Net Realized Gain on
Investments............... (0.01) (0.05) -- -- (0.27) (0.12) (0.04) -- --
------- ------- ------- ------- -------- -------- -------- ------- -------
Total Distributions........... (0.54) (0.61) (0.57) (0.57) (0.84) (0.75) (0.72) (0.67) (0.33)
------- ------- ------- ------- -------- -------- -------- ------- -------
Net Asset Value, End of
Period...................... $ 10.75 $ 10.49 $ 10.57 $ 10.39 $ 10.35 $ 10.63 $ 10.26 $ 10.10 $ 9.97
------- ------- ------- ------- -------- -------- -------- ------- -------
------- ------- ------- ------- -------- -------- -------- ------- -------
Total Return(b)............... 7.75% 5.15% 7.36% 6.18% 5.24% 11.28% 8.95% 8.29% 6.16%(c)
Ratio/Supplementary Data:
Net Assets at End of Period
(000's omitted)............. $39,203 $17,757 $17,915 $16,018 $ 16,518 $ 16,580 $ 11,207 $ 9,998 $ 9,546
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver...... 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.55% 0.49% 0.22%(c)
Expenses Excluding
Reimbursement/Waiver...... 1.36% 1.53% 1.48% 1.45% 1.50% 1.56% 1.66% 1.86% 1.66%(c)
Net Investment Income
Including Reimbursement/
Waiver.................... 4.95% 5.28% 5.35% 5.62% 5.27% 5.98% 6.64% 6.69% 6.54%(c)
Portfolio Turnover Rate....... 92.87% 34.19% 61.61% 63.85% 141.80% 240.36% 104.29% 54.62% 13.25%
</TABLE>
(a) The Fund commenced operations on October 2, 1989.
(b) Total return calculations do not include sales charge.
(c) Annualized.
5
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
INVESTORS HIGH GRADE BOND FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide as high a level of
current income as is consistent with capital preservation and prudent investment
risk. By seeking capital preservation, the Fund attempts to control the risk of
default and the risk of capital losses in periods of falling prices for debt
securities. There can be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
The Fund seeks to attain its investment objective by investing in a
portfolio consisting of obligations issued or guaranteed as to principal and
interest by the United States Government or by any of its agencies or
instrumentalities ("U.S. Government Securities") and high grade debt securities,
which are securities rated in one of the three highest rating categories by an
NRSRO such as Moody's Investors Service ("Moody's") or Standard & Poor's
Corporation ("S&P"). See "Description of Securities Ratings" in the SAI. Under
normal circumstances, the Fund intends to invest at least 70% of its assets in
U.S. Government Securities and at least 40% of its assets in U.S. Government
Securities that are direct obligations of the U.S. Treasury (such as Treasury
bills and notes). The Fund may invest up to 30% of its assets in mortgage- and
asset-backed securities. The Fund may invest in mortgage-backed securities that
are U.S. Government Securities and that are rated in at least the second highest
rating category of an NRSRO. The Fund may not invest in privately issued
mortgage-backed securities. The Fund may invest up to 10% of its assets in
asset-backed securities rated in the highest category of an NRSRO and up to 10%
of its assets in adjustable rate mortgage-backed securities rated in the highest
category of an NRSRO. The Fund may not invest in stripped mortgage-backed
securities. For a description of the types of securities in which the Fund
invests see "Investment Objective and Policies -- Fixed Income Securities"
below.
The Fund also may invest in commercial paper, bankers acceptances,
certificates of deposit and other money market instruments rated in one of the
two highest rating categories by an NRSRO. Securities in the four highest rating
categories are generally considered to be investment grade.
As of March 31, 1998, the Fund had 95.97% of its net assets in securities
rated by Moody's or S&P and 3.02% of its net assets in unrated investments,
including cash and cash equivalents. The Fund had the following percentages of
its net assets invested in the following rated securities: Aaa/AAA -- 83.70%,
Aa/AA -- 11.38%, and A/ A -- 0.89%. Securities with different ratings from
Moody's and S&P were assigned the higher rating. The information reflects the
composition of the Fund as of March 31, 1998 and is not necessarily
representative of what the Fund's composition will be in the future.
In general, the longer the maturity of a security, the higher the rate of
interest it pays. However, a longer average maturity is generally associated
with a higher level of volatility in the market value of a security. The average
maturity of the Fund's portfolio will vary depending on anticipated market
conditions. It is anticipated that the Fund will invest in debt obligations with
maturities ranging from short-term (including overnight) to 30 years and that it
will invest no more than 25% of it assets in debt obligations with maturities
greater than 10 years. In the case of mortgage-backed and similar securities,
the Fund uses the security's average life in calculating the Fund's average
maturity. The Fund's portfolio of securities will have a weighted average
maturity of no greater than seven years.
6
<PAGE>
INVESTORS BOND FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide as high a level of
current income as is consistent with capital preservation and prudent investment
risk. By seeking capital preservation, the Fund attempts to control the risk of
default and the risk of capital losses in periods of falling prices for debt
securities. There can be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
The Fund seeks to attain its investment objective by investing primarily in
a portfolio of investment grade debt securities. The securities in which the
Fund invests include debt securities which are rated in one of the four highest
rating categories by an NRSRO such as Moody's Investors Service ("Moody's") or
Standard & Poor's Corporation ("S&P"), obligations issued or guaranteed as to
principal and interest by the United States Government or by any of its agencies
or instrumentalities ("U.S. Government Securities") and mortgage-backed and
asset backed securities rated in one of the two highest rating categories by a
NRSRO. The Adviser anticipates that up to 50% of the value of the Fund's total
assets may be invested in mortgage-backed securities and that up to 15% of the
value of the Fund's total assets may be invested in asset-backed securities. For
a description of the types of securities in which the Fund invests see
"Investment Objective and Policies -- Fixed Income Securities" below.
The Fund also may invest in commercial paper, bankers acceptances,
certificates of deposit and other money market instruments rated in one of the
two highest rating categories by an NRSRO.
The Fund may also invest up to 10% of the value of its total assets at the
time of investment in: (1) debt securities which are rated in the fifth highest
rating category by an NRSRO (for example, BB by S&P); (2) preferred stock which
is rated in one of the five highest rating categories by an NRSRO (for example,
BB or above by S&P); (3) options and futures contracts. Securities in the four
highest rating categories are generally considered to be investment grade. Debt
securities and preferred stock rated in the fifth highest rating category by
Moody's and by S&P are not considered to be investment grade, are high risk,
have predominantly speculative characteristics and are commonly known as "Junk
Bonds." See "Certain Risk Factors -- Non-Investment Grade Debt Securities"
below.
During its last fiscal year, the Fund had 73.71% of its average annual
assets in securities rated by Moody's or S&P and 23.04% of its average annual
assets in unrated investments, including cash and cash equivalents. For that
year the Fund had the following percentages of its average annual net assets
invested in rated securities: Aaa/ AAA -- 26.31%, Aa/AA -- 15.41%, A/A --
13.83%, Baa/BBB -- 5.12%, Ba/BB -- 4.51%, and B/B -- 6.84%, and C/C -- 1.69%.
Securities with different ratings from Moody's and S&P were assigned the higher
rating. This information reflects the average month end composition of the
assets for the Fund's last fiscal year and is not necessarily representative of
the Fund as of the end of last year, the current fiscal year or any other time.
In general, the longer the maturity of a security, the higher the rate of
interest it pays. However, a longer average maturity is generally associated
with a higher level of volatility in the market value of a security. The average
maturity of each Fund's portfolio will vary depending on anticipated market
conditions. It is anticipated that the Fund will invest in debt obligations with
maturities ranging from short-term (including overnight) to 30 years. In the
case of mortgage-backed and similar securities, the Fund uses the security's
average life in calculating the Fund's average maturity.
7
<PAGE>
TAXSAVER BOND FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders with a high
level of current income exempt from Federal income tax. Although the Fund will
attempt to invest 100% of its assets in municipal securities the interest on
which is exempt from all Federal income tax, including the Federal alternative
minimum tax ("AMT"), the Fund reserves the right to invest up to 20% of the
value of its net assets in securities on which the interest income is subject to
Federal income taxation. In addition, the Fund may assume a temporary defensive
position and invest without limit in cash and cash equivalents that may be
taxable. There can be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
The Fund pursues its objective by investing principally in investment grade
debt obligations issued by the states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities. These
securities are generally known as "municipal securities" and include municipal
bonds, notes and leases. It is anticipated that under normal circumstances
substantially all of the Fund's total assets will be invested in municipal
securities the interest income from which is exempt from Federal income taxes,
including the Federal AMT.
Some municipal securities are related in such a way that an economic,
business or political development affecting one municipal security would have a
similar effect on another municipal security. For example, the repayment of
different obligations may depend on similar types of projects. While the Fund
may invest more than 25% of its total assets in private activity bonds ("PABs"),
under normal circumstances no single type of revenue bond (for example, electric
revenue bonds or housing revenue bonds) will constitute more than 25% of the
Fund's total assets. In addition, under normal circumstances no more than 25% of
the Fund's total assets may be invested in issuers located in any one state,
territory or possession.
Normally, at least 65% of the Fund's total assets will be invested in
municipal bonds rated at the time of purchase within the four highest grades
assigned by an NRSRO such as Moody's Investors Services ("Moody's") (Aaa, Aa, A
and Baa) or S&P (AAA, AA, A and BBB) or which are unrated and determined by the
Adviser to be of comparable quality. Securities in these ratings generally are
considered to be investment grade securities, although Moody's indicates that
municipal securities rated Baa have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity by the issuer to make principal and interest payments with respect to
debt rated in that category than is the case with higher grade debt. A further
description of the ratings used by Moody's, S&P and other NRSROs is included in
the SAI.
The tax-free yields sought by the Fund are generally obtainable from
securities rated within the four highest rating categories by NRSROs. The Fund
may, however, invest up to 25% of its total assets in municipal bonds rated in
the fifth highest rating category by any NRSRO or which are unrated and
determined by the Adviser to be of comparable quality. These securities are not
considered to be investment grade and have speculative or predominantly
speculative characteristics and are commonly known as "Junk Bonds." See "Certain
Risk Factors." The Fund only will invest in municipal notes and other short-term
municipal obligations in the two highest rating categories assigned by an NRSRO
or which are unrated and determined by the Adviser to be of comparable quality.
During its last fiscal year, the Fund had 81.07% of its average annual
assets in municipal securities rated by Moody's or Standard and Poor's
Corporation "S&P" and 17.94% of its
aver-
8
<PAGE>
age annual assets in unrated investments, including cash and cash equivalents.
For that year the Fund had the following percentages of its average annual net
assets invested in rated securities: Aaa/ AAA -- 40.13%, Aa/AA -- 9.89%, A/A --
14.43%, Baa/BBB -- 12.77%, and B/B -- 3.85%. Securities with different ratings
from Moody's and S&P were assigned the higher rating. This information reflects
the average composition of the Fund's assets for the Fund's last fiscal year and
is not necessarily representative of the Fund as of the end of last year, the
current fiscal year or any other time.
Under current Federal tax law, interest on certain municipal securities
issued after August 7, 1986 to finance "private activities" will be a "tax
preference item" for purposes of the Federal AMT applicable to certain
individuals and corporations. The interest on these securities generally is
fully tax-exempt for regular Federal income tax purposes. The Fund may from time
to time purchase certain municipal securities the interest on which constitutes
a "tax preference item" for purposes of the Federal AMT.
In general, the longer the maturity of a municipal security, the higher the
rate of interest it pays. However, a longer average maturity is generally
associated with a higher level of volatility in the market value of a municipal
security. The average maturity of the Fund's portfolio will vary depending on
anticipated market conditions. It is anticipated, however, that the average
weighted maturity of all municipal securities in the Fund's portfolio will
normally range between five and 15 years.
FIXED INCOME SECURITIES
GENERAL
DEBT SECURITIES. The market value of debt securities (including municipal
securities) depends on, among other things, conditions in the market for the
security and the fixed income markets generally, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
market value of the interest-bearing debt securities held by the Funds will be
affected by changes in interest rates. There is normally an inverse relationship
between the market value of securities sensitive to prevailing interest rates
and actual changes in interest rates. In other words, a decline in interest
rates produces an increase in market value, while an increase in interest rates
produces a decrease in market value. Moreover, the longer the remaining maturity
of a security, the greater will be the effect of interest rate changes on the
market value of that security. Changes in the ability of an issuer to make
payments of interest and principal and in the market's perception of an issuer's
creditworthiness will also affect the market value of the debt securities of
that issuer. Obligations of issuers of debt securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. The possibility exists, therefore, that, as a result of
litigation or other conditions, the ability of any issuer to pay, when due, the
principal of and interest on its debt securities may be materially impaired.
RATING MATTERS. The Funds will invest in securities rated in the categories
specified by their investment policies. The Adviser assigns the higher rating to
securities with different ratings from NRSROs. Investors Bond Fund and TaxSaver
Bond Fund may purchase unrated securities if the Adviser determines the security
to be of comparable quality to a rated security that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain a security whose rating has been lowered below the Fund's lowest
permissible rating category (or that is unrated and determined by the Adviser to
be of comparable quality to a security whose rating has been lowered below the
Fund's lowest permissible rating category) if the Adviser determines that
retaining the security is in the best interests of the Fund.
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The Funds' investments are subject to "credit risk" relating to the
financial condition of the issuers of the securities that the Funds hold. A
further description of the rating categories of certain NRSROs is contained in
the SAI.
VARIABLE AND FLOATING RATE INTEREST RATES. The securities in which the Funds
invest may have variable or floating rates of interest. These securities pay
interest at rates that are adjusted periodically according to a specified
formula, usually with reference to some interest rate index or market interest
rate (the "underlying index"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. Such adjustments minimize changes in the market value of
the obligation and, accordingly, enhance the ability of a Fund to maintain a
stable net asset value. Similar to fixed rate debt instruments, variable and
floating rate instruments are subject to changes in value based on changes in
market interest rates or changes in the issuer's creditworthiness. The rate of
interest on securities purchased by a Fund may be tied to various rates of
interest or indices.
There may not be an active secondary market for certain floating or variable
rate instruments, which could make it difficult for a Fund to dispose of an
instrument during periods that the Fund is not entitled to exercise any demand
rights it may have. A Fund could, for this or other reasons, suffer a loss with
respect to an instrument. The Adviser monitors the liquidity of the Funds'
investment in variable and floating rate instruments, but there can be no
guarantee that an active secondary market will exist.
TAXABLE INVESTMENTS
CORPORATE DEBT SECURITIES AND FOREIGN SECURITIES. In selecting corporate
debt securities for a Fund, the Adviser reviews and monitors the
creditworthiness of each issuer and issue. Interest rate trends and specific
developments which may affect individual issuers will also be analyzed. In
addition to the debt securities of domestic corporations, the Funds may invest
in debt securities registered and sold in the United States by foreign issuers
(Yankee Bonds) and those sold outside the United States by foreign or U.S.
issuers (Eurobonds). Each Fund restricts its purchases of these securities to
issues denominated and payable in United States dollars. All obligations of non-
U.S. issuers purchased by a Fund will be issued or guaranteed by a sovereign
government, by a supranational agency whose members are sovereign governments,
or by a U.S. issuer in whose debt securities the Fund could invest.
U.S. GOVERNMENT SECURITIES. The U.S. Government Securities in which a Fund
may invest include direct obligations of the U.S. Treasury (such as Treasury
bills and notes) and other securities backed by the full faith and credit of the
U.S. Government, such as those issued by the Government National Mortgage
Association ("GNMA"). Each Fund may also invest in U.S. Government Securities
that have lesser degrees of government backing. For instance, a Fund may
purchase obligations of the of the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC") (which are
supported by the right of the issuer to borrow from the Treasury under certain
circumstances) and obligations of the Student Loan Marketing Association and the
Federal Home Loan Banks (which are supported only by the credit of the agency or
instrumentality). There is no guarantee that the U.S. Government will support
securities not backed by its full faith and credit and, accordingly, these
securities may involve more risk than other U.S. Government Securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an
interest in a pool of mortgages originated by lenders such as commercial banks,
savings associations and mortgage bankers and brokers. Mortgage-backed
securities may be issued by governmental or government-related entities or by
non-governmental entities such as
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special purpose trusts created by banks, savings associations, private mortgage
insurance companies or mortgage bankers.
Mortgage-backed securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. In contrast,
mortgage-backed securities provide monthly payments which consist of interest
and, in most cases, principal. In effect, these payments are a "pass-through" of
the monthly payments made by the individual borrowers on their mortgage loans,
net of any fees paid to the issuer or guarantor of the securities or a mortgage
loan servicer. Additional payments to holders of these securities are caused by
prepayments resulting from the sale or foreclosure of the underlying property or
refinancing of the underlying loans.
UNDERLYING MORTGAGES. Pools of mortgages consist of whole mortgage loans or
participations in mortgage loans. The majority of these loans are made to
purchasers of 1-4 family homes, but may be made to purchasers of mobile homes or
other real estate interests. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary among pools. For
example, in addition to fixed-rate, fixed-term mortgages, a Fund may purchase
pools of variable rate mortgages, growing equity mortgages, graduated payment
mortgages and other types. Mortgage servicers impose qualification standards for
local lending institutions which originate mortgages for the pools as well as
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY. The market for mortgage-backed securities has
expanded considerably in recent years. The size of the primary issuance market
and active participation in the secondary market by securities dealers and many
types of investors make government and government-related pass-through pools
highly liquid. The recently introduced private conventional pools of mortgages
(pooled by commercial banks, savings and loan institutions and others, with no
relationship with government and government-related entities) have also achieved
broad market acceptance and consequently an active secondary market has emerged.
However, the market for conventional pools is smaller and less liquid than the
market for government and government-related mortgage pools.
AVERAGE LIFE AND PREPAYMENTS. The average life of a pass-through pool
varies with the maturities of the underlying mortgage instruments. In addition,
a pool's terms may be shortened by unscheduled or early payments of principal
and interest on the underlying mortgages. Prepayments with respect to securities
during times of declining interest rates will tend to lower the return of a Fund
and may even result in losses to the Fund if the securities were acquired at a
premium. The occurrence of mortgage prepayments is affected by various factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life. The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.
YIELD CALCULATIONS. Yields on pass-through securities are typically quoted
by investment dealers based on the maturity of the underlying instruments and
the associated average life assumption. In periods of falling interest rates,
the rate of
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prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgages. Conversely, in periods of rising rates, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Actual prepayment experience may cause the yield to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of a
Fund.
GOVERNMENT AND GOVERNMENT-RELATED GUARANTORS. The principal government
guarantor of mortgage-backed securities is the GNMA, a wholly-owned United
States Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA and backed by pools of FHA-
insured or VA-guaranteed mortgages.
FNMA is a government-sponsored corporation owned entirely by private
stockholders that is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases residential mortgages from a list of
approved seller-servicers. FHLMC is a corporate instrumentality of the United
States Government that was created by Congress in 1970 for the purpose of
increasing the availability of mortgage credit for residential housing. Its
stock is owned by the twelve Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in mortgages from FHLMC's
national portfolio. FNMA and FHLMC each guarantee the payment of principal and
interest on the securities they issue. These securities, however, are not backed
by the full faith and credit of the United States Government.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Investors Bond Fund may invest
in mortgage-backed securities offered by private issuers including pass-through
securities comprised of pools of conventional mortgage loans; mortgage-backed
bonds which are considered to be debt obligations of the institution issuing the
bonds and which are collateralized by mortgage loans; and collateralized
mortgage obligations.
Mortgage-backed securities issued by non-governmental issuers may offer a
higher rate of interest than securities issued by government issuers because of
the absence of direct or indirect government guarantees of payment. Many non-
governmental issuers or servicers of mortgage-backed securities, however,
guarantee timely payment of interest and principal on such securities. Timely
payment of interest and principal may also be supported by various forms of
insurance, including individual loan, title, pool and hazard policies. There can
be no assurance that the private issuers or insurers will be able to meet their
obligations under the relevant guarantees and insurance policies.
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES. Adjustable rate mortgage-backed
securities ("ARMs") are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate index or market
interest rate. Although the rate adjustment feature may act as a buffer to
reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because of the
resetting of interest rates, adjustable rate securities are less likely than
non-adjustable rate securities of comparable quality and maturity to increase
significantly in value when market interest rates fall. Also, most adjustable
rate securities (or the underlying mortgages) are subject to caps or floors.
"Caps" limit the maximum amount by which the interest rate paid by the borrower
may change at each reset date or over the life of the loan and, accordingly,
fluctuation in interest rates above these levels could cause such mortgage
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securities to "cap out" and to behave more like long-term, fixed-rate debt
securities.
ARMs may have less risk of a decline in value during periods of rapidly
rising rates, but they may also have less potential for capital appreciation
than other debt securities of comparable maturities due to the periodic
adjustment of the interest rate on the underlying mortgages and due to the
likelihood of increased prepayments of mortgages as interest rates decline.
Furthermore, during periods of declining interest rates, income to the Fund will
decrease as the coupon rate resets to reflect the decline in interest rates.
During periods of rising interest rates, changes in the coupon rates of the
mortgages underlying a Fund's ARMs may lag behind changes in market interest
rates. This may result in a slightly lower net value until the interest rate
resets to market rates. Thus, investors could suffer some principal loss if they
sold Fund Shares before the interest rates on the underlying mortgages were
adjusted to reflect current market rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized Mortgage Obligations
("CMOs") are debt obligations that are collateralized by mortgages or mortgage
pass-through securities issued by GNMA, FHLMC or FNMA or by pools of
conventional mortgages ("Mortgage Assets"). CMOs may be privately issued or U.S.
Government Securities. Investors High Grade Bond Fund will invest only in CMOs
that are U.S. Government Securities and will not invest in privately issued
CMOs. Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs on the same schedule as they are received,
although, certain classes (often referred to as tranches) of CMOs have priority
over other classes with respect to the receipt of payments. Multi-class mortgage
pass-through securities are interests in trusts that hold Mortgage Assets and
that have multiple classes similar to those of CMOs. Unless the context
indicates otherwise, references to CMOs include multi-class mortgage
pass-through securities. Payments of principal of and interest on the underlying
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon)
provide funds to pay debt service on the CMOs or to make scheduled distributions
on the multi-class mortgage pass-through securities. Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating the
stated maturity date or final distribution date of each class, which, as with
other CMO structures, must be retired by its stated maturity date or final
distribution date but may be retired earlier. Planned amortization class
mortgage-based securities ("PAC Bonds") are a form of parallel pay CMO. PAC
Bonds are designed to provide relatively predictable payments of principal
provided that, among other things, the actual prepayment experience on the
underlying mortgage loans falls within a contemplated range. If the actual
prepayment experience on the underlying mortgage loans is at a rate faster or
slower than the contemplated range, or if deviations from other assumptions
occur, principal payments on a PAC Bond may be greater or smaller than
predicted. The magnitude of the contemplated range varies from one PAC Bond to
another; a narrower range increases the risk that prepayments will be greater or
smaller than contemplated. CMOs may have complicated structures and generally
involve more risks than simpler forms of mortgage-backed securities. See
"Investment Policies -- Taxable Investments -- Mortgage-Related Securities" in
the SAI.
STRIPPED MORTGAGE-BACKED SECURITIES. Investors Bond Fund may invest in
stripped mortgage-backed securities, which are classes of mortgage-backed
securities that receive different proportions of the interest and principal
distributions from the underlying Mortgage Assets. They may be may be privately
issued or U.S. Government Securities. In the most extreme case, one class will
be entitled to receive all or a portion of the interest but none of the
principal from the Mortgage
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Assets (the interest-only or "IO" class) and one class will be entitled to
receive all or a portion of the principal, but none of the interest (the "PO"
class).
ASSET-BACKED SECURITIES. Asset-backed securities represent direct or
indirect participations in, or are secured by and payable from, assets other
than mortgage-backed assets such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (credit card) agreements.
Asset-backed securities, including adjustable rate asset-backed securities, have
yield characteristics similar to those of mortgage-backed securities and,
accordingly, are subject to many of the same risks.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Payments of
principal and interest may be guaranteed up to certain amounts and for a certain
time period by a letter of credit issued by a financial institution.
Asset-backed securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-backed
securities. As a result, the risk that recovery on repossessed collateral might
be unavailable or inadequate to support payments on asset-backed securities is
greater for asset-backed securities than for mortgage-backed securities. In
addition, because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of an interest rate or economic cycle has not been
tested.
MUNICIPAL INVESTMENTS
MUNICIPAL BONDS. Municipal bonds, which are intended to meet longer term
capital needs of the issuer, can be classified as either "general obligation" or
"revenue" bonds. General obligation bonds are secured by a municipality's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are generally payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other tax, but not from general tax revenues.
Municipal bonds also include PABs, which are bonds issued by or on behalf of
public authorities to finance various privately operated facilities. PABs are in
most cases revenue bonds and generally do not have the pledge of the full faith,
credit and taxing power of the municipality issuer. The payment of the principal
and interest on these bonds is dependent solely on the ability of an initial or
subsequent user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property financed by
the bond as security for payment. TaxSaver Bond Fund will acquire only PABs
whose interest payments, in the opinion of the issuer's counsel, are exempt from
Federal income taxation (other than the AMT).
MUNICIPAL NOTES AND LEASES. Municipal notes, which may be either "general
obligation" or "revenue" securities, are intended to fulfill the short-term
capital needs of the issuer and generally have original maturities of 397 days
or less. They include tax anticipation notes, revenue anticipation notes, bond
anticipation notes, construction loan notes and tax-exempt commercial paper.
Municipal leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased assets to pass eventually to the
government issuer) are a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of long-term debt. Municipal leases frequently have special risks not
normally associated with general obligation or revenue bonds or notes as
described in the SAI.
PARTICIPATION INTERESTS. TaxSaver Bond Fund may purchase participation
interests in municipal securities (which may be fixed, floating or variable rate
securities) that are owned by banks or other
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financial institutions. Participation interests carry a demand feature backed by
a letter of credit or guarantee of the bank or institution permitting the holder
to tender them back to the bank or other institution. The Fund will only
purchase participation interests from Federal Deposit Insurance Corporation
insured banks having total assets of more than one billion dollars or from other
financial institutions whose long-term debt securities are rated within the four
highest rating categories by an NRSRO or which are unrated and determined by the
Adviser to be of comparable quality. Prior to purchasing any participation
interest, the Fund will obtain appropriate assurances from counsel retained by
the Trust that the interest earned by the Fund from the obligations in which it
holds participation interests is exempt from Federal income tax.
STAND-BY COMMITMENTS. TaxSaver Bond Fund may purchase municipal securities
together with the right to resell them to the seller at an agreed upon price or
yield within specified periods prior to their maturity dates. These rights to
resell are commonly known as "stand-by commitments." The aggregate price which
the Fund pays for securities with a stand-by commitment may be higher than the
price which otherwise would be paid. The primary purpose of this practice is to
permit the Fund to be as fully invested as practicable in municipal securities
while preserving the necessary flexibility and liquidity to meet unanticipated
redemptions. The Fund will enter into stand-by commitments only with banks or
municipal securities dealers that in the opinion of the Adviser present minimal
credit risks. The value of a stand-by commitment is dependent on the ability of
the writer to meet its repurchase obligation.
CERTAIN RISK FACTORS
DIVERSIFICATION MATTERS
Investors High Grade Bond Fund is a diversified fund. Thus, the Fund may not
purchase a security if, as a result, (1) more than 5% of the Fund's total assets
would be invested in the securities of a single issuer or (2) the Fund would own
more than 10% of the outstanding voting securities of a single issue. This
limitation applies with respect to 75% of the Fund's total assets and does not
apply to U.S. Government Securities.
Investors Bond Fund and TaxSaver Bond Fund are non-diversified, which means
that they have greater latitude than a diversified fund with respect to the
investment of its assets in the securities of a relatively few issuers. As
non-diversified portfolios, the Funds may present greater risks than diversified
funds. Each Fund's diversification requirements provide that, as of the last day
of each fiscal quarter, with respect to 50% of its assets, the Fund may not own
the securities of a single issuer, other than a U.S. Government Security, with a
value of more than 5% of the Fund's total assets. Except for U.S. Government
Securities, no more than 25% of the total assets of a Fund may be invested in
securities of any one issuer. A Fund will be subject to a greater risk of loss
if an issuer in which the Fund invests a substantial amount of its assets is
unable to make interest or principal payments or if the market value of
securities declines.
NON-INVESTMENT GRADE DEBT SECURITIES
Investors Bond Fund and TaxSaver Bond Fund may invest in non-investment
grade, high risk securities (securities rated lower than the fourth highest
rating category by an NRSRO). Bonds rated in S&P's fifth highest category, BB,
are regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Bonds rated BB have less near-term
vulnerability to default than other speculative issues. However, they face major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest and
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principal payments. Preferred stockrated ba by Moody's is considered to have
speculative elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded during
adverse periods.
Non-investment grade, high risk securities (often referred to as "junk
bonds") involve greater risk of default or price changes due to changes in the
issuer's creditworthiness than do higher quality securities. The market for
these securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. These risks may be magnified in the case of unrated junk bonds. In
addition, the market prices of lower rated securities may fluctuate more than
the market prices of higher quality securities and may decline significantly in
periods of general economic difficulty or rising interest rates. Further
information concerning these investments is contained in the SAI.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of each Fund that are
designated as fundamental may only be changed with the approval of the holders
of a majority of the outstanding voting securities of a Fund. A majority of a
Fund's outstanding voting securities means the lesser of (1) 67% of the shares
of a 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 a Fund. Unless otherwise indicated, investment
policies of a Fund are not fundamental and may be changed by the Board of
Trustees of the Trust (the "Board") without shareholder approval. For more
information concerning shareholder voting, see "Other Information -- The Trust
and Its Shares."
No Fund may invest more than 15% of its net assets in illiquid securities,
including repurchase agreements not entitling the Fund to the payment of
principal within seven days. Although they have no current intention, each Fund
may in the future seek to hedge against a decline in the value of securities it
owns or an increase in the price of securities which it plans to purchase
through the writing and purchase of exchange-traded and over-the-counter options
and the purchase and sale of futures contracts and options on those futures
contracts. In order to avoid maintaining idle cash, the Funds may invest up to
10% of their total assets in money market mutual funds that, in the case of
TaxSaver Bond Fund, invest in municipal securities exempt from Federal income
taxes. Under normal circumstances, each Fund intends to invest at least 65% of
its assets in bonds and similar investments.
TECHNIQUES INVOLVING LEVERAGE
The use of certain investments involves the special risks of leverage and
may be, in part, speculative. The Funds may borrow money for temporary or
emergency purposes (including the meeting of redemption requests), but, as a
fundamental policy, not in excess of 331/3% of the value of a Fund's total
assets. Borrowing for purposes other than meeting redemption requests will not
exceed 10% of the value of a Fund's total assets. Investors Bond Fund and
TaxSaver Bond Fund may borrow for other than temporary or emergency purposes. In
addition, the purchase of then-issued and forward commitment securities is a
form of leverage. A Fund uses these investment techniques only when the Adviser
believes that the leveraging and the returns available to the Fund from
investing the cash will provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. The risks of leverage include a higher
volatility of the net asset value of a Fund's shares and the relatively greater
effect on the net asset value of the shares caused by market movements or
changes in yields. So long as a Fund is able to realize a net return on its
investment port-
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folio that is higher than interest expense incurred, if any, leverage will
result in higher current net investment income being realized by the Fund than
if the Fund were not leveraged. On the other hand, interest rates change from
time to time as does their relationship to each other depending upon such
factors as supply and demand, monetary and tax policies and investor
expectations. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to shareholders, the Fund's use of leverage would result
in a lower rate of return than if the Fund were not leveraged. In addition, the
purchase of when-issued and forward commitment securities is a form of leverage.
In an extreme case, if the Fund's current investment income were not sufficient
to meet the interest expense of leveraging, it could be necessary for the Fund
to liquidate certain of its investments at an inappropriate time. The use of
leverage may be considered speculative.
In order to limit the risks involved in various transactions involving
leverage, the Funds will set aside and maintain in a segregated account liquid
assets in accordance with SEC guidelines. The account's value, which is marked
to market daily, will be at least equal to a Fund's commitments under these
transactions.
SWAP AGREEMENTS
To manage its exposure to different types of investments, Investors Bond
Fund and TaxSaver Bond Fund may enter into interest rate, currency and mortgage
(or other asset) swap agreements and may purchase and sell interest rate "caps,"
"floors" and "collars." In a typical interest rate swap agreement, one party
agrees to make regular payments equal to a floating interest rate on a specified
amount (the "notional principal amount") in return for payments equal to a fixed
interest rate on the same amount for a specified period. If a swap agreement
provides for payment in different currencies, the parties may also agree to
exchange the notional principal amount. Mortgage swap agreements are similar to
interest rate swap agreements, except that the notional principal amount is tied
to a reference pool of mortgages. In a cap or floor, one party agrees, usually
in return for a fee, to make payments under particular circumstances. For
example, the purchaser of an interest rate cap has the right to receive payments
to the extent a specified interest rate exceeds an agreed upon level; the
purchaser of an interest rate floor has the right to receive payments to the
extent a specified interest rate falls below an agreed upon level. A collar
entitles the purchaser to receive payments to the extent a specified interest
rate falls outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending
on how they are used, they may have a considerable impact on the Fund's
performance. See "Techniques Involving Leverage" above. Swap agreements involve
risks depending upon the counterparty's creditworthiness and ability to perform
as well as a Fund's ability to terminate its swap agreements or reduce its
exposure through offsetting transactions. The Adviser monitors the
creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when it believes the counterparties present minimal
credit risks and the income expected to be earned from the transaction justifies
the attendant risks.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES
Each Fund may seek additional income by entering into repurchase agreements
or by lending securities from its portfolio to brokers, dealers and other
financial institutions. These investments may entail certain risks not
associated with direct investments in securities. For instance, in the event
that bankruptcy or similar proceedings were commenced against a counterparty in
these transactions or a counterparty defaulted on its obligations, a Fund might
suffer a loss. The Adviser monitors the
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creditworthiness of counterparties to these transactions and intends to enter
into these transactions only when it believes the counterparties present minimal
credit risks and the income to be earned from the transaction justifies the
attendant risks.
Repurchase agreements are transactions in which a Fund purchases a security
and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not related
to the coupon rate or maturity of the purchased security. When a Fund lends a
security it receives interest from the borrower or from investing cash
collateral. The Trust maintains possession of the purchased securities and any
underlying collateral in these transactions, the total market value of which on
a continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans. Investors Bond Fund and TaxSaver Bond Fund, as a fundamental
policy, will limit securities lending to not more than 10% of the value of their
total assets.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction. The Funds purchase securities on a
when-issued or forward commitment basis only with the intention of actually
receiving or delivering the securities, as the case may be. When-issued
securities may include bonds purchased on a "when, as and if issued" basis under
which the issuance of the securities depends upon the occurrence of a subsequent
event, such as approval of a proposed financing by appropriate municipal
authorities.
During the period between a commitment and settlement, no payment is made
for the securities purchased and, thus, no dividends or interest accrues to the
purchaser from the transaction. However, at the time a Fund makes a commitment
to purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. Failure by the other party to deliver or
pay for a security purchased or sold by the Fund may result in a loss or a
missed opportunity to make an alternative investment. Any significant commitment
of a Fund's assets committed to the purchase of securities on a when-issued or
forward commitment basis may increase the volatility of its net asset value.
The use of when-issued transactions and forward commitments may enable a
Fund to hedge against anticipated changes in interest rates and prices. If the
Adviser were to forecast incorrectly the direction of interest rate movements,
however, a Fund might be required to complete these transactions at prices
inferior to the current market values. No when-issued or forward commitment
transactions will be entered into by a Fund if, as a result, more than 15% of
the value of the Fund's total assets would be committed to such transactions.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, for example, when issues of
sufficient quality and liquidity are not available, a Fund may assume a
temporary defensive position and invest all or part of its assets in cash or
prime quality cash equivalents, including (1) short-term U.S. Government
Securities, (2) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of commercial banks doing business in the
United States, (3) commercial paper, (4) repurchase agreements covering any of
the securities in which the Fund may invest directly and (5) to the extent
permitted by the Investment Company Act of 1940,
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<PAGE>
money market mutual funds. During periods when and to the extent that a Fund has
assumed a temporary defensive position, it will not be pursuing its investment
objective.
CORE AND GATEWAY-REGISTERED TRADEMARK-
Each Fund reserves the right to seek to achieve its investment objective by
converting to a Core and Gateway structure. Each Fund, upon future action by the
Board of Trustees and notice to shareholders, may convert to this structure, in
which the Fund would hold as its only investment securities the shares of
another investment company having substantially the same investment objective
and policies as the Fund. The Board of Trustees will not authorize conversion to
a Core and Gateway structure if it would materially increase costs to a Fund's
shareholders.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of each Fund (the portfolio turnover
rate) will vary from year to year depending on market conditions. From time to
time the Funds may engage in active short-term trading to benefit from yield
disparities among different issues of debt securities, to seek short-term
profits during periods of fluctuating interest rates, or for other reasons. This
type of trading will increase the Funds' portfolio turnover rate and transaction
costs and may increase the Funds' capital gain. The Adviser weighs the
anticipated benefits of short-term investments against these consequences.
Investors Bond Fund's and TaxSaver Bond Fund's portfolio turnover rates are
reported under "Financial Highlights." For the fiscal year ending March 31,
1998, Investors High Grade Bond Fund's portfolio turnover rate is not expected
to exceed 100%.
5. MANAGEMENT
The business and affairs of the Funds are managed under the direction of the
Board. The Board formulates the general policies of the Funds and generally
meets quarterly to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. Information about the Trustees and the officers of the Trust is in the
SAI under "Management -- Trustees and Officers."
THE ADVISER
Forum Investment Advisors, LLC, located at Two Portland Square, Portland,
Maine 04101, serves as investment adviser to the Funds under an investment
advisory agreement with the Trust. Subject to the general supervision of the
Board, the Adviser makes investment decisions for the Funds and is responsible
for, among other things, developing a continuing investment program for the
Funds in accordance with its investment objective and reviewing the investment
strategies and policies of the Funds. For its services, the Adviser receives an
advisory fee at an annual rate of 0.40% of the Funds' average daily net assets.
Leslie C. Berthy is Managing Director of the Adviser and has been
responsible for the day-to-day management of the Funds' portfolios since their
inception. Prior to his association with the Adviser, Mr. Berthy was Managing
Director and Co-Chief Executive Officer of Irwin Union Capital Corp., an
affiliate of Irwin Union Bank & Trust Co.
As of the date of this Prospectus each of the Adviser, FAdS, FFSI, FSS and
FAcS was controlled by John Y. Keffer, President and Chairman of the Trust and
were located at Two Portland Square, Portland, Maine, 04101. As of June 30,
1998, the Adviser provided investment advisory services to registered investment
companies with assets of approximately $1.7 billion.
THE ADMINISTRATOR
On behalf of the Funds, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
supervision of the overall management of the Trust and providing the Trust with
general office facilities, necessary personnel to help ensure the effective
operation of the Trust as well as persons satis-
19
<PAGE>
factory to the Board to serve as officers of the Trust. For these services, FAdS
is entitled to receive a fee from the Funds computed and paid monthly at an
annual rate of 0.20% of the Funds' average daily net assets.
Under a Fund Accounting Agreement with the Trust, Forum Accounting Services,
LLC ("FAcS") performs portfolio accounting services for each Fund, including
determination of the Fund's net asset value. For its services, FAcS is entitled
to receive a fee for each Fund at an annual rate of $36,000 subject to
adjustments for the number and type of portfolio transactions.
As of June 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies and
collective investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, FFSI acts as distributor of
the Funds' shares. FFSI acts as the agent of the Trust in connection with the
offering of shares of the Funds. For these services, FFSI receives, and may
reallow to certain financial institutions, the sales charge paid by purchases of
the Funds' shares. FFSI may enter into arrangements with banks, broker-dealers
or other financial institutions ("Processing Organizations") through which
investors may purchase or redeem shares. FFSI may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Funds. Investors purchasing
shares of a Fund through another financial institution should read any materials
and information provided by the financial institution to acquaint themselves
with its procedures and any fees that it may charge. FFSI is a registered
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
SHAREHOLDER SERVICES
Shareholder inquiries and communications concerning the Funds may be
directed FSS. Under a Transfer Agency and Services Agreement, FSS acts as the
Funds' transfer agent and dividend disbursing agent. FSS maintains an account
for each shareholder of record where all shares purchased are credited, together
with any distributions that are reinvested in additional shares. FSS also
performs other transfer agency functions and acts as dividend disbursing agent
for the Trust. For its services, FSS is entitled to receive a fee at an annual
rate of 0.25% of each Fund's average daily net assets plus $12,000 per year and
annual shareholder fees of $18.00 per shareholder account.
EXPENSES OF THE TRUST
The Trust is obligated to pay for all of its expenses. The Funds' expenses
comprise Trust expenses attributable to the Funds and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Funds
and the portfolios in proportion to their average net assets. The Funds'
expenses include: interest charges; taxes; brokerage fees and commissions;
certain insurance premiums; applicable fees and expenses under the Trust's
contracts with the Adviser, FAdS, FSS and any custodian; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; auditing, legal and compliance expenses; costs of preparing
and printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
of certain of the Trust's trustees, officers and employees and other personnel
performing services for the Trust; and registration fees and related expenses.
The Adviser, FAdS, FSS, and FAcS, in their sole discretion, may waive all or
any portion of their respective fees, which are accrued daily and paid monthly.
Any such waiver, which could be discontinued at any time, would have the effect
of increasing the Funds' performance for the period
20
<PAGE>
during which the waiver was in effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers to the Funds do
not properly process and calculate date related information and data from and
after January 1, 2000. The Adviser and FAdS are taking steps to address the Year
2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Funds from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in a Fund may be made either by an investor directly or through
certain brokers or financial institutions of which the investor is a customer.
All transactions in Fund shares are effected through FSS, which accepts orders
for purchases and redemptions from shareholders of record and new investors.
Shareholders of record will receive from the Trust periodic statements listing
all account activity during the statement period. The Trust reserves the right
in the future to modify, limit or terminate any shareholder privilege upon
appropriate notice to shareholders and may charge a fee for certain shareholder
services, although no such fees are currently contemplated.
PURCHASES
Fund Shares are sold at a price equal to their net asset value
next-determined after acceptance of an order, plus any applicable sales charge
on all weekdays except days when the New York Stock Exchange is closed
("Business Day"). Normally, the New York Stock Exchange is closed on New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas. Fund shares are
issued immediately after an order for the shares in proper form is accepted by
FSS. Each Fund's net asset value is calculated at 4:00 p.m., Eastern time on
each Business Day. Fund shares become entitled to receive dividends on the next
Business Day after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of
their shares. 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 at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of each Funds' next
determination net asset value after FSS receives the redemption order in proper
form (and any supporting documentation which FSS may require). Shares redeemed
are not entitled to receive dividends declared after the day on which the
redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days, after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used to
purchase the shares has been cleared by the shareholder's bank, which may take
up to 15 calendar days. This delay may be avoided by investing through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check and mailed to the shareholder's record address. The right of redemption
may not be suspended nor the payment dates postponed except when the New York
Stock Exchange is closed (or when trading thereon is restricted) for any reason
other than its customary weekend or holiday closings or under any emer-
21
<PAGE>
gency or other circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of a Fund. The Trust
will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine, including the recording of certain transactions. If the Trust did not
employ such procedures, it could be liable for any losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Funds directly. These investors may open an
account by completing the account application at the back of this Prospectus or
by contacting FSS at the address on the first page of this Prospectus. For those
shareholder services not referenced on the account application or to change
information on a shareholder's account (such as addresses), investors should
request an Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $2,000 minimum for initial investments in each Fund ($1,000 for
individual retirement accounts).
MAIL. Investors may send a check made payable to the Trust along with a
completed account application for a Fund to FSS 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, FSS or FFSI.
BANK WIRE. To make an initial investment in a Fund using the wire system
for transmittal of money among banks, an investor should first telephone the
Trust at 800-94FORUM (800-943-6786) or (207) 879-0001 to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
BankBoston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: [Name of 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 the bank early in the day so
the wire transfer can be received prior to 4:00 p.m., Eastern time, on the same
day. The bank may impose a charge for transmitting payment by wire, and there
also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $250 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check, by sending a wire as indicated
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<PAGE>
above. Shareholders using the wire system for subsequent purchases should first
telephone the Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to notify it
of the wire transfer. All payments should clearly indicate the shareholder's
name and account number.
AUTOMATIC INVESTMENT. Shareholders may purchase Fund shares at regular,
preselected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an Automated Clearing House member. Under the program, existing
shareholders may authorize amounts of $250 or more to be debited from their bank
account and invested in a Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the applicable forms from FSS.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by 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.
MAIL. Shareholders may make a redemption in any amount by sending a written
request to FSS accompanied by any share certificate that was issued to the
shareholder. All share certificates submitted for redemption must be signed by
the shareholder with a signature guaranteed. All accompanying written requests
for redemption must be signed by the shareholder and, in some cases, must have a
signature guarantee. See Purchase and Redemption Procedures -- Other Redemption
Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling FSS at (207) 879-0001 or
800-94FORUM (800-943-6786) and providing the shareholder's account number, the
exact name in which the shares are registered, the shareholder's social security
or taxpayer identification number. The Trust or FSS may employ other procedures
such as recording certain transactions to ensure telephone instructions are
genuine. If such procedures are followed, neither the Trust nor FSS will be
liable for any losses due to unauthorized or fraudulent redemption requests. 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.
BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege on the
account application. Redemption proceeds are transmitted by wire on the next
business day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds 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 FSS.
OTHER REDEMPTION MATTERS. To protect shareholders and the Funds against
fraud, signa-
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<PAGE>
tures on certain requests must have a signature guarantee. Requests must be made
in writing and include a signature guarantee for any of the following
transactions: (1) any endorsement on a stock certificate; (2) written
instruction to redeem Shares whose value exceeds $50,000; (3) instructions to
change a shareholder's record name; (4) redemption in an account in which the
account address or account registration has changed within the last 30 days; (5)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a bank, a broker, a dealer, a national securities exchange, a
credit union, or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to FSS will be reinvested and
the checks will be canceled.
SALES CHARGES
The public offering price for shares of a Fund is the sum of the net asset
value of the shares being purchased plus any applicable sales charge. No sales
charge is assessed on the reinvestment of dividends or other distributions. The
sales charge is assessed as follows:
<TABLE>
<CAPTION>
SALES CHARGE
AS % OF
--------------------------
PUBLIC
OFFERING NET ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- ------------------------ ----------- ------------- ---------------
<S> <C> <C> <C>
less than $100,000...... 3.75% 3.90% 3.25%
$100,000 but less than
$200,000............... 3.25 3.36 2.85
$200,000 but less than
$400,000............... 2.50 2.56 2.20
$400,000 but less than
$600,000............... 2.00 2.04 1.75
$600,000 but less than
$800,000............... 1.50 1.52 1.25
$800,000 but less than
$1,000,000............. 1.00 1.01 0.75
$1,000,000 and up....... 0.50 0.50 0.40
</TABLE>
* Rounded to the nearest one-hundredth percent.
FFSI's commission is the sales charge shown above less any applicable
discount reallowed to Processing Organizations (including banks and bank
affiliates purchasing shares as principal or agent). Normally, FFSI will reallow
discounts to Processing Organizations in the amounts indicated in the table
above. From time to time, however, FFSI may elect to reallow the entire sales
charge to Processing Organizations for all sales with respect to which orders
are placed with FFSI during a particular period. The dealers' reallowance may be
changed from time to time.
In addition, from time to time and at its own expense, FFSI may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
No sales charge will be assessed on purchases made for investment purposes
by: (1) any bank, trust company, savings association or similar institution with
whom FFSI has entered into a share purchase agreement acting on behalf of the
institution's fiduciary customer accounts or any
24
<PAGE>
account maintained by its trust department (including a pension, profit sharing
or other employee benefit trust created pursuant to a qualified retirement
plan); (2) any registered investment adviser with whom FFSI has entered into a
share purchase agreement and which is acting on behalf of its fiduciary customer
accounts; (c any registered investment adviser which is acting on behalf of its
fiduciary customer accounts and for which it provides additional investment
advisory services; (4) any broker-dealer with whom FFSI has entered into a
Processing Organization Agreement and a Fee-Based or Wrap Account Agreement and
which is acting on behalf of its fee-based program clients; (5) directors and
officers of the Trust; directors, officers and full-time employees of the
Advisor, FFSI, any of their affiliates or any organization with which FFSI has
entered into a Processing Organization Agreement; the spouse, sibling, direct
ancestor or direct descendent (collectively, "relatives") of any such person;
any trust or individual retirement account or self-employed retirement plan for
the benefit of any such person or relative; or the estate of any such person or
relative; (6) any person who has, within the preceding 90 days, redeemed Fund
shares (but only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment; (7) persons who exchange into a
Fund from a mutual fund other than a fund of the Trust that participates in the
Trust's exchange program, See "Purchases and Redemptions of Shares -- Exchange
Program;" and (8) employee benefit plans qualified under Section 401 of the
Internal Revenue Code of 1986, as amended. The Trust may require appropriate
documentation from an investor concerning that investor's eligibility to
purchase Fund shares without a sales charge. Any shares so purchased may not be
resold except to the Fund.
REDUCED SALES CHARGES
For an investor to qualify for a reduced sales charge as described below,
the investor must notify FSS at the time of purchase. Programs for reduced sales
charges may be modified or terminated at any time and are subject to
confirmation of an investor's holdings.
RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of a
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Business Day) of shares of that Fund
held by the investor. For example, if an investor owned shares of a Fund worth
$400,000 at the then current net asset value and purchased shares of the Fund
worth an additional $50,000, the sales charge for the $50,000 purchase would be
at the 2% rate applicable to a single $450,000 purchase, rather than at the
3.75% rate. To qualify for ROA on a purchase, the investor must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based on
cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of a Fund. Each purchase of shares under a LOI will be made
at the public offering price applicable at the time of the purchase to a single
transaction of the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the full
amount indicated. Shares purchased with the first 5% of the amount indicated in
the LOI will be held subject to a registered pledge (while remaining registered
in the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased within 13 months. Pledged shares will be involuntarily redeemed to pay
the additional sales charge, if necessary. When the full amount indicated has
been purchased, the shares will be released from pledge. Share certificates are
not
25
<PAGE>
issued for shares purchased under an LOI. Investors wishing to enter into an LOI
can obtain a form of LOI from their broker or financial institution or by
contacting FSS.
EXCHANGES
EXCHANGE PROCEDURES
Fund shareholders are entitled to exchange their shares for shares of other
Funds, including any other fund of the Trust or any other fund that participates
in the exchange program (currently, Sound Shore Fund, Inc.) and whose shares are
eligible for sale in the shareholder's state of residence. Exchanges may only be
made between accounts registered in the same name. The minimum amount to open an
account in a Fund through an exchange from another fund is $2,500. When a
shareholder exchanges shares a completed account application must be submitted
to open a new account in a Fund if the shareholder requests any shareholder
privilege not associated with the existing account. Exchanges are subject to the
fees and the restrictions (including minimum investment requirements) listed in
the prospectus for the fund into which a shareholder is exchanging. The Funds do
not charge for exchanges and there is currently no limit on the number of
exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and any necessary
supporting documents by the fund whose shares are being exchanged are received
by FSS.
If a shareholder exchanges into a fund that imposes a sales charge, that
shareholder is required to pay the difference between that fund's sales charge
and any sales charge the shareholder has previously paid in connection with the
shares being exchanged. For example, if a shareholder paid a 2% sales charge in
connection with the purchase of the shares of a fund and then exchanged those
shares into another fund with a 3% sales charge, that shareholder would pay an
additional 1% sales charge on the exchange. Shares acquired through the
reinvestment of dividends and distributions are deemed to have been acquired
with a sales charge rate equal to that paid on the shares on which the dividend
or distribution was paid. The exchange privilege may be modified materially or
terminated by the Trust at any time upon 60 days' notice to shareholders.
MAIL. Exchanges may be accomplished by written instruction to FSS
accompanied by any share certificate that may have been issued to the
shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with a signature
guarantee.
BY TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling FSS at 800-94FORUM
(800-943-6786) or (207) 879-0001 and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number.
RETIREMENT PROGRAMS
INDIVIDUAL RETIREMENT ACCOUNTS
Neither of the Funds should be considered as a complete investment vehicle
for the assets held in individual retirement accounts ("IRAs"). The minimum
initial investment for an IRA is $1,000, and the minimum subsequent investment
is $250. Individuals may make tax-deductible IRA contributions of up to a
maximum of $2,000 annually. However, this deduction will be reduced if the
individual or, in some cases, the individual's spouse is an active participant
in an employer-sponsored retirement plan and the individual (or
26
<PAGE>
married couple) has adjusted gross income above certain levels.
EMPLOYEE BENEFIT PLANS
The Funds may be a suitable investment vehicle for part or all of the assets
held in various employee benefit plans, including 401(k) plans, 403(b) plans and
SARSEPs.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of FSS. Processing Organizations may receive as a dealer's
reallowance a portion of the sales charge paid by their customers who purchase
Fund shares. In addition, Processing Organizations may charge their customers a
fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds. The Trust is not responsible for the
failure of any Processing Organization to promptly forward these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in a Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Investors who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and a Fund's procedures, may have Fund shares
transferred into their name. Under their arrangements with the Trust,
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several business days after a purchase order
has been received by a Fund. Certain other Processing Organizations may also
enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of a Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of each Fund's net investment income, if any, are declared
daily and paid monthly. Any distributions of net capital gain realized by a Fund
are distributed annually.
Shareholders may choose either to have all distributions of net investment
income reinvested in additional Fund shares or paid in cash or to have
distributions of net capital gain reinvested in additional Fund shares or paid
in cash. All distributions are treated in the same manner for Federal income tax
purposes whether paid in cash or reinvested in Fund shares.
All distributions are reinvested at a Fund's net asset value as of the
payment date of the distribution. All distributions are reinvested unless
another option is selected. All distributions not reinvested are paid to the
shareholder in cash.
27
<PAGE>
Cash payments may be paid more than seven days following the date on which
distribution would otherwise be reinvested.
TAXES
Each Fund intends to continue to qualify for each fiscal year to be taxed as
a "regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Funds will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to their shareholders.
Because the Funds intend to distribute all of their net investment income and
net capital gain each year, the Funds should avoid all Federal income and excise
taxes.
INVESTORS HIGH GRADE BOND FUND AND INVESTORS BOND FUND
Dividends paid by each Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income.
TAXSAVER BOND FUND
DIVIDENDS OF TAX-EXEMPT INVESTORS RELATED MATTERS. Shareholders of the Fund
generally will not be subject to Federal income tax on dividends paid by the
Fund out of tax-exempt interest income earned by the Fund ("exempt-interest
dividends"), assuming certain requirements are met. Substantially all of the
dividends paid by the Fund are anticipated to be exempt-interest dividends. Any
dividends paid by the Fund out of its taxable net investment income (including
any realized net short-term capital gain) are taxable to shareholders as
ordinary income.
Persons who are "substantial users" or "related persons" thereof of
facilities financed by private activity bonds held by the Fund may be subject to
Federal income tax on their pro rata share of the interest income from these
bonds and should consult their tax advisors before purchasing shares of the
Fund. Under current Federal tax law, interest on certain private activity bonds
is treated as an item of tax preference for purposes of the Federal AMT imposed
on individuals and corporations. In addition, interest on all tax-exempt
obligations is included in the "adjusted current earnings" of corporations for
Federal AMT purposes.
OTHER TAX MATTERS. Interest on indebtedness incurred by shareholders to
purchase or carry shares of the Fund generally is not deductible for Federal
income tax purposes.
The exemption for Federal income tax purposes of dividends derived from
interest on municipal securities does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
Shareholders of the Fund may be exempt from state and local taxes on exempt
interest dividends derived from obligations of the state and/or municipalities
of the state in which they reside. Shareholders may, however, be subject to tax
on income derived from the municipal securities of jurisdictions other than
those in which they reside. Shareholders are advised to consult with their tax
advisors concerning the application of state and local taxes to investments in
the Fund which may differ from the Federal income tax consequences described
above.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares.
Shortly after the close of each year, a statement is sent to each
shareholder of the Fund advising the shareholder of the portion of total
dividends paid into the shareholder's account that is exempt from Federal income
tax and that is derived from the municipal securities of each state and from
other sources. These portions are determined for the entire year and on a
monthly basis and, thus, are an annual or monthly average, rather than a
day-by-day determination for each shareholder.
28
<PAGE>
GENERAL
Distributions of net capital gain (i.e., the excess of net gain from capital
assets held for more than one year over net loss from capital assets held not
more than one year) will be treated in the hands of shareholders as long-term
capital gain, regardless of how long a shareholder has held shares in the Fund.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term capital loss to the extent of any distribution
of net capital gain received on those shares.
Any capital gain distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the distribution. To
the extent that capital gain was accrued by a Fund before the shareholder
purchased the shares, the distribution would be in effect a return of capital to
the shareholder. Capital gain distributions, including those that operate as a
return of capital, however, are taxable to the shareholder receiving them.
The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include taxable dividends, capital gain distributions and
redemption proceeds) paid to individuals and certain other non-corporate
shareholders. Withholding is not required if a shareholder certifies that the
shareholder's social security or tax identification number provided to the Funds
is correct and that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Funds will be mailed to shareholders shortly after the close of each year.
TAX-FREE INCOME VS. TAXABLE INCOME
The table below shows approximate equivalent taxable and tax-free yields at
various approximate marginal Federal tax bracket rates. For example, an investor
in the 31% tax bracket for 1998 whose investments earn a 5% tax-free yield would
have to earn a 7.2% taxable yield to receive the same benefit.
1998 FEDERAL TAXABLE VS. TAX-FREE YIELDS
<TABLE>
<CAPTION>
A Tax Free Yield of
----------------------
4.0% 4.5% 5.0% 5.5%
---- ---- ---- ----
Federal equals a taxable yield
Tax Bracket of approximately
- ------------------------------- ----------------------
<S> <C> <C> <C> <C>
39.6% 6.6% 7.5% 8.3% 9.2%
36.0% 6.3% 7.0% 7.8% 8.6%
31.0% 5.8% 6.5% 7.2% 8.0%
28.0% 5.6% 6.3% 6.9% 7.6%
</TABLE>
The yields listed are for illustration only and are not necessarily
representative of TaxSaver Bond Fund's yield. Although the Fund primarily
invests in securities the interest from which is exempt from Federal income
taxes, some of the Fund's investments may generate taxable income. An investor's
tax bracket will depend upon the investor's taxable income. The figures set
forth above do not reflect the Federal alternative minimum taxes or any state or
local income taxes.
The foregoing is only a summary of some of the important Federal and state
tax considerations generally affecting the Funds and their shareholders. There
may be other Federal, state or local tax considerations applicable to a
particular investor. Prospective investors are urged to consult their tax
advisors.
8. OTHER INFORMATION
PERFORMANCE INFORMATION
Each Funds' performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended to
indicate future performance. A Fund's yield is a way of showing the rate of
income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to
29
<PAGE>
receive dividends and expressing the result as an annualized percentage rate
based on the Fund's share price at the end of the period. TaxSaver Bond Fund may
also quote tax equivalent yields, which show the taxable yields a shareholder
would have to earn to equal the Fund's tax-free yields after taxes. A tax
equivalent yield is calculated by dividing the Fund's tax-free yield by one
minus a stated Federal, state or combined Federal and state tax rate. Total
return refers to the average annual compounded rates of return over some
representative period that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment,
after giving effect to the reinvestment of all dividends and distributions and
deductions of expenses during the period. Each of the Funds also may advertise
its total return over different periods of time on a before-tax, after-tax or
taxable-equivalent basis or by means of aggregate, average, year by year, or
other types of total return figures. Because average annual returns tend to
smooth out variations in the Funds' returns, shareholders should recognize that
they are not the same as actual year-by-year results. A Fund's advertised yield
and total return may or may not reflect the maximum sales load applicable to the
Fund. A computation of yield or total return that does not take into account the
sales load paid by an investor will be higher than a computation based on the
public offering price of the shares purchased that does take into account
payment of a sales load.
Each Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Funds may be
compared to recognized indices of market performance. The comparative material
found in a Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FAdS would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them would be sought. It is not expected that
shareholders would suffer adverse financial consequences as a result of any
changes in bank or bank affiliate service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the each Fund as of
4:00 p.m., Eastern time, on each Business Day by dividing the value of the
Fund's net assets (i.e., the value of its portfolio securities and other assets
less its liabilities) by the number of that Fund's shares outstanding at the
time the determination is made. Securities owned by a Fund for which market
quotations are readily available are valued at current market value, or, in
their absence, at fair value as determined by procedures approved by the Board.
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and
assumed the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996,
Forum Funds, Inc. was reorganized as a Delaware business trust under the name
Forum Funds. The Trust has an unlimited number of authorized shares of
beneficial interest. The Board may, without shareholder approval, divide the
authorized shares into an unlimited number of separate portfolios or series
(such as the Fund) and may in the future divide portfolios or series into two or
more classes of shares (such as Inves-
30
<PAGE>
tor and Institutional Shares). Currently the authorized shares of the Trust are
divided into 23 separate series.
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of a class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio, except if the matter
affects only one portfolio or voting by portfolio or class is required by law,
in which case shares will be voted separately by portfolio. Delaware law does
not require the Trust to hold annual meetings of shareholders, and it is
anticipated that shareholder meetings will be held only when specifically
required by Federal or state law. Shareholders (and Trustees) have available
certain procedures for the removal of Trustees. There are no conversion or
preemptive rights in connection with shares of the Trust. All shares when issued
in accordance with the terms of the offering will be fully paid and
nonassessable. Shares are redeemable at net asset value, at the option of the
shareholders, subject to any contingent deferred sales charge that may apply. A
shareholder in a portfolio is entitled to the shareholder's pro rata share of
all dividends and distributions arising from that portfolio's assets and, upon
redeeming shares, will receive the portion of the portfolio's net assets
represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote. As of July 1, 1998,
Bank of New Hampshire may be deemed to have controlled High Grade Bond Fund and
National City Bank of Evansville may be deemed to have controlled Investors Bond
Fund and TaxSaver Bond Fund through investment in the Funds by their customers.
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.
31
<PAGE>
[APPLICATION FORM
PAGE 1]
<PAGE>
[APPLICATION FORM
PAGE 2]
<PAGE>
[LOGO]
SHAREHOLDER INFORMATION:
FORUM SHAREHOLDER SERVICES, LLC
P.O. BOX 446
PORTLAND, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
[GRAPHIC]
<PAGE>
[GRAPHIC]
PROSPECTUS
INVESTORS
GROWTH FUND
FORUM
FUNDS
AUGUST 1, 1998
<PAGE>
FORUM FUNDS
INVESTORS GROWTH FUND
PROSPECTUS
August 1, 1998
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
- --------------------------------------------------------------------------------
This Prospectus offers shares of Investors Growth Fund (the "Fund"), a
diversified portfolio of Forum Funds (the "Trust"), a registered open-end
management investment company.
INVESTORS GROWTH FUND. The Fund seeks to provide long-term capital
appreciation by investing primarily in a portfolio of the common stock of
companies domiciled in the United States.
Shares of the Fund are offered to investors at a price equal to the next
determined net asset value plus a maximum sales charge of 4.0% of the total
public offering price (4.17% of the amount invested).
This prospectus sets forth concisely the information a prospective investor
should know about the Trust and the Fund before investing. The Trust has filed
with the Securities and Exchange Commission ("SEC") a Statement of Additional
Information dated August 1, 1998, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Trust and the Fund
and is available together with other related materials for reference on the
SEC's Internet Web Site (http:www.sec.gov). The SAI, which is incorporated by
reference into this Prospectus by reference, also is available, without charge,
by contacting Forum Shareholder Services, LLC, the Fund's transfer agent, at the
address and telephone numbers printed above.
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Page
-----
1. Prospectus Summary.......................... 2
2. Financial Highlights........................ 4
3. Investment Objective and Policies........... 5
4. Additional Investment Policies.............. 6
Page
-----
5. Management.................................. 8
6. Purchases and Redemptions of Shares......... 10
7. Distributions and Tax Matters............... 17
8. Other Information........................... 18
</TABLE>
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
FUND SHARES ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, OR ANY FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of Investors Growth Fund is long-term capital
appreciation. The Fund intends to pursue its objective by investing primarily in
the common stock of domestic companies that, in the view of the Fund's
investment adviser, possess above average growth potential or attractive
valuations when the valuations have not yet been fully reflected in the market
price of the companies' shares. See "Investment Objectives and Policies."
INVESTMENT ADVISER
Forum Investment Advisors, LLC (the "Adviser") serves as the investment
adviser to the Fund. The Adviser is located at Two Portland Square, Portland,
Maine 04101. See "Management -- Adviser."
FUND MANAGEMENT
The administrator of the Trust is Forum Administrative Services, LLC
("FAdS") and the distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC ("FSS") serves as the Trust's transfer
agent, dividend disbursing agent and shareholder servicing agent and Forum
Accounting Services, LLC ("FAcS") provides portfolio accounting services for the
Trust. FAdS, FFSI, FSS, and FAcS are located at Two Portland Square, Portland,
Maine 04101. See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at their next-determined net asset value plus
any applicable sales charge. Shares may be purchased or redeemed by mail, by
bank-wire and through an investor's broker-dealer or other financial
institution. The minimum initial investment is $2,000 ($1,000 for an Individual
Retirement Account), and the minimum subsequent investment is $250. Share may
redeem shares without charge. See "Purchases and Redemption of Shares."
Shares of the Fund are not offered for sale in every state. To determine
whether the Fund is available for purchase in a particular state, contact FSS at
the numbers listed on the first page of this prospectus,
EXCHANGE PROGRAM
Shareholders of the Fund may exchange their Shares without charge for the
shares of certain other funds of the Trust. See "Purchases and Redemptions of
Shares -- Exchanges."
DISTRIBUTIONS
The Fund distributes its net investment income, if any, quarterly and its
net capital gain, if any, at least annually. All distributions are reinvested
automatically in additional shares of the Fund at net asset value unless the
shareholder has notified the Fund in his or her Account Application or otherwise
in writing of the shareholder's election to receive distributions in cash. See
"Distributions 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 and total return will fluctuate as the
value of the securities in which the Fund invests changes. Investing in the Fund
is subject to the risks of investing in the stock market including the risk that
the value of the stocks in which the Fund invests might decrease. Investors in
the Fund should be willing to accept the risks of the stock market and should
not consider the Fund a complete investment program. See "Investment Objective
and Policies" and "Additional Investment Policies."
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in understanding
the various expenses
2
<PAGE>
that an investor of the Fund will bear directly or indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on
purchases (as a percentage of public
offering price)(1)................... 4.0%
Exchange Fee......................... None
ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net
assets after applicable expense
reimbursement and fee waivers)
Management Fees...................... 0.65%
12b-1 Fees........................... None
Other Expenses (after expense
reimbursements)...................... 0.45%
Total Fund Operating Expenses........ 1.10%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares -- Reduced Sales Charges."
(2) The Annual Fund Operating Expenses are based on expenses and assets of
the Fund during its initial period of operations ending March 31, 1998.
Management Fees include all investment advisory fees and administration fees.
Absent certain expense reimbursements and fee waivers during the most recent
fiscal year, Management Fees, Other Expenses and Total Fund Operating Expenses
would have been 0.95%, 0.71% and 1.56%, respectively. Expense reimbursements and
fee waivers are voluntary and may be reduced or eliminated at any time. For a
further description of the various expenses incurred in the operation of the
Fund, see "Management."
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in the Fund would pay assuming (1) a $1,000 investment
in the Fund, (2) a 5% annual return, (3) the reinvestment of all distributions,
(4) the payment of the maximum sales charge and (5) full redemption at the end
of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- --------- --------- --------- ----------
<S> <C> <C> <C>
$51 $74 $98 $169
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURNS, AND ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The example is based on the expenses listed in the table. The 5% annual return
is not a prediction of and does not represent the Fund's return; rather it is
required by government regulation.
3
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Fund. This information has been audited in connection with an
audit of the Fund's financial statements by Deloitte & Touche LLP, independent
auditors. The financial statements and independent auditors' report thereon are
incorporated by reference into the SAI. Further information about the Fund's
performance is contained in the Fund's annual report to shareholders, which may
be obtained from the Trust without charge by contacting the Fund's transfer
agent.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998(a)
---------------------
<S> <C>
Net Asset Value, Beginning of Period..................... $ 10.00
-------
Investment Operations:
Net Investment Income (Loss)........................... 0.03
Net Realized and Unrealized Gain (Loss) on
Investments.......................................... 1.32
-------
Total from Investment Operations......................... 1.35
-------
Distributions from:
Net Investment Income.................................. --
Net Realized Gain on Investments....................... --
Total Distributions...................................... 0.00
-------
Net Asset Value, End of Period........................... $ 11.35
-------
Total Return(b).......................................... 13.50%(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted).............. $33,899
Ratios to Average Net Assets:
Expenses Including Reimbursement/Waiver................ 1.10%(d)
Expenses Excluding Reimbursement/Waiver................ 1.56%(d)
Net Investment Income (Loss) Including
Reimbursement/Waiver................................. 0.96%(d)
Average Commission Rate(e)............................... $0.0760
Portfolio Turnover Rate.................................. 0.00%
</TABLE>
(a) Investors Growth Fund commenced operations on December 12, 1997.
(b) Total return calculations do not include sales charge.
(c) Not annualized.
(d) Annualized.
4
<PAGE>
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE AND STRATEGY
The investment objective of the Investors Growth Fund is long-term capital
appreciation.
The Fund intends to pursue its objective by investing primarily in common
stock of domestic companies that, in the view of the Adviser, possess above
average growth potential or attractive valuations when the valuations have not
yet been fully reflected in the market price of the companies' shares. Among the
relevant factors considered by the Adviser are the quality of a company's
management, position in the markets in which the company operates, the company's
financial position, and the company's historical and expected return on capital
and rate of earnings growth. In the context of these characteristics the Adviser
may invest in companies that may not have performed well in the recent past, but
have the potential for doing so in the future. Once companies are identified as
possible investments the Adviser utilizes various valuation measures and
technical analysis to determine those companies whose shares are attractively
priced for purchase. Under normal circumstances, the Fund will invest at least
65% of its assets in the common stock of domestic companies, without
concentration in any one industry.
INVESTMENT POLICIES
The Fund may invest in common and preferred stock. Common stockholders are
the owners of the company issuing the stock and, accordingly, vote on various
corporate governance matters such as mergers. They are not creditors of the
company, but rather, upon liquidation of the company, are entitled to their pro
rata share of the company's assets after creditors (including fixed income
security holders) and, if applicable, preferred stockholders are paid. Preferred
stock is a class of stock having a preference over common stock as to dividends
and, in general, as to the recovery of investment. A preferred stockholder is a
shareholder in the company and not a creditor of the company, as is a holder of
the company's fixed income securities. Dividends paid to common and preferred
stockholders are distributions of the earnings of the company and not interest
payments, which are expenses of the company. Equity securities owned by the Fund
may be traded in the over-the counter market or on a securities exchange, but
may not be traded every day or in the volume typical of securities traded on a
major U.S. national securities exchange. As a result, disposition by the Fund of
a security to meet redemptions by interest holders or otherwise may require the
Fund to sell these securities at a discount from market prices, to sell during
periods when disposition is not desirable, or to make many small sales over a
lengthy period of time. The market value of all securities, including equity
securities, is based upon the market's perception of value and not necessarily
the book value of an issuer or other objective measure of a company's worth. The
Fund may also invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time.
In addition to common and preferred stock, the Fund may invest in
investment-grade convertible debt securities. The Fund also may invest in
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
other similar securities of foreign issuers. The Fund expects foreign
investments to remain below 15% of the Fund's assets.
CERTAIN RISK CONSIDERATIONS
COMMON STOCK, PREFERRED STOCK AND WARRANTS
The fundamental risk of investing in common stock is the risk that the value
of the stock might decrease. Stock values fluctuate in response to the
activities of an individual company or in response
5
<PAGE>
to general market and/or economic conditions. Historically, common stocks have
provided greater long-term returns and have entailed greater short-term risks
than preferred stocks, fixed-income and money market investments. The market
value of all securities, including equity securities, is based upon the market's
perception of value and not necessarily the book value of an issuer or other
objective measure of a company's worth. Unlike preferred stocks and convertible
securities, warrants do not pay a fixed dividend. Investments in warrants
involve certain risks, including the possible lack of a liquid market for the
resale of the warrants, potential price fluctuations as a result of speculation
or other factors and failure of the price of the underlying security to reach a
level at which the warrant can be prudently exercised (in which case the warrant
may expire without being exercised, resulting in the loss of the Fund's entire
investment therein). Investors in the Fund should be willing to accept the risks
of the stock market and should consider an investment in the Fund only as a part
of their overall investment portfolio.
INVESTMENT IN FOREIGN SECURITIES
The Fund may invest in ADRs, EDRs and other similar investments of foreign
issuers. See "Additional Investment Policies" below. Investments in foreign
companies involve certain risks, such as exchange rate fluctuations, political
or economic instability of the issuer or the country of issue and the possible
imposition of exchange controls, withholding taxes on dividends or interest
payments, confiscatory taxes or expropriation. Foreign securities may also be
subject to greater fluctuations in price than securities of domestic
corporations denominated in U.S. dollars. Foreign securities and their markets
may not be as liquid as domestic securities and their markets, and foreign
brokerage commissions and custody fees are generally higher than those in the
United States. In addition, less information may be publicly available about a
foreign company than about a domestic company, and foreign companies may not be
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of the Fund. A majority of
outstanding voting securities means the lesser of (1) 67% of the shares of the
Fund present or represented at a shareholder meeting at which the holders of
more than 50% of the outstanding shares are present or represented, or (2) more
than 50% of outstanding shares. Unless otherwise indicated, all investment
policies are not fundamental and may be changed by the Trust's Board without
approval by shareholders of the Fund. For more information concerning
shareholder voting, see "Other Information" -- "The Trust and Its Shares."
DIVERSIFICATION AND CONCENTRATION
The Fund is diversified as that term is defined in the Investment Company
Act of 1940 (the "1940 Act"). As a fundamental policy, with respect to 75% of
its assets, a diversified fund may not purchase a security (other than a U.S.
Government Security or shares of investment companies) if, as a result: (1) more
than 5% of the Fund's total assets would be invested in the securities of a
single issuer; or (2) the Fund would own more than 10% of the outstanding voting
securities of any single issuer. The Fund is prohibited from concentrating its
assets in the securities of issuers in any industry. As a fundamental policy,
the Fund may not purchase securities if, immediately after the purchase, more
than 25% of the value of the Fund's total assets would be invested in the
securities of issuers conducting their principal business activities in the same
industry. This limit does not apply to investments in U.S. Government
Securities, foreign government securities or repurchase agreements covering U.S.
Government Securities.
6
<PAGE>
The Fund reserves the right to invest up to 100% of its investable assets in one
or more investment companies.
ILLIQUID SECURITIES
The Fund limits its purchase of illiquid securities. The Fund may not
knowingly acquire securities or invest in repurchase agreements with respect to
any securities if, as a result, more than 15% of the Fund's net assets taken at
current value would be invested in securities which are not readily marketable.
Illiquid securities are securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the amount at which the Fund
has valued the securities and include, among other things, repurchase agreements
not entitling the holder to payment within seven days and restricted securities
(other than those determined to be liquid pursuant to guidelines established by
the Board). Under the supervision of the Board, the Adviser determines and
monitors the liquidity of the portfolio securities.
REPURCHASE AGREEMENTS AND
LENDING OF PORTFOLIO SECURITIES
The Fund may enter into repurchase agreements and may lend securities from
its portfolio to brokers, dealers and other financial institutions. These
investments may entail certain risks not associated with direct investments in
securities. For instance, in the event that bankruptcy or similar proceedings
were commenced against a counterparty in these transactions or a counterparty
defaulted on its obligations, the Fund may have difficulties in exercising its
rights to the underlying securities, may incur costs and experience time delays
in disposing of them and may suffer a loss.
Repurchase agreements are transactions in which the Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not related
to the coupon rate or maturity of the purchased security. When the Fund lends a
security it receives interest from the borrower or from investing cash
collateral. The Trust maintains possession of the purchased securities and any
underlying collateral in these transactions, the total market value of which on
a continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Fund may pay fees to arrange
securities loans and the Fund will limit securities lending to not more than 33
1/3% of the value of its total assets.
CONVERTIBLE SECURITIES
Convertible securities, which include convertible debt, convertible
preferred stock and other securities exchangeable under certain circumstances
for shares of common stock, are fixed income securities or preferred stock which
generally may be converted at a stated price within a specific amount of time
into a specified number of shares of common stock. A convertible security
entitles the holder to receive interest paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stream of income with generally higher yields than those of
common stocks of the same or similar issuers. These securities are usually
senior to common stock in a company's capital structure, but usually are
subordinated to non-convertible debt securities. In general, the value of a
convertible security is the higher of its investment value (its value as a fixed
income security) and its conversion value (the value of the underlying shares of
common stock if the security is converted). As a fixed income security, the
value of a convertible security generally increases when interest rates decline
and generally decreases when interest rates rise. The value of a convertible
security is, however, also influenced by the value of the underlying common
7
<PAGE>
stock. The Fund may only invest in convertible securities that are investment
grade. See Appendix A -- "Description of Securities Ratings" to the SAI.
FOREIGN INVESTMENTS
The Fund may invest in sponsored and unsponsored ADRs, EDRs and other
similar investments of foreign issuers. ADRs 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 also may invest in EDRs, which
are receipts issued by a European financial institution evidencing an
arrangement similar to that of ADRs, and in other similar instruments
representing securities of foreign companies. EDRs, in bearer form, are designed
for use in European securities markets.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, the Fund may assume a
temporary defensive position and invest without limit in cash or prime quality
cash equivalents, including: (1) short-term U.S. Government Securities; (2)
certificates of deposit, bankers acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States; (3) commercial
paper; (4) repurchase agreements; and (5) shares of money market funds
registered under the 1940 Act within the limits specified therein. During
periods when and to the extent that the Fund has assumed a temporary defensive
position, it may not be pursuing its investment objective. Prime quality
instruments are those that are rated in one of the two highest short-term rating
categories by a nationally recognized statistical rating organization or, if not
rated, determined by the investment adviser to be of comparable quality. Apart
from temporary defensive purposes, the Fund may at any time invest a portion of
its assets in cash and cash equivalents as described above. 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.
CORE AND GATEWAY-REGISTERED TRADEMARK-
The Fund may seek to achieve its investment objective by converting to a
Core and Gateway structure. The Fund, upon future action by the Board and notice
to shareholders, may convert to this structure, in which the Fund would hold as
its only investment security an interest in another investment company having
substantially the same investment objective and policies as the Fund. The Board
will not authorize conversion to a Core and Gateway structure if it would
materially increase costs to a Fund's shareholders.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on market conditions. The Fund may
engage in short-term trading, but its portfolio turnover rate is not expected to
exceed 100%. An annual portfolio turnover rate of 100% would occur if all the
securities in the Fund were replaced in a one year period. Higher portfolio
turnover and short-term trading involve correspondingly greater commission
expenses and transaction costs. The Adviser weighs the anticipated benefits of
short-term investments against these consequences. Higher portfolio turnover
rates may cause shareholders of the Fund to recognize gains for federal income
tax purposes. See "Tax Matters" in the SAI.
5. MANAGEMENT
The business and affairs of the Fund are managed under the direction of the
Board. The Board formulates the general policies of the Fund and
8
<PAGE>
generally meets quarterly to review the results of the Fund, monitor investment
activities and practices and discuss other matters affecting the Fund and the
Trust. Information about the Trustees and the officers of the Trust is in the
SAI under "Management -- Trustees and Officers."
THE ADVISER
Forum Investment Advisors, LLC serves as investment adviser to the Fund
under an Investment Advisory Agreement with the Trust. Subject to the general
supervision of the Board, the Adviser makes investment decisions for the Fund
and is responsible for, among other things, developing a continuing investment
program for the Fund in accordance with its investment objective and reviewing
the investment strategies and policies of the Fund. For its services, the
Adviser receives an advisory fee at an annual rate of 0.65% of the Fund's
average daily net assets.
Mark D. Kaplan, CFA, has served as portfolio manager of the Fund since the
Fund's inception on December 12, 1997. He is responsible for the day-to-day
management of the Fund's portfolio. Mr. Kaplan has over fourteen years of
experience in the investment industry and has been a Managing Director at FIA
since September 1995 where he is a senior portfolio manager. Prior to his
association with the Adviser, he was Managing Director and Director of Research
at H.M. Payson & Co., an investment advisory and trust services company. Before
that, Mr. Kaplan was a securities analyst in the investment division of UNUM
Life Insurance Company. Mr. Kaplan has a Masters in Business Administration from
Boston University.
As of the date of this Prospectus each of the Adviser, FAdS, FFSI, FSS and
FAcS was controlled by John Y. Keffer, President and Chairman of the Trust and
were located at Two Portland Square, Portland, Maine, 04101. The Adviser
provides investment companies with assets of approximately 1.7 billion.
THE ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
supervision of the overall management of the Trust and providing the Trust with
general office facilities, necessary personnel necessary to help ensure the
effective operation of the Trust as well as persons satisfactory to the Board to
serve as officers of the Trust. For these services, FAdS is entitled to receive
a fee from the Fund computed and paid monthly at an annual rate of 0.20% of the
Fund's average daily net assets.
Under a Fund Accounting 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. For its services FAcS is entitled
to receive a fee at an annual rate of $36,000 subject to adjustments for the
number and type of portfolio transactions.
As of June 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies and
collective investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, FFSI acts as distributor of
the Fund's shares. FFSI acts as the agent of the Trust in connection with the
offering of shares of the Fund. For these services, FFSI receives, and may
reallow to certain financial institutions, the sales charge paid by the
purchasers of the Fund's shares. FFSI may enter into arrangements with banks,
broker-dealers or other financial institutions ("Processing Organizations")
through which investors may purchase or redeem shares. FFSI may, at its own
expense and from its own resources, compensate certain persons who provide
services in connection with the sale or expected sale of shares of the Fund.
Investors purchasing shares of the Fund through another financial institution
should read any materials and
9
<PAGE>
information provided by the financial institution to acquaint themselves with
its procedures and any fees that it may charge. FFSI is a registered broker-
dealer and is a member of the National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICES
Shareholder inquiries and communications concerning the Fund may be directed
to FSS. Under a Transfer Agency and Services Agreement with the Trust, FSS acts
as the Fund's transfer agent and dividend disbursing agent. FSS maintains an
account for each shareholder of record, where all shares purchased are credited,
together with any distributions that are reinvested in additional shares. FSS
also performs other transfer agency functions and acts as dividend disbursing
agent for the Trust. For its services, FSS is entitled to receive a fee at an
annual rate of 0.25% of the Fund's average daily net assets plus $12,000 per
year and annual shareholder fees of $18.00 per shareholder account.
EXPENSES OF THE TRUST
The Trust is obligated to pay for all of its expenses. The Fund's expenses
comprise Trust expenses attributable to the Fund and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Fund and
the portfolios in proportion to their average net assets. The Fund's expenses
include: interest charges; taxes; brokerage fees and commissions; certain
insurance premiums; applicable fees and expenses under the Trust's contracts
with the Adviser, FAdS, FSS, FAcS and any custodian; fees of pricing, interest,
dividend, credit and other reporting services; costs of membership in trade
associations; auditing, legal and compliance expenses; costs of preparing and
printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
of certain of the Trust's trustees, officers and employees and other personnel
performing services for the Trust; and registration fees and related expenses.
The Adviser, FAdS FSS, and FAcS, in their sole discretion, may waive all or
any portion of their respective fees, which are accrued daily and paid monthly.
Any such waiver, which could be discontinued at any time, would have the effect
of increasing the Fund's performance for the period during which the waiver was
in effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other 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 1, 2000. The Adviser and FAdS are taking steps to address the Year
2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Fund from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in the Fund may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through FSS, which
accepts orders for purchases and redemptions from shareholders of record and new
investors. Shareholders of record will receive from the Trust periodic
statements listing all account activity during the statement period. The Trust
reserves the right in the future to modify, limit or terminate any shareholder
privilege upon appropriate notice to shareholders and charge a fee for certain
shareholder services, although no such fees are currently contemplated.
10
<PAGE>
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined plus any applicable sales charge on all weekdays except days
when the New York Stock Exchange is closed ("Business Day"). Normally, the new
York Stock Exchange is closed on New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas. Fund shares are issued immediately after an
order for the shares in proper form is accepted by FSS. The Fund's net asset
value is calculated at 4:00 p.m., Eastern Time on each Business Day. Fund shares
become entitled to receive dividends on the next Business Day after the order is
accepted.
The Fund reserves the right to reject any subscription for the purchase of
its shares. Share certificates are only issued to shareholders of record upon
their written request and no certificates are issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of the Fund's
next-determined net asset value after FSS receives the redemption order in
proper form (and any supporting documentation which FSS may require). Shares
redeemed are not entitled to receive dividends declared after the day on which
the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used for
investment has been cleared by the shareholder's bank, 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 and
mailed to the shareholder's record address. The right of redemption may not be
suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings or under any emergency or other
circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of the Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine, including the recording of certain transactions. If the Trust did not
employ such procedures it could be liable for any losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Fund directly. These inves-
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<PAGE>
tors may open an account by completing the account application or by contacting
FSS at the address on the first page of this Prospectus. To change information
on a shareholder's account (such as addresses), investors should request an
Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $2,000 minimum for initial investments in the Fund ($1,000 for
individual retirement accounts).
MAIL. Investors may send a check made payable to the Trust along with a
completed account application for the Fund to FSS 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, FSS 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
Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
BankBoston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: Investors Growth 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 the bank early in the day so
the wire transfer can be received prior to 4:00 p.m., Eastern time, on the same
day. The bank may impose a charge for transmitting payment by wire, and there
also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $250 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check, by sending a wire as indicated above. Shareholders
using the wire system for subsequent purchases should first telephone the Trust
at (207) 879-0001 or 800-94FORUM (800-943-6786) to notify it of the wire
transfer. All payments should clearly indicate the shareholder's name and
account number.
AUTOMATIC INVESTMENT. Shareholders may purchase Fund shares at regular,
preselected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an 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 the Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the applicable forms from FSS.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by 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.
MAIL. Shareholders may make a redemption in any amount by sending a written
request to FSS accompanied by any share certificate that was issued to the
shareholder. All share certificates submitted for redemption must be signed by
the shareholder with a signature guarantee. All written requests for redemption
must be signed by the
12
<PAGE>
shareholder and, in some cases, must have a signature guarantee. See "Purchases
and Redemptions of Shares -- Other Redemption Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling FSS at (207) 879-0001 or
800-94FORUM (800-943-6786) and providing the shareholder's account number, the
exact name in which the shares are registered, the shareholder's social security
or taxpayer identification number. The Trust or FSS may employ other procedures
such as recording certain transactions to ensure telephone instructions are
genuine. If such procedures are followed, neither the Trust nor FSS will be
liable for any losses due to unauthorized or fraudulent redemption requests. 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.
BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege on the
account application. Redemption proceeds are transmitted by wire on the next
business day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds 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 FSS.
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 stock 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)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a bank, a broker, a dealer, a national securities exchange, a
credit union, or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to the
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<PAGE>
Transfer Agent will be reinvested and the checks will be canceled.
SALES CHARGES
The public offering price for shares of the Fund is the sum of the net asset
value of the shares being purchased plus any applicable sales charge. No sales
charge is assessed on the reinvestment of dividends or other distributions. The
sales charge is assessed for the Fund as follows:
<TABLE>
<CAPTION>
SALES CHARGE
AS % OF
----------------------------
<S> <C> <C> <C>
PUBLIC
OFFERING NET ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- --------------------- ------------- ------------- -----------------
less than $100,000... 4.00% 4.17% 3.50%
$100,000 but less
than $200,000....... 3.50 3.63 3.10
$200,000 but less
than $400,000....... 3.00 3.09 2.70
$400,000 but less
than $600,000....... 2.50 2.56 2.25
$600,000 but less
than $800,000....... 2.00 2.04 1.75
$800,000 but less
than $1,000,000..... 1.50 1.52 1.30
$1,000,000 and up.... 0.50 0.50 0.40
</TABLE>
* Rounded to the nearest one-hundredth percent.
FFSI's commission is the sales charge shown above less any applicable
discount reallowed to Processing Organizations (including banks and bank
affiliates purchasing shares as principal or agent). Normally, FFSI will reallow
discounts to Processing Organizations in the amounts indicated in the table
above. From time to time, however, FFSI may elect to reallow the entire sales
charge to Processing Organizations for all sales with respect to which orders
are placed with FFSI during a particular period. The dealers' reallowance may be
changed from time to time.
In addition, from time to time and at its own expense, FFSI may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
No sales charge will be assessed on purchases made for investment purposes
by: (1) any bank, trust company, savings association or similar institution with
whom FFSI has entered into a share purchase agreement acting on behalf of the
institution's fiduciary customer accounts or any account maintained by its trust
department (including a pension, profit sharing or other employee benefit trust
created pursuant to a qualified retirement plan); (2) any registered investment
adviser with whom FFSI has entered into a share purchase agreement and which is
acting on behalf of its fiduciary customer accounts; (3) any registered
investment adviser which is acting on behalf of its fiduciary customer accounts
and for which it provides additional investment advisory services; (4) any
broker-dealer with whom FFSI has entered into a Processing Organization
Agreement and a Fee-Based or Wrap Account Agreement and which is acting on
behalf of its fee-based program clients; (5) directors and officers of the
Trust; directors, officers and full-time employees of the Advisor, FFSI, any of
their affiliates or any organization with which FFSI has entered into a
Processing Organization Agreement; the spouse, sibling, direct ancestor or
direct descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the benefit
of any such person or relative; or the estate of any such person or relative;
(6) any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and completes a
reinstatement form upon investment; (7) persons who exchange into a Fund from a
mutual fund other than a fund of the Trust that participates in the Trust's
exchange program, See "Purchases and Redemptions of Shares -- Exchange Program;"
and (8) employee benefit plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended. The Trust may require appropriate
14
<PAGE>
documentation from an investor concerning that investor's eligibility to
purchase Fund shares without a sales charge. Any shares so purchased may not be
resold except to the Fund.
REDUCED SALES CHARGES
For an investor to qualify for a reduced sales charge as described below,
the investor must notify FSS at the time of purchase. Programs for reduced sales
charges may be modified or terminated at any time and are subject to
confirmation of an investor's holdings.
RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of the
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Fund Business Day) of shares of the Fund
held by the investor. For example, if an investor owned shares of the Fund worth
$400,000 at the then current net asset value and purchased shares of the Fund
worth an additional $50,000, the sales charge for the $50,000 purchase would be
at the 2.50% rate applicable to a single $450,000 purchase, rather than at the
4.0% rate. To qualify for ROA on a purchase, the investor must inform the
Transfer Agent and supply sufficient information to verify that each purchase
qualifies for the privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based on
cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of the Fund. Each purchase of shares under a LOI will be
made at the public offering price applicable at the time of the purchase to a
single transaction of the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the full
amount indicated. Shares purchased with the first 5% of the amount indicated in
the LOI will be held subject to a registered pledge (while remaining registered
in the name of the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount indicated is not
purchased within 13 months. Pledged shares will be involuntarily redeemed to pay
the additional sales charge, if necessary. When the full amount indicated has
been purchased, the shares will be released from pledge. Share certificates are
not issued for shares purchased under an LOI. Investors wishing to enter into an
LOI can obtain a form of LOI from their broker or financial institution or by
contacting FSS.
EXCHANGES
EXCHANGE PROCEDURES
Fund shareholders are entitled to exchange their shares for shares of any
other fund of the Trust or any other fund that participates in the exchange
program and whose shares are eligible for sale in the shareholder's state of
residence. Exchanges may only be made between accounts registered in the same
name. When a shareholder exchanges shares, a completed account application must
be submitted to open a new account in a Fund if the shareholder requests any
shareholder privilege not associated with the existing account. Exchanges are
subject to the fees and the restrictions including minimum investment
requirements listed in the prospectus for the fund into which a shareholder is
exchanging. The Fund does not charge for exchanges, and there is currently no
limit on the number of exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and all necessary
supporting documents by the fund whose shares are being exchanged are received
by FSS.
If a shareholder exchanges into a fund that imposes a sales charge, that
shareholder is
15
<PAGE>
required to pay the difference between that fund's sales charge and any sales
charge the shareholder has previously paid in connection with the shares being
exchanged. For example, if a shareholder paid a 2% sales charge in connection
with the purchase of the shares of a fund and then exchanged those shares into
another fund with a 3% sales charge, that shareholder would pay an additional 1%
sales charge on the exchange. Shares acquired through the reinvestment of
dividends and distributions are deemed to have been acquired with a sales charge
rate equal to that paid on the shares on which the dividend or distribution was
paid. The exchange privilege may be modified materially or terminated by the
Trust at any time upon 60 days' notice to shareholders.
MAIL. Exchanges may be accomplished by written instructions to FSS
accompanied by any share certificate that may have been issued to the
shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with a signature
guarantee.
TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling FSS at (207) 879-0001
or 800-94FORUM (800-943-6786) and providing the shareholder's account number,
the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number.
RETIREMENT PROGRAMS
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund should not be considered as a complete investment vehicle for the
assets held in individual retirement accounts ("IRAs"). The minimum initial
investment for an IRA is $2,000, and the minimum subsequent investment is $500.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, this deduction will be reduced if the individual or,
in the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
EMPLOYEE BENEFIT PLANS
The Fund may be a suitable investment vehicle for part or all of the assets
held in various employee benefit plans, including 401(k) plans, 403(b) plans and
SARSEPs.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of the Transfer Agent. Processing Organizations may receive
as a dealer's reallowance a portion of the sales charge paid by their customers
who purchase Fund shares. In addition, Processing Organizations may charge their
customers a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Fund. The Trust is not
responsible for the failure of any Processing Organization to promptly forward
these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in the Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Customers who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and the Fund's procedures, may have Fund shares
transferred into their name. Under their arrangements with the Trust,
16
<PAGE>
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several business days after a purchase order
has been received by a Fund. Certain other Processing Organizations may also
enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of the Fund's net investment income, if any, are declared and
paid quarterly. Any distributions of net capital gain realized by the Fund are
distributed annually.
Shareholders may choose either to have distributions of net investment
income reinvested in additional Fund shares or paid in cash or to have
distributions of net capital gain reinvested in additional Fund shares or paid
in cash. All distributions are treated in the same manner for Federal income tax
purposes whether paid in cash or reinvested in Fund shares.
Distributions are reinvested at the Fund's net asset value as of the payment
date of the distribution. All distributions are reinvested unless another option
is selected. All dividends not reinvested are paid to the shareholder in cash
and may be paid more than seven days following the date on which dividends would
otherwise be reinvested.
TAXES
The Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended. As
such, the Fund will not be liable for Federal income taxes on the net investment
income and net capital gain distributed to its shareholders. Because the Fund
intends to distribute all of its net investment income and net capital gain each
year, the Fund should avoid all Federal income and excise taxes.
Dividends paid by the Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income. Distributions of net capital gain (i.e., the excess of net gain from
capital assets held for more than one year over net loss from capital assets
held for not more than one year) will be treated in the hands of shareholders as
long-term capital gain regardless of how long a shareholder has held shares in
the Fund. If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term capital loss to the extent of any
distribution of net capital gain received on those shares.
Any dividend or distribution received by a shareholder reduces the net asset
value of the shareholder's shares by the amount of the dividend or distribution.
To the extent that the income or gain comprising a dividend or distribution was
accrued by the Fund before the shareholder purchased the shares, the dividend or
distribution would be in effect a return of capital to the shareholder. All
dividends and distributions, including those that operate as a return of
capital, however, are taxable as described above to the shareholder receiving
them regardless of the length of time he may have held shares prior to the
dividend or distribution.
17
<PAGE>
It is expected that a portion of the Fund's dividends to shareholders will
qualify for the dividends received deduction for corporations.
The Fund may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisers.
8. OTHER INFORMATION
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types of performance are based on historical results and are
not intended to indicate future performance. The Fund's yield measures the rate
of income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period.
The Fund may also advertise its total return over different periods of time or
by means of aggregate, average, year by year, or other types of total return
figures. Because average annual returns tend to smooth out variations in the
Fund's returns, shareholders should recognize that they are not the same as
actual year-by-year results. A computation of yield or total return that does
not take into account the sales load paid by an investor will be higher than a
computation based on the public offering price of the shares purchased that does
take into account payment of a sales load.
The Fund's advertisements may refer to ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Fund may be
compared to recognized indices of market performance. The comparative material
found in the Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FFSI would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them would be sought. It is not expected that
shareholders would suffer adverse financial consequences as
18
<PAGE>
a result of any changes in bank or bank affiliate service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00
p.m., Eastern time, on each Business Day by dividing the value of the Fund's net
assets (i.e., the value of its portfolio securities and other assets less its
liabilities) by the number of the Fund's 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. Purchases and
redemptions are effected at the net asset value next-determined after any
purchase or redemption order is processed.
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980, and
assumed the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996,
Forum Funds, Inc. was reorganized as a Delaware business trust under the name
Forum Funds.
The Trust has an unlimited number of authorized shares of beneficial
interest. The Board may, without shareholder approval, divide the authorized
shares into an unlimited number of separate portfolios or series (such as the
Fund) and may in the future divide portfolios or series into two or more classes
of shares (such as Investor and Institutional Shares). Currently the authorized
shares of the Trust are divided into 23 separate series.
Each share of each fund of the Trust has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately, except that expenses related to the distribution of the shares
of each class (and certain other expenses such as transfer agency and
administrative expenses) are borne solely by those shares and each class votes
separately with respect to the provisions of any Rule 12b-1 plan which pertain
to the class and other matters for which separate class voting is appropriate
under applicable law. Generally, shares will be voted in the aggregate without
reference to a particular portfolio, except if the matter affects only one
portfolio or voting by portfolio or class is required by law, in which case
shares will be voted separately by portfolio. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by Federal or
state law. Shareholders (and Trustees) have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote. As of July 1, 1998,
National City Bank of Evansville Firstrust Co. may be deemed to have controlled
the Fund through investment in the Fund by their customers.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
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.
19
<PAGE>
[APPLICATION FORM
PAGE 1]
<PAGE>
[APPLICATION FORM
PAGE 2]
<PAGE>
[GRAPHIC]
[LOGO]
SHAREHOLDER INFORMATION:
FORUM SHAREHOLDER SERVICES, LLC
P.O. BOX 446
PORTLAND, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
<PAGE>
[GRAPHIC]
PROSPECTUS
AUSTIN GLOBAL
EQUITY FUND
FORUM FUNDS
AUGUST 1, 1998
<PAGE>
FORUM FUNDS
AUSTIN GLOBAL EQUITY FUND
PROSPECTUS
August 1, 1998
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 754-8759
- --------------------------------------------------------------------------------
This Prospectus offers shares of the Austin Global Equity Fund (the "Fund"), a
diversified portfolio of Forum Funds (the "Trust"), an open-end, management
investment company.
AUSTIN GLOBAL EQUITY FUND. The investment objective of the Fund is to seek
capital appreciation by investing primarily in a portfolio of common stock
and securities convertible into common stock.
Shares of the Fund are offered to investors without any sales charge, but the
Fund may bear certain of its distribution expenses.
This Prospectus sets forth concisely the information a prospective investor
should know about the Trust and the Fund before investing. The Trust has filed
with the Securities and Exchange Commission ("SEC") a Statement of Additional
Information dated August 1, 1998, as may be amended from time to time (the
"SAI"), which contains more detailed information about Trust and the Fund and is
available together with other related materials for reference on the SEC's
Internet Web Site (http://www.sec.gov). The SAI, which is incorporated by
reference into this Prospectus is also available without charge by contacting
Forum Shareholder Services, LLC, the Fund's transfer agent, at the address and
the telephone numbers printed above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
1. Prospectus Summary.......................... 2
2. Financial Highlights........................ 4
3. Investment Objective and Policies........... 5
4. Additional Investment Policies.............. 7
<CAPTION>
Page
-----
<C> <S> <C>
5. Management.................................. 9
6. Purchases and Redemptions of Shares......... 11
7. Distributions and Tax Matters............... 16
8. Other Information........................... 17
Appendix.................................... A-1
</TABLE>
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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks capital appreciation by investing primarily in a portfolio of
common stock and securities convertible into common stock. The Fund invests
primarily in issuers based in the United States, Europe, Japan and the Pacific
Basin. See "Investment Objective and Policies."
INVESTMENT ADVISER
Austin Investment Management, Inc. (The "Adviser") serves as the investment
adviser to the Fund. The Adviser is located at 375 Park Avenue, New York, New
York 10152.
FUND MANAGEMENT
The administrator of the Trust is Forum Administrative Services, LLC
("FAdS") and the distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC ("FSS") serves as the Trust's transfer
agent, dividend disbursing agent and shareholder servicing agent and Forum
Accounting Services, LLC provides portfolio accounting for the Trust. FAdS,
FFSI, FSS, and FAcS are located at Two Portland Square, Portland, Maine 04101.
See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at their next-determined net asset value
without a sales charge. Shares may be purchases or redeemed by mail, by bank
wire and through an investor's broker-dealer or other financial institution. The
minimum initial investment is $10,000. Shares of the Fund may be redeemed
without charge. See "Purchases and Redemptions of Shares."
Shares of the Fund are not offered for sale in every state. To determine
whether the Fund is available for purchase in a particular state, contact FSS at
the address or numbers listed on the first page of the Prospectus.
EXCHANGE PROGRAM
Shareholders of the Fund may exchange their Shares, without charge, for
shares of the Daily Assets Government Fund, Investor Shares class, a money
market fund of the Trust offered by a separate prospectus. See "Purchases and
Redemptions of Shares -- Exchanges."
DISTRIBUTIONS
The Fund distributes its net investment income and net capital gain , if
any, at least annually. All distributions are reinvested automatically in
additional shares of the Fund at net asset value unless a shareholder has
notified the Fund in writing of the shareholder's election to receive
distributions in cash. See "Distributions and Taxes."
CERTAIN RISK FACTORS
There can be no assurance that the Fund will achieve its investment
objective, and the Fund's net asset value will fluctuate based upon changes in
the value of its portfolio securities. The foreign securities and related
transactions in which the Fund may invest entail certain risks not associated
with investment in domestic securities. See "Foreign Securities." In addition,
the hedging strategies in which the Fund may engage entail additional risks. See
"Hedging Strategies." The Fund is not intended to provide a complete or balanced
investment program for all investors.
2
<PAGE>
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 or redemptions of Fund shares.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets after applicable fee
waivers)
Advisory Fees (after fee
waivers)........................ 1.31%
12b-1 Fees....................... 0.00%
Other Expenses................... 1.19%
------
Total Fund Operating Expenses.... 2.50%
</TABLE>
The Annual Fund Operating Expenses are based on expenses and assets of the
Fund during its most recent fiscal year ended March 31, 1998. Absent certain
expense reimbursements and fee waivers during the most recent fiscal year, the
Advisory Fees, Other Expenses, and Total Fund Operating Expenses would be 1.50%,
1.19%, and 2.69%, respectively. The Adviser has voluntarily undertaken to waive
a portion of its fees and assume certain expense of the Fund to the extent that
total expenses exceed 2.50%. Expense reimbursements and fee waivers are
voluntary and may be reduced or eliminated at any time. For a further
description of the various expenses incurred in the Fund's operation, see
"Management."
EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses an investor would pay assuming a (1) a $1,000 investment, (2) a 5%
annual return, (3) a reinvestment of all dividends and distributions and (4)
full redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$25 $78 $133 $284
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS THAN INDICATED. The
example is based on the expenses listed in the table. 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.
3
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following represents selected data for a single share outstanding of the
Fund. The information for the periods ending March 31, 1998 and 1997 and June
30, 1996, 1995 and 1994 was audited in connection with an audit of the Trust's
financial statements by Deloitte & Touche LLP, independent auditors. The
financial statements and auditors' report thereon are incorporated by reference
into the SAI. Further information about the Fund's performance is contained in
the Fund's Annual Report, which may be obtained from the Trust without charge by
contacting the Fund's transfer agent.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED NINE MONTHS ENDED ENDED ENDED
MARCH 31, ENDED MARCH JUNE 30, JUNE 30, JUNE 30,
1998 31, 1997 1996 1995 1994(a)
--------- ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 12.84 $ 13.19 $ 11.60 $ 9.80 $ 10.00
--------- ----------- -------- -------- ----------
Investment Operations:
Net Investment Income (Loss).......... (0.07) (0.11) (0.12) 0.04(b) (0.03)
Net Realized and Unrealized Gain
(Loss) on Investments............... 4.95 0.86 1.98 1.76 (0.17)
--------- ----------- -------- -------- ----------
Total from Investment Operations...... 4.88 0.75 1.86 1.80 (0.20)
Distributions from:
Net Realized Gain on Investments...... (1.45) (1.10) (0.27) -- --
--------- ----------- -------- -------- ----------
Net Asset Value, End of Period.......... $ 16.27 $ 12.84 $ 13.19 $ 11.60 $ 9.80
--------- ----------- -------- -------- ----------
--------- ----------- -------- -------- ----------
Total Return(b)......................... 39.88% 5.38%(c) 16.22% 18.37% (3.57)%
Ratio/Supplementary Data:
Net Assets at End of Period (000's
omitted)............................... $15,379 $10,289 $ 10,326 $ 8,474 $ 7,646
Ratios to Average Net Assets:
Expenses Including
Reimbursement/Waiver................... 2.50% 2.50%(d) 2.50% 2.50% 2.36%(d)
Expenses Excluding
Reimbursement/Waiver................... 2.69% 3.38%(d) 3.25% 3.19% 4.18%(d)
Net Investment Income (Loss) Including
Reimbursement/Waiver................... (0.50)% (1.09)%(d) (0.98)% 0.41% (0.83)%(d)
Average Commission Rate(e).............. $0.0681 $0.0383 $ 0.0542 N/A N/A
Portfolio Turnover Rate................. 57.37% 44.79% 93.55% 35.31% 2.49%
</TABLE>
(a) The Fund Commenced operations on December 8, 1993.
(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 and sale of equity securities.
4
<PAGE>
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock. There can be, of course, no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective by investing primarily in
the securities of issuers based in the United States, Europe, Japan and the
Pacific Basin, but it is anticipated that the Fund will generally invest more of
its assets in United States issuers than in the issuers of any other country.
During periods of normal market conditions the Fund will have at least 65% of
its total assets invested in securities issued by companies based in three or
more countries and will have at least 65% of its total assets invested in common
stock and securities convertible into common stock. The securities in which the
Fund invests may be traded on securities exchanges or in the over-the-counter
markets.
The Fund intends to invest principally in companies that, in the view of the
Adviser, possess above average growth potential or attractive valuations. In
addition, the Adviser seeks to invest in companies which, in the Adviser's
opinion, are improving but whose improvement has not been fully recognized by
the investment community. In making these investments, the Adviser analyses
various characteristics of the issuers, which may vary from company to company.
The Fund may purchase the shares of small companies whose stock is less actively
traded and which have greater appreciation potential and a correspondingly
higher level of price volatility than larger companies whose shares are actively
traded. Consequently, the Adviser anticipates that the Fund's portfolio will
exhibit a high degree of price fluctuation or volatility when compared to the
market averages. In seeking these investments, the Adviser relies primarily on
analysis of individual companies and analysis of industries and economic trends.
The Fund intends to invest up to 25% of assets in equity securities of
companies in the telecommunications industry. Investments in such companies may
be expected to benefit from global economic growth, scientific developments and
advances in technologies, such as frequency spectrum utilization, satellite
systems, fiber optics, electronic communication, software and others. The Fund
may invest in the securities of issuers in any industry, but the Adviser
emphasizes investments in those industries for which the Adviser believes the
economic cycle is improving. The Fund will not, however, invest more than 25% of
its total assets in any one industry.
CONVERTIBLE SECURITIES
The Fund may invest up to 35% of its assets in convertible securities,
including convertible debt and convertible preferred stock. Convertible
securities are fixed income securities which may be converted at a stated price
within a specific amount of time into a specified number of shares of common
stock. These securities are usually senior to common stock in a corporation's
capital structure, but usually are subordinated to non-convertible debt
securities.
In general, the value of a convertible security is the higher of its
investment value (its value as a fixed income security) and its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the value of a convertible security
generally increases when interest rates decline and generally decreases when
interest rates rise. The value of convertible securities, however, are also
influenced by the value of the underlying common stock.
5
<PAGE>
The Fund will invest only in convertible debt that is rated B or higher by
Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's Corporation
("S&P") and in preferred stock that is rated b or higher by Moody's or B or
higher by S&P. Under normal circumstances, the Fund will invest no more than 10%
of its assets in securities rated below BBB by S&P or bbb by Moody's. The Fund
may purchase unrated convertible securities if the Adviser determines the
security to be of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
Securities in the lowest permissible rating categories are characterized by
Moody's as generally lacking characteristics of the desirable investment and by
S&P as being predominantly speculative. The Fund may retain securities whose
rating has been lowered below the lowest permissible rating category (or that
are unrated and determined by the Adviser to be of comparable quality) if the
Adviser determines that retaining such security is in the best interests of the
Fund. A further description of the various rating categories is included in the
Statement of Additional Information.
FOREIGN SECURITIES
The Fund's investments in foreign securities involve certain risks, such as
exchange rate fluctuations, political or economic instability of the issuer or
the country of issue and the possible imposition of exchange controls,
withholding taxes on dividends or interest payments, confiscatory taxes or
expropriation. Foreign securities may also be subject to greater fluctuations in
price than securities of domestic corporations denominated in U.S. dollars.
Foreign securities and their markets may not be as liquid as domestic securities
and their markets, and foreign brokerage commissions and custody fees are
generally higher than those in the United States.
In addition, issuers of securities in foreign jurisdictions generally are
not subject to the same degree of regulation as are U.S. issuers with respect to
such matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information. 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. Securities registration, custody and
settlements may in some instances be subject to delays and legal and
administrative uncertainties. To the extent that the Fund invests a portion of
its assets in a particular region of the world, an investment in the Fund will
be subject to certain risks since the economies and markets in a region tend to
be interrelated and may be adversely affected by political, economic and other
events in a similar manner. With respect to its permitted investments in foreign
securities, currently the Fund limits the amount of its total 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 American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. Unsponsored ADRs may be created without the participation of the foreign
issuer. Holders of these ADRs generally bear all the costs of the ADR facility,
whereas foreign issuers typically bear certain costs in a sponsored ADR. The
bank or trust company depository of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights.
The Fund's investments that are denominated in foreign currencies will be
adversely affected by reductions in the value of those currencies relative to
the U.S. dollar. These changes will affect the Fund's net assets, distributions
and income. The Fund may utilize foreign currency forward con-
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tracts in order to hedge against uncertainty in the level of future foreign
exchange rates. The Fund will not enter into these contracts for speculative
purposes. These contracts involve an obligation to purchase or sell a specific
currency at a specified future date, usually less than one year from the date of
the contract, at a specified price. The Fund may enter into foreign currency
forward contracts to manage currency risks and to facilitate transactions in
foreign securities. These contracts involve a risk of loss if the Adviser fails
to predict currency values correctly and also involve similar risks to those
described under "Hedging Strategies." The Fund may also buy and sell foreign
currency options, foreign currency futures contracts and options on those
futures contracts. See "Hedging Strategies."
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of the Fund. A majority of
the Fund's outstanding voting securities means the lesser of (1) 67% of the
shares of the Fund present or represented at a meeting at which the holders of
more than 50% of the outstanding shares of the Fund are present or represented,
or (2) more than 50% of the outstanding shares of the Fund. Unless otherwise
indicated, all investment policies are not fundamental and may be changed by the
Board of Trustees ("Board") without shareholder approval. For more information
concerning shareholder voting, see "Other Information -- The Trust and Its
Shares."
BORROWING
As a fundamental policy, 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. As a nonfundamental policy, the Fund 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 a Fund's total assets must be
repaid before the Fund may make additional investments.
ILLIQUID SECURITIES
The Fund may not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements not entitling the Fund to the
payment of principal within seven days. Illiquid securities are securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES
The Fund may seek additional income by entering into repurchase agreements
or by lending securities from its portfolio to brokers, dealers and other
financial institutions. These investments may entail certain risks not
associated with direct investments in securities. For instance, in the event
that bankruptcy or similar proceedings were commenced against a counterparty in
these transactions or a counterparty defaulted on its obligations, the Fund
might suffer a loss. Failure by the other party to deliver a security purchased
by the Fund may result in a missed opportunity to make an alternative
investment. The Adviser monitors the creditworthiness of counterparties to these
transactions and intends to enter into these transactions only when it believes
the counterparties present minimal credit risks and the income to be earned from
the transaction justifies the attendant risks. Repurchase agreements are
transactions in which the Fund purchases a security and simultaneously commits
to resell that security to the seller at an agreed-upon price on an agreed-upon
future
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date, normally one to seven days later. The resale price reflects a market rate
of interest that is not related to the coupon rate or maturity of the purchased
security. Securities loans must be continuously secured by cash or securities
issued or guaranteed as to principal and interest by the United States
Government or by any of its agencies and instrumentalities ("U.S. Government
Securities") with a market value, determined daily, at least equal to the value
of the Fund's securities loaned. When the Fund lends a security, it receives
interest from the borrower or from investing cash collateral. The Trust's
custodian maintains possession of the purchased securities and any underlying
collateral in these transactions, the total market value of which on a
continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest and which consists of the types of
securities in which the Fund may invest directly. The Fund may pay fees to
arrange securities loans. The Fund will not lend portfolio securities in excess
of 33 1/3% of the value of the Fund's total assets.
DIVERSIFICATION
The Fund is diversified. As a fundamental policy, with respect to 75% of its
assets, the Fund may not purchase a security (other than a U.S. Government
Security), if, as a result, (1) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer or (2) the Fund would own more
than 10% of the outstanding voting securities of any single issuer.
CONCENTRATION
As a fundamental policy, the Fund may not purchase securities if,
immediately after each purchase, more than 25% of the Fund's total assets taken
at market value would be invested in securities of issuers conducting their
principal business activity in the same industry. This limit does not apply to
investments in U.S. Government Securities or repurchase agreements covering U.S.
Government Securities.
WARRANTS
The Fund may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Warrants are
usually issued by the issuer of the security to which they relate. While
warrants may be traded, there is often no secondary market for them and the
prices of warrants do not necessarily correlate with the prices of the
underlying securities. Holders of warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer. The Fund
will limit its purchases of warrants to not more than 5% of the value of its
total assets.
HEDGING STRATEGIES
The Fund may in the future seek to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase through the writing and purchase of exchange-traded and
over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. The Fund may write (sell) covered put and
call options and may buy put and call options on equity securities, foreign
currencies and stock indices, such as the Standard & Poor's 500 Stock Index. In
addition, the Fund may buy or sell stock index and foreign currency futures
contracts and may write covered options and buy options on those contracts.
Definitions of these instruments may be found in the Appendix to this
Prospectus. An option is covered if, so long as the Fund is obligated under the
option, it owns an offsetting position in the underlying security, currency or
futures contract or maintains liquid assets in a segregated account with a value
at all times sufficient to cover the Fund's obligation under the option.
The Fund will not hedge more than 25% of its total assets by selling futures
contracts, buying put options and writing call options. In addition,
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the Fund will not buy futures contracts or write put options whose underlying
value exceeds 25% of the Fund's total assets and will not purchase call options
if the value of purchased call options would exceed 5% of the Fund's total
assets.
The Fund's use of options and futures contracts would subject the Fund to
certain investment risks and transaction costs to which it might not otherwise
be subject. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities or currencies and
fluctuations in the general securities or currency markets; (2) imperfect
correlation between movements in the prices of options, futures contracts or
related options and movements in the price of the securities or currencies
hedged or used for cover; (3) the fact that skills and techniques needed to
trade these instruments are different from those needed to select the other
securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time; (5) the possible need to defer closing out of certain options, futures
contracts and related options to avoid adverse tax consequences; and (6) the
potential for unlimited loss when investing in futures contracts. Other risks
include the inability of the Fund, as the writer of covered call options, to
benefit from the appreciation of the underlying securities above the exercise
price and the possible loss of the entire premium paid for options purchased by
the Fund.
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 U.S. Government Securities, (2)
certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of commercial banks, (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"), in money market mutual funds. During
periods when and to the extent that the Fund has assumed a temporary defensive
position, it will not be pursuing its investment objective.
PORTFOLIO TRANSACTIONS
From time to time the Fund may engage in active short-term trading to take
advantage of price movements affecting individual issues, groups of issues or
markets. This will increase the Fund's rate of turnover and will result in
higher total brokerage costs for the Fund. The Adviser anticipates that the
annual turnover in the Fund could be in excess of 50% in future years (but is
not expected to equal or exceed 100%). An annual turnover rate of 100% would
occur, for example, if all of the securities in the Fund were replaced once in a
period of one year.
The Fund has no obligation to deal with any specific broker or dealer in the
execution of portfolio transactions. Consistent with its policy of obtaining the
best net results, the Fund may conduct brokerage transactions through certain
affiliates of the Adviser. The Board has adopted policies to ensure that these
transactions are reasonable and fair and that the commissions charged are
comparable to those charged by non-affiliated qualified broker-dealers.
5. MANAGEMENT
The business and affairs of the Fund are managed under the direction of the
Board. The Board formulates the general policies of the Fund and generally meets
quarterly to review the results of the Fund, monitor investment activities and
practices and discuss other matters affecting the Fund and the Trust.
Information about the Trustees and the officers of the Trust is in the SAI under
"Management -- Trustees and Officers."
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THE ADVISER
Austin Investment Management, Inc., serves as investment adviser to the Fund
under an Investment Advisory Agreement with the Trust. Subject to the general
supervision of the Board, the Adviser makes investment decisions for the Fund
and is responsible for, among other things, developing a continuing investment
program for the Fund in accordance with its investment objective and reviewing
the investment strategies and policies of the Fund. For its services, the
Adviser receives an advisory fee at an annual rate of 1.5% of the Fund's average
daily net assets.
The Adviser is registered under the Investment Adviser's Act of 1940 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 $152 million in assets under management and was
controlled by Peter Vlachos, president and chief portfolio manager of the
Adviser since its organization in 1989.
Mr. Vlachos has served as portfolio manager of the Fund since the Fund's
inception on December 8, 1993. He is responsible for the day-to-day management
of the Fund's portfolio. Prior to his establishment of the Adviser, Mr. Vlachos
was a portfolio manager at Neuberger & Berman, Inc. Before that, Mr. Vlachos
held various positions at Dreyfus Corp., including president and vice president
of two investment companies managed by Dreyfus with over $2 billion in combined
assets for which he was portfolio manager.
THE ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
supervision of the overall management of the Trust and providing the Trust with
general office facilities, necessary personnel to help ensure the effective
operation of the Trust as well as providing persons satisfactory to the Board to
serve as officers of the Trust. For these services, FAdS receives a fee from the
Fund computed and paid monthly at an annual rate of 0.25% of the Fund's average
daily net assets.
Under a Fund Accounting Agreement with the Trust, FAcS performs portfolio
accounting services for the Fund, including determination of the Fund's net
asset value. For its services, FAcS is entitled to receive a fee at an annual
rate of $36,000 subject to adjustments for the number and type of portfolio
transactions.
As of June 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies and
collective investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, FFSI acts as distributor of
the Fund's shares. FFSI acts as the agent of the Trust in connection with the
offering of shares of the Fund. FFSI receives no compensation for its services
under the Distribution Agreement. FFSI may enter into arrangements with banks,
broker-dealers or other financial institutions ("Processing Organizations")
through which investors may purchase or redeem shares. FFSI may, at its own
expense and from its own resources, compensate certain persons who provide
services in connection with the sale or expected sale of shares of the Fund.
Investors purchasing shares of the Fund through another financial institution
should read any materials and information provided by the financial institution
to acquaint themselves with its procedures and any fees that it may charge. FFSI
is a registered broker-dealer and investment adviser and is a member of the
National Association of Securities Dealers, Inc.
SHAREHOLDER SERVICES
Shareholder inquiries and communications concerning the Fund may be directed
to FSS. FSS acts as the Fund's transfer agent and dividend disbursing agent. FSS
maintains an account for
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each shareholder of record, where all shares purchased are credited, together
with any distributions that are reinvested in additional shares. FSS also
performs other transfer agency functions and acts as dividend disbursing agent
for the Trust. For its services, FSS is entitled to receive a fee of $12,000
annually and annual shareholder fees of $25.00 per shareholder account.
As of the date of this Prospectus each of FAdS, FFSI, FSS and FAcS was
controlled by John Y. Keffer, President and Chairman of the Trust and was
located at Two Portland Square, Portland, Maine, 04101.
EXPENSES OF THE TRUST
The Trust is obligated to pay for all of its expenses. The Fund's expenses
comprise Trust expenses attributable to the Fund and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Fund and
the portfolios in proportion to their average net assets. The Fund's expenses
include: interest charges; taxes; brokerage fees and commissions; certain
insurance premiums; applicable fees and expenses under the Trust's contracts
with the Adviser, FAdS, FSS and any custodian; fees of pricing, interest,
dividend, credit and other reporting services; costs of membership in trade
associations; auditing, legal and compliance expenses; costs of preparing and
printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
of certain of the Trust's trustees, officers and employees and other personnel
performing services for the Trust; and registration fees and related expenses.
The Adviser, FAdS, FFSI, and FAcS, in their sole discretion, may waive all
or any portion of their respective fees, which are accrued daily and paid
monthly. Any such waiver, which could be discontinued at any time, would have
the effect of increasing the Fund's performance for the period during which the
waiver was in effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other 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 1, 2000. The Adviser and FAdS are taking steps to address the Year
2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Fund from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in the Fund may be made either by an investor directly or through
certain brokers and financial institutions of which the investor is a customer.
All transactions in Fund shares are effected through FSS, which accepts orders
for purchases and redemptions from shareholders of record and new investors.
Shareholders of record will receive from the Trust periodic statements listing
all account activity during the statement period. The Trust reserves the right
in the future to modify, limit or terminate any shareholder privilege upon
appropriate notice to shareholders and charge a fee for certain shareholder
services, although no such fees are currently contemplated.
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined on all weekdays except days when the New York Stock Exchange is
closed ("Business Day"). Normally, the New York Stock Exchange is closed on New
Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. Shares are
issued immediately after an order for
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the shares in proper form is accepted by FSS. The Fund's net asset value is
calculated at 4:00 p.m., Eastern time on each Business Day. Fund shares become
entitled to receive dividends on the next Business Day after the order is
accepted.
The Fund reserves the right to reject any subscription for the purchase of
its shares. Share certificates are only issued to shareholders of record upon
their written request and no certificates are issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of the Fund's
next-determined net asset value after FSS receives the redemption order in
proper form (and any supporting documentation which FSS may require). Shares
redeemed are not entitled to receive dividends declared after the day on which
the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used for
investment has been cleared by the shareholder's bank, 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 and
mailed to the shareholder's record address. The right of redemption may not be
suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings or under any emergency or other
circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of the Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine, including the recording of certain transactions. If the Trust did not
employ such procedures it could be liable for any losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Fund directly. These investors may open an
account by completing an account application or by contacting FSS at the address
on the first page of this prospectus. For those shareholder services not
referenced on the account application or to change information on a
shareholder's account (such as addresses), investors should request an Optional
Services Form from FSS.
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There is a $10,000 minimum for initial investments in the Fund ($2,000 for
Individual Retirement Accounts).
INITIAL PURCHASE OF SHARES
MAIL. Investors may send a check made payable to the Trust along with a
completed account application for the Fund to FSS 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, FSS 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
Trust at (207) 879-0001 or (800) 754-8759 to obtain an account number. The
investor should then instruct a bank to wire the investor's money immediately
to:
BankBoston
Boston, Massachusetts
ABA # 011000390
For Credit to: Forum Shareholder Services, LLC
Account # 541-54171
Austin Global Equity Fund
(Investor's Name)
(Investor's Account Number)
The investor should then promptly complete and mail the account application.
Investors planning to wire funds should instruct the bank early in the day
so the wire transfer can be accomplished prior to 4:00 p.m., Eastern time, on
the same day. The bank may impose a charge for transmitting payment by bank
wire, and there also may be a charge for use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $2,500 minimum for subsequent purchases. Subsequent purchases may
be made by mailing a check, by sending a wire as indicated above. Shareholders
using the wire system for subsequent purchases should first telephone the Trust
at (207) 879-0001 (800) 754-8759 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 the Fund monthly or quarterly. Shareholders wishing to participate
in this program may obtain the applicable forms from FSS. Shareholders may
terminate their automatic investments or change the amount to be invested at any
time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by bank 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.
MAIL. Shareholders may make a redemption in any amount by sending a written
request to FSS accompanied by any share certificate that was issued to the
shareholder. All share certificates submitted for redemption must be signed by
the shareholder with a signature guarantee. All written requests for redemption
must be signed by the shareholder and, in some cases, must have a signature
guarantee. See, "Purchases and Redemptions-Other Redemption Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling FSS at (207) 879-0001 or
(800) 754-8759 and providing the shareholder's account number, and the exact
name in which the shares are registered. The Trust
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<PAGE>
or FSS may employ other procedures such as recording certain transactions to
ensure telephone instructions are genuine. If such procedures are followed,
neither FSS nor the Trust will be liable for any losses due to unauthorized or
fraudulent redemption requests. In response to the telephone redemption
instructions, the Fund will mail a check to the shareholder's record address or,
if the shareholder has elected wire redemption privileges, wire the proceeds.
BANK WIRE. For redemptions of more than $10,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege on the
account application. Redemption proceeds are transmitted by wire on the next
business day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds 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 FSS.
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 stock 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)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a bank, a broker, a dealer, a national securities exchange, a
credit union, or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGES
EXCHANGE PROCEDURES
Fund shareholders are entitled to exchange their Shares of the Fund for
shares of the Investor Share Class of Daily Assets Government Fund, a series of
the Trust. Exchanges may only be made between accounts registered in the same
name. When a shareholder exchanges shares, a completed account application must
be submitted to
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open a new account in a Fund if the shareholder requests any shareholder
privilege not associated with the existing account. Exchanges are subject to the
fees and the restrictions including minimum investment requirements listed in
the prospectus for the fund into which a shareholder is exchanging. The Fund
does not charge for exchanges, and there is currently no limit on the number of
exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and all necessary
supporting documents by the fund whose shares are being exchanged are received
by FSS.
MAIL. Exchanges may be accomplished by written instructions to FSS
accompanied by any share certificate that may have been issued to the
shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with a signature
guarantee.
TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling FSS at (207) 879-0001
or (800) 754-8759-and providing the shareholder's account number, the exact name
in which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number.
RETIREMENT PROGRAMS
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund should not be considered as a complete investment vehicle for the
assets held in individual retirement accounts ("IRAs"). The minimum initial
investment for an IRA is $2,000, and the minimum subsequent investment is
$1,000. Individuals may make tax-deductible IRA contributions of up to a maximum
of $2,000 annually. However, this deduction will be reduced if the individual
or, in the case of a married individual filing jointly, either the individual or
the individual's spouse is an active participant in an employer-sponsored
retirement plan and has adjusted gross income above certain levels.
EMPLOYEE BENEFIT PLANS
The Fund may be a suitable investment vehicle for part or all of the assets
held in various employee benefit plans, including 401(k) plans, 403(b) plans and
SARSEPs.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of the transfer agent ("Processing Organizations").
Processing Organizations may receive as a dealer's reallowance a portion of the
sales charge paid by their customers who purchase Fund shares. In addition,
Processing Organizations may charge their customers a fee for their services and
are responsible for promptly transmitting purchase, redemption and other
requests to the Fund. The Trust is not responsible for the failure of any
Processing Organization to promptly forward these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in the Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Customers who purchase Fund shares through a Processing
Organization may or may not be the
15
<PAGE>
shareholder of record and, subject to their Processing Organization's and the
Fund's procedures, may have Fund shares transferred into their name. Under their
arrangements with the Trust, broker-dealer Processing Organizations are not
generally required to deliver payment for purchase orders until several business
days after a purchase order has been received by the Fund. Certain other
Processing Organizations may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of the Fund's net investment income, if any, are declared and
paid annually. Any distributions of net capital gain realized by the Fund are
distributed annually.
Shareholders may choose either to have all distributions of net investment
income reinvested in additional Fund shares or paid in cash or to have all
distributions of net capital gain reinvested in additional Fund shares or paid
in cash. All distributions are treated in the same manner for Federal income tax
purposes whether paid in cash or reinvested in Fund shares.
Distributions are reinvested at the Fund's net asset value as of the payment
date of the distribution. All distributions are reinvested unless another option
is selected. All distributions not reinvested are paid to the shareholder in
cash and may be paid more than seven days following the date on which
distributions would otherwise be reinvested.
TAXES
The Fund intends to qualify for each fiscal year to be taxed as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended. As
such, the Fund will not be liable for Federal income taxes on the net investment
income and net capital gain distributed to its shareholders. Because the Fund
intends to distribute all of its net investment income and net capital gain each
year, the Fund should avoid all Federal income and excise taxes.
Dividends paid by the Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income. Distributions of net capital gain (i.e., the excess of net gain from
capital assets held for not more than one year) will be treated in the hands of
shareholders as long-term capital gain, regardless of how long a shareholder has
held shares in the Fund. If Fund shares are sold at a loss after being held for
six months or less, the loss will be treated as long-term capital loss to the
extent of any long-term capital gain distribution of net capital gain received
on those shares.
Any dividend or distribution received by a shareholder reduces the net asset
value of the shareholder's shares by the amount of the dividend or distribution.
To the extent that the income or gain comprising a dividend or distribution was
accrued by the Fund before the shareholder purchased the shares, the dividend or
distribution would be in effect a return of capital to the shareholder. All
dividends and distributions, including those that operate as a return of
capital, however, are taxable as described above to the shareholder
16
<PAGE>
receiving them regardless of the length of time he may have held shares prior to
the dividend or distribution.
It is expected that a portion of the Fund's dividends to shareholders will
qualify for the dividends received deduction for corporations.
The Fund may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisers.
8. OTHER INFORMATION
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types of performance are based on historical results and are
not intended to indicate future performance. The Fund's yield measures the rate
of income earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period.
The Fund may also advertise its total return over different periods of time or
by means of aggregate, average, year by year, or other types of total return
figures. Because average annual returns tend to smooth out variations in the
Fund's returns, shareholders should recognize that they are not the same as
actual year-by-year results.
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. The comparative material found in the
Fund's advertisements, sales literature or reports to shareholders may contain
performance ratings. These are not to be considered representative or indicative
of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FFSI would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them would be sought. It is not expected that
shareholders would suffer adverse financial consequences as a result of any
changes in bank or bank affiliate service arrangements.
17
<PAGE>
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 portfolio securities and other assets less its
liabilities) by the number of the Fund's 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. Purchases and
redemptions are effected at the net asset value next determined after any
purchase or redemption order is processed.
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 named Austin Global Equity Fund of Stone Bridge Funds, Inc., a
Maryland corporation.
Each share of each fund of the Trust has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately, except that expenses related to the distribution of the shares
of each class (and certain other expenses such as transfer agency and
administrative expenses) are borne solely by those shares and each class votes
separately with respect to the provisions of any Rule 12b-1 plan which pertain
to the class and other matters for which separate class voting is appropriate
under applicable law. Generally, shares will be voted in the aggregate without
reference to a particular portfolio, except if the matter affects only one
portfolio or voting by portfolio or class is required by law, in which case
shares will be voted separately by portfolio. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by Federal or
state law. Shareholders (and Trustees) have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote.
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.
18
<PAGE>
APPENDIX
OPTIONS ON EQUITY SECURITIES -- (sometimes referred to as stock options) - A
call option is a short-term contract pursuant to which the purchaser of the call
option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying
security, upon exercise at the exercise price during the option period.
OPTIONS ON STOCK INDEXES -- A stock index assigns relative values to the
stock included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional stock options except that exercises of stock
index options are effected with cash payments and do not involve delivery of
securities. Thus, upon exercise of a stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
FOREIGN CURRENCY OPTIONS -- A foreign currency option operates in the same
manner as an option on securities. Options on foreign currencies are primarily
traded in the over-the-counter market.
STOCK INDEX FUTURES CONTRACTS -- A stock index futures contract is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the stock index value at the close of trading of the contract and the
price at which the futures contract is originally struck. No physical delivery
of the stocks comprising the index is made. Generally contracts are closed out
prior to the expiration date of the contract.
FOREIGN CURRENCY FUTURES CONTRACTS -- A foreign currency futures contract is
a bilateral agreement pursuant to which two parties agree to take or make
delivery of a quantity of a foreign currency called for in a contract at a
specified future time and at a specific price. Although these contracts call for
delivery of or acceptance of the foreign currency, in most cases the contracts
are closed out before the settlement date without the making or taking of
delivery.
OPTIONS ON FUTURES CONTRACTS -- Options on futures contracts are similar to
stock options except that an option on a futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND THE FUND'S OFFICIAL SALES LITERATURE IN CONNECTION
WITH THE OFFERING OF THE FUND'S SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO
ANY PERSON TO WHOM, SUCH OFFER MAY NOT LAWFULLY BE MADE.
A-1
<PAGE>
[GRAPHIC]
[LOGO]
SHAREHOLDER INFORMATION:
FORUM SHAREHOLDER SERVICES, LLC
P.O. BOX 446
PORTLAND, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
<PAGE>
OAK HALL-REGISTERED TRADEMARK- SMALL CAP CONTRARIAN FUND
---------------------------------------------------------
Two Portland Square
Portland, Maine 04101
http://www.oakhallfund.com
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
(207) 879-0001
(800) 625-4255
- --------------------------------------------------------------------------------
PROSPECTUS AUGUST 1, 1998
- --------------------------------------------------------------------------------
This Prospectus offers shares of the Oak Hall-Registered Trademark- Small Cap
Contrarian Fund (the "Fund"), a diversified portfolio of Forum Funds (the
"Trust"), an open-endmanagement investment company.
OAK HALL SMALL CAP CONTRARIAN FUND. 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 a prospective investor
should know about the Fund and the Trust before investing. The Trust has filed
with the Securities and Exchange Commission ("SEC") a Statement of Additional
Information dated August 1, 1998, as may be amended from time to time (the
"SAI"), which contains more detailed information about the Trust and the Fund
and is available along with other related materials for reference on the SEC's
Internet Web Site (http://www.sec.gov). The SAI, which is incorporated by
reference into this Prospectus, is also available without charge by contacting
Forum Shareholder Services, LLC, the Fund's transfer agent, at the address and
telephone numbers printed above.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Prospectus Summary.................... 2
2. Financial Highlights.................. 4
3. Investment Objective and Policies..... 5
4. Additional Investment Policies........ 5
5. Management............................ 6
6. Purchases and Redemptions of Shares... 8
7. Distributions and Tax Matters......... 13
8. Other Information..................... 13
</TABLE>
- --------------------------------------------------------------------------------
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 NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
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 and Policies."
INVESTMENT ADVISER
Oak Hall-Registered Trademark- Capital Advisors, L.P. (the "Adviser")
serves as the Fund's investment adviser. The Adviser is located at 122 East 42nd
Street, 24th Floor, New York, New York 10168.
FUND MANAGEMENT
The administrator of the Trust is Form Administrative Services, LLC
("FAdS") and the distributor or its shares is Forum Financial Services, Inc.,
("FFSI"). Forum Shareholder Services, LLC ("FSS") serves as the Trust's transfer
agent, dividend disbursing agent and shareholder servicing agent while Forum
Accounting Services, LLC ("FAcS") provides portfolio accounting services for the
Trust. See "Management." FAdS, FFSI, FSS, and FAcS are located at Two Portland
Square, Portland, Maine 04101.
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at the next-determined net asset value
without a sales charge. Shares may be purchased and redeemed by mail, by
bank-wire and through an investor's broker-dealer or other financial
institution. The minimum initial investment is $10,000 ($5,000 if purchased
through certain broker-dealers). Shares of the Fund may be redeemed without
charge. See "Purchases and Redemptions of Shares."
EXCHANGE PROGRAM
Shareholders may exchange their Shares of the Fund, without charge, for
share of the Daily Asset Government Fund, Investor Share Class, a money market
fund of the Trust offered by separate prospectus. See "Purchases and Redemptions
- -- Exchanges."
DISTRIBUTIONS
The Fund distributes its net investment income and net capital gains, if
any, at least annually. All distributions are reinvested automatically in
additional shares of the Fund at net asset value unless the shareholder has
notified the Fund in writing of the shareholder's election to receive
distributions in cash. See "Distributions and Tax Matters."
CERTAIN RISK FACTORS
There can be no assurance that the Fund will achieve its investment
objective. The Fund's net asset value and total return will fluctuate as the
value of the securities in which the Fund invests changes. 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 Fund is
not intended to provide a complete or balanced investment program for all
investors. See "Investment Objective and Policies."
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 after applicable expense reimbursements
and fee waivers)
<TABLE>
<S> <C>
Advisory Fees............................. 0.00%
12b-1 Fees................................ None
Other Expenses............................ 1.93%
---------
Total Fund Operating Expenses (after
expense reimbursements)................. 1.93%
</TABLE>
The Annual Fund Operating Expenses are based on expenses and assets of the
Fund during its most recent fiscal year ended March 31, 1998. Absent certain
expense reimbursements and fee waivers, during the most recent fiscal year
Advisory Fees, Other Expenses, and Total Operating Expenses
2
<PAGE>
of the Fund would have been 0.75%, 2.21%, and 2.96%, respectively. 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%. Expense reimbursements and fee waivers are
voluntary and may be reduced or eliminated at any time. For a further
description of the various expenses incurred in the operation of the Fund, see
"Management."
EXAMPLE
The following is a hypothetical example that indicates the dollar amount of
expenses an investor would pay assuming (1) a $1,000 investment, (2) a 5% annual
return, (3) the reinvestment of all dividends and (4) the distributions and full
redemption at the end of each period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 20 $ 61 $ 104 $ 225
</TABLE>
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. The example is based on the expenses listed in the table. 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.
3
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Fund. The information for the periods ended March 31, 1998
and 1997 and June 30, 1996, 1995 and 1994 was audited in connection with an
audit of the Fund's financial statements by Deloitte & Touche, independent
auditors. The information for the period ended June 30, 1993 was audited by
other independent auditors. The financial statements and auditors' report
thereon are incorporated by reference into the SAI. Further information about
the Fund's performance is contained in the Fund's annual report to shareholders
which may be obtained from the Trust without charge by contacting the Fund's
transfer agent.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1996 1995 1994 1993(a)
---------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 13.80 $ 13.61 $ 11.33 $ 12.55 $ 14.30 $ 10.00
---------- ------------ ---------- ---------- ---------- ------------
Investment Operations:
Net Investment Income (Loss)..... (0.24) (0.15) (0.32)(b) (0.03)(b) (0.09) --
Net Realized and Unrealized Gain
(Loss) on Investments.......... 7.10 0.34 2.60 (0.10) (0.52) 4.31
---------- ------------ ---------- ---------- ---------- ------------
Total from Investment Operations... 6.86 0.19 2.28 (0.13) (0.61) 4.31
Distributions From:
Net Realized Gain on
Investments.................... -- -- -- (1.09) (1.14) (0.01)
---------- ------------ ---------- ---------- ---------- ------------
Net Asset Value, End of Period..... $ 20.66 $ 13.80 $ 13.61 $ 11.33 $ 12.55 $ 14.30
---------- ------------ ---------- ---------- ---------- ------------
---------- ------------ ---------- ---------- ---------- ------------
Total Return....................... 49.71% 1.40%(c) 20.12% (1.07%) (5.14%) 45.12%(d)
Ratio/Supplementary Data:
Net Assets at End of Period
(000's omitted)................... $ 7,208 $ 7,310 $12,257 $16,399 $35,470 $12,581
Ratios to Average Net Assets:
Expenses Including Reimbursement/
Waiver......................... 1.93%(e) 2.00%(d) 2.00% 2.00% 2.01% 1.23%(d)
Expenses Excluding
Reimbursement/Waiver........... 2.96% 2.93%(d) 2.44% -- 2.17% 5.91%(d)
Net Investment Income (Loss)
Including
Reimbursement/Waiver........... (1.29)% (1.13%)(d) (1.14%) (0.23%) (0.96%) (0.07%)(d)
Average Commission Rate (f)........ $0.0629 $0.0673 $0.0601 N/A N/A N/A
Portfolio Turnover Rate............ 100.61% 95.05% 157.01% 115.33% 168.61% 187.94%
</TABLE>
(a) The Fund commenced operations on July 13, 1992.
(b) Calculated using the weighted average shares outstanding.
(c) Not annualized.
(d) Annualized.
(e) 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%.
(f) Amount represents the average commission per share paid to brokers on the
purchase or sale of equity securities.
4
<PAGE>
3. INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation by
investing primarily in a portfolio of common stock and securities convertible
into common stock.
INVESTMENT POLICIES
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. An investment in the Fund may be an
appropriate investment for long-term investors who seek to diversify their
growth investments and who are willing to accept greater risk for potentially
higher return.
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 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 and the prices
of small capitalization securities may fluctuate significantly in response to,
among other things, news about a company, movements in the markets or changes in
the economy.
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. The securities in which the Fund invests may be traded
on securities exchanges or in the over-the-counter exchanges.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of the Fund. A majority of
the Fund's outstanding voting securities means the lesser of (1) 67% of the
shares of the Fund present or represented at a meeting at which the holders of
more than 50% of the outstanding shares of the Fund are present or represented,
or (2) more than 50% of the outstanding shares of the Fund. Unless otherwise
indicated, all investment policies are not fundamental and may be changed by the
Board of Trustees without shareholder approval. For more information concerning
shareholder voting, see "Other Information -- The Trust and Its Shares."
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.
5
<PAGE>
(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.
PORTFOLIO TRANSACTIONS
The frequency of portfolio transactions (the portfolio turnover rate) will
vary from year to year depending on market conditions. 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 (the "Board")
has adopted policies to ensure that these transactions are reasonable and fair
and that the commissions charged are comparable to those charged by non-
affiliated
5. MANAGEMENT
The business and affairs of the Fund are managed under the direction of the
Board. The Board formulates the general policies of the Fund and generally meets
quarterly to review the results of the Fund, monitor investment activities and
practices and discuss other matters affecting the Fund and the Trust.
Information about the Trustees and the officers of the Trust is in the SAI under
"Management -- Trustees and Officers."
THE ADVISER
OAK HALL-REGISTERED TRADEMARK- CAPITAL ADVISORS, L.P., located at 122 East
42nd Street, 24th Floor, New York, New York 10168, serves as investment adviser
to the Fund under an Investment Advisory Agreement with the Trust. Subject to
the general control of the Board, the Adviser makes investment decisions for the
Fund and is responsible for, among other things, developing a continuing
investment program for the Fund in accordance with its investment objective and
reviewing the investment strategies and policies of the Fund. For its services,
the Adviser receives an advisory fee at an annual rate of 0.75% of the Fund's
average daily net assets. The Adviser voluntarily may waive all or any portion
of its advisory fee. Any waiver would effect the Fund's yield during the period
during which the waiver was in effect and would not be recouped by the Adviser
at a later date. On February 12, 1998, the Adviser agreed to waive its fee and
assume certain expenses of the Fund in order to maintain total operating
expenses at 1.50%.
The Adviser is registered under the Investment Adviser's Act of 1940 and
provides investment management services to pension plans, endowment funds,
institutional and individual accounts. 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.
As of the date of this Prospectus,
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the Adviser had approximately $150 million in assets under management.
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. Before
that, he was a Managing Director of Lehman Brothers, Inc. Mr. Cimilluca has
approximately 25 years in the investment business.
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.
Before that, he was an Associate Director at C. J. Lawrence, Inc. Mr. Morosani
has approximately 20 years in the investment business.
THE ADMINISTRATOR
On behalf of the Fund, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
supervision of the overall management of the Trust (including any services for
the Fund that the Trust has to pay fees), 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, FAdS is entitled to receive
a fee from the Fund computed and paid monthly at an annual rate of 0.25% of the
Fund's average daily net assets. FAdS, in its sole discretion, may waive all or
any portion of its fees.
Under a Fund Accounting Agreement with the Trust, FAcS performs portfolio
accounting services for the Fund, including determination of the Fund's net
asset value. For its services, FAcS is entitled to receive a fee at an annual
rate of $36,000 subject to adjustments for the number and type of portfolio
transactions.
As of June 30, 1998, FAdS and FFSI provided management, administration and
distribution services to registered investment companies and collective
investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, FFSI acts as distributor of
the Fund's shares. FFSI acts as the agent of the Trust in connection with the
offering of shares of the Fund. FFSI receives no compensation for its services
under the Distribution Agreement. FFSI may enter into arrangements with banks,
broker-dealers or other financial institutions ("Processing Organizations")
through which investors may purchase or redeem shares. FFSI may, at its own
expense and from its own resources, compensate certain persons who provide
services in connection with the sale or expected sale of shares of the Fund.
Investors purchasing shares of the Fund through another financial institution
should read any materials and information provided by the financial institution
to acquaint themselves with its procedures and any fees that it may charge.
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
Shareholder inquiries and communications concerning the Fund may be
directed to FSS. Under a Transfer Agency and Services Agreement, FSS acts as the
Fund's transfer agent and dividend disbursing agent. FSS maintains an account
for each shareholder of record, where all shares purchased are credited,
together with any distributions that are reinvested in additional shares. FSS
also performs other transfer agency functions and acts as dividend disbursing
agent for the Trust. For its services, FSS is entitled to receive a fee of
$12,000 annually and annual shareholder fees of $25.00 per shareholder account.
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
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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.
As of the date of this Prospectus each of FAdS, FFSI, FSS and FAcS was
controlled by John Y. Keffer, President and Chairman of the Trust and was
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.
The Trust is obligated to pay for all of its expenses, subject to the
Adviser's agreement to reimburse the Trust for excess expenses of the Fund. The
Fund's expenses comprise Trust expenses attributable to the Fund and expenses
not attributable to any particular portfolio of the Trust, which are allocated
among the Fund and the portfolios in proportion to their average net assets. The
Fund's expenses include: interest charges; taxes; brokerage fees and
commissions; certain insurance premiums; applicable fees and expenses under the
Trust's contracts with the Adviser, FAdS, FSS and any custodian; fees of
pricing, interest, dividend, credit and other reporting services; costs of
membership in trade associations; auditing, legal and compliance expenses; costs
of preparing and printing the Trust's prospectuses, statements of additional
information and shareholder reports and delivering them to existing
shareholders; compensation of certain of the Trust's trustees, officers and
employees and other personnel performing services for the Trust; and
registration fees and related expenses.
The Adviser, FAdS, FSS, and FAcS, in their sole discretion, may waive all
or any portion of their respective fees, which are accrued daily and paid
monthly. Any such waiver, which could be discontinued at any time, would have
the effect of increasing the Fund's performance for the period during which the
waiver was in effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other 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 1, 2000. The Adviser and FAdS are taking steps to address the Year
2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Fund's other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Fund from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in the Fund may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through FSS, which
accepts orders for purchases and redemptions from shareholders of record and new
investors. Shareholders of record will receive from the Trust periodic
statements listing all account activity during the statement period. The Trust
reserves the right in the future to modify, limit or terminate any shareholder
privilege upon appropriate notice to shareholders and charge a fee for certain
shareholder services, although no such fees are currently contemplated.
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PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined without a sales charge on all weekdays except days when the New
York Stock Exchange is closed ("Business Day"). Normally, the New York Stock
Exchange is closed on New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas. Fund shares are issued immediately after an order for the shares
in proper form is accepted by FSS. The Fund's net asset value is calculated at
4:00 p.m., Eastern time on each Business Day. Fund shares become entitled to
receive dividends on the next Business Day after the order is accepted.
The Fund reserves the right to reject any subscription for the purchase of
its 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 only issued
to shareholders of record upon their written request and no certificates are
issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of the Fund's
next-determined net asset value after FSS receives the redemption order in
proper form (and any supporting documentation which FSS may require). Shares
redeemed are not entitled to receive dividends declared after the day on which
the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used for
investment has been cleared by the shareholder's bank, 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 and
mailed to the shareholder's record address. The right of redemption may not be
suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings or under any emergency or other
circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of the Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine (which include recording certain transactions and the use of shareholder
security codes). If the Trust did not employ such procedures it could be liable
for any losses due to unauthorized or fraudulent telephone instructions.
Shareholders should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements. During times of drastic economic or
market changes, the telephone redemption and exchange privileges may be
difficult to implement. In the event that a shareholder is unable to reach FSS
by telephone, requests may be mailed or hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Fund directly. These investors may open an
account by completing an account application or by contacting FSS at the address
on the first
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page of this Prospectus. For those shareholder services not referenced on the
account application or to change information on a shareholder's account (such as
addresses), investors should request an Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $10,000 minimum for initial investments in the Fund ($2,000 for
Individual Retirement Accounts).
MAIL. Investors may send a check made payable to the Trust along with a
completed account application for the Fund to FSS 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, FSS 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
Trust at 800-625-4255 or FSS at 207-879-0001 to obtain an account number. The
investor should then instruct a bank to wire the investor's money immediately
to:
BankBoston
Boston, Massachusetts
ABA # 011000390
For Credit to: Forum Shareholder Services, LLC
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 the bank early in
the day so the wire transfer can be received prior to 4:00 p.m., Eastern time,
of the same day. The bank may impose a charge for transmitting payment by wire,
and there also may be a charge for use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $5,000 minimum for subsequent purchases. Subsequent purchases
may be made by mailing a check, sending a wire as indicated above. Shareholders
using the wire system for subsequent purchases should first telephone the Fund
at 800-625-4255 or FSS 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 FSS. Shareholders may
terminate their automatic investments or change the amount to be invested at any
time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by 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.
MAIL. Shareholders may make a redemption in any amount by sending a
written request to FSS accompanied by any share certificate that was issued to
the shareholder. All share certificates submitted for redemption must be signed
by the shareholder with a signature guarantee. All written requests for
redemptions must be signed by the shareholder and, in some cases, must have a
signature guarantee. See "Purchase and Redemption Procedures-Other Redemption
Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling FSS at (207) 879-0001 or
(800) 625-4255 and providing the shareholder's account number, the exact name in
which the shares are registered, the shareholder's
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social security or taxpayer identification number. The Trust or FSS may employ
other procedures such as recording certain transactions to ensure telephone
instructions are genuine. If such procedures are followed, neither the Trust nor
FSS will be liable for any losses due to unauthorized or fraudulent redemption
requests. 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.
BANK WIRE. For redemptions of more than $10,000, a shareholder that has
elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request wire redemptions by telephone, the
shareholder also must have elected the telephone redemption privilege on the
account application. Redemption proceeds are transmitted by wire on the next
business day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds 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 FSS.
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 stock 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)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a bank, a broker, a dealer, a national securities exchange, a
credit union, or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to the transfer agent will be
reinvested and the checks will be canceled.
EXCHANGES
EXCHANGE PROCEDURES
Fund shareholders are entitled to exchange their Shares of the Fund for
shares of the Investor Share Class of Daily Assets Government Fund, a series of
the Trust. Exchanges may only be made between accounts registered in the same
name. When a shareholder exchanges shares, a completed account application must
be submitted to open a new account in a Fund if the shareholder requests any
shareholder privilege not associated with the existing account. Exchanges are
subject to the fees and the restrictions including minimum investment
requirements listed in the prospectus for the fund into which a shareholder is
exchanging. The Fund does not charge for exchanges, and there is currently no
limit on the number of exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and all
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necessary supporting documents by the fund whose shares are being exchanged are
received by FSS.
MAIL. Exchanges may be accomplished by written instructions to FSS
accompanied by any share certificate that may have been issued to the
shareholder. All written requests for exchanges must be signed by the
shareholder (a signature guarantee is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with a signature
guarantee.
TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling FSS at (207) 879-0001
or (800) 625-4255 and providing the shareholder's account number, the exact name
in which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number.
RETIREMENT PROGRAMS
INDIVIDUAL RETIREMENT ACCOUNTS
The Fund should not be considered as a complete investment vehicle for the
assets held in individual retirement accounts ("IRAs"). The minimum initial
investment for an IRA is $2,000, and the minimum subsequent investment is $250.
Individuals may make tax-deductible IRA contributions of up to a maximum of
$2,000 annually. However, this deduction will be reduced if the individual or,
in the case of a married individual filing jointly, either the individual or the
individual's spouse is an active participant in an employer-sponsored retirement
plan and has adjusted gross income above certain levels.
EMPLOYEE BENEFIT PLANS
The Fund may be a suitable investment vehicle for part or all of the assets
held in various employee benefit plans, including 401(k) plans, 403(b) plans and
SARSEPs.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of the transfer agent ("Processing Organizations").
Processing Organizations may receive as a dealer's reallowance a portion of the
sales charge paid by their customers who purchase Fund shares. In addition,
Processing Organizations may charge their customers a fee for their services and
are responsible for promptly transmitting purchase, redemption and other
requests to the Fund. The Trust is not responsible for the failure of any
Processing Organization to promptly forward these requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in the Fund directly. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Customers who purchase Fund shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and the Fund's procedures, may have Fund shares
transferred into their name. Under their arrangements with the Trust,
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several business days after a purchase order
has been received by a Fund. Certain other Processing Organizations may also
enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of the Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
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7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of the Fund's net investment income, if any, are declared and
paid annually. Any distributions of net capital gain realized by the Fund are
distributed annually.
Shareholders may choose either to have distributions of net investment
income paid in cash or reinvested in additional Fund shares or distributions of
net capital gain paid in cash or reinvested in additional Fund shares. All
distributions are treated in the same manner for Federal income tax purposes
whether paid in cash or reinvested in Fund shares.
Distributions are reinvested at the Fund's net asset value as of the
payment date of the distribution. All distributions are reinvested unless
another option is selected. All distributions not reinvested are paid to the
shareholder in cash and may be paid more than seven days following the date on
which distributions would otherwise be reinvested.
TAXES
The Fund intends to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Fund will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to its shareholders.
Because the Fund intends to distribute all of its net investment income and net
capital gain each year, the Fund should avoid all Federal income and excise
taxes.
Dividends paid by the Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income. Distributions of net capital gain (i.e., the excess of net gain from
capital assets held for more than one year over net loss from capital assets
held for not more than one year) will be treated in the hands of shareholders as
long-term capital gain, regardless of how long a shareholder has held shares in
the Fund. If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term capital loss to the extent of any
distribution of net capital gain received on those shares.
Any dividend or distribution received by a shareholder reduces the net
asset value of the shareholder's shares by the amount of the dividend or
distribution. To the extent that the income or gain comprising a dividend or
distribution was accrued by the Fund before the shareholder purchased the
shares, the dividend or distribution would be in effect a return of capital to
the shareholder. All dividends and distributions, including those that operate
as a return of capital, however, are taxable as described above to the
shareholder receiving them regardless of the length of time he may have held
shares prior to the dividend or distribution.
It is expected that a portion of the Fund's dividends to shareholders will
qualify for the dividends received deduction for corporations.
The Fund may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisers.
8. OTHER INFORMATION
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield or
total return. Both types of performance are based on historical results and are
not intended to indicate future performance.
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The Fund's yield measures the rate of income earned by the Fund as a percentage
of the Fund's share price. Yield is calculated by dividing the net investment
income of the Fund for the stated period by the average number of shares
entitled to receive dividends and expressing the result as an annualized
percentage rate based on the Fund's share price at the end of the period. Total
return refers to the average annual compounded rates of return over some
representative period that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment,
after giving effect to the reinvestment of all dividends and distributions and
deductions of expenses during the period. The Fund may also advertise its total
return over different periods of time or by means of aggregate, average, year by
year, or other types of total return figures. Because average annual returns
tend to smooth out variations in the Fund's returns, shareholders should
recognize that they are not the same as actual year-by-year results.
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. The comparative material found in the
Fund's advertisements, sales literature or reports to shareholders may contain
performance ratings. These are not to be considered representative or indicative
of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FFSI would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If a bank or bank affiliate were prohibited
from performing all or a part of the foregoing services, its shareholder
customers would be permitted to remain shareholders of the Trust and alternative
means for continuing to service them would be sought. It is not expected that
shareholders would suffer adverse financial consequences as a result of any
changes in bank or bank affiliate service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of 4:00
p.m., Eastern time, on each Business Day by dividing the value of the Fund's net
assets (i.e., the value of its portfolio securities and other assets less its
liabilities) by the number of the Fund's 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. Purchases and
redemptions are effected at the net asset value next determined after any
purchase or redemption order is processed.
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-Registered Trademark- Equity Fund, of Stone Bridge Funds,
Inc., a Maryland corporation. On February 12, 1998, the Fund's name was changed
to the Oak Hall-Registered Trademark- Small Cap Contrarian Fund.
Each share of each fund of the Trust has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately, except that expenses related to the distribution of the shares
of each class (and certain other expenses such as transfer agency and
administrative expenses) are borne solely by those shares and each class votes
separately with respect to the provisions of any Rule 12b-1 plan which pertain
to the class and
14
<PAGE>
other matters for which separate class voting is appropriate under applicable
law. Generally, shares will be voted in the aggregate without reference to a
particular portfolio, except if the matter affects only one portfolio or voting
by portfolio or class is required by law, in which case shares will be voted
separately by portfolio. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
(and Trustees) have available certain procedures for the removal of Trustees.
There are no conversion or preemptive rights in connection with shares of the
Trust. All shares when issued in accordance with the terms of the offering will
be fully paid and nonassessable. Shares are redeemable at net asset value, at
the option of the shareholders, subject to any contingent deferred sales charge
that may apply. A shareholder in a portfolio is entitled to the shareholder's
pro rata share of all dividends and distributions arising from that portfolio's
assets and, upon redeeming shares, will receive the portion of the portfolio's
net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote.
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.
15
<PAGE>
OAK HALL-REGISTERED TRADEMARK-
SMALL CAP
CONTRARIAN FUND
PROSPECTUS
AUGUST 1, 1998
[LOGO]
HTTP://WWW.OAKHALLFUND.COM
<PAGE>
[GRAPHIC]
PROSPECTUS
THE QUADRAFUNDS
VALUE EQUITY FUND
GROWTH FUND
08.01.98
<PAGE>
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
QUADRA GROWTH FUND
FUND INFORMATION,
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICES:
QUADRA Capital Partners, LLC
270 Congress Street
Boston, Massachusetts 02210
617.426.0900
800.595.9291
PROSPECTUS
August 1, 1998
- --------------------------------------------------------------------------------
This Prospectus offers shares of the Quadra Value Equity Fund and Quadra Growth
Fund (each a "Fund" and collectively the "Funds"). The Funds are each
diversified portfolios of Forum Funds (the "Trust"), a registered, open-end,
management investment company.
QUADRA VALUE EQUITY FUND. The investment objective of the Quadra Value
Equity Fund is to seek capital appreciation by investing primarily in a
diversified portfolio of common and preferred stock and securities convertible
into common stock and preferred stock.
QUADRA GROWTH FUND. The investment objective of the Quadra Growth Fund is to
seek capital appreciation by investing primarily in high quality domestic
companies that the investment subadviser believes have superior growth
potential.
This Prospectus contains the information a prospective investor should know
about the Trust and the Funds before investing. The Trust has filed with the
Securities and Exchange Commission ("SEC") a Statement of Additional Information
dated August 1, 1998, as may be amended from time to time ("SAI"), which
contains more detailed information about the Trust and the Funds and is
available together with other related materials for reference on the SEC's
Internet Web Site (http://www.sec.gov). The SAI, which is incorporated by
reference into this Prospectus, is also available, without charge, from The
Quadra Funds at 800.595.9291.
PLEASE READ THIS PROSPECTUS BEFORE INVESTING IN ANY OF THE FUNDS, AND RETAIN IT
FOR FUTURE REFERENCE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
1. Prospectus Summary.......................... 2
2. Financial Highlights........................ 5
3. Investment Objectives and Policies.......... 6
4. Additional Investment Policies.............. 7
<CAPTION>
Page
-----
<C> <S> <C>
5. Management.................................. 9
6. Purchases and Redemptions of Shares......... 15
7. Distributions and Tax Matters............... 20
8. Other Information........................... 21
Appendix A.................................. 23
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Funds are described more fully
in this prospectus under "Investment Objectives and Policies."
QUADRA VALUE EQUITY FUND seeks capital appreciation by investing primarily
in a diversified portfolio of common and preferred stock and securities
convertible into common stock and preferred stock.
QUADRA GROWTH FUND seeks long-term capital appreciation by investing
primarily in high quality domestic companies that the investment subadviser
believes have superior growth potential.
INVESTMENT ADVISER
INVESTMENT ADVISER
Quadra Capital Partners, LLC ("Quadra" or the "Adviser"), is each Fund's
investment adviser. Quadra is responsible for, among other things, developing
and reviewing the investment strategies and policies of each Fund. See
"Management - The Adviser."
INVESTMENT SUBADVISERS
To assist it in carrying out its responsibilities, the Adviser has retained
the following subadvisers ("Subadvisers") to render advisory services and make
daily investment decisions for each Fund:
- The portfolio of the QUADRA VALUE EQUITY FUND is managed by Carl Domino
Associates, L.P.
- The portfolio of the QUADRA GROWTH FUND is managed by Smith Asset
Management Group, L.P.
Quadra is also responsible for monitoring the investments and the
performance of the Subadviser of each Fund. Quadra and the Subadvisers may be
referred to herein as the "Advisers." See "Management."
For information regarding the experience of the investment advisers of the
Funds with respect to the management of investment companies, see "Management."
FUND MANAGEMENT
The administrator of the Trust is Forum Administrative Services, LLC
("FAdS') and the distributor of its shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC ("FSS") serves as the Trust's transfer
agent, dividend disbursing and shareholder servicing agent and Forum Accounting
Services, LLC ("FAcS") provides portfolio accounting services for the Trust. The
address of each of FAdS, FFSI, FSS, and FAcS is Two Portland Square, Portland,
Maine 04101. See "Management."
PURCHASES AND REDEMPTIONS
Shares of the Funds are offered at the next-determined net asset value
without a sales charge. The minimum initial investment is $100,000. The Trust
reserves the right to waive the minimum investment requirement. There is no
minimum for subsequent investments. See "Purchases and Redemptions of Shares."
Shares may be purchased or redeemed on days that the New York Stock Exchange
is open for trading, normally weekdays except customary business holidays and
Good Friday ("Fund Business Day"). Purchase and redemption orders are accepted
by the transfer agent between 9:00 a.m. and 6:00 p.m. (Eastern Time) on each
Fund Business Day. See "Purchases and Redemptions of Shares."
Shares of the Funds are not offered for sale in every state. To determine
whether a Fund is available for purchase in a particular state, contact The
Quadra Funds at the address and or number referenced on the first page of this
Prospectus.
2
<PAGE>
EXCHANGE PROGRAM
Shareholders of a Fund may exchange their shares without charge for shares
of any other Quadra Fund or Daily Assets Government Fund, a money market fund of
the Trust offered by a separate prospectus. See "Purchases and Redemptions of
Shares - Exchanges."
DISTRIBUTIONS
The Funds distribute substantially all of their net investment income and
capital gains, if any, to shareholders annually. All distributions are
reinvested automatically in additional shares of the Funds at net asset value
unless a shareholder has notified a Fund in writing of the shareholder's
election to have them paid in cash. See "Dividends and Tax Matters."
CERTAIN RISK FACTORS
There can be no assurance that either of the Funds will achieve its
investment objective, and each Fund's net asset value and total return will
fluctuate based upon changes in the value of its portfolio securities. Upon
redemption, an investment in a Fund may be worth more or less than its original
value.
All investments made by the Funds entail some risk. Certain investments and
investment techniques, however, entail additional risks, such as the potential
use of leverage by the Funds through borrowings or securities lending. For more
information about the risks of investing in the Funds, please see "Investment
Objectives and Policies," "Additional Investment Policies" and "Appendix A:
Investments, Investment Strategies and Risk Considerations."
The Quadra Value Equity Fund invests in securities that its investment
subadviser believes may be undervalued by the market. The Quadra Growth Fund
invests in securities that its investment subadviser believes have superior
growth potential. These investment policies entail certain risks in addition to
those normally associated with investment in equity securities, such as the
potential for a high degree of volatility and price fluctuations in response to
stock market movements. See "Investment Objectives and Policies."
3
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS
The purpose of the following table is to assist investors in understanding
the various expenses that an investor in a Fund will bear directly or
indirectly.
<TABLE>
<CAPTION>
QUADRA
VALUE EQUITY QUADRA
FUND GROWTH FUND
------------- ---------------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after applicable expense
reimbursements and fee waivers)
Advisory Fees.......................................................................... 0.00% 0.00%
12b-1 Fees............................................................................. None None
Other Expenses (after expense reimbursements).......................................... 1.00% 1.00%
------ ------
Total Fund Operating Expenses.......................................................... 1.00% 1.00%
</TABLE>
The Annual Fund Operating Expenses are based on assets and expenses of each
Fund during their most recent fiscal year ending March 31, 1998. Absent certain
expense reimbursements and fee waivers, Advisory Fees, Other Expenses and Total
Fund Operating Expenses would be 1.00%, 15.57% and 16.57% respectively, in the
case of Quadra Value Equity Fund and 1.00%, 11.16%, and 12.16%, respectively, in
the case of Quadra Growth Fund. Expense reimbursements and fee waivers are
voluntary and may be reduced or eliminated at any time. The Adviser has agreed
to waive its fees and/or reimburse each Fund's expenses in order to cap each
Fund's expenses at the amount of Total Operating Expenses stated in the above
table. For a further description of the various expenses incurred in the
operation of the Funds, see "Management."
EXAMPLE
The following is an example of the expenses you would pay assuming (1) a
$1,000 investment, (2) a 5% annual return, (3) the reinvestment of all
distributions and (4) full redemption at the end of each period.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Quadra Value Equity Fund................. $ 10 $ 32 $ 55 $ 122
Quadra Growth Fund....................... $ 10 $ 32 $ 55 $ 122
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RETURN; ACTUAL EXPENSES OR RETURN MAY BE MORE OR LESS THAN THESE
EXAMPLES. The example is based on the expenses listed in the table. The 5%
annual return is not predictive of and does not represent the Funds' projected
returns; rather, it is required by government regulation.
4
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following tables represent selected data for a single outstanding share
of each Fund for the periods shown. The information has been audited in
connection with an audit of the Funds' financial statements by Wolf & Company,
P.C., independent accountants. The Funds' financial statements and independent
auditors' report thereon are contained in the Funds' Annual Reports to
Shareholders and are incorporated by reference into the SAI. Further information
about the Funds' performance is contained in the Funds' Annual Report to
shareholders, which may be obtained from the Trust without charge by contacting
the Funds' transfer agent
<TABLE>
<CAPTION>
QUADRA VALUE QUADRA
EQUITY FUND GROWTH FUND
------------------- -----------------
FOR THE PERIOD FOR THE PERIOD
APRIL 2, 1997* TO NOVEMBER 4, 1997*
MARCH 31, 1998 TO MARCH 31, 1998
------------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.00 $ 10.00
-------- --------
Investment Operations:
Net Investment Income (Loss).......... 0.22 0.01
Net Realized and Unrealized Gain
(Loss) on Investments............... 3.45 1.41
-------- --------
Total from Investment Operations........ 3.67 1.42
-------- --------
Distributions From:
Net Investment Income................. (0.17) -(a)
Total Distributions..................... (0.70) -
-------- --------
Net Asset Value, End of Period.......... $ 12.80 $ 11.42
-------- --------
-------- --------
Total Return............................ 37.47% 14.23%
Ratio/Supplementary Data:
Net Assets at End of Period (000's
omitted)............................... $ 3,558 $ 3,722
Ratios to Average Net Assets:(b)
Expenses Including
Reimbursement/Waiver................ 1.00% 1.00%
Expenses Excluding
Reimbursement/Waiver................ 16.57% 12.16%
Net Investment Income (Loss)
Including Reimbursement/Waiver.......... 2.65% 0.83%
Portfolio Turnover Rate................. 32.45% 21.81%
Average Commission Rate (c) $0.0598 $0.0591
</TABLE>
* Date commenced operations.
(a) Less than $0.01 per share.
(b) Annualized.
(c) Amount represents the average commission per share paid to brokers on
the purchase and sale of equity securities.
5
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
QUADRA VALUE EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation. There
can be no assurance, of course, that the Fund will achieve its investment
objective.
INVESTMENT POLICIES
EQUITIES. The Fund seeks to achieve its investment objective by investing
primarily in a diversified portfolio of equity securities, including common and
preferred stock and securities convertible into common and preferred stock. The
Fund normally will have at least 65% of its total assets invested in common
stock and securities convertible into common stock. The Fund intends to invest
principally in the equity securities of companies that the Subadviser believes
are undervalued in comparison to similar companies. To identify these companies,
the Subadviser will employ a number of valuation measures, including but not
limited to, an analysis of price/earnings ratios, price/book ratios, dividend
yield and measure of current profitability. The Fund also may invest in warrants
and the obligations of financial institutions and purchase securities on a
when-issued or forward commitment basis. The Fund may purchase and sell futures
contracts and options on futures contracts. For a further description of the
Fund's investment policies, see "Additional Investment Practices" below and
"Appendix A: Investments, Investment Strategies and Risk Considerations" which
is attached to this Prospectus.
CERTAIN RISK FACTORS. The market price of the equity securities in which
the Fund invests may change rapidly in response to many factors, including the
market's perception of the value of those securities. Because the Subadviser
seeks to invest in companies whose fundamental attributes, in the Subadviser's
opinion, have not been fully recognized by the investment community, the Fund's
portfolio may exhibit a high degree of volatility or price fluctuation when
compared to market averages.
An investment in the Fund is not by itself a complete or balanced investment
program. Nevertheless, the securities in which the Fund invests may be an
important part of an investor's portfolio, particularly for long-term investors
able to tolerate short-term fluctuations in the Fund's net asset value.
Investors in the Fund should be willing to accept the risks associated with
investments in the stock market and should consider an investment in the Fund
only as a part of their overall investment portfolio.
QUADRA GROWTH FUND
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term capital
appreciation. There can be no assurance, of course, that the Fund will achieve
its investment objective.
INVESTMENT POLICIES
The Fund seeks to achieve its investment objective through investment
primarily in the common stock of high-quality domestic companies that the
subadviser believes have superior growth potential. The Fund normally will have
at least 65% of its total assets invested in common stock and securities
convertible into common stock. The Subadviser seeks to identify growth companies
that it believes will report a level of corporate earnings that exceeds the
level expected by investment analysts and whose growth potential is, in the
Subadviser's opinion, generally unrecognized or misperceived by the market. In
searching for these companies, the Subadviser uses both quantitative and
fundamental analysis. The Subadviser emphasizes earnings estimate changes of
investment analysts, the recent
6
<PAGE>
trend of company earnings reports, and the fundamental business outlook for the
company in its analysis. The Subadviser uses a variety of valuation measures to
determine whether the share price already reflects positive fundamentals. The
Subadviser attempts to constrain the variability of the investment returns by
employing risk control screens for price volatility, financial quality and
valuation and to the extent possible, gives equal weighting to portfolio
securities. The Fund may invest in preferred stock and convertible debt
securities and in American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") and other similar securities of foreign issuers.
CERTAIN RISK FACTORS
EQUITIES
The fundamental risk of investing in common stock is the risk that the value
of the stock might decrease. Stock values fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than preferred stocks,
fixed-income and money market investments. The market value of all securities,
including equity securities, is based upon the market's perception of value and
not necessarily the book value of the issuer or other objective measure of a
company's worth.
FOREIGN SECURITIES
The Fund may invest in ADRs, EDRs and other similar investments of foreign
issuers. See "Investment Policies" above. Investments in foreign companies
involve certain risks, such as exchange rate fluctuations, political or economic
instability of the issuer or the country of the issuer and the possible
imposition of exchange controls, withholding taxes on dividends or interest
payments, confiscatory taxes or expropriation, Foreign securities may also be
subject to greater fluctuations in price than securities of domestic
corporations denominated in U.S. dollars. Foreign securities and their markets
may not be as liquid as domestic securities and their markets and foreign
brokerage commissions and custody fees are generally higher than those in the
United States, In addition, less information may be publicly available about a
foreign company than about a domestic company, and foreign companies may not be
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of a Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of that Fund. A majority of
outstanding voting securities means the lesser of (1) 67% of the shares of a
Fund present or represented at a shareholder meeting at which the holders of
more than 50% of the outstanding shares are present or represented, or (2) more
than 50% of outstanding shares. Unless otherwise indicated, all investment
policies are not fundamental and may be changed by the Trust's Board of Trustees
("Board") without approval by shareholders of a Fund. For more information
concerning shareholder voting, see "Other Information - The Trust and Its
Shares."
DIVERSIFICATION
Each Fund is "diversified" as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). As a fundamental policy, with respect to 75 % of
its assets, no Fund may purchase a security (other than a U.S. Government
Security) if, as a result, (1) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer or (2) the Fund would own more
than 10% of the outstanding voting securities of any single issuer. Each Fund
reserves the right to invest all or a portion of its assets in one or more of
the open-end investment companies. See "Additional Investment Policies - Core
and Gateway."
7
<PAGE>
CONCENTRATION
Each Fund is prohibited from concentrating its assets in the securities of
issuers in any single industry. As a fundamental policy, no Fund may purchase
securities if, immediately after the purchase, more than 25 % of the value of
the Fund's total assets would be invested in the securities of issuers
conducting their principal business activities in the same industry. This limit
does not apply to investments in U.S. Government Securities, foreign government
securities, repurchase agreements covering U.S. Government Securities or
investment company securities.
ILLIQUID SECURITIES
No Fund may knowingly acquire securities if, as a result, more than 15 % of
the Fund's net assets taken at current value would be invested in securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which the Fund has valued the securities,
including repurchase agreements maturing in more than seven days.
BORROWING AND LENDING
As a fundamental policy, each Fund may borrow money from banks or by
entering into reverse repurchase agreements, but the Funds will limit borrowings
to amounts not in excess of 33 1/3% of the value of the Fund's total assets
(computed immediately after the borrowing). Borrowing for other than temporary
or emergency purposes or meeting redemption requests is limited to 5% of the
value of each Fund's total assets. When a Fund establishes a segregated account
to limit the amount of leveraging of the Fund with respect to certain investment
techniques, the Fund does not treat those techniques as involving borrowings
(although they may have characteristics and risks similar to borrowings and
result in the Fund's assets being leveraged). See "Appendix A: Investments,
Investment Strategies and Risk Considerations - Borrowing" and "- Techniques
Involving Leverage." As a fundamental policy, no Fund may make loans except for
loans of portfolio securities, through the use of repurchase agreements, and
through the purchase of debt securities that are otherwise permitted investments
for the Fund.
SHORT SALES
The Funds may not enter into short sales of securities except short sales
"against the box." In a short sale against the box, a Fund sells securities it
owns or has the right to acquire at no additional cost. A Fund does not
immediately deliver the securities sold, however. The seller is said to have a
short position in the securities sold until it delivers the securities, at which
time it receives the proceeds of the sale. A Fund's decision to make a short
sale "against the box" may be a technique to hedge against market risks when the
Subadviser believes that the price of a security may decline, causing a decline
in the value of a security owned by the Fund or a security convertible into or
exchangeable for such security. In certain cases, future losses in a Fund's long
position would be reduced by an offsetting future gain in the short position. A
Fund's ability to enter into short sales transactions is limited by certain tax
requirements. Under recently enacted legislation, if a Fund has unrealized gain
with respect to a long position and enters into a short sale against the box,
the Fund generally will be deemed to have sold the long position for tax
purposes and thus will recognize gain. See "Dividends, Distributions and Taxes"
in the SAI.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Fund may assume a
temporary defensive position and invest all or any portion of their assets in
cash or in cash equivalents, including (1) short-term U.S. Government
Securities, (2) prime quality short-term instruments of commercial banks, (3)
prime quality commercial paper, (4) repurchase agreements with banks and
broker-dealers covering any of the securities in which the Fund may invest
directly and (5) shares of money market mutual funds. Prime quality refers to
the two highest short-term ratings of a nationally recognized statistical rating
organization. During periods when and to
8
<PAGE>
the extent that a Fund has assumed a temporary defensive position, it will not
be pursuing its investment objective. The Funds may from time to time maintain
investments in cash and cash equivalents pending investment in securities.
COMMON INVESTMENT TECHNIQUES
Each Fund may purchase U.S. Government Securities and enter into repurchase
agreements (for reasons other than temporary defensive purposes) and reverse
repurchase agreements, may lend their portfolio securities and may purchase
portfolio securities on a when-issued or forward commitment basis. It is
currently anticipated that the Funds will not enter into reverse repurchase
agreements or purchase portfolio securities on a when-issued or forward
commitment basis to any significant extent. See "Appendix A: Investments,
Investment Strategies and Risk Considerations."
CORE AND GATEWAY-REGISTERED TRADEMARK-
Notwithstanding the other investment policies of the Funds, each Fund may
seek to achieve its investment objective by converting to a Core and Gateway
structure. Upon future action by the Board and notice to shareholders, a Fund
may convert to this structure. As a result, a Fund would hold as its only
investment, shares of another investment company having substantially the same
investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS
The Subadvisers place orders for the purchase and sale of assets they manage
with brokers and dealers that they select. The Subadvisers seek "best execution"
for all portfolio transactions, but a Fund may pay higher than the lowest
available commission rates when the Subadviser believes it is reasonable to do
so in light of the value of the brokerage and research services provided by the
broker effecting the transaction.
Commission rates for brokerage transactions are fixed on many foreign
securities exchanges, and this may cause higher brokerage expenses to accrue to
a Fund that invests in foreign securities than would be the case for comparable
transactions effected on United States securities exchanges.
The frequency of portfolio transactions of a Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time a
Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. Tax rules
applicable to short-term trading may affect the timing of a Fund's portfolio
transactions or its ability to realize short-term trading profits or establish
short-term positions. An annual portfolio turnover rate of 100% would occur if
all of the securities in a Fund were replaced once in a period of one year.
Higher portfolio turnover rates may result in increased brokerage costs to a
Fund and a possible increase in short-term capital gains or losses. For the
fiscal year ending March 31, 1999, the estimated portfolio turnover rate for
Quadra Growth Fund is not expected to exceed 100%.
5. MANAGEMENT
The business and affairs of the Funds are managed under the direction of the
Board. The Board formulates the general policies of the Funds and generally
meets quarterly to review the results of the Funds, monitor investment
activities and practices and discuss other matters affecting the Funds and the
Trust. Information about the Trustees and the officers of the Trust is in the
SAI under "Management - Trustees and Officers."
THE ADVISER
QUADRA CAPITAL PARTNERS, LLC, located at 270 Congress Street, Boston,
Massachusetts 02210, serves as investment adviser to the Funds under an
Investment Advisory Agreement with the Trust. Subject to the general control of
the Board, the Adviser is responsible for, among other things, developing a
continuing investment program for each Fund in accordance with its investment
objective and reviewing the investment strategies and policies of
9
<PAGE>
each Fund. For its services, the Adviser receives an advisory fee at the
following annual rates.
<TABLE>
<CAPTION>
FEE BASED ON
FUND AVERAGE DAILY NET ASSETS
- ------------------------------ -------------------------
<S> <C>
Quadra Value Equity Fund...... 1.00%
Quadra Growth Fund............ 1.00%
</TABLE>
The Adviser is a limited liability company organized under the laws of the
State of Delaware on September 8, 1995, and is registered under the Investment
Adviser Act of 1940 ("the Advisers Act"). As a new entity, Quadra has no
previous experience managing an investment company. The managing partners of
Quadra have significant experience, however, in the formation and management of
trust and investment management entities including registered investment
companies, registered investment advisers and a commingled fund of funds.
Ms. Eileen Delasandro is a founder and Chief Executive Officer of Quadra.
She has over twenty years' experience in the institutional investment management
industry. Prior to founding Quadra, she was a Partner and Chief Operating
Officer at Nicholas-Applegate Capital Management, L.P. Mr. Donald Levi is a
founder and Chief Operating Officer of Quadra. He has over thirty years'
experience in the banking and trust industries. Prior to founding Quadra, he was
founder and Chief Executive Officer of Western Trust Services. Mr. Howard
Stevenson is a founder and Chairman of Quadra. He is also the Sarofim-Rock
Professor at Harvard Business School, where he has taught for over twenty-five
years, and was co-chairman of the Baupost Group, a private registered investment
adviser, which he co-founded. Mr. Philip Hamilton is Senior Vice President at
Quadra. Prior to joining Quadra, he was Senior Researcher in Finance at Harvard
Business School. He serves as compliance officer for the firm. Mr. Hamilton has
completed the NASD's Series 6, 26 and 63 examinations.
THE SUBADVISERS
To assist it in carrying out its responsibilities under the Investment
Advisory Agreement, Quadra has retained Subadvisers to provide advisory services
and make daily investment decisions for each Fund. Quadra makes recommendations
to the Trust's Board regarding the selection and retention of these Subadvisers.
On an ongoing basis, Quadra evaluates the Subadvisers and reports to the Board
concerning their investment results. Quadra also reviews the investments made
for the Funds by the Subadvisers to see that they comply with the Funds'
investment objectives, policies and restrictions.
The following Subadviser and individuals of each are primarily responsible
for the day-to-day management of the Funds:
CARL DOMINO ASSOCIATES, L.P., ("CDA"), 580 Village Boulevard, West Palm
Beach, Florida 33409, manages the portfolio of the QUADRA VALUE EQUITY FUND. CDA
is a limited partnership organized under the laws of the State of Delaware, and
is registered as an investment adviser under the Advisers Act. It presently
manages over $2 billion in assets for colleges and universities, retirement
funds, state and local governments, investment companies and other institutions.
Mr. Carl Domino, CFA, founded CDA in 1987 and is presently Managing Partner and
Senior Portfolio Manager of CDA. Mr. Domino has over twenty-five years' equity
investment experience. Prior to that, Mr. Domino was Senior Portfolio
Manager/Chairman of the Investment Strategy Committee at Delaware Management
Company. Mr. Domino holds a Master's Degree in Business Administration from
Harvard Business School. Mr. Paul Scoville, is a Senior Equity Portfolio Manager
at CDA. He has over twenty-seven years' equity investment experience. Prior to
joining CDA, Mr. Scoville was Managing Director and Senior Portfolio Manager at
Criterion Investment Management. He holds a Law Degree from Emory University.
Mr. Stephen Kent, Jr., CFA, is a Senior Portfolio Manager at CDA. He has over
twenty-six years' investment experience, prior to joining CDA, Mr. Kent was a
Portfolio Manager with George D. Bjurman & Associates in Los Angeles. Mr. Kent
holds a degree
10
<PAGE>
from Washington & Lee University. Mr. David Roberts is a Research Analyst at
CDA. He joined the firm in 1996 following his graduate studies in Business
Administration at Vanderbilt University. Mr. Roberts is a Chartered Financial
Analyst candidate.
SMITH ASSET MANAGEMENT GROUP, L.P. ("Smith Group"), 500 Crescent Court,
Suite 250, Dallas, Texas 75201 manages the portfolio of the QUADRA GROWTH FUND.
Smith Group is a limited partnership organized under the laws of the State of
Texas and is a registered investment adviser under the Advisers Act. It
presently manages over $1 billion in assets in a disciplined equity style for
company retirement plans, foundations, endowments, trust companies, and high net
worth individuals. Mr. Stephen S. Smith, CFA, co-founded Smith Group in 1995 and
is currently partner and chief executive officer. He has over twenty years of
equity investing experience. Mr. Smith previously served as senior portfolio
manger with NationsBank where he managed the institutional asset management
group. Mr. Smith holds a Masters Degree in Business Administration and a
Bachelors of Science Degree in Engineering from the University of Alabama. Mr.
Stephen J. Summers, a co-founder of Smith Asset Management, is partner and chief
operating officer. He has over twelve years of equity investing experience. Mr.
Summers previously served as general partner of Discovery Management, Ltd. He
also was a Vice President and Financial Analyst for Cardinal Investment Company.
Mr. Summers holds a Master's Degree in Business Administration from Southern
Methodist University. Ms. Sarah Castleman, CPA, is Vice President and portfolio
manager at Smith Group. She has over eight years of finance and investment
management industry experience. Previously, she was a Trust Officer at
NationsBank in Dallas. She also served as an audit and financial consultant at
Arthur Anderson's Dallas office. Ms. Castleman holds a B.B.A. from the
University of Texas. Mr. John Brim is Vice President and portfolio manager at
Smith Group. He has over eight years of investment management industry
experience. Previously, he was an investment consultant with Deloitte & Touche
LLP. He was also a senior client service manager at NationsBank in Dallas.
Quadra performs internal due diligence on each Subadviser and monitors each
Subadviser's performance. Quadra will be responsible for communicating
performance targets and evaluations to the Subadvisers, supervising each
Subadviser's compliance with its Fund's fundamental investment objectives and
policies, authorizing Subadvisers to engage in certain investment techniques for
the Funds, and recommending to the Board whether sub-advisory agreements should
be renewed, modified or terminated. Quadra pays a fee to each of the
Subadvisers. These fees are borne solely by Quadra and do not increase the fees
paid by shareholders of the Funds. The amount of these fees may vary from time
to time as a result of periodic negotiations with the Subadvisers and pursuant
to certain factors described in the SAI. As of the date of this Prospectus,
Quadra will pay CDA, and Smith Group fees of 0.31% and 0.37%, respectively, of
the average daily net assets of the corresponding Fund for which the Subadviser
provides investment advisory services.
Quadra also may from time to time recommend that the Board replace one or
more Subadvisers or appoint additional Subadvisers, depending on the Adviser's
assessment of what combination of Subadvisers it believes will optimize each
Fund's chances of achieving its investment objectives. In the event that a
Subadviser ceased to provide investment advisory services for a Fund, Quadra
would select a similarly qualified investment adviser to replace the Subadviser
but would not manage the Fund's portfolio.
PERFORMANCE OF INVESTMENT SUBADVISERS
BACKGROUND OF CARL DOMINO ASSOCIATES PERFORMANCE
The following table sets forth composite performance data relating to the
historical performance of separate accounts and mutual fund portfolios managed
by CDA that have investment objectives,
11
<PAGE>
policies, strategies and risks substantially similar to those of Quadra Value
Equity Fund. The data is provided to illustrate the past performance of CDA in
managing substantially similar accounts as measured against specified market
indices and does not represent the performance of the Quadra Value Equity Fund.
Investors should not consider this performance data as an indication of future
performance of the Quadra Value Equity Fund or of CDA.
These investment results have been calculated and presented in compliance
with the AIMR Performance Presentation Standards of the Association for
Investment Management and Research ("AIMR"). AIMR has not been involved with the
preparation or review of this report. All returns presented were calculated on a
total return basis and include all dividends and interest, accrued income and
realized and unrealized gains and losses. All returns reflect the deduction of
the highest effective investment advisory fees, brokerage commissions and
execution costs paid by the investment adviser's private accounts, without
provision for federal or state income taxes. Custodial fees, if any, were not
included in the calculation. Account fees vary depending on, among other things,
the applicable fee schedule, portfolio size and nature of the account. CDA's
fees are available on request.
This composite consists of all fully discretionary tax-exempt portfolios
managed by CDA that have an investment objective, and investment policies,
strategies and risks substantially similar to those of the Quadra Value Equity
Fund. Securities transactions are accounted for on the trade date and accrual
accounting is utilized. Cash and equivalents are included in performance
returns. Results for the period are time-weighted in accordance with AIMR
standards. The private accounts that are included in the composite are not
subject to the same types of expenses to which the Quadra Value Equity Fund is
subject nor to the diversification requirements, specific tax restrictions and
investment limitations imposed by the 1940 Act or Subchapter M of the Code.
Consequently, the performance results for the composite could have been
adversely affected if the private accounts included in the composite had been
regulated as investment companies under the federal securities laws. The
composite contains 16 portfolios, valued at $597 million, or 48% of the firm's
total assets.
The investment results of CDA's composites presented below are unaudited and
are not intended to predict or suggest the returns that might be experienced by
the Fund or an individual investor investing in Quadra Value Equity Fund.
Investors should also be aware that the use of a methodology different from that
used below to calculated performance could result in different performance data.
<TABLE>
<CAPTION>
CDA'S COMPOSITE
FOR THE
VALUE EQUITY S&P 500
STYLE INDEX(2)
----------------- -----------
<S> <C> <C>
Since Inception
(1987-1998)(1).......... 14.83% 15.97%
5 Years (1992-1998)(1)... 21.85% 22.38%
3 Years (1994-1998)(1)... 29.77% 32.78%
1 Year (1998)(1)......... 38.47% 47.98%
Year to Date(1).......... 10.01% 13.96%
1992..................... 8.52% 7.69%
1993..................... 13.11% 10.01%
1994..................... 4.34% 1.32%
1995..................... 35.27% 37.47%
1996..................... 28.85% 23.07%
1997..................... 30.64% 33.23%
</TABLE>
(1) Average annual return through March 31, 1998. Return for less than one year
is not annualized.
(2) The S&P 500 Index (the "Index") is a widely recognized, unmanaged index of
market activity based upon the aggregate performance of a selected portfolio
of publicly traded common stocks of 500 industrial, transportation, utility
and financial companies, regarded as generally representative of the U.S.
stock market. The Index is subject to monthly adjustments to reflect the
reinvestment of dividends and other distributions. The Index reflects the
total return of securities comprising the Index, including changes in market
prices as well as accrued investment income, which is presumed to be
reinvested. Performance figures for the Index do not reflect deduction of
transaction costs or expenses, including management fees, brokerage
commissions, or other expenses of investing.
BACKGROUND OF SMITH GROUP PERFORMANCE
The following table sets forth composite performance data relating to the
historical performance of separate accounts and mutual fund portfolios managed
by Mr. Stephen Smith, since the dates indicated, that have investment
objectives, policies, strategies and risks substantially similar to those of
12
<PAGE>
Quadra Growth Fund. The data is provided to illustrate the past performance of
Mr. Smith in managing substantially similar accounts as measured against a
specified market index and does not represent the performance of the Fund.
Investors should not consider this performance data as an indication of future
performance of the Fund, the Smith Group or Mr. Smith.
Mr. Smith's composite performance data were calculated on a total return
basis and include all dividends and interest, accrued income and realized and
unrealized gain and loss. All returns reflect the deduction of the highest
effective investment advisory fees, brokerage commissions and execution costs
paid by the investment adviser's private accounts, without provision for federal
or state income taxes. Custodial fees, if any, were not included in the
calculation. Account fees vary depending on, among other things, the applicable
fee schedule, portfolio size and nature of the account. Mr. Smith's fees are
available on request. Mr. Smith's composites include all actual, fee-paying,
discretionary institutional private accounts and mutual fund portfolios managed
by Mr. Smith. Securities transactions are accounted for on the trade date and
accrual accounting is utilized. Cash and equivalents are included in performance
returns. The monthly returns of Mr. Smith's composites combine the individual
accounts' returns (calculated on a time-weighted rate of return) by asset-
weighing each individual account's asset value as of the beginning of the month.
Quarterly and yearly returns are calculated by geometrically linking the monthly
and quarterly returns, respectively. The yearly returns are computed by
geometrically linking the returns of each quarter within the calendar year.
The institutional private accounts that are included in Mr. Smith's
composites are not subject to certain investment limitations, diversification
requirements, specific tax restrictions and investment limitations imposed on
the Portfolios by the 1940 Act or the Internal Revenue Code. Consequently, the
performance results for Mr. Smith's composites could have been adversely
affected if the institutional private accounts included in the composite had
been regulated as investment companies under the federal securities laws.
The investment results of Mr. Smith's composites presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Fund or an individual investor investing in Quadra Growth
Fund. Investors should also be aware that the use of a methodology different
from that used below to calculated performance could result in different
performance data.
<TABLE>
<CAPTION>
MR. SMITH'S
COMPOSITE FOR THE S&P 500
GROWTH STYLE(2) INDEX(3)
--------------------- ---------------
<S> <C> <C>
Since Inception
1/1/95(1)........ 37.37% 31.15%
3 Years........... 37.57% 32.78%
1 Year(1)......... 52.57% 47.98%
Year to Date...... 10.38% 13.96%
1995.............. 38.14% 37.54%
1996.............. 31.30% 22.99%
1997.............. 39.46% 33.23%
</TABLE>
(1) Average annual return through March 31, 1998. Return for less than one year
is not annualized.
(2) The composite returns shown in this chart consists of total returns for the
period January 1995 through March 31, 1998 of accounts for which Stephen S.
Smith, now Chief Investment Officer of the Smith Group, served as the
primary manager as described above, including the period January 1, 1995 -
October 31, 1995, during which Mr. Smith was a senior portfolio manager for
another firm. The composite does not include the performance of other
accounts not managed similarly to the Portfolio. Since November 1, 1995 at
Smith Group, Mr. Smith has employed the same investment style in
discretionary private accounts as he employed in the accounts described
above. No other person played a significant part in achieving the prior
performance of these accounts during Mr. Smith's tenure. The data for
January 1, 1995 - October 31, 1995 are not, and should not be, construed as
the performance data of Smith Group, which began business on November 1,
1995.
(3) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any. The
Index reflects the total return of securities comprising the Index,
including changes in market prices as well as accrued investment income,
which is presumed to be reinvested. Performance figures for the Index do not
reflect deduction of transaction costs or expenses, including management
fees, brokerage commissions, or other expenses of investing.
13
<PAGE>
THE ADMINISTRATOR
On behalf of the Funds, the Trust has entered into an Administration
Agreement with FAdS. Under the agreement, FAdS is responsible for the
supervision of the overall management of the Trust (including any services for
the Funds that the Trust has to pay fees) and providing the Trust with general
office facilities, necessary personnel to help ensure the effective operation of
the Trust as well as providing persons satisfactory to the Board to serve as
officers of the Trust. For these services, FAdS is entitled to receive a fee
from each Fund computed and paid monthly at an annual rate of 0.10% of the first
$50 million of each Fund's average daily net assets and 0.05% of the average
daily net assets over $50 million, subject to an annual minimum of $40,000.
Under a Fund Accounting Agreement with the Trust, FAcS performs portfolio
accounting services for the Funds, including determination of the Funds' net
asset value. For its services FAcS is entitled to receive a fee with respect to
each Fund at an annual rate of $36,000 subject to adjustments for the number and
type of portfolio transactions.
As of June 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies and
collective investment funds with assets of approximately $38 billion.
THE DISTRIBUTOR
Under a Distribution Agreement with the Trust, FFSI acts as distributor of
the Funds' shares. FFSI acts as the agent of the Trust in connection with the
offering of shares of the Fund. FFSI receives no compensation for its services
under the Distribution Agreement. FFSI may enter into arrangements with banks,
broker-dealers or other financial institutions ("Processing Organizations")
through which investors may purchase or redeem shares. FFSI may, at its own
expense and from its own resources, compensate certain persons who provide
services in connection with the sale or expected sale of shares of the Funds.
Investors purchasing shares of the Funds through another financial institution
should read any materials and information provided by the financial institution
to acquaint themselves with its procedures and any fees that it may charge. FFSI
is a registered broker-dealer and investment adviser and is a member of the
National Association of Security Dealers.
SHAREHOLDER SERVICES
Shareholder inquiries and communications concerning the Funds may be
directed to FSS. Under a Transfer Agency and Services Agreement, FSS acts as the
Funds' transfer agent and dividend disbursing agent. FSS maintains an account
for each shareholder of record where all shares purchased are credited, together
with any distributions that are reinvested in additional shares. FSS also
performs other transfer agency functions and acts as dividend disbursing agent
for the Trust. For its services, FSS is entitled to receive a fee of $24,000
annually and annual shareholder fees of $25.00 for retail accounts and $125.00
for institutional accounts.
The Trust has adopted a shareholder services plan for the Funds 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 FAdS to enter into
agreements pursuant to which the shareholder servicing agent performs certain
shareholder services not otherwise provided by the Funds' 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 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
14
<PAGE>
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.
As of the date of this Prospectus each of FAdS, FFSI, FSS and FAcS was
controlled by 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. 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 1.00% of
each Fund's average daily net assets.
The Trust is obligation to pay for all of its expenses, subject to Adviser's
agreement to reimburse the Trust for excess expenses of the Funds. The Funds'
expenses comprise Trust expenses attributable to the Funds and expenses not
attributable to any particular portfolio of the Trust, which are allocated among
the Funds and the portfolios in proportion to their average monthly net assets.
Each Fund's expenses include: interest charges; taxes; brokerage fees and
commissions; certain insurance premiums; applicable fees and expenses under the
Trust's contracts with the Adviser, FAdS, FSS and any subcustodian; fees of
pricing, interest, dividend, credit and other reporting services; costs of
membership in trade associations; auditing, legal and compliance expenses; costs
of preparing and printing the Trust's prospectuses, statements of additional
information and shareholder reports and delivering them to existing
shareholders; compensation of certain of the Trust's trustees, officers and
employees and other personnel performing services for the Trust; and
registration fees and related expenses.
The Adviser, FAdS, FSS, and FAcS in their sole discretion, may waive all or
any portion of their respective fees, which are accrued daily and paid monthly.
Any such waiver, which could be discontinued at any time, would have the effect
of increasing a Fund's performance for the period during which the waiver was in
effect and would not be recouped at a later date.
YEAR 2000
Like other mutual funds, financial and other business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Adviser and other service providers to the Funds do
not properly process and calculate date related information and data from and
after January 1, 2000. The Adviser and FAdS are taking steps to address the Year
2000 issue with respect to the computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. There can be no assurance, however, that these steps
will be sufficient to avoid any adverse impact on the Funds from this problem.
6. PURCHASES AND REDEMPTIONS OF SHARES
Investments in the Funds may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through FSS, which
accepts orders for purchases and redemptions from shareholders of record and new
investors. Shareholders of record will receive from the Trust periodic
statements listing all account activity during the statement period. The Trust
reserves the right in the future to modify, limit or terminate any shareholder
privilege upon appropriate notice to shareholders and charge a fee for certain
shareholder services, although no such fees are currently contemplated.
15
<PAGE>
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined on all weekdays except days when the New York Stock Exchange is
closed ("Business Day"). Normally, the New York Stock Exchange is closed on New
Year's Day, Dr. Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas. Fund
shares are issued immediately after an order for the shares in proper form is
accepted by FSS. Each Fund's net asset value is calculated at 4:00 p.m., Eastern
time on each Business Day. Fund shares become entitled to receive dividends on
the next Business Day after the order is accepted.
The Funds reserve the right to reject any subscription for the purchase of
their shares. Share certificates are only issued to shareholders of record upon
their written request and no certificates are issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of a Fund's
next-determined net asset value after FSS receives the redemption order in
proper form (and any supporting documentation which FSS may require). Shares
redeemed are not entitled to receive dividends declared after the day on which
the redemption becomes effective.
Normally, redemption proceeds are paid immediately, but in no event later
than seven days after a redemption order is accepted. Proceeds of redemption
requests (and exchanges), however, will not be paid unless any check used for
investment has been cleared by the shareholder's bank, 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 and
mailed to the shareholder's record address. The right of redemption may not be
suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings or under any emergency or other
circumstance as determined by the SEC.
Proceeds of redemptions normally are paid in cash. However, payments may be
made wholly or partially in portfolio securities if the Board determines that
payment in cash would be detrimental to the best interests of a Fund. The Trust
will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of a Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to ensure that telephone orders are
genuine, including the recording of certain transactions. If the Trust did not
employ such procedures it could be liable for any losses due to unauthorized or
fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
FSS maintains a shareholder account for each shareholder. The Trust does not
issue share certificates.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder services
apply to investors who invest in the Funds directly. These investors
16
<PAGE>
may open an account by completing an account application or by contacting Quadra
at the address on the first page of this Prospectus. For those shareholder
services not referenced on the account application or to change information on a
shareholder's account (such as addresses), investors should request an Optional
Services Form from Quadra.
INITIAL PURCHASE OF SHARES
There is a $100,000 minimum for an initial investment in any of the Funds.
The Trust reserves the right to waive the minimum investment requirement.
MAIL. Investors may send a check made payable to The Trust along with a
completed account application for a Fund to FSS at the address listed 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, FSS or
FFSI.
BANK WIRE. To make an initial investment in a Fund using the wire system
for transmittal of money among banks, an investor should first telephone Quadra
at 800.595.9291 or 617.426.0900 to obtain an account number. The investor should
then instruct a bank to wire the investor's money immediately to:
BankBoston
Boston, Massachusetts
ABA# 011000390
For Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: [Name of 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 the bank early in the day so
the wire transfer can be received prior to 4:00 p.m., Eastern time, on the same
day. The bank may impose a charge for transmitting payment by wire, and there
also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is no minimum for subsequent purchases. Subsequent purchases may be
made by mailing a check or by sending a wire as indicated above. Shareholders
using the wire system for subsequent purchases should first telephone Quadra at
800.595.9291 or 617.426.0900 to notify it of the wire transfer. All payments
should clearly indicate the shareholder's name and account number.
AUTOMATIC INVESTMENT. Shareholders may purchase shares at regular,
pre-selected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is an Automated Clearing House member. Under the program, existing
shareholders may authorize amounts of $250 or more to be debited from their bank
account and invested in a Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the application forms from Quadra.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to Quadra.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or receive redemption
proceeds by 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.
MAIL. Shareholders may make a redemption in any amount by sending a written
request to Quadra accompanied by any share certificate that was issued to the
shareholder. All share certificates submitted for redemption must be signed by
the shareholder with a signature guarantee. All accompanying written requests
for redemption must be signed by the shareholder and, in some cases, must
17
<PAGE>
have a signature guaranteed. See "Purchases and Redemptions of Shares - Other
Redemption Matters."
TELEPHONE. A shareholder that has elected telephone redemption privileges
may make a telephone redemption request by calling Quadra at 800.595.9291 or
617.426.0900 and providing the shareholder's account number, the exact name in
which the shares are registered, the shareholder's social security or taxpayer
identification number. The Trust or FSS may employ other procedures such as
recording certain transactions to ensure telephone instructions are genuine. If
such procedures are followed, neither FSS nor the Trust will be liable for any
losses due to unauthorized or fraudulent redemption requests. In response to the
telephone redemption instruction, a Fund will mail a check to the shareholder's
record address or, if the shareholder has elected wire redemption privileges,
wire the proceeds.
BANK WIRE. For redemptions of more than $5,000, a shareholder that has
elected wire redemption privileges may request a Fund to transmit the redemption
proceeds by Federal funds wire to a bank account designated on the shareholder's
account application. To request wire redemptions by telephone, the shareholder
also must have elected the telephone redemption privilege on the account
application. Redemption proceeds are transmitted by wire on the next business
day after the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem shares at regular,
pre-selected 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 Quadra.
OTHER REDEMPTION MATTERS. To protect shareholders and the Funds against
fraud, signatures on certain requests must have a signature guarantee. Requests
must be made in writing and include a signature guarantee for any of the
following transactions: (1) any endorsement on a stock certificate; (2) written
instruction to redeem Shares whose value exceeds $50,000; (3) instructions to
change a shareholder's record name; (4) redemption in an account in which the
account address or account registration has changed within the last 30 days; (5)
the proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account; (6) proceeds are to be paid to
someone other than the registered owners or to an account with a different
registration; or (7) change of automatic investment or redemption, dividend
election, telephone redemption or exchange option election or any other option
election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible institution acceptable
to FSS, including a bank, a broker, a dealer, a national securities exchange, a
credit union, or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the signature of each
person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost all
distributions on the account will be reinvested in additional shares of the
appropriate 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.
18
<PAGE>
EXCHANGES
EXCHANGE PROCEDURES
Shareholders may exchange their shares for shares of any other Quadra Fund,
or the Daily Assets Government Fund, a money market fund of the Trust offered
through a separate prospectus, if shares of the other Quadra Fund are eligible
for sale in the shareholder's state of residence. Exchanges may only be made
between accounts registered in the same name. The minimum amount to open an
account in a Fund through an exchange from another fund or Daily Assets Cash
Fund is $100,000. When a shareholder exchanges shares, a completed account
application must be submitted to open a new account in a Fund if the shareholder
requests any shareholder privilege not associated with the existing account.
Exchanges are subject to the fees and the restrictions listed in the prospectus
for the fund into which a shareholder is exchanging. The Funds do not charge for
exchanges and there is currently no limit on the number of exchanges a
shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined after all proper instructions and all necessary
supporting documents by the fund whose shares are being exchanged are received
by Quadra.
MAIL. Exchanges may be accomplished by written instruction to Quadra. All
written requests for exchanges must be signed by the shareholder (a signature
guarantee is not required) and all certificates submitted for exchange must be
endorsed by the shareholder with a signature guarantee.
TELEPHONE. Exchanges may be accomplished by telephone by any shareholder
that has elected telephone exchange privileges by calling Quadra at 800.595.9291
or 617.426.0900 and providing the shareholder's account number, the exact name
in which the shareholder's shares are registered and the shareholder's social
security or taxpayer identification number.
INDIVIDUAL RETIREMENT ACCOUNTS
None of the Funds individually should be considered a complete investment
vehicle for the assets held in individual retirement accounts ("IRAs"). The
minimum initial investment for an IRA is $100,000. The Trust reserves the right
to waive this minimum. There is no minimum subsequent investment. Individuals
may make tax-deductible IRA contributions of up to a maximum of $2,000 annually.
However, this deduction will be reduced if the individual or, in the case of a
married individual filing jointly, either the individual or the individual's
spouse is an active participant in an employer-sponsored retirement plan and has
adjusted gross income above certain levels.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers, banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of the Transfer Agent. Processing Organizations may receive
as a dealer's reallowance a portion of the sales charge paid by their customers
who purchase Fund shares. In addition, Processing Organizations may charge their
customers a fee for their services and are responsible for promptly transmitting
purchase, redemption and other requests to a Fund. The Trust is not responsible
for the failure of any Processing Organization to promptly forward these
requests.
Investors who purchase shares through a Processing Organization may be
charged a fee if they effect transactions in the Funds' shares through a broker
or agent and will be subject to the procedures of their Processing Organization,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
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who invest in the Funds' shares. These investors should acquaint themselves with
their Processing Organization's procedures and should read this Prospectus in
conjunction with any materials and information provided by their Processing
Organization. Customers who purchase the Funds' shares through a Processing
Organization may or may not be the shareholder of record and, subject to their
Processing Organization's and a Fund's procedures, may have a Fund's shares
transferred into their name. Under their arrangements with the Trust,
broker-dealer Processing Organizations are not generally required to deliver
payment for purchase orders until several business days after a purchase order
has been received by a Fund. Certain other Processing Organizations may also
enter purchase orders with payment to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a Processing Organization. These shareholders should
contact their Processing Organization for further information. The Trust may
confirm purchases and redemptions of a Processing Organization's customers
directly to the Processing Organization, which in turn will provide its
customers with such confirmations and periodic statements as may be required by
law or agreed to between the Processing Organization and its customers. The
Trust is not responsible for the failure of any Processing Organization to carry
out its obligations to its customer. Certain states permit shares of a Fund to
be purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
7. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions representing the net investment income of the Funds are
declared and paid at least annually. Any distributions of net capital gain
realized by the Funds are distributed annually.
Shareholders may choose either to have all distributions of net investment
income reinvested in additional shares of the Funds or paid in cash or to have
distributions of net capital gain reinvested in additional shares of the Funds
or paid in cash. All distributions are treated in the same manner for Federal
income tax purposes whether paid in cash or reinvested in the Funds' shares.
All distributions are reinvested at a Fund's net asset value as of the
payment date of the distribution. All distributions are reinvested unless
another option is selected. All distributions not reinvested are paid to the
shareholder in cash and may be paid more than seven days following the date on
which distributions would otherwise be reinvested.
TAXES
Each Fund intends to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Funds will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to its shareholders.
Because the Funds intend to distribute all of their net investment income and
net capital gain each year, the Funds should avoid all Federal income and excise
taxes.
Dividends paid by a Fund out of its net investment income (including any
realized net short-term capital gain) are taxable to shareholders as ordinary
income. Distributions of net capital gain (i.e., the excess of net gain from
capital assets held for not more than one year) will be treated in the hands of
shareholders as long-term capital gain regardless of how long a shareholder has
held shares in a Fund. If Fund shares are sold at a loss after being held for
six months or less, the loss will be treated as long-term capital loss to the
extent of any distribution of net capital gain received on those shares.
Any dividend or distribution received by a shareholder reduces the net asset
value of the
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shareholder's shares by the amount of the dividend or distribution. To the
extent that the income or gain comprising a dividend or distribution was accrued
by a Fund before the shareholder purchased the shares, the dividend or
distribution would be in effect a return of capital to the shareholder. All
dividends and distributions, including those that operate as a return of
capital, however, are taxable as described above to the shareholder receiving
them regardless of the length of time he may have held shares prior to the
dividend or distribution.
It is expected that a portion of a Fund's dividends to shareholders will
qualify for the dividends received deduction for corporations.
The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to a Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Funds will be mailed to shareholders shortly after the close of each year.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisers.
8. OTHER INFORMATION
PERFORMANCE INFORMATION
Each Fund's performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended to
indicate future performance. A Fund's yield is a way of showing the rate of
income earned by the Fund as a percentage of a Fund's share price. Yield is
calculated by dividing the net investment income of a Fund for the stated period
by the average number of shares entitled to receive dividends and expressing the
result as an annualized percentage rate based on the Fund's share price at the
end of the period. Total return refers to the average annual compounded rates of
return over some representative period that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, after giving effect to the reinvestment of all dividends and
distributions and deductions of expenses during the period. A Fund also may
advertise its total return over different periods of time or by means of
aggregate, average, year by year, or other types of total return figures.
Because average annual returns tend to smooth out variations in each Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
Each Fund's advertisements may reference ratings and rankings among similar
funds by independent evaluators such as Morningstar, Lipper Analytical Services,
Inc. or IBC/Donoghue, Inc. In addition, the performance of the Funds may be
compared to recognized indices of market performance. The comparative material
found in a Fund's advertisements, sales literature or reports to shareholders
may contain performance ratings. These are not to be considered representative
or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FFSI would permit a bank or bank affiliate to serve
as a Processing Organization or perform sub-transfer agent or similar services
for the Trust and its shareholders. If
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a bank or bank affiliate were prohibited from performing all or a part of the
foregoing services, its shareholder customers would be permitted to remain
shareholders of the Trust and alternative means for continuing to service them
would be sought. It is not expected that shareholders would suffer adverse
financial consequences as a result of any changes in bank or bank affiliate
service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of each Fund as of 4:00
p.m., Eastern time, on each Business Day by dividing the value of each Fund's
net assets (i.e., the value of its portfolio securities and other assets less
its liabilities) by the number of the Fund's shares outstanding at the time the
determination is made. Securities owned by a Fund for which market quotations
are readily available are valued at current market value or, in their absence,
at fair value as determined by procedures approved by the Board. Purchases and
redemptions are effected at the net asset value next-determined after any
purchase or redemption order is processed.
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
Funds) and may in the future divide portfolios or series into two or more
classes of shares (such as Investor and Institutional Shares). Currently the
authorized shares of the Trust are divided into 23 separate series.
Each share of each fund of the Trust has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately, except that expenses related to the distribution of the shares
of each class (and certain other expenses such as transfer agency and
administrative expenses) are borne solely by those shares and each class votes
separately with respect to the provisions of any Rule 12b-1 plan which pertain
to the class and other matters for which separate class voting is appropriate
under applicable law. Generally, shares will be voted in the aggregate without
reference to a particular portfolio, except if the matter affects only one
portfolio or voting by portfolio or class is required by law, in which case
shares will be voted separately by portfolio. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by Federal or
state law. Shareholders (and Trustees) have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of a Fund. Accordingly, those shareholders may be able to greatly affect
(if not determine) the outcome of a shareholder vote. As of July 1, 1998, the
Magill Family Foundation may be deemed to have controlled Quadra Growth Fund and
Quadra Value Equity Fund.
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APPENDIX A
INVESTMENTS, INVESTMENT
STRATEGIES AND RISK
CONSIDERATIONS
COMMON STOCK AND PREFERRED STOCK
Common stockholders are the owners of the company issuing the stock and,
accordingly, vote on various corporate governance matters such as mergers. They
are not creditors of the company, but rather, upon liquidation of the company
are entitled to their pro rata share of the company's assets after creditors
(including fixed income security holders) and, if applicable, preferred
stockholders are paid. Preferred stock is a class of stock having a preference
over common stock as to dividends and, generally, as to the recovery of
investment. A preferred stockholder is a shareholder in the company and not a
creditor of the company as is a holder of the company's fixed income securities.
Dividends paid to common and preferred stockholders are distributions of the
earnings of the company and not interest payments, which are expenses of the
company. Equity securities owned by a Fund may be traded on national securities
exchanges, in the over-the-counter market or on a regional securities exchange
and may not be traded every day or in the volume typical of securities traded on
a major national securities exchange. As a result, disposition by a Fund of a
portfolio security to meet redemptions by shareholders or otherwise may require
the Fund to sell these securities at a discount from market prices, to sell
during periods when disposition is not desirable, or to make many small sales
over an extended period of time. The market value of all securities, including
equity securities, is based upon the market's perception of value and not
necessarily the book value of an issuer or other objective measure of a
company's worth.
CONVERTIBLE SECURITIES
Convertible securities, which include convertible debt, convertible
preferred stock and other securities exchangeable under certain circumstances
for shares of common stock, are fixed income securities or preferred stock which
generally may be converted at a stated price within a specific amount of time
into a specified number of shares of common stock. A convertible security
entitles the holder to receive interest paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in that they
ordinarily provide a stream of income with generally higher yields than those of
common stocks of the same or similar issuers. These securities are usually
senior to common stock in a company's capital structure, but usually are
subordinated to non-convertible debt securities. In general, the value of a
convertible security is the higher of its investment value (its value as a fixed
income security) and its conversion value (the value of the underlying shares of
common stock if the security is converted). As a fixed income security, the
value of a convertible security generally increases when interest rates decline
and generally decreases when interest rates rise. The value of a convertible
security is, however, also influenced by the value of the underlying common
stock. A Fund may only invest in convertible securities that are investment
grade.
A Fund may invest in equity-linked securities, including Preferred Equity
Redemption Cumulative Stock ("PERCS"), Equity-Linked Securities ("ELKS"), and
Liquid Yield Option Notes ("LYONS"). Equity-Linked Securities are securities
that are convertible into or based upon the value of, equity securities upon
certain terms and conditions. The amount received by an investor at maturity of
these securities is not fixed but is based
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on the price of the underlying common stock, which may rise or fall. In
addition, it is not possible to predict how equity-linked securities will trade
in the secondary market or whether the market for them will be liquid or
illiquid.
WARRANTS
A Fund may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Unlike
convertible securities and preferred stocks, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations as a result of speculation or other factors and failure of the
price of the underlying security to reach a level at which the warrant can be
prudently exercised (in which case the warrant may expire without being
exercised, resulting in the loss of a Fund's entire investment therein).
ADRS AND EDRS
The Quadra Growth Fund may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs"), which are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depository of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Fund may also invest in European
Depositary Receipts ("EDRs"), receipts issued by a European financial
institution evidencing an arrangement similar to that of ADRs, and in other
similar instruments representing securities of foreign companies. EDRs, in
bearer form, are designed for use in European securities markets.
U.S. GOVERNMENT SECURITIES
The Funds may invest in securities issued by the United States Treasury,
such as Treasury bills, notes and bonds, that are fully guaranteed as to payment
of principal and interest by the United States Government ("U.S. Government
Securities"). The Funds may invest in U.S. Government Securities, that is,
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities. The U.S. Government Securities in
which these Funds may invest include obligations issued or guaranteed by U.S.
Government agencies and instrumentalities and backed by the full faith and
credit of the U.S. Government, such as those guaranteed by the Small Business
Administration or issued by the Government National Mortgage Association. In
addition, the U.S. Government Securities in which the Funds may invest include
securities supported primarily or solely by the creditworthiness of the issuer,
such as securities of the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation and the Tennessee Valley Authority. There is no
guarantee that the U.S. Government will support securities not backed by its
full faith and credit. Accordingly, although these securities have historically
involved little risk of loss of principal if held to maturity, they may involve
more risk than securities backed by the U.S. Government's full faith and credit.
FINANCIAL INSTITUTION OBLIGATIONS
The Funds may invest in obligations of financial institutions, including
negotiable certificates of deposit, bankers' acceptances and time deposits of
U.S. banks (including savings banks and savings associations), foreign branches
of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S.
branches and agencies of foreign banks (Yankee dollars), and wholly-owned
banking-related subsidiaries of foreign banks.
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Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft which
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand but may be subject
to early withdrawal penalties which could reduce a Fund's yield. Deposits
subject to early withdrawal penalties or that mature in more than 7 days are
treated as illiquid securities if there is no readily available market for the
securities. A Fund's investment in the obligations of foreign banks and their
branches, agencies or subsidiaries may be obligations of the parent, of the
issuing branch, agency or subsidiary, or both.
Investments in foreign bank obligations are limited to banks and branches
located in countries which the Subadvisers believe do not present undue risk.
ILLIQUID SECURITIES
RESTRICTED SECURITIES
Each Fund may invest up to 15% of its net assets in securities that at the
time of purchase are illiquid. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933 ("Restricted
Securities"), securities which are otherwise not readily marketable, such as
over-the-counter options, and repurchase agreements not entitling the holder to
payment of principal in 7 days. Limitations on resale may have an adverse effect
on the marketability of portfolio securities and a Fund might also have to
register Restricted Securities in order to dispose of them, resulting in expense
and delay. A Fund might not be able to dispose of Restricted or other securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions. There can be no assurance that a liquid market will
exist for any security at any particular time.
An institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, including repurchase agreements,
commercial paper, foreign securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on the issuer's ability to honor
a demand for repayment of the unregistered security. A security's contractual or
legal restrictions on resale to the general public or to certain institutions
may not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the Securities Act of 1933 or other exemptions, the Subadvisers may determine
that such securities are not illiquid securities, under guidelines or other
exemptions adopted by the Board. These guidelines take into account trading
activity in the securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in a particular Rule
144A security, a Fund's holdings of that security may be illiquid.
BORROWING
Each Fund may borrow money from banks or by entering into reverse repurchase
agreements, but the Funds will limit borrowings to amounts not in excess of
33 1/3% of the value of a Fund's total assets (computed immediately after the
borrowing). Borrowing for other than temporary or emergency purposes, including
the meeting of redemption requests, may not exceed an amount equal to 5% of the
value of a Fund's net assets. Borrowing involves special risk considerations.
Interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed funds
(or on the assets that were retained rather than sold to meet
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the needs for which funds were borrowed). Under adverse market conditions, a
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when investment considerations would not favor such sales.
Neither Fund may purchase securities for investment while any borrowing equal to
5% or more of a Fund's total assets is outstanding or borrow for purposes other
than meeting redemptions in an amount exceeding 5% of the value of the Fund's
total assets. A Fund's use of borrowed proceeds to make investments would
subject the Fund to the risks of leveraging. Reverse repurchase agreements,
short sales not against the box, dollar roll transactions and other similar
investments that involve a form of leverage have characteristics similar to
borrowings but are not considered borrowings if a Fund maintains a segregated
account; the use of these techniques in connection with a segregated account may
result in a Fund's assets being 100 percent leveraged. See "Appendix A:
Investments, Investment Strategies and Risk Considerations - Techniques
Involving Leverage."
TECHNIQUES INVOLVING LEVERAGE
Utilization of leveraging involves special risks and may involve speculative
investment techniques. The Funds may borrow for other than temporary or
emergency purposes, lend their securities, enter reverse repurchase agreements,
and purchase securities on a when issued or forward commitment basis. The Funds
use these investment techniques only when the Subadviser to a Fund believes that
the leveraging and the returns available to the Fund from investing the cash
will provide shareholders a potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the Fund's investment. Leverage creates the risk of magnified
capital losses which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the equity base of a
Fund.
The risks of leverage include a higher volatility of the net asset value of
a Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by the Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on a Fund's investment
portfolio, the benefit of leveraging will be reduced, and, if the interest
expense on borrowings were to exceed the net return to shareholders, the Fund's
use of leverage would result in a lower rate of return than if the Fund were not
leveraged. Similarly, the effect of leverage in a declining market could be a
greater decrease in net asset value per share than if a Fund were not leveraged.
In an extreme case, if a Fund's current investment income were not sufficient to
meet the interest expense of leveraging, it could be necessary for the Fund to
liquidate certain of its investments at an inappropriate time. The use of
leverage may be considered speculative.
SEGREGATED ACCOUNT. In order to limit the risks involved in various
transactions involving leverage, the Trust's custodian will set aside and
maintain in a segregated account cash, U.S. Government Securities and other
liquid, high-grade debt securities in accordance with SEC guidelines. The
account value, which is marked to market daily, will
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be at least equal to a Fund's commitments under these transactions. A Fund's
commitments may include (1) the Fund's obligations to repurchase securities
under a reverse repurchase agreement, settle when-issued and forward commitment
transactions and make payments under a cap or floor (see "Appendix A:
Investments, Investment Strategies and Risk Considerations - Swap Agreements")
and (2) the greater of the market value of securities sold short or the value of
the securities at the time of the short sale (reduced by any margin deposit).
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each interest rate swap will be calculated on a
daily basis and an amount at least equal to the accrued excess will be
maintained in the segregated account. If a Fund enters into an interest rate
swap on other than a net basis, the Fund will maintain the full amount accrued
on a daily basis of the Fund's obligations with respect to the swap in their
segregated account. The use of a segregated account in connection with leveraged
transactions may result in a Fund's portfolio being 100% leveraged.
REPURCHASE AGREEMENTS, SECURITIES LENDING, WHEN-ISSUED SECURITIES AND FORWARD
COMMITMENTS
A Fund's use of repurchase agreements, securities lending, reverse
repurchase agreements and forward commitments entails certain risks not
associated with direct investments in securities. For instance, in the event
that bankruptcy or similar proceedings were commenced against a counterparty
while these transactions remained open or a counterparty defaulted on its
obligations, a Fund might suffer a loss. Failure by the other party to deliver a
security purchased by a Fund may result in a missed opportunity to make an
alternative investment. The Subadvisers monitor the creditworthiness of
counterparties to these transactions and intend to enter into these transactions
only when they believe the counterparties present minimal credit risks and the
income to be earned from the transaction justifies the attendant risks.
Counterparty insolvency risk with respect to repurchase agreements is reduced by
favorable insolvency laws that allow a Fund, among other things, to liquidate
the collateral held in the event of the bankruptcy of the counterparty. Those
laws do not apply to securities lending and, accordingly, securities lending
involves more risk than does the use of repurchase agreements. As a result of
entering forward commitments and reverse repurchase agreements, as well as
lending its securities, a Fund may be exposed to greater potential fluctuations
in the value of its assets and net asset value per share. See "Appendix A:
Investments, Investment Strategies and Risk Considerations - Techniques
Involving Leverage."
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements,
transactions in which a Fund purchases a security and simultaneously commits to
resell that security to the seller at an agreed-upon price on an agreed-upon
future date, normally 1 to 7 days later. The resale price of a repurchase
agreement reflects a market rate of interest that is not related to the coupon
rate or maturity of the purchased security. The Trust's custodian maintains
possession of the collateral underlying a repurchase agreement, which has a
market value, determined daily, at least equal to the repurchase price, and
which consists of the types of securities in which the Fund may invest directly.
SECURITIES LENDING. Each Fund may lend securities from its portfolios to
brokers, dealers and other financial institutions. Securities loans must be
continuously secured by cash or U.S. Government Securities with a market value,
determined daily, at least equal to the value of the Fund's securities loaned,
including accrued interest. A Fund receives interest in respect of securities
loans from the borrower or from investing cash collateral. A Fund may pay fees
to arrange the loans. No Fund will lend portfolio securities in excess of
33 1/3% of the value of the Fund's total assets.
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WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase
fixed income securities on a "when-issued" or "forward commitment" basis. When
these transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. Normally, the settlement
date occurs within 3 months after the transaction. During the period between a
commitment and settlement, no payment is made for the securities purchased and
no interest on the security accrues to the purchaser. At the time a Fund makes a
commitment to purchase securities in this manner, the Fund immediately assumes
the risk of ownership, including price fluctuation. Failure by the other party
to deliver a security purchased by a Fund may result in a loss or a missed
opportunity to make an alternative investment.
The use of when-issued transactions and forward commitments enables a Fund
to hedge against anticipated changes in interest rates and prices. If a
Subadviser were to forecast incorrectly the direction of interest rate
movements, however, a Fund might be required to complete these transactions when
the value of the security is lower than the price paid by the Fund. Except for
dollar-roll transactions, a Fund will not purchase securities on a when-issued
or forward commitment basis if, as a result, more than 15% of the value of the
Fund's total assets would be committed to such transactions.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds purchase securities on a when-issued and forward
commitment basis only with the intention of actually receiving the securities.
When-issued securities may include bonds purchased on a "when, and if issued"
basis under which the issuance of the securities depends upon the occurrence of
a subsequent event. Commitment of a Fund's assets to the purchase of securities
on a when-issued or forward commitment basis will tend to increase the
volatility of the Fund's net asset value per share.
SHORT SALES
Each of the Funds may make short sales of securities it owns or has the
right to acquire at no added cost through conversion or exchange of other
securities it owns (referred to as short sales "against the box"). In a short
sale "against the box", a Fund does not immediately deliver the securities sold
and would not receive the proceeds from the sale. The seller is said to have a
short position in the securities sold until it delivers the securities sold, at
which time it receives the proceeds of the sale. A Fund's decision to make a
short sale "against the box" may be a technique to hedge against market risks
when the Subadviser believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund or a security convertible
into or exchangeable for such security. In such case, any future losses in a
Fund's long position would be reduced by an offsetting future gain in the short
position. A Fund's ability to enter into short sales transactions is limited by
certain tax requirements. Under recently enacted legislation, if a Fund has
unrealized gain with respect to a long position and enters into a short sale
against the box, the Fund generally will be deemed to have sold the long
position for tax purposes and thus will recognize gain. See "Dividends,
Distributions and Taxes" in the SAI.
FUTURES CONTRACTS AND OPTIONS
Each Fund may seek to enhance its return through the writing (selling) and
purchasing of exchange-traded and over-the-counter options on fixed income
securities or indices. A Fund may also attempt to hedge against a decline in the
value of securities owned by it or an increase in the price of securities which
it plans to purchase through the use of those options and the purchase and sale
of interest rate futures contracts and options on those futures contracts. A
Fund may only write options that are covered. An option is covered if, so long
as the Fund is obligated under the option, it owns an
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offsetting position in the underlying security or futures contract or maintains
cash, U.S. Government Securities or other liquid, assets in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option. A Fund may enter into futures contracts or options on futures contracts
for investment purposes only if the aggregate of initial margin deposits for and
premiums associated with open positions does not exceed 5% of the Fund's total
assets.
RISK CONSIDERATIONS. A Fund's use of options and futures contracts subjects
the Fund to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on the Subadviser's
ability to predict movements in the prices of individual securities and
fluctuations in the general securities markets; (2) imperfect correlations
between movements in the prices of options or futures contracts and movements in
the price of the securities hedged or used for cover which may cause a given
hedge not to achieve its objective; (3) the fact that the skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time, which, among other things, may hinder a Fund's ability to limit exposures
by closing its positions; (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences; and (6) the potential for unlimited loss when investing in futures
contracts or writing options for which an offsetting position is not held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices during a single
trading day. A Fund may be forced, therefore, to liquidate or close out a
futures contract position at a disadvantageous price.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures position or that a counterparty in an over-
the-counter option transaction will be able to perform its obligations. There
are a limited number of options on interest rate futures contracts and exchange
traded options contracts on fixed income securities. Accordingly, hedging
transactions involving these instruments may entail "cross-hedging." As an
example, a Fund may wish to hedge existing holdings of mortgage-backed
securities, but no listed options may exist on those securities. In that event,
the Subadviser may attempt to hedge a Fund's securities by the use of options
with respect to similar fixed income securities. A Fund may use various futures
contracts that are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
in those contracts will develop or continue to exist.
LIMITATIONS. The Funds have no current intention of investing in futures
contracts and options thereon for purposes other than hedging. No Fund may
purchase any call or put option on a futures contract if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased. No Fund may sell a put option if
the exercise value of all put options written by the Fund would exceed 50% of
the Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50 percent of its total assets.
OPTIONS ON SECURITIES
A call option is a contract pursuant to which the purchaser of the call
option, in return for a premium paid, has the right to buy the security
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underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying
security, upon exercise at the exercise price during the option period. The
amount of premium received or paid is based upon certain factors, including the
market price of the underlying security or index, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying security or index, the option period, supply and demand and interest
rates.
OPTIONS ON STOCK INDICES
A stock index assigns relative values to the stock included in the index,
and the index fluctuates with changes in the market values of the stocks
included in the index. Stock index options operate in the same way as the more
traditional stock options except that exercises of stock index options are
effected with cash payments and do not involve delivery of securities. Thus,
upon exercise of stock index options, the purchaser will realize and the writer
will pay an amount based on the differences between the exercise price and the
closing price of the stock index.
INDEX FUTURES CONTRACTS
Bond and stock index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the securities comprising
the index is made. Generally, these futures contracts are closed out prior to
the expiration date of the contract.
OPTIONS ON FUTURES CONTRACTS
Options on futures contracts are similar to stock options except that an
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract rather than to purchase
or sell stock, at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the futures position to
the holder of the option will be accompanied by transfer to the holder of an
accumulated balance representing the amount by which the market price of the
futures contract exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the future.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF FUND SHARES,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER MAY NOT
LAWFULLY BE MADE.
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[GRAPHIC]
THE QUADRAFUNDS
SHAREHOLDER INFORMATION
QUADRA CAPITAL PARTNERS, L.P.
270 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210
TELEPHONE:
800.595.9291
617.426.0900
<PAGE>
INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
MAINE MUNICIPAL BOND FUND
NEW HAMPSHIRE BOND FUND
- --------------------------------------------------------------------------------
Account Information and
Shareholder Servicing: Distributor:
Forum Shareholder Services, LLC Forum Financial Services, Inc.
P.O. Box 446 Two Portland Square
Portland, Maine 04112 Portland, Maine 04101
207-879-0001 207-879-1900
800-94FORUM
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
Investors High Grade Bond Fund, Investors Bond Fund, TaxSaver Bond Fund, Maine
Municipal Bond Fund and New Hampshire Bond Fund (the "Funds" and individually
each a "Fund") are series of Forum Funds (the "Trust"), a registered open-end
investment company. This Statement of Additional Information supplements the
Prospectuses dated August 1, 1998 offering shares of the Funds and should be
read only in conjunction with the Prospectuses, copies of which may be obtained
by an investor without charge by contacting the Funds' shareholder servicing
agent at the address and number listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
TABLE OF CONTENTS
PAGE
1. General......................................................
2. Investment Policies..........................................
3. Additional Investment Policies...............................
4. Certain Information Concerning the States of Maine
and New Hampshire............................................
5. Performance Data.............................................
6. Management...................................................
7. Determination of Net Asset Value.............................
8. Portfolio Transactions.......................................
9. Additional Purchase and
Redemption Information.......................................
10. Tax Matters..................................................
11. Other Information............................................
Appendix A - Control Persons and Principal Holders of Securities
Appendix B - Description of Securities Ratings
Appendix C - Description of Municipal Securities
Appendix D - Hedging Strategies
Appendix E - Additional Advertising Materials
<PAGE>
1. GENERAL
THE TRUST. The Trust is registered with the Securities and Exchange Commission
(the "SEC") as an open-end, management investment company and was organized as a
business trust under the laws of the State of Delaware on August 29, 1995. On
January 5, 1996 the Trust succeeded to the assets and liabilities of Forum
Funds, Inc. Forum Funds, Inc. was incorporated on March 24, 1980 and assumed the
name of Forum Funds, Inc. on March 16, 1987. The Board, without shareholder
approval, has the authority to issue an unlimited number of shares of beneficial
interest of separate series with no par value per share and to create separate
classes of shares within each series (such as Investor and Institutional
Shares). The Trust currently offers shares of twenty-three series. The series of
the Trust are as follows:
Daily Assets Cash Fund Austin Global Equity Fund
Daily Assets Treasury Obligations Fund Oak Hall Equity Fund
Daily Assets Government Fund
Daily Assets Government Obligations Fund Quadra Growth Fund
Daily Assets Municipal Fund Quadra Equity Fund
Investors High Grade Bond Fund Equity Index Fund
Investors Bond Fund Investors Growth Fund
TaxSaver Bond Fund Investors Equity Fund
Maine Municipal Bond Fund International Equity Fund
New Hampshire Bond Fund Emerging Markets Fund
Small Company Opportunities Fund
Payson Value Fund Polaris Global Value Fund
Payson Balanced Fund
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when required by Federal or state law. Shareholders (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Fund. Also as of that date, Appendix A
identifies all shareholders who own of record 5% or more of the outstanding
shares of any of the Registrant's series.
DEFINITIONS. As used in this Statement of Additional Information, the following
terms shall have the meanings listed:
"Adviser" means Forum Investment Advisors, LLC.
"Board" means the Board of Trustees of Forum Funds.
"FAdS" means Forum Administrative Services, LLC.
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"FAcS" means Forum Accounting Services, LLC.
"FFC" means Forum Financial Corp.
"FFSI" means Forum Financial Services, Inc.
"Fund" means Investors High Grade Bond Fund, Investors Bond Fund, Taxsaver Bond
Fund, Maine Municipal Bond Fund and New Hampshire Bond Fund
"Fund Business Day" has the meaning ascribed thereto in the current Prospectuses
of the Funds.
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" has the meaning ascribed thereto by the current
Prospectuses of the Funds.
"1940 Act" means the Investment Company Act of 1940, as amended.
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2. INVESTMENT POLICIES
GENERAL
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and other nationally recognized statistical rating organizations
("NRSROs") are private services that provide ratings of the credit quality of
debt obligations, including convertible securities. A description of the range
of ratings assigned to various types of bonds and other securities by several
NRSROs is included in Appendix B to this Statement of Additional Information.
The Funds may use these ratings to determine whether to purchase, sell or hold a
security. However, ratings are general and are not absolute standards of
quality. Consequently, securities with the same maturity, interest rate and
rating may have different market prices. If an issue of securities ceases to be
rated or if its rating is reduced after it is purchased by a Fund, the
investment adviser of a Fund will determine whether a Fund should continue to
hold the obligation. Credit ratings attempt to evaluate the safety of principal
and interest payments and do not evaluate the risks of fluctuations in market
value. Also, rating agencies may fail to make timely changes in credit ratings.
An issuer's current financial condition may be better or worse than a rating
indicates.
Each Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the
investment adviser to be of comparable quality) if the investment adviser
determines that retaining such security is in the best interests of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but settlements delayed beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, a Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, a Fund might sell
securities that it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices, a
Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the investment adviser to a Fund were
to forecast incorrectly the direction of interest rate movements, a Fund might
be required to complete such when-issued or forward commitment transactions at
prices inferior to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds enter into when-issued and forward commitment
transactions only with the intention of actually receiving or delivering the
securities, as the case may be. If a Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or to dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss. When-issued securities may include bonds purchased on a "when, as
and if issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Any significant commitment of a Fund's assets
to the purchase of securities on a "when, as and if issued" basis may increase
the volatility of its net asset value.
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Each Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities (as defined in the Prospectus) and other liquid
high-grade debt securities in an amount at least equal to its commitments to
purchase securities on a when-issued or delayed delivery basis.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Trust's Board of Directors ("Board") has the ultimate responsibility for
determining whether specific securities are liquid or illiquid. The Board has
delegated the function of making day-to-day determinations of liquidity to the
investment adviser of each Fund, pursuant to guidelines approved by the Board.
The investment adviser takes into account a number of factors in reaching
liquidity decisions, including but not limited to: (1) the frequency of trades
and quotations for the security; (2) the number of dealers willing to purchase
or sell the security and the number of other potential buyers; (3) the
willingness of dealers to undertake to make a market in the security; and (4)
the nature of the marketplace trades, including the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the transfer.
The investment adviser monitors the liquidity of the securities in each Fund's
portfolio and reports periodically on such decisions to the Board.
REPURCHASE AGREEMENTS
The Funds may seek additional income by entering into repurchase agreements.
Repurchase agreements are transactions in which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed-upon
price on an agreed-upon future date, normally one to seven days later. The
resale price reflects a market rate of interest that is not related to the
coupon rate or maturity of the purchased security. The Trust's custodian
maintains possession of the underlying collateral, which is maintained at not
less than 100% of the repurchase price, and which consists of the types of
securities in which the Fund may invest directly.
LENDING OF PORTFOLIO SECURITIES
Each Fund may from time to time lend securities from its portfolio to brokers,
dealers and other financial institutions. Securities loans must be continuously
secured by cash or U.S. Government Securities with a market value, determined
daily, at least equal to the value of the Fund's securities loaned, including
accrued interest. The Fund receives interest in respect of securities loans from
the borrower or from investing cash collateral. The Funds may pay fees to
arrange the loans. Each Fund will, as a fundamental policy, limit securities
lending to not more than 10% of the value of its total assets.
TEMPORARY DEFENSIVE POSITION
When a Fund assumes a temporary defensive position it may invest without limit
in (i) short-term U.S. Government Securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States that have, at the time of investment, total
assets in excess of one billion dollars and that are insured by the Federal
Deposit Insurance Corporation, (iii) commercial paper of prime quality rated
Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the adviser to be of comparable quality, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) money market mutual funds.
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OTHER INVESTMENT COMPANIES
The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. Under normal circumstances, each Fund intends
to invest less than 5% of the value of its net assets in the securities of other
investment companies. In addition to the Fund's expenses (including the various
fees), as a shareholder in another investment company, a Fund would bear its pro
rata portion of the other investment company's expenses (including fees).
INVESTORS HIGH GRADE BOND FUND, INVESTORS BOND FUND AND TAXSAVER BOND FUND
FUTURES CONTRACTS AND OPTIONS
Currently Investors High Grade Bond Fund and TaxSaver Bond Fund do not invest in
futures contracts and options. Investors Bond Fund (and, in the future, each
other Fund) may in the future seek to hedge against a decline in the value of
securities it owns or an increase in the price of securities which it plans to
purchase through the writing and purchase of exchange-traded and
over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. TaxSaver Bond Fund may buy or sell municipal
bond index futures contracts and both Funds may buy or sell futures contracts on
Treasury bills, Treasury bonds and other financial instruments. The Funds may
write covered options and buy options on the futures contracts in which they may
invest.
If the Adviser anticipates that interest rates will rise, a Fund may sell
futures contracts as a hedge against a decrease in the value of the Fund's
portfolio securities. Conversely, if the Adviser anticipates a decline in
interest rates, a Fund may purchase futures contracts to protect itself against
an increase in the price of the debt securities that the Fund might wish to
purchase.
In addition, each Fund may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid assets in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option.
The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options, futures contracts or related options and movements in the
price of the securities hedged or used for cover; (3) the fact that skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Funds invest; (4) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time; and (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences. Other risks include the inability of the Fund, as the writer of
covered call options, to benefit from the appreciation of the underlying
securities above the exercise price and the possible loss of the entire premium
paid for options purchased by the Fund. In addition, options and futures
contracts do not pay interest, but may produce taxable capital gains.
Each Fund will not hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, each Fund
will not buy futures contracts or write put options whose underlying value
exceeds 5% of the Fund's total assets and will not purchase call options if the
value of purchased call options would exceed 5% of the Fund's total assets. A
Fund will not enter into futures contracts and options thereon if immediately
thereafter more than 5% of the value of the Fund's total assets would be
invested in these options or committed to margin on futures contracts.
A Fund will only invest in futures and options contracts after providing notice
to its shareholders, filing a notice of eligibility (if required) and otherwise
complying with the requirements of the Commodity Futures Trading Commission
("CFTC"). The CFTC's rules provide that the Funds are permitted to purchase
futures or options
6
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contracts subject to CFTC jurisdiction only (1) for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however, that in the
alternative with respect to each long position in a futures or options contract
entered into by a Fund, the underlying commodity value of such contract at all
times does not exceed the sum of cash, short-term United States debt obligations
or other United States dollar denominated short-term money market instruments
set aside for this purpose by the Fund, cash proceeds from existing Fund
investments due in 30 days and accrued profit on the contract held with a
futures commissions merchant; and (2) subject to certain limitations.
INVESTORS HIGH GRADE BOND FUND AND INVESTORS BOND FUND
MORTGAGE-RELATED SECURITIES. As described in the Prospectus, Investors High
Grade Bond Fund and Investors Bond Fund and Investors High Grade Bond Fund may
invest in mortgage-related securities, including Collateralized Mortgage
Obligations ("CMOs"). CMOs are typically structured with a number of classes or
series (often referred to as tranches) that have different maturities and are
generally retired in sequence. Each class of bonds receives periodic interest
payments according to the coupon rate on the bonds. However, all monthly
principal payments and any prepayments from the collateral pool are paid first
to the "Class 1" bondholders. The principal payments are such that the Class 1
bonds will be completely repaid no later than, for example, five years after the
offering date. Thereafter, all payments of principal are allocated to the next
most senior class of bonds until that class of bonds has been fully repaid.
Although full payoff of each class of bonds is contractually required by a
certain date, any or all classes of bonds may be paid off sooner than expected
because of an acceleration in prepayments of the obligations comprising the
collateral pool.
The final tranche of a CMO may be structured as an accrual bond (sometimes
referred to as a Z-tranche). Holders of accrual bonds receive no cash payments
for an extended period of time. During the time that earlier tranches are
outstanding, accrual bonds receive accrued interest which is a credit for
periodic interest payments that increases the face amount of the security at a
compounded rate, but is not paid to the bond holder. After all previous tranches
are retired, accrual bond holders start receiving cash payments that include
both principal and continuing interest. The market value of accrual bonds can
fluctuate widely and their average life depends on the other aspects of the CMO
offering. Interest on accrual bonds is taxable when accrued even though the
holders receive no accrual payment. The Fund distributes all of its net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when the Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss. The
Adviser's analyses of particular CMO issues and estimates of future economic
indicators (such as interest rates) become more important to the performance of
a Fund as the securities become more complicated.
ASSET-BACKED SECURITIES. As described in the Prospectus, Investors High Grade
Bond Fund and Investors Bond Fund may invest in asset-backed securities, which
have structural characteristics similar to mortgage-backed securities but have
underlying assets that are not mortgage loans or interests in mortgage loans.
Asset-backed securities are securities that represent direct or indirect
participations in, or are secured by and payable from, assets such as motor
vehicle installment sales contracts, installment loan contracts, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts and special purpose corporations.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. Payments of principal and interest
may be guaranteed up to certain amounts and for a certain time period by a
letter of credit issued by a financial institution.
Asset-backed securities present certain risks that are not presented by
mortgage-related debt securities or other securities in which Investors Bond
Fund may invest. Primarily, these securities do not always have the benefit of a
security interest in comparable collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and Federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to
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that of the holders of the asset-backed securities. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
TAXSAVER BOND FUND, MAINE MUNICIPAL BOND FUND
AND NEW HAMPSHIRE BOND FUND
MUNICIPAL SECURITIES
The term "municipal securities," as used in the Prospectuses and this Statement
of Additional Information means obligations of the type described in Appendix C
issued by or on behalf of states, territories, and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest on which is exempt from Federal income tax. The municipal securities in
which the Funds invest are limited to those obligations which at the time of
purchase: (i) in the case of TaxSaver Bond Fund, are backed by the full faith
and credit of the United States; (ii) are municipal notes rated in the two
highest rating categories by an NRSRO, or, if not rated, are of comparable
quality as determined by the Adviser; (iii) are municipal bonds rated in the six
highest rating categories by an NRSRO or, if not rated, are of comparable
quality as determined by the Fund's investment adviser; or (iv) are other types
of municipal securities, provided that such obligations are of comparable
quality, as determined by the Adviser, to instruments in which the Fund may
invest.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill short-term capital needs and
generally have original maturities of 397 days or less. They include tax
anticipation notes, revenue anticipation notes, bond anticipation notes,
construction loan notes and tax-exempt commercial paper.
MUNICIPAL LEASES. Municipal leases frequently have special risks not normally
associated with general obligation or revenue bonds or notes. Lease and
installment purchase or conditional sale contracts (which normally provide for
title to the leased assets to pass eventually to the government issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt-issuance limitations of many state constitutions and statutes
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis. To reduce this risk, TaxSaver Bond
Fund will only purchase municipal leases subject to a non-appropriation clause
when the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit or guarantee of a bank or other entity that has
long term outstanding debt securities rated in one of the top two rating
categories by an NRSRO.
VARIABLE AND FLOATING RATE OBLIGATIONS. The interest rates payable on certain
municipal securities, including municipal leases, in which a Fund may invest are
not fixed and may fluctuate based upon changes in market rates. These securities
are referred to as variable rate or floating rate obligations. Other features of
these obligations may include the right whereby the Fund may demand prepayment
of the principal amount of the obligation prior to its stated maturity and the
right of the issuer to prepay the principal amount prior to maturity. The main
benefit of a variable or floating rate municipal security is that the interest
rate adjustment minimizes changes in the market value of the obligation. As a
result, the purchase of these municipal securities enhances the ability of each
Fund to sell an obligation prior to maturity at a price approximating the full
principal amount of the obligation. The payment of principal and interest by
issuers of certain municipal securities purchased by a Fund may be guaranteed by
letters of credit or other credit facilities offered by banks or other financial
institutions. Such guarantees will be considered in determining whether a
municipal security meets the Fund's investment quality requirements. The
investment adviser will monitor the pricing, quality and liquidity of variable
rate and floating rate demand obligations held by
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each Fund on the basis of published financial information, rating agency reports
and other research services to which a Fund or the Adviser may subscribe.
PARTICIPATION INTERESTS. Each Fund may purchase participation interests in
municipal bonds, including private activity bonds and floating and variable rate
securities that are owned by banks or other financial institutions. A
participation interest gives a Fund an undivided interest in a municipal
security owned by a bank or other financial institution. These instruments carry
a demand feature permitting the holder to tender them back to the bank or other
institution and are generally backed by an irrevocable letter of credit or
guarantee of the bank or institution. The Fund can exercise the right, on not
more than thirty days' notice, to sell such an instrument back to the bank or
institution from which it purchased the instrument and draw on the letter of
credit for all or any part of the principal amount of the Fund's participation
interest in the instrument, plus accrued interest. Generally, a Fund will do so
only (i) as required to provide liquidity to the Fund, (ii) to maintain a high
quality investment portfolio, or (iii) upon a default under the terms of the
demand instrument. Banks and other financial institutions retain portions of the
interest paid on such participation interests as their fees for servicing such
instruments and the issuance of related letters of credit, guarantees and
repurchase commitments. Exposure to credit losses arising from the possible
financial difficulties of borrowers might affect the bank's or other
institution's ability to meet its obligations under its letter of credit or
other guarantee.
No Fund will purchase participation interests unless it is advised by counsel or
receives a ruling of the Internal Revenue Service that interest earned by the
Fund from the obligations in which it holds participation interests is exempt
from Federal income tax. The Internal Revenue Service has announced that it
ordinarily will not issue advance rulings on certain of the Federal income tax
consequences applicable to securities, or participation interests therein,
subject to a put. The Adviser will monitor the pricing, quality and liquidity of
participation interests held by each Fund on the basis of published financial
information, rating agency reports and other research services to which the
Funds or the Adviser may subscribe.
STAND-BY COMMITMENTS. Each Fund acquires stand-by commitments solely to
facilitate portfolio liquidity and does not exercise its rights thereunder for
trading purposes. Since the value of a stand-by commitment is dependent on the
ability of the stand-by commitment writer to meet its obligation to repurchase,
each Fund's policy is to enter into stand-by commitment transactions only with
municipal securities dealers which in the opinion of the Adviser present minimal
credit risks.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities that continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by a
Fund are valued at zero in determining net asset value. When a Fund pays
directly or indirectly for a stand-by commitment, its cost is reflected as
unrealized depreciation for the period during which the commitment is held.
Stand-by commitments do not affect the average weighted maturity of a Fund's
portfolio of securities.
GENERAL. Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the money market and of the municipal bond
and municipal note markets, the size of a particular offering, the maturity of
the obligation and the rating of the issue. Municipal securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. An increase in
interest rates will generally reduce the market value of portfolio investments,
and a decline in interest rates will generally increase the value of portfolio
investments.
There can be no assurance that a Fund's objective will be achieved. The
achievement of a Fund's investment objective is dependent in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due. Municipal securities historically have not been subject to registration
with the SEC, although there have been proposals which would require
registration in the future.
The obligations of municipal securities issuers may become subject to laws
enacted in the future by Congress, state legislatures, or referenda extending
the time for payment of principal and/or interest, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. There is also the possibility
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that, as a result of litigation or other conditions, the ability of any issuer
to pay, when due, the principal of and interest on its municipal securities may
be materially affected.
3. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of the Fund. A majority of
outstanding voting securities means the lesser of (i) 67% of the shares present
or represented at a shareholder meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or (ii) more than 50% of
outstanding shares. Unless otherwise indicated, all investment policies are not
fundamental and may be changed by the Trust's Board of Trustees ("Board")
without approval by shareholders of the Fund.
Investors High Grade Bond Fund, Investors Bond Fund, TaxSaver Bond Fund and
Maine Municipal Bond Fund have adopted the following fundamental investment
policies which are in addition to those contained in the Funds' Prospectus and
which may not be changed without shareholder approval. No Fund may:
(1) Borrow money, except for temporary or emergency purposes
(including the meeting of redemption requests) and except for
entering into reverse repurchase agreements, and provided that
borrowings do not exceed 33 1/3% of the Fund's total assets
(computed immediately after the borrowing).
(2) Act as an underwriter of securities of other issuers, except
to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(3) Make loans to other persons except for loans of portfolio
securities and except through the use of repurchase agreements
and through the purchase of commercial paper or debt
securities which are otherwise permissible investments.
(4) Purchase or sell real estate or any interest therein, except
that the Fund may invest in securities issued or guaranteed by
corporate or governmental entities secured by real estate or
interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies
that invest in real estate or interests therein.
(5) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and
currency-related contracts will not be deemed to be physical
commodities.
(6) Issue senior securities except pursuant to Section 18 of the
Investment Company Act of 1940 ("1940 Act") and except that
the Fund may borrow money subject to investment limitations
specified in the Fund's Prospectus.
(7) Invest in interests in oil or gas or interests in other
mineral exploration or development programs.
In addition to the foregoing, Investors Bond Fund and TaxSaver Bond Fund have
adopted the following fundamental investment policies concerning diversification
and industry concentration. The Funds may not:
(1) Purchase securities, other than U.S. Government Securities, of
any one issuer, if (a) more than 5% of the Fund's total assets
taken at market value would at the time of purchase be
invested in the securities of that issuer, or (b) such
purchase would at the time of purchase cause the Fund to hold
more than 10% of the outstanding voting securities of that
issuer. Up to 50% of the Fund's total assets may be invested
without regard to this limitation. These limitations do not
apply to securities of an issuer payable solely from the
proceeds of escrowed U.S. Government securities.
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(2) Purchase securities, other than U.S. Government Securities,
if, immediately after each purchase, more than 25% of the
Fund's total assets taken at market value would be invested in
securities of issuers conducting their principal business
activity in the same industry.
Investors High Grade Bond Fund has adopted the following fundamental investment
policies concerning diversification and industry concentration. The Fund may
not:
(1) With respect to 75% of its assets, purchase securities, other
than U.S. Government Securities, of any one issuer, if (a)
more than 5% of the Fund's total assets taken at market value
would at the time of purchase be invested in the securities of
that issuer, or (b) such purchase would at the time of
purchase cause the Fund to hold more than 10% of the
outstanding voting securities of that issuer.
(2) Purchase securities, other than U.S. Government Securities,
if, immediately after each purchase, more than 25% of the
Fund's total assets taken at market value would be invested in
securities of issuers conducting their principal business
activity in the same industry.
Maine Municipal Bond Fund has adopted the following fundamental investment
policies concerning investment in securities of issuers in the same industry and
investment in securities having voting rights. The Fund may not:
(1) Purchase securities, other than U.S. Government Securities,
if, immediately after each purchase, more than 25% of the
Fund's total assets taken at market value would be invested in
securities of issuers conducting their principal business
activity in the same industry. For this purpose, consumer
finance companies, industrial finance companies, and gas,
electric, water and telephone utility companies are each
considered to be separate industries.
(2) Purchase securities having voting rights except securities of
other investment companies.
Investors Bond Fund, Investors High Grade Bond Fund, TaxSaver Bond Fund and
Maine Municipal Bond Fund have adopted the following nonfundamental investment
policies that may be changed by the Board without shareholder approval. No Fund
may:
(a) Pledge, mortgage or hypothecate its assets, except to secure
permitted indebtedness. The deposit in escrow of securities in
connection with the writing of put and call options,
collateralized loans of securities and collateral arrangements
with respect to margin for futures contracts are not deemed to
be pledges or hypothecations for this purpose.
(b) Invest in securities of another registered investment company,
except in connection with a merger, consolidation, acquisition
or reorganization; and except that the Fund may invest in
money market funds and privately-issued mortgage related
securities to the extent permitted by the 1940 Act.
(c) Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary
for the clearance of purchases and sales of portfolio
securities, except that the Fund may make margin deposits in
connection with permitted transactions in options, futures
contracts and options on futures contracts.
(d) Purchase securities for investment while any borrowing
equaling 10% or more of the Fund's total assets is outstanding
or borrow for purposes other than meeting redemptions in an
amount exceeding 10% of the value of the Fund's total assets.
(e) Acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (i) 15%
of the Fund's net assets (taken at current value) would be
invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in securities which
are not readily marketable, including securities that are
illiquid by virtue of
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<PAGE>
restrictions on the sale of such securities to the public
without registration under the Securities Act of 1933
("Restricted Securities") or (ii) 10% of the Fund's total
assets would be invested in Restricted Securities.
(f) Purchase or sell real property leases (including limited
partnership interests, but excluding readily marketable
interests in real estate investment trusts or readily
marketable securities of companies that invest in real
estate.)
In addition to the foregoing, Investors Bond Fund, Investors High Grade Bond
Fund and TaxSaver Bond Fund have adopted the following nonfundamental investment
policy concerning investment in securities having voting rights.
The Funds may not:
(a) Purchase securities having voting rights except securities of
other investment companies.
The New Hampshire Bond Fund has adopted the following fundamental investment
policies that cannot be changed without the affirmative vote of a majority of
the Fund's outstanding voting securities. The Fund may not:
(1) With respect to 50% of its assets, purchase a security other
than a U.S. Government Security of any one issuer if, as a
result, more than 5% of the Fund's total assets would be
invested in the securities of that issuer or the Fund would
own more than 10% of the outstanding voting securities of that
issuer.
(2) Purchase securities if, immediately after the purchase, more
than 25% of the value of the Fund's total assets would be
invested in the securities of issuers having their principal
business activities in the same industry, provided there is no
limit on investments in U.S. Government Securities, municipal
securities or in the securities of domestic financial
institutions (not including their foreign branches). For this
purpose, consumer finance companies, industrial finance
companies, and gas, electric, water and telephone utility
companies are each considered to be separate industries.
(3) Underwrite securities of other issuers, except to the extent
that the Fund may be considered to be acting as an underwriter
in connection with the disposition of portfolio securities.
(4) Purchase or sell real estate or any interest therein, except
that the Fund may invest in debt obligations secured by real
estate or interests therein or issued by companies that invest
in real estate or interests therein.
(5) Invest in commodities or in commodity contracts, except that,
to the extent the Fund is otherwise permitted, the Fund may
enter into financial futures contracts and options on those
futures contracts and may invest in currencies and
currency-related contracts.
(6) Borrow money, except for temporary or emergency purposes
(including the meeting of redemption requests) and except for
entering into reverse repurchase agreements, provided that
borrowings do not exceed 33 1/3% of the Fund's net assets.
(7) Issue senior securities except as appropriate to evidence
indebtedness that the Fund is permitted to incur, and provided
that the Fund may issue shares of additional series or classes
that the Board may establish.
(8) Make loans except for loans of portfolio securities, through
the use of repurchase agreements, and through the purchase of
debt securities that are otherwise permitted investments.
The New Hampshire Bond Fund has adopted the following nonfundamental investment
limitations that may be changed by the Board without shareholder approval. The
Fund may not:
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(a) Purchase securities for investment while any borrowing
equaling 10% or more of the Fund's total assets is
outstanding; and if at any time the Fund's borrowings exceed
the Fund's investment limitations due to a decline in net
assets, such borrowings will be promptly (within three days)
reduced to the extent necessary to comply with the
limitations.
(b) Purchase securities that have voting rights, except the Fund
may invest in securities of other investment companies to the
extent permitted by the Investment Company Act of 1940 (the
"1940 Act").
(c) Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary
for the clearance of purchases and sales of portfolio
securities.
(d) Acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (i) 15%
of the Fund's net assets (taken at current value) would be
invested in repurchase agreements not entitling the holder to
payment of principal within seven days and in securities which
are not readily marketable or (ii) 10% of the Fund's total
assets would be invested in securities that are illiquid by
virtue of restrictions on the sale of such securities to the
public without registration under the Securities Act of 1933.
(e) Purchase or sell real property (including limited partnership
interests, but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of
companies that invest in real estate.)
For purposes of the policy set forth above with respect to TaxSaver Bond Fund,
which relates to the diversification of the Fund's assets, the District of
Columbia, each state, each political subdivision, agency, instrumentality and
authority thereof, and each multi-state agency of which a state is a member is
deemed to be a separate "issuer." When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from the
government creating the subdivision and the security is backed only by the
assets and revenues of the subdivision, such subdivision would be deemed to be
the sole issuer. Similarly, in the case of private activity bonds, if the bond
is backed only by the assets and revenues of the nongovernmental user, then such
nongovernmental user would be deemed to be the sole issuer. However, if in
either case, the creating government or some other agency guarantees a security,
that guarantee would be considered a separate security and would be treated as
an issue of such government or other agency.
No more than 25% of a Fund's total assets may be invested in the securities of
one issuer. However, this limitation does not apply to securities of an issuer
payable solely from the proceeds of U.S. Government Securities.
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of the
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
4. CERTAIN INFORMATION CONCERNING THE STATE OF MAINE AND NEW HAMPSHIRE
STATE OF MAINE
Material in this section has been compiled from numerous sources including "The
Maine Economy: Year-End Review and Outlook, 1997" prepared and published by the
Economics Division of the Maine State Planning Office; "State of Maine, General
Fund Budget, Revenue and Economic Data, May 13, 1998;" and "State of Maine
Presentation to Moody's Investors Service, Standard and Poors, and Fitch
Investors Service, Inc., May 13, 1998." In addition, certain information was
obtained from the Official Statement of the State of Maine published in
connection with the issuance on June 25, 1998 of $85,500,000 general obligation
bonds dated June 1, 1998 Other information concerning Maine budgetary matters
was obtained from official legislative documents, the Office of the Commissioner
of the Maine Department of Administrative and Financial Services, the Office of
the Treasurer of the State of Maine, the Bureau of the Budget of the
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Maine Department of Administrative and Financial Services, the Office of Fiscal
and Program Review of the Maine Legislature, the Maine State Planning Office,
and the Maine State Retirement System. The most recent information concerning
credit ratings on debt issued by or on behalf of the State of Maine and its
subordinate agencies was obtained from credit reports for the State of Maine
published by S&P on June 5, 1998, by Moody's on June 5, 1998, and by Fitch IBCA,
Inc. ("Fitch"), on June 8, 1998.
Although the information derived from the above sources is believed to be
accurate, none of the information obtained from these sources has been verified
independently. While the following summarizes the most current information
available from the above sources, it does not reflect economic conditions or
developments which may have occurred or trends which may have materialized since
the dates indicated.
The State of Maine, which includes nearly one-half of the total land area of the
six New England states, currently has a population of approximately 1,242,000.
The structure of the Maine economy is similar to that of the nation as a whole,
except that the Maine economy historically has had more activity in
manufacturing, defense-related activities, and tourism, and less activity in
finance and services. Recently, however, the manufacturing and defense-related
sectors of Maine's economy have decreased significantly, and the service
industry, retail, and financial services sectors of Maine's economy have
increased significantly.
During the 1980's, Maine's economy surpassed national averages in virtually all
significant measures of economic growth. During this ten-year period, Maine real
economic growth was 40% as measured by the Maine Economic Growth Index ("EGI"),
a broad-based measure of economic growth which is corrected for inflation. This
economic growth compares to national real economic growth during the 1980's of
26% and 29%, measured by the United States Economic Growth Index and real Gross
National Product respectively. During this time period, resident employment in
Maine increased by 21%, while resident employment nationally increased by 19%.
Inflation-adjusted retail sales in Maine during this period increased by 72%, as
opposed to a 32% increase in such retail sales nationally. During the 1980's,
per capita personal income in Maine rose from 44th in the nation in 1979, to
26th in the nation in 1989, or from 81% to 92% of the national average of per
capita personal income.
Beginning in the fourth quarter of 1989, however, the Maine economy experienced
a substantial temporary decline. For example, the Maine economy sustained only
0.8% real growth in 1989, and experienced real growth of -1.1% in 1990 and -2.6%
in 1991. Data show that the Maine economy began a sustained decline during the
fourth quarter of 1989, and the second quarter of 1991 saw the seventh
consecutive quarterly decline in the Maine EGI. The third and fourth quarters of
1991 showed barely positive economic growth of 0.9% and 0.2% respectively.
Economic recovery in Maine also has been hindered by significant losses in
defense-related jobs, with the State losing since 1990 approximately 20% of its
defense-dependent employment which peaked at 63,000 jobs in 1989. During the
1989-1991 period also, the State lost 6% of its entire job base.
Since 1991 the Maine economy has experienced a modest and sustained recovery,
and this recovery has continued slowly through the end of calendar year 1997. In
the words of the Economics Division of the Maine State Planning Office, "Maine
economic performance in 1997 was stronger than in recent years, with nearly all
major indicators describing improvement over last year. However, national
economic growth was again stronger than Maine's." This conclusion is illustrated
by the fact that growth of Maine total personal income in 1997, while strong,
continued to lag behind that of the nation as a whole, with real growth in Maine
total personal income during 1997 of approximately 5.0% compared to real growth
in national total personal income during 1997 of approximately 5.7%. This means
that for 1997 Maine total personal income in Maine grew at only approximately
88% of the national average. Furthermore, these data are part of a continuing
trend that show the growth of the Maine economy consistently lagging behind that
of the nation as a whole for the past several years.
On the positive side, in spite of the fact that the growth of the Maine economy
continues to be less than the growth of the national economy, most of the major
economic indicators monitored by the Economics Division of the Maine State
Planning Office, show that the Maine economy in 1997 improved steadily over its
performance in 1996. For example, Maine payroll employment in 1997 expanded
2.0%, or more than twice the 0.8% expansion in Maine payroll employment
experienced in 1996. During 1997, the Maine economy added 11,000 new jobs - more
than in any year since 1994. In addition, Maine construction contract awards
increased 14.2% in 1997 as opposed to an 8.7% decrease
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in such awards in 1996. State government General Fund revenues grew at a rate of
7.3% in 1997 as opposed to a 6.4% growth rate in 1996. Help wanted advertising
in Portland-area newspapers increased 27.4% over the amount of such advertising
recorded in the same geographic area in 1996, and social assistance caseloads in
Maine (Aid to Families with Dependent Children and Food Stamps) decreased 11.4%
and 6.0% respectively over such caseload totals for 1996. Additional positive
indicators were that, during 1997, unit sales of homes in Maine increased 5%
over such sales in 1996, the average sales price of a home in Maine increased to
over $114,000, and the average time on the market prior to sale for homes in
Maine decreased to less than 100 days. Another indicator of the basic soundness
of Maine's economy through the first nine months of fiscal year 1998 was that
Maine individual income tax payments for the period were 10% above official
projections.
A further positive factor in the growth of Maine's economy is that Maine
employers recently have experienced a substantial decrease in workers'
compensation costs. For many years, Maine possessed the highest workers'
compensation insurance rates in the country. The issue was so decisive that it
caused a shutdown of State government in 1992. Since that time, however, the
Maine Legislature has created the Maine Employers' Mutual Insurance Co. and has
passed numerous reforms in Maine's workers' compensation laws. As a result,
workers compensation loss ratios have declined 79% since 1991, and workers'
compensation insurance rates in Maine have declined 41% since 1994. Another
positive step concerning workers' compensation insurance rates in Maine was
taken in May of 1997 when the Maine Legislature, at the request of the Governor,
refused to accede to a effort by organized labor to roll back many of the
reforms in Maine's workers' compensation laws enacted since 1992.
The only major economic indicators for Maine not showing significant improvement
in 1997 were taxable consumer retail sales, Maine manufacturing employment, and
personal bankruptcy filings. Specifically, Maine taxable consumer retail sales
in 1997 increased 3.8% over the same sales figures for 1996, but slowed from the
5.1% annual increase in such sales recorded in 1996. Also, Maine manufacturing
employment decreased by 0.9% in 1997, continuing its long-term decline. Also,
the number of personal bankruptcies approved in Maine over the Federal fiscal
year ended September 30, 1997 increased by 44% over that of the previous Federal
fiscal year ended September 30, 1996 (nationally, bankruptcies increased during
the same period by only 24%). The slowing of the rate of increase in Maine
taxable consumer retail sales (including, among other items, taxable retail
sales related to the tourist industry) is particularly significant for State of
Maine credit purposes. Since over one-third of Maine State government General
Fund revenues are derived from a 6% retail sales tax, the performance of taxable
retail sales in Maine is directly related to the ability of Maine State
government to fund necessary governmental expenditures, and to repay its debt.
In addition, at the close of fiscal year 1998, on June 30, 1998, General Fund
revenues of the State of Maine exceeded those of the previous year by more than
8%, on a base-to-base comparison excluding one-time revenue gains and losses.
Because of this, State law may require that the 6% State of Maine sales tax on
the sale of tangible personal property and taxable services be reduced on
October 1, 1998 to 5.5%. Such a reduction in the sales tax would reduce revenues
to the State of Maine by approximately $60 million per year. It is the opinion
of the Bureau of the Budget of the Maine Department of Administrative and
Financial Services, however, that such a reduction in tax revenues would not
adversely affect the fiscal status of Maine State government in fiscal year
1999.
One other negative factor in the Maine economy is that while the statewide
economic statistics show, in the words of the Economics Division of the State
Planning Office, "fairly solid economic performance," the data tend to mask
regional disparities in economic performance within the State of Maine. For
example, by all of the usual indicators of economic performance, the southern
and mid-coastal counties of Maine are experiencing rapid economic growth.
Cumberland County (including the Portland metropolitan area) alone accounted for
80% of all job gains in the State from 1990 to 1996 and Cumberland County has a
per capita income level that is 25% above the statewide average. The counties
that lie along the I-95 corridor are also experiencing some economic prosperity.
The "rim counties" of Maine, however, from Oxford County in the West, to
Aroostook County in the North, to Washington County in the East are struggling
economically.
On the whole, however, according to the Economics Division of the State Planning
Office, "the outlook for Maine's economy is for slow but steady growth.
The fiscal policies of the State of Maine are very conservative, and the State
is required by its Constitution to operate on a balanced budget. The Maine
Constitution does this by prohibiting the Legislature, by itself, from issuing
any debt by or on
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behalf of the State which exceeds $2,000,000 "except to suppress insurrection,
to repel invasion, or for purposes of war, and except for temporary loans to be
paid out of money raised by taxation during the fiscal year in which they are
made." The Maine Constitution also provides for the prohibition of debt issued
by or on behalf of the State to fund "current expenditures." The Maine
Constitution allows the issuance of long-term debt when two-thirds of both
houses of the Legislature pass a law authorizing the issuance of such debt, and
when the voters of the State ratify and enact such a law at a general or special
statewide election. Amendments to the Maine Constitution also have been adopted
to permit the Legislature to authorize the issuance of bonds to insure payment
of up to: (i) $6,000,000 of revenue bonds of the Maine School Building
Authority; (ii) $4,000,000 of loans to Maine students attending institutions of
higher education; (iii) $1,000,000 of mortgage loans for Indian housing; (iv)
$4,000,000 of mortgage loans to resident Maine veterans including businesses
owned by resident Maine veterans; and (v) $90,000,000 of mortgage loans for
industrial, manufacturing, fishing, agricultural and recreational enterprises.
The Maine Constitution provides that if the Legislature fails to appropriate
sufficient funds to pay principal and interest on general obligation bonds of
the State, the State Treasurer is required to set aside sufficient funds from
the first General Fund revenues received thereafter by the State to make such
payments.
In recent years, Maine State government has skirted the Maine constitutional
balanced budget requirement by annually issuing significant amounts of tax
anticipation notes ("TANs") during the first few days after the July 1 beginning
of each new fiscal year and leaving such TANs outstanding until almost the
beginning of the next fiscal year. For example, on June 26, 1996 the State
issued $150,000,000 in TANs due June 27, 1997. Both the size of these issues and
fiscal legitimacy for them, however, have recently been criticized, and the
State is becoming more conservative with regard to what amounts to a former
practice of maintaining almost permanent TANS of significant size. This has been
made possible largely by the continued imposition of tightly conservative State
fiscal policies that allowed the State to end fiscal year 1997 solidly in the
black with an estimated approximate $59.7 million surplus, and to end fiscal
year 1998 with an estimated approximate $125 million surplus. No TAN was issued
immediately following the July 1 start of the 1998 fiscal year, and no TANs
currently are planned for issuance in fiscal year 1999.
As of April 30, 1998, there were outstanding general obligation bonds of the
State in the principal amount of $444,157,945. On June 25, 1998, the State
issued $84,500,00 general obligation bonds dated June 1,, 1998. On June 10,
1998, there were outstanding bond anticipation notes of the State in the
principal amount of $35,500,000 with a maturity of June 29,1998. As of June 10,
1998, there were outstanding bond anticipation notes of the State in the
principal amount of $33,500,000 with a maturity of June 29, 1998. As of June 10,
1998, there were authorized by the voters of the State for certain purposes but
unissued, general obligation bonds of the State in the aggregate principal
amount of $127,305,316, including the $84,500,000 in general obligation bonds to
be issued on June 25, 1998. As of June 10, 1998, there were authorized by the
Constitution of the State and implementing legislation but unissued, general
obligation bonds of the State in the aggregate principal amount of $99,000,000.
Various other Maine governmental agencies and quasi-governmental agencies
including, but not limited to, the Maine Municipal Bond Bank, the Maine Court
Facilities Authority, the Maine Health and Higher Educational Facilities
Authority, Maine Turnpike Authority, the Maine State Housing Authority, the
Maine Public Utility Financing Bank, and the Maine Educational Loan Authority,
issue debt for Maine governmental purposes, but this debt does not pledge the
credit of the State.
The strength of Maine's economy during the 1980's enabled the State to
accumulate relatively large unappropriated surpluses of general fund revenues.
During the economic recession of 1989 through 1992, however, Maine State
government repeatedly reduced its expenditures in order to comply with the
requirement of the Maine Constitution that State government operate on a
balanced budget. More recently, Maine State government has continued to downsize
and restructure its operations as part of an overall effort to improve the
management of numerous governmental programs. For example, recently the Maine
Legislature created a Productivity Realization Task Force and charged it with
identifying more than $45,000,000 of savings in State General Fund expenditures.
The Task Force, in fact, completed the identification of $45.28 million in cuts
to General Fund expenditures and passed legislation to implement those cuts
during the 1996-1997 biennium. The work of the Task Force also will result in
additional ongoing cuts of $60.1 million in General Fund expenditures during the
1998-1999 biennium, and the permanent elimination of approximately 1352 State
jobs. Such cuts in General Fund expenditures, other fiscal cost reductions, and
a continuing policy by the Governor not to allow the creation of significant new
State governmental programs or the taxes to fund such programs, have allowed the
Governor and Legislature to enact and amend a series of balanced budgets funding
State services for fiscal years 1998 and 1999. The most recent laws authorizing
expenditures for fiscal years 1998 and 1999 were enacted in the Second Regular
Session and Second Special Session of the 118th Maine Legislature in 1998 and
provide, for fiscal year 1998, total
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General Fund expenditures of $1,888,812,553 and total Highway Fund expenditures
of $215,984,090 and for fiscal year 1999, total General Fund expenditures of
$2,167,432,623 and total Highway Fund expenditures of $220,267,045. During the
First Regular Session of the 118th Maine Legislature, the Governor and the
Legislature also took several steps to adjust the State's fiscal condition.
First, the Legislature passed and the Governor signed into law a repeal of an
across the board State income tax cap that was enacted in 1995 and scheduled to
go into effect on July 1, 1997. If this State income tax cap had not been
repealed, income tax revenues expendable by the State beginning in fiscal year
1998 would have been restricted to $676,230,000. Second, the Legislature and the
Governor refused to eliminate prior to its scheduled elimination on June 30,
1998, an excise tax on the value of gross hospital patient service revenue, and
increased this tax for hospital payment years that end in fiscal year 1998 from
3.56% to 5.27%. Third, the Legislature and the Governor enacted into law a "Tax
Relief Fund for Maine Residents" which requires, according to a formula, that
75% of General Fund Revenues which exceed officially accepted estimates be used
to increase the personal exemption amount of the Maine Individual Income Tax up
to the personal exemption amount of the Federal Individual Income Tax. Also
according to the formula provided by the tax-relief statute, 25% of General Fund
revenues which exceed accepted estimates must be used to reduce the unfunded
liability of the Maine State Retirement System. As of the close of State's
fiscal year on June 30, 1997, Maine General Fund Revenues exceeded accepted
estimates by approximately $59.7 million. Accordingly, 75% of such excess
General Fund revenues, or an estimated $44.8 million, will be allocated to tax
relief for Maine residents, and 25% of such excess General Fund revenues, or an
estimated $14.9 million will be allocated to reduce the unfunded liability of
the Maine State Retirement System. Similarly, as of the close of the State's
fiscal year on June 30, 1998, it is expected that Maine General Fund Revenues
will exceed accepted estimates by approximately $125 million. Such a surplus can
be appropriated by the Legislature for any purpose, but it is expected that it
will be used for purposes such as reducing the unfunded liability of the Maine
State Retirement System, increasing amounts in the State's Rainy Day Fund
(described below), and contributing to unappropriated revenues of the State.
During the Second Regular Session of the 118th Maine Legislature, the State also
enacted a Maine Resident Homestead Property Tax Exemption providing
approximately $50 million in property tax relief to Maine residents. The State
also maintains a "Rainy Day Fund" to be used for significant unforeseen capital
and operational expenditures. As of June 30, 1998 the balance in the State's
Rainy Day Fund was approximately $64.1 million, the highest amount ever.
There can be no assurance that the budget acts for fiscal years 1998 and 1999,
and the various other statutes passed by the Maine Legislature which affect the
State's fiscal position, will not be amended by the Legislature from time to
time.
The unfunded liability of the Maine State Retirement System is a significant
problem for Maine State government. This unfunded liability currently is
certified by the State's independent actuaries as of June 30, 1997 to be
approximately $2.6 billion. Because of this, the State has adopted a
constitutional amendment (Me. Const. art. IX, ss.18-B) that requires the Maine
Legislature, beginning in fiscal year 1997, annually to appropriate funds that
will retire in 31 years or less the System's unfunded liability attributable to
State employees and teachers. In the Second Regular Session of the 118th Maine
Legislature, the State reduced by statute the amount of time to retire the
unfunded liability to 25 years from June 30, 1998. The State has also adopted a
separate constitutional amendment (Me. Const. art. IX, ss.18-A) that requires
the Maine Legislature, beginning in fiscal year 1998, annually to appropriate
monies to fund the System on an actuarially sound basis. Under Article IX,
ss.18-B of the Maine Constitution, unfunded liabilities henceforth may not be
created for the System except those resulting from experience losses, and such
unfunded liabilities resulting from experience losses must be retired over a
period not exceeding 10 years.
Because of Maine's conservative debt policies and its constitutional requirement
that the State government operate under a balanced budget, Maine general
obligation bonds had been rated AAA by S&P and Aa1 by Moody's for many years.
On June 6, 1991, however, S&P lowered its credit rating for Maine general
obligation bonds from AAA to AA+, and at the same time lowered its credit rating
on bonds issued by the Maine Municipal Bond Bank and the Maine Court Facilities
Authority, and on State of Maine Certificates of Participation for highway
equipment, from AA to A+. In taking this action, S&P said, "The rating action is
a result of declines in key financial indicators, and continued softness in the
state economy. The new rating continues to reflect the low debt burden of the
state, an economic base that has gained greater income levels and diversity over
the 1980's, and a legislative history of dealing effectively with financial
difficulties." These ratings have remained unchanged since June 6, 1991. Because
of slow but continuing improvements in the State of Maine economy, S&P currently
views the State's financial outlook as "stable," stating in its most recent June
5, 1998 credit
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report: "The AA+ rating on Maine's bonds reflects the state's: Diversifying
economy, which is growing at a slow, steady pace; Improving financial
performance; and Low debt burden with a rapid amortization schedule." On August
24, 1993, citing the "effects of protracted economic slowdown and the
expectation that Maine's economy will not soon return to the pattern of robust
growth evident in the mid-1980's," Moody's lowered its State of Maine general
obligation bond rating from Aa1 to Aa. At the same time, Moody's lowered from
Aa1 to Aa the ratings assigned to state-guaranteed bonds of the Maine School
Building Authority and the Finance Authority of Maine, and confirmed at A1 the
ratings assigned to the bonds of the Maine Court Facilities Authority and State
of Maine Certificates of Participation. These ratings remained unchanged until
1997. On May 13, 1997, Moody's "confirmed and refined from Aa to Aa3" the
State's general obligation bond rating. Moody's refinement of the State's bond
rating on May 13, 1997 was part of a general redefinition by Moody's of its bond
rating symbols published on January 13, 1997, and was not a substantive rating
change. In its most recent June 5, 1998 credit report, Moody's raised its credit
rating for Maine general obligation bonds from Aa3 to Aa2, stating: "The Aa2
rating upgrade reflects steady improvement in fund balances and spending
control, an increased pace of economic recovery, and moderate debt ratios. The
rating also acknowledges the ongoing fixed costs associated with the state's
unfunded pension liability."
For its June 25, 1998 general obligation bond issue dated June 1, 1998, Maine
also received a credit report from Fitch. In this credit report dated June 8,
1998, Fitch assigned a rating of AA to Maine general obligation bonds, saying:
"The State of Maine's general obligation bonds are well secured with strength
especially in the low burden that debt places on resources and in the unusually
rapid rate of amortization. The economy is again growing and financial
operations have been very successful in the past two years. Institutionalization
of financial reforms, including accounting, the revenue estimation process and
debt control are of benefit, and the reserve level continues to increase."
STATE OF NEW HAMPSHIRE
Material in this section has been abstracted from the State of New Hampshire
Information Statement dated March 27, 1998 and the supplement thereto, dated
June 23, 1998, compiled by the Treasurer of the State of New Hampshire and
provided to prospective purchasers of debt securities offered by the State.
While information in the Information Statement is believed to be accurate, none
of that information has been independently verified. Also, it does not reflect
economic conditions or developments that may have occurred or trends that may
have materialized since the date of the Information Statement. Additionally,
economic and fiscal conditions in individual municipalities within the State may
vary from general economic and fiscal conditions.
New Hampshire is located in the New England Region and is bordered by the states
of Maine, Massachusetts, and Vermont and the Province of Quebec, Canada. New
Hampshire's geographic area is 9,304 square miles and its 1996 population was
1,163,000, representing a 1.3% increase from 1995 levels. New Hampshire's
population had increased by more than 25% in the 1980-1996 period.
New Hampshire's per capita personal income increased by 106.4% between 1980 and
1990. In 1991 it continued to grow faster than the New England region as a whole
and in 1992 and 1993 it grew at a slightly lower rate than the region, resuming
faster growth relative to the region in 1994 and 1995. New Hampshire's per
capita personal income in 1996 was 109% of the national level, ranking 8th in
the United States.
In 1997, New Hampshire's largest employment sector was the service sector (29%
of employment), followed by retail and wholesale trade (26% of employment).
Manufacturing was the third largest sector (18.8% of employment).
Non-agricultural employment levels have remained fairly stable. The unemployment
rate declined to 3.1% in 1997, less than the national average of 4.9%.
After a significant growth in residential building activity in the period
1980-86 (data based on residential building permits), New Hampshire's
residential building activity declined beginning in 1987, and declined below
1980 levels in 1990, 1991 and 1992. In 1993, residential building activity
surpassed 1980 levels and activity in 1994, 1995 and 1996 surpassed 1993.
New Hampshire finances the operations of state government through specialized
taxes, user charges and revenues received from the State liquor sales and
distribution system. There is no general tax on sales or earned income. The
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two highest revenue-producing taxes are the Meals and Rooms Tax and the Business
Profits Tax. In 1994, State and local taxes amounted to $97 per $1,000 of
personal income, which was the third lowest in the United States. However,
because local property taxes are the principal source of funding for municipal
operations and primary and secondary education, New Hampshire was highest among
all states in local property tax collections per $1,000 of personal income. See
the concluding paragraph of this section for a description of litigation
challenging the constitutionality of the State's statutory system of financing
operation of elementary and secondary public schools primarily through local
taxes.
New Hampshire State government's budget is enacted to cover a biennial period
through a series of legislative bills that establish appropriations and
estimated revenues for each sub-unit of State government, along with
supplemental and special legislation. By statute, the budget process is
initiated by the Governor, who is required to submit operating and capital
budget proposals to the Legislature by February 15 in each odd-numbered year.
While the Governor is required to state the means through which all expenditures
will be financed, there is no constitutional or statutory requirement that the
Governor propose or the Legislature adopt a budget without resorting to
borrowing. There is no line item veto.
State government funds include the General Fund, four special purpose funds and
three enterprise funds, as well as certain "fiduciary" funds. All obligations of
the State are paid from the State Treasury, and must be authorized by a warrant
signed by the Governor and approved by the Executive Council, except for
payments of debt obligations, which are paid by the State Treasurer under
statutory authority.
By statute, at the close of each fiscal year, 50% of any General Fund operating
surplus must be deposited in a Revenue Stabilization Reserve Account ("Rainy Day
Fund") which may contain up to 10% of General Fund unrestricted revenue. With
approval of the Legislative Fiscal Committee, the Governor and the Executive
Council, the Rainy Day Fund is available to defray operating deficits in ensuing
years if there is a shortfall in forecast revenue. By statute, the Rainy Day
Fund may not be used for any other purpose except by special appropriation
approved by two-thirds of each Legislative chamber and the Governor. As of June
30, 1997 there was a designated balance of $20 million in the Rainy Day Fund.
The Department of Administrative Services is responsible for maintenance of
State government's accounting system, annual reports and general budget
oversight. Expenditures are controlled against appropriations through an
integrated accounting system which compares the amount of an appropriation to
expenditures and encumbrances previously charged against that appropriation
before creating an expenditure. By law, with certain exceptions unexpended and
unencumbered balances of appropriations lapse to surplus in the applicable fund
at the end of each fiscal year, along with unappropriated revenues in excess of
legislative estimates. Legislative financial controls involve the Office of
Legislative Budget Assistant ("LBA") which acts under supervision of the
Legislative Fiscal Committee and Joint Legislative Capital Budget Overview
Committee. LBA conducts overall post-audit and review of the budgetary process.
State government financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") and are independently audited annually.
During the 1992-1993 biennium, State revenues began recovering from the decline
that had characterized the recession years of 1989, 1990 and 1991. The General
Fund undesignated fund balance at June 30, 1994, was $12.0 Million. For the
fiscal year ended June 30, 1995, the General Fund undesignated fund balance was
zero, after transferring $35.1 Million from the Healthcare Transition Fund to
offset a delay in receipt of federal funds from disproportionate share
expenditures under the Medicaid program. At June 30, 1996, the General Fund
undesignated fund balance was ($44.2 Million) after a net transfer to the
Healthcare Transition Fund of $21.9 Million, and was ($1.2 million) at June 30,
1997.
There is no constitutional limit on the State's power to issue obligations or
incur indebtedness, and no constitutional requirement for referendum to
authorize incurrence of indebtedness by the State. Authorization and issuance of
debt is governed entirely by statute. New Hampshire pursues a debt management
program designed to minimize use of short-term debt for operating purposes and
to coordinate issuance of tax-exempt securities by the State and its agencies.
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State-guaranteed bonded indebtedness is authorized not only for general purposes
of State government, but also for the New Hampshire Turnpike System, University
System of New Hampshire, water supply and pollution control, water resources
acquisition and construction, School Building Authority, Pease Development
Authority, Business Finance Authority, Municipal Bond Bank and cleanup of
municipal Super Fund sites and landfills. In addition, the Housing Finance
Authority and Higher Education and Health Facilities Authority are authorized to
issue bonds that do not constitute debts or obligations of the State.
Procedure for incurrence of bonded indebtedness by individual municipalities is
governed by State statutes, which prescribe actions that must be pursued by
municipalities in incurring bonded indebtedness and limitations on the amount of
such indebtedness. In general, incurrence of bonded indebtedness by a
municipality must be for a statutorily authorized purpose and requires a
two-thirds majority vote of the municipality's legislative body.
On December 17, 1997, the New Hampshire Supreme Court ruled that the State's
present system of financing public elementary and secondary schools primarily
through local property taxes violates the New Hampshire Constitution, because
(1) providing an adequate public education is a duty of State government; (2)
local school property taxes are levied to fulfill a State purpose; and (3) local
school property taxes, levied at different rates in different localities, are
not proportional and reasonable throughout the State. The court also indicated
that a State-funded, constitutionally adequate elementary and secondary
education is a fundamental constitutional right. However, the court stayed all
further proceedings in the case "until the end of the [1998] legislative session
and further order of this court to permit the legislature to address the issues
involved in this case." The court allowed the present funding mechanism to
remain in effect "during the 1998 tax year" i.e. through March 31, 1999. On June
23, 1998, responding to a request for an advisory opinion from the New Hampshire
Senate, the court advised that certain legislation passed by the New Hampshire
House of Representatives to address the court's December 1997 decision would
violate State constitutional requirements by failing to provide funding of
adequate public elementary and secondary education at a uniform tax rate
throughout the State. On June 30, 1998, the legislature recessed without
enacting legislation addressing the court's December 1997 decision. The 1998
legislative session may be reconvened at the call of the presiding officer of
each legislative chamber, until 12:01 a.m., December 1, 1998, when the current
legislature will be dissolved. The potential impact of the court's decisions on
the State's finances cannot presently be determined. However, in absence of
further order of the court, it appears that the present system of
locally-assessed school property taxes may become legally unenforceable as of
April 1, 1999.
5. PERFORMANCE DATA
The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
indicate future returns. The Funds' net asset value, yield and total return
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
Standardized SEC yield and total return information as of March 31, 1998 is set
forth in the following tables:
<TABLE>
<S> <C> <C> <C> <C> <C>
30 Day
30 Day Annualized Total Return
Annualized Tax Equivalent Total Return Total Return Since
Fund(a) Yield Yield 1 Year 5 Year Inception
----- ----- ------ ------ ---------
INVESTORS BOND FUND 5.88% N/A 6.79% 6.59% 8.67%
INVESTORS HIGH
GRADE BOND FUND N/A N/A N/A N/A (3.90)
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TAXSAVER BOND FUND
3.64 % 6.03% 3.70% 5.53% 6.94%
MAINE MUNICIPAL
BOND FUND
3.85% 6.97% 5.19% 5.45% 6.41%
NEW HAMPSHIRE BOND
FUND 3.90% 6.80% 6.16% 5.81 5.80%
</TABLE>
(a) Investors High Grade Bond Fund commenced operations on March 16, 1998,
Investors Bond Fund and TaxSaver Bond commenced operations on October 2, 1989,
Maine Municipal Bond Fund commenced operations on December 5, 1991, and New
Hampshire Bond Fund commenced operations on December 31, 1992.
Tax-equivalent yield for TaxSaver Bond Fund is based on a Federal income tax
rate of 39.6%. The tax equivalent yield for Maine Municipal Bond Fund is based
on a combined Federal and Maine state income tax rate of 48.1% (Federal 39.6%
and State of Maine 8.5%). The tax equivalent yield for New Hampshire Bond Fund
is based on a combined Federal and New Hampshire state income tax rate of 44.6%
(Federal 39.6% and State of New Hampshire 5.0%).
In performance advertising each Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). Each Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indices,
including but not limited to the Municipal Bond Buyers Indices, the Salomon
Brothers Bond Index, the Shearson Lehman Bond Index, the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, U.S. Treasury
bonds, bills or notes and changes in the Consumer Price Index as published by
the U.S. Department of Commerce. The Funds may refer to general market
performances over past time periods such as those published by Ibbotson
Associates (for instance, its "Stocks, Bonds, Bills and Inflation Yearbook"). In
addition, the Funds may refer in such materials to mutual fund performance
rankings and other data published by Fund Tracking Companies. Performance
advertising may also refer to discussions of the Funds and comparative mutual
fund data and ratings reported in independent periodicals, such as newspapers
and financial magazines.
For example, the Funds may advertise the historical advantages, based on assumed
investments made on particular dates, in long term corporate bonds or in the S&P
500 Composite Stock Index against U.S. Treasury bills, as published by the
companies listed above.
YIELD CALCULATIONS
Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30 days or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced with
respect to bonds purchased at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.
Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
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The tax equivalent yield for TaxSaver Bond Fund is the rate an investor would
have to earn from a fully taxable investment in order to equal the Fund's yield
after taxes. Tax equivalent yields are calculated by dividing the Fund's yield
by one minus the stated Federal or combined Federal and state tax rate. If only
a portion of the Fund's yield is tax-exempt, only that portion is adjusted in
the calculation.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. Also, Processing Organizations (as defined
in the Prospectuses) may charge their customers direct fees in connection with
an investment in a Fund, which will have the effect of reducing the Fund's net
yield to those shareholders. The yields of each Fund are not fixed or
guaranteed, and an investment in a Fund is not insured or guaranteed.
Accordingly, yield information may not necessarily be used to compare shares of
a Fund with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. Also, it may not be appropriate
to compare a Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
TOTAL RETURN CALCULATIONS
Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value.
ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments and/or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gain and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted with or without taking into consideration a
Fund's front-end sales charge; excluding sales charges from total return
calculations produces a higher return figure. Total returns, yields and other
performance information may be quoted numerically or in a table, graph or
similar illustration.
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Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average
annual total return above.
Investors who purchase and redeem shares of the Fund through a customer account
maintained at a Processing Organization may be charged one or more of the
following types of fees as agreed upon by the Processing Organization and the
investor, with respect to the customer services provided by the Processing
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
these assets). Such fees will have the effect of reducing the average annual
total return of the Fund for those investors.
OTHER ADVERTISING MATTERS
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Funds' Adviser and biographical descriptions of the management staff of the
Adviser; (7) summaries of the views of the Adviser with respect to the financial
markets; (8) background information regarding the Trust; (9) the results of a
hypothetical investment in a fund over a given number of years, including the
amount that the investment would be at the end of the period; (10) the effects
of investing in a tax-deferred account, such as an individual retirement account
or Section 401(k) pension plan; and (11) the net asset value, net assets or
number of shareholders of the Funds as of one or more dates.
6. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 56)
President, Forum Financial Group, LLC (mutual fund services company
holding company)). Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
23
<PAGE>
Costas Azariadis, Trustee (age 55)
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 56)
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 54)
Partner at the law firm of Reid and Priest, LLP, since 1995. From 1989
to 1995. he was a partner at the law firm of Winthrop, Stimson, Putnam
& Roberts. 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 West 57th Street, New York, New York 10019.
Mark D. Kaplan, Vice President (age 42)
Director, Investments, Forum Financial Group, LLC (mutual fund
services company holding company), with which he has been associated
since September 1995. Prior thereto, Mr. Kaplan was Managing Director
and Director of Research at H.M. Payson & Co. His address is Two
Portland Square, Portland, Maine 04101.
Stacey Hong, Treasurer
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hong was a
Senior Accountant with Ernst & Young, LLP. His address is Two Portland
Square, Portland, Maine 04101.
Max Berueffy, Secretary (age 46)
Senior Counsel, Forum Financial Group, LLC (mutual fund services
company holding company), ., 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 also
serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. His address is Two Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary (age 33)
Assistant Counsel, Forum Financial Group, LLC (mutual fund services
company holding company), with which she has been associated since
April 1998. Prior thereto, Ms. Klenk was Vice President and Associate
General Counsel of Smith Barney Inc. Ms. Klenk also serves as an
officer of other registered investment companies for which the various
Forum Financial Group of Companies provides services. Her address is
Two Portland Square, Portland, Maine 04101.
Pamela Stutch, Assistant Secretary (age 31)
Fund Administrator, Forum Financial Group, LLC (mutual fund services
company holding company), with which she has been associated since May
1998. Prior thereto, Ms. Stutch attended Temple University
24
<PAGE>
School and graduated in 1997. Ms. Stutch was also a legal intern for
the Maine Department of the Attorney General, Ms. Stutch also serves
as an officer of other registered investment companies for which the
various Forum Financial Group of Companies provides services. Her
address is Two Portland Square, Portland, Maine 04101.
TRUSTEE COMPENSATION
Each Trustee of the Trust (other than John Y. Keffer, who is an interested
person of the Trust) is paid $1,000 for each Board meeting attended (whether in
person or by electronic communication) and is paid $1,000 for each committee
meeting attended on a date when a Board meeting is not held. As of 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 $9,718.64 None None $9,718.64
Mr. Cheng $9,718.64 None None $9,718.64
Mr. Parish $9,718.64 None None $9,718.64
</TABLE>
TRUSTEE COMPENSATION FOR CORE TRUST (DELAWARE)
Each of the Trustees of the Trust is also a Trustee of Core Trust (Delaware), a
registered, open-end management investment company ("Core Trust"). Each Trustee
of Core Trust (other than John Y. Keffer, who is an interested person of Core
Trust) is paid $1,000 for each Core Trust Board meeting attended (whether in
person or by electronic communication) plus $100 per active portfolio of Core
Trust and is paid $1,000 for each committee meeting attended on a date when a
Core Trust Board meeting is not held. To the extent a meeting relates to only
certain portfolios of Core Trust, trustees are paid the $100 fee only with
respect to those portfolios. Core Trust trustees are also reimbursed for travel
and related expenses incurred in attending meetings of the Core Trust Board.
THE INVESTMENT ADVISER
Pursuant to an Investment Advisory Agreement with the Trust , Forum Investment
Advisors, Inc. (the "Adviser") furnishes, at its own expense all services,
facilities and personnel necessary in connection with managing each Fund's
investments and effecting portfolio transactions for the respective Fund.
Subject to the general supervision of the Board, the Adviser is responsible for
among other things, developing a continuing investment program for the Funds in
accordance with their investment objectives and reviewing the investments,
investment strategies and policies of the Funds. In this regard, it is the
responsibility of the Adviser to make decisions relating to the Funds'
investments and to place purchase and sale orders regarding such investments
with brokers and dealers selected by it in its discretion. The Adviser also
furnishes to the Board, which has overall responsibility for the business and
affairs of the Trust, periodic reports on the investment performance of the
Fund.
The Investment Advisory Agreement provides, with respect to each Fund, for an
initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or by majority vote of the
shareholders of a Fund, and in either case by a majority of the Trustees who are
not parties to the Investment Advisory Agreement or interested persons of any
such party.
25
<PAGE>
The Investment Advisory Agreement may be terminated, with respect to a Fund,
without penalty by vote of the Board or by majority vote of the shareholders of
a Fund on 30 days' written notice to the Adviser or by the Adviser on not more
than 90 days' written notice to the Trust, and will automatically terminate in
the event of its assignment. The Investment Advisory Agreement also provides
that, with respect to the Fund(s), the Adviser shall not be liable for any error
of judgment or mistake of law or for any act or omission in the performance of
its duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties or by reason of reckless
disregard of its obligations and duties under the Investment Advisory Agreement.
The Investment Advisory Agreement provides that the Adviser may render services
to others.
For services under the Investment Advisory Agreement, the Adviser received with
respect to each Fund a fee at an annual rate of 0.40% of the Fund's average
daily net assets. The following table shows the dollar amount of fees payable to
the Adviser for services rendered to the Funds under the Investment Advisory
Agreement, the amount of fees that was waived by the Adviser, if any, and the
actual fees received by the Adviser. The data is for the past three fiscal
years.
<TABLE>
INVESTORS HIGH GRADE BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $5,970 $0 $5,970
INVESTORS BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $171,777 $0 $171,777
1997 $100,163 $0 $100,163
1996 $107,061 $48,250 $58,811
TAXSAVER BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $102,003 $0 $102,003
1997 $70,634 $0 $70,634
1996 $69,544 $0 $69,544
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $107,471 $0 $107,471
1997 $101,549 $0 $101,549
1996 $105,104 $0 105,104
</TABLE>
26
<PAGE>
<TABLE>
NEW HAMPSHIRE BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $43,782 $0 $43,782
1997 $31,774 $0 $31,774
1996 $23,870 $0 $23,870
</TABLE>
In addition to receiving its advisory fee from the Funds, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in the Funds. In some instances the Adviser may elect
to credit against any investment management fee received from a client who is
also a shareholder in the Fund an amount equal to all or a portion of the fees
received by the Adviser or any affiliate of the Adviser from the Fund with
respect to the client's assets invested in the Fund.
The Adviser has agreed to reimburse the Trust for certain of each Fund's
operating expenses (exclusive of interest, taxes, brokerage, fees and
organization expenses, all to the extent permitted by applicable state law or
regulation) which in any year exceed the limits prescribed by any state in which
a Fund's shares are qualified for sale. The Trust may elect not to qualify its
shares for sale in every state. The manager and distributor believe that
currently the most restrictive expense ratio limitation imposed by any state is
2-1/2% of the first $30 million of each Fund's average net assets, 2% of the
next $70 million of its average net assets and 1-1/2% of its average net assets
in excess of $100 million. For the purpose of this obligation to reimburse
expenses, the Fund's annual expenses are estimated and accrued daily, and any
appropriate estimated payments will be made by the Adviser or the manager and
distributor monthly.
THE ADMINISTRATOR
Pursuant to an Administration Agreement approved by the Board of Trustees on
June 19, 1997 , FAdS acts as administrator to the Trust on behalf of the Funds.
As Administrator, FAdS provides management and administrative services necessary
to the operation of the Trust (which include, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of the Trust) and provides the Trust with general office
facilities. At the request of the Board, FAdS provides persons satisfactory to
the Board to serve as officers of the Trust, Those officers, as well as certain
other employees and Trustees of the Trust, may be directors, officers or
employees of FAdS, the Adviser or their affiliates. Prior to June 19, 1997,
Forum Financial Services, LLC, an affiliate of FAdS provided administration
services to the Trust pursuant to a Management Agreement.
The Administration Agreement will remain in effect, with respect to a Fund, for
a period of twelve months and will continue in effect thereafter only if it is
specifically approved at least annually (1) by the Board or by majority vote of
the shareholders of a Fund and (2) by a majority of the Trustees who are not
parties to the agreement or interested persons of any such party (other than as
Trustees of the Trust). The Administration Agreement may be terminated without
penalty by the Board or FAdS upon 60 days' written notice. The Administration
Agreement also provides that FAdS shall not be liable for any error of judgment
or mistake of law or for any act or omission in the administration or management
of the Trust, except for willful misfeasance, bad faith or gross negligence in
the performance of FAdS's duties or by reason of reckless disregard of its
obligations and duties under the Administration Agreement
For their services under the Administration Agreement, FAdS receives 0.20% of
the average daily net assets of each Fund. Under the Management Agreement, FFSI
received an annual rate of 0.30% of the average daily net assets of each Fund.
The following table shows the dollar amount of fees payable, the amount of the
fee that was waived, and the net fee received under the Administration and
Management Agreements. The data is for the Funds' prior three fiscal years,
27
<PAGE>
<TABLE>
INVESTORS HIGH GRADE BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------- --------- ---------- -------
1998 $2,985 $2,985 $0
INVESTORS BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------- --------- ---------- -------
1998 $108,198 $108,198 $0
1997 $75,122 $75,122 $0
1996 $80,296 $80,296 $0
TAXSAVER BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------- --------- ---------- -------
1998 $66,898 $66,898 $0
1997 $52,975 $52,975 $0
1996 $52,158 $52,158 $0
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------- --------- ---------- -------
1998 $73,724 $73,724 $0
1997 $76,162 $76,162 $0
1996 $78,828 $78,828 $0
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
-------- --------- ---------- -------
1998 $29.727 $29,727 $0
1997 $23,831 $23,831 $0
1996 $17,902 $17,902 $0
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement, FFSI is the distributor and acts as the
agent of the Trust in connection with the offering of shares of the Funds
pursuant to a Distribution Agreement with the Trust (the "Distribution
Agreement"). The Distributor is under no obligation to sell any specific amount
of each Fund's shares. All subscription of shares obtained by FFSI are directed
to the Trust for acceptance and are not binding on the Trust until accepted.
The Distribution Agreement provides, with respect to a Fund, for an initial term
of twelve months from the date of its effectiveness and will continue thereafter
only if its continuance is specifically approved at least annually (1) by the
Board or by a majority vote of the shareholders of a Fund and (2) by a majority
of the Trustees who are not
28
<PAGE>
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 each Fund by the Board or by a vote
of the majority of a Fund's shareholders on 60 days' written notice to the
Adviser or by the Adviser on 90 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 performances of
its services to the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of FFSI's duties or by reason of reckless
disregard of its obligations and duties under the Distribution Agreement.
Pursuant to the Distribution Agreement, FFSI receives, and may reallow to
certain financial institutions, the sales charge paid by the purchasers of each
Fund's shares. The aggregate sales charges payable to FFSI with respect to each
Fund are outlined in the following tables:
<TABLE>
INVESTORS HIGH GRADE BOND FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED AGGREGATE
MARCH 31 SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
- -------- ------------ --------------- ----------------
1998 $0 $0 $0
INVESTORS BOND FUND
FISCAL YEAR ENDED AGGREGATE
MARCH 31 SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
- -------- ------------ --------------- ----------------
1998 $0 $0 $0
1997 $1,951 $274 $1,677
1996 $6,252 $829 $5,423
TAXSAVER BOND FUND
FISCAL YEAR ENDED AGGREGATE
MARCH 31 SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
- -------- ------------ --------------- ----------------
1998 $162 $162 $0
1997 $16 $2 $14
1996 $13,336 $1,317 $12,019
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED AGGREGATE
MARCH 31 SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
- -------- ------------ --------------- ----------------
1998 $16,890 $376 $16,514
1997 $117,032 $10,264 $106,768
1996 $106,683 $13,941 $92,742
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED AGGREGATE
MARCH 31 SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
- -------- ------------ --------------- ----------------
1998 $4,041 $0 $4,041
1997 $54,094 $4,557 $49,537
1996 $24,865 $3,309 $21,556
</TABLE>
29
<PAGE>
THE TRANSFER AGENT
Pursuant to a Transfer Agency and Services Agreement dated May 19, 1998, Forum
Shareholder Services, LLC (the "FSS"") acts as transfer agent of the Trust., FSS
became the Trust's transfer agent effective January 1, 1998 when it succeeded to
the transfer agency business of Forum Financial Corp. (FSS and Forum Financial
Corp. ("FFC") are commonly controlled entities.)
The Transfer Agency and Services Agreement provides, with respect to a Fund, for
an initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided that the
agreement is specifically approved at least annually (1) by the Board or by a
majority vote of the shareholders of a Fund and (2)by a majority of the
directors of a Fund who are not parties to the Transfer Agency and Services
Agreement or interested persons of any such party. The Transfer Agency and
Services Agreement may also be terminated, without penalty, by the Board and/or
FSS on 60 days written notice.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Funds may be effected and certain
other matters pertaining to the Funds; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the Trust to its
shareholders; (8) arranging for the receipt, tabulation and transmission to the
Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation as custodian, investment manager, nominee, agent or fiduciary for
its customers or clients who are shareholders of the Funds with respect to
assets invested in the Funds. FSS or any sub-transfer agent or other processing
agent may elect to credit against the fees payable to it by its clients or
customers all or a portion of any fee received from the Trust or from FSS with
respect to assets of those customers or clients invested in the Fund. FSS, FAdS
or sub-transfer agents or processing agents retained by the FSS may be
Processing Organizations (as defined in the Prospectus) and, in the case of
sub-transfer agents or processing agents, may also be affiliated persons of the
FSS. or For its services, FSS receives, with respect to each Fund, 0.25% per
year of the average daily net assets, $12,000, and shareholder account fees of
$18.00 per shareholder account. FFC served as the transfer agent for the Trust
pursuant to similar terms and compensation as FSS. The following table shows the
dollar amount of fees payable under the Transfer Agency Agreement, the amount of
the fee that was waived, and the actual fee received under the Transfer Agency
Agreement. The data is for the Funds' prior three fiscal years.
INVESTORS HIGH GRADE BOND FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $4,248 $3,731 $517
30
<PAGE>
INVESTORS BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $120,533 $102,298 $18,235
1997 $76,562 $58,271 $18,291
1996 $80,320 $60,882 $19,438
TAXSAVER BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $76,553 $59,098 $17,455
1997 $57,010 $40,248 $16,762
1996 $56,344 $38,888 $17,456
31
<PAGE>
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $86,179 $43,753 $42,426
1997 $82,456 $39,581 $42,875
1996 $84,962 $41,754 $43,208
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $40,793 $11,618 $29,175
1997 $33,317 $6,539 $26,778
1996 $28,488 $645 $27,843
</TABLE>
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust dated June 19, 1997,
Forum Accounting Services, LLC ("FAcS") performs portfolio accounting services
for the Funds. Under the Fund Accounting Agreement, FAcS prepares and maintains
books and records of the Funds on behalf of the Trust as required under the 1940
Act, calculates the net asset value per share of the Funds, dividends, and
capital gains distributions and prepares periodic reports to shareholders and
the Securities and Exchange Commission. Prior to June 19, 1997, accounting
services were provided to the Trust by FFC.
The Fund Accounting Agreement provides, with respect to a Fund, for an initial
period of twelve months from the date of its effectiveness and will continue in
effect if such continuance is specifically approved at least annually (1) by the
Board or by majority vote of the shareholders of a Fund and (2) by vote of a
majority of the Trustees who are not parties to the Fund Accounting Agreement or
interested persons of any such party. The Fund Accounting Agreement may also be
terminated on 60 days written notice by either the Board or FAcS. The Fund
Accounting Agreement also provides that FAcS shall not be liable for any action
or inaction taken expect for willful misfeasance, bad faith or gross negligence
in the performance of its duties under the Fund Accounting Agreement.
For their services, FFC received and FAcS receives from the Trust with respect
to each Fund a fee of $36,000 plus additional surcharges dependent upon the
number and type of portfolio transactions and positions. The following table
shows the dollar amount of accounting fees payable to FAcS and/or FFC for
services rendered under the Fund Accounting Agreement. The data is for the
Funds' past three fiscal years.
INVESTORS HIGH GRADE BOND FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $3,548 $3,548 $0
32
<PAGE>
INVESTORS BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $41,000 $0 $41,000
1997 $41,000 $0 $41,000
1996 $38,000 $0 $38,000
TAXSAVER BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $41,000 $0 $41,000
1997 $36,000 $0 $36,000
1996 $39,000 $0 $39,000
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $48,000 $0 $48,000
1997 $48,000 $0 $48,000
1996 $48,000 $0 $48,000
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $36,000 $0 $36,000
1997 $37,000 $0 $37,000
1996 $37,000 $0 $37,000
</TABLE>
7. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Funds as of 4:00 p.m.,
Eastern Time, on each Fund Business Day as defined in the Prospectuses by
dividing the value of each Fund's net asset (i.e. the value of its portfolio
securities and other assets less its liabilities) by the number of that Fund's
shares outstanding at the time the determination is made. Purchases and sales
are effected at the time of the next determination of net asset value following
the receipt of any purchase or redemption order.
Securities owned by the Fund listed on the recognized stock exchanges are valued
at the last reported trade price, prior to the time when the assets are valued,
on the exchange on which the securities are principally traded. Listed
securities traded on recognized stock exchanges where last trade prices are not
available are valued at mid-market prices. Securities traded in over-the-counter
markets, or listed securities for which no trade is reported on the valuation
date, are valued at the most recent reported mid-market price. Other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using methods approved by the Board.
33
<PAGE>
8. PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities for the Funds usually are principal
transactions. Portfolio securities for these Funds are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually are no brokerage commissions paid for such purchases.
Purchases from underwriters of portfolio securities include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked prices.
The Funds may effect purchases and sales through brokers who charge commissions.
Allocations of transactions to brokers and dealers and the frequency of
transactions are determined by the Adviser in its best judgment and in a manner
deemed to be in the best interest of shareholders of the Funds rather than by
any formula. The primary consideration is prompt execution of orders in an
effective manner and at the most favorable price available to the Funds. For the
fiscal years ended March 31, 1998, 1997, 1996, Investors Bond Fund, TaxSaver
Bond Fund, Maine Municipal Bond Fund, and New Hampshire Bond Fund did not pay
any brokerage commissions. Similarly, for the fiscal year ended March 31, 1998,
the Investors High Grade Bond Fund did not pay any brokerage commissions.
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with Fund transactions, the Adviser takes into account such factors
as size of the order, difficulty of execution, efficiency of the executing
broker's facilities (including the services described below) and any risk
assumed by the executing broker. The Adviser may also take into account payments
made by brokers effecting transactions for a Fund (i) to the Fund or (ii) to
other persons on behalf of the Fund for services provided to it for which it
would be obligated to pay.
In addition, the Adviser may give consideration to research and investment
analysis services furnished by brokers or dealers to the Adviser for its use and
may cause a Fund to pay these brokers a higher amount of commission than may be
charged by other brokers. Such research and analysis is of the types described
in Section 28(e)(3) of the Securities Exchange Act of 1934, as amended, and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. The Adviser may use the research and analysis in connection with
services to clients other than a Fund, and the Adviser's fee is not reduced by
reason of the Adviser's receipt of the research services.
Investment decisions for each Fund will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, a Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by a Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for a Fund and for other investment companies and accounts managed
by the Adviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
No portfolio transactions are executed with the Adviser, the Manager or any of
their affiliates.
9. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor.
Set forth below is an example of the method of computing the offering price of
each Fund's shares. The example assumes a purchase of shares of beneficial
interest aggregating less than $100,000 subject to the schedule of sales charges
set forth in the Prospectuses at a price based on the net asset value per share
of each Fund on March 31, 1998.
34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Maine
Investors Municipal New
High Grade Investors TaxSaver Bond Fund Hampshire
Bond Fund Bond Fund Bond Fund Bond Fund
Net Asset Value Per Share $9.96 $10.57 $10.75 $11.05 $10.73
Shares Charge, 3.75% of
offering price (3.90% of net
asset value per share) $0.39 $0.41 $0.42 N/A N/A
Sales Charge, 2.50% of
offering price (2.56% of
net asset value per share) N/A N/A N/A $0.28 $0.27
Offering to Public $10.35 $10.48 $11.17 $11.33 $11.00
</TABLE>
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse a portfolio for any loss sustained by reason of the failure
of a shareholder to make full payment for shares purchased by the shareholder or
to collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to the Fund's shares as provided in the
Prospectus.
The Trust has filed an election with the Securities and Exchange Commission
pursuant to which a Fund will only effect a redemption in portfolio securities
if a shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
The Funds may wire proceeds of redemptions to shareholders that have elected
wire redemption privileges only if the wired amount is greater than $5,000. In
addition, the Funds will only wire redemption proceeds to financial institutions
located in the United States.
By use of telephone redemption and exchange privileges, the shareholder
authorizes the Transfer Agent to act upon the instruction of any person
representing himself either to be, or to have the authority to act on behalf of,
the investor and believed by the Transfer Agent to be genuine. The records of
the Transfer Agent of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund (as defined below) in
the name of the shareholder.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any other fund of the Trust or shares of certain other
portfolios of investment companies which retain FAdS or its affiliates as
investment adviser or distributor and which participate in the Trust's exchange
privilege program ("Participating Fund"). For Federal income tax purposes,
exchange transactions are treated as sales on which a purchaser will realize a
capital gain or loss depending on whether the value of the shares redeemed is
more or less than his basis in such shares at the time of the transaction.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge may
be redeemed and the proceeds used to purchase, without a sales charge, shares of
any other Participating Fund otherwise sold with a lesser or the same sales
charge. If the Participating Fund purchased in the exchange transaction imposes
a higher sales charge than was paid originally on the exchanged shares, the
shareholder will be responsible for the difference between the two sales
charges. Shares acquired through the reinvestment of dividends and distributions
are deemed to have been acquired with a sales charge rate equal to that paid on
the shares on which the dividend or distribution was paid.
35
<PAGE>
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Investors Bond Fund and Investors High Grade Bond Fund offer individual
retirement plans (the "IRA") for individuals who wish to use shares of the Funds
as a medium for funding individual retirement savings. Under the IRA,
distributions of net investment income and capital gain will be automatically
reinvested in the IRA established for the investor. The Fund's custodian
furnishes custodial services to the IRAs for a service fee. Shareholders wishing
to establish an IRA to invest in the Fund should contact the Transfer Agent for
further details and information.
10. TAX MATTERS
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, does not involve governmental supervision of management or
investment practices or policies. Investors should consult their own counsel for
a complete understanding of the requirements the Funds must meet to qualify for
such treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by a Fund and assume that each Fund qualifies as a regulated investment company.
Investors should consult their own counsel for further details and for the
application of state and local tax laws to the investor's particular situation.
The Funds expect to derive substantially all of their gross income (exclusive of
capital gain) from sources other than dividends. Accordingly, it is expected
that most of the Funds' dividends or distributions will not qualify for the
dividends-received deduction for corporations.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered 60% long-term and 40% short-term
capital gain or loss. A Fund can elect to exempt its section 1256 contracts
which are part of a "mixed straddle" from the application of section 1256.
For federal income and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or December of a given
year but actually paid during the immediately following January will be treated
as if paid by the Fund on December 31 of that calendar year, and will be taxable
to these shareholders for the year declared ad not for the year in which the
shareholders actually receive the dividend.
With respect to equity or over-the-counter put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the
respective Fund's holding period with respect to such option. However, gain or
loss realized upon the lapse or closing out of such options that are written by
a Fund will be treated as short-term capital gain or loss. In general, if a Fund
exercises an option, or if an option that a Fund has written is exercised, gain
or loss on the option will not be separately recognized but the premium received
or paid will be included in the calculation of gain or loss upon disposition of
the property underlying the option.
Under current federal tax law, if a Fund invests in bonds issued with "original
issue discount", the Fund generally will be required to include in income as
interest each year, in addition to stated interest received on such bonds, a
portion of the excess of the face value of the bonds over their issue price,
even though the Fund does not receive payment with respect to such discount
during the year. With respect to "market discount bonds" (i.e., bonds purchased
by a Fund at a price less than their issue price plus the portion of "original
issue discount" previously accrued thereon), the Fund may likewise elect to
accrue and include in income each year a portion of the market
36
<PAGE>
discount with respect to such bonds. As a result, in order to make the
distributions necessary for a Fund not to be subject to federal income or excise
taxes, the Fund may be required to pay out as an income distribution each year
an amount greater than the total amount of cash which the Fund has actually
received as interest during the year.
11. OTHER INFORMATION
COUNSEL
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, 1200 G Street,
N.W., Washington, D.C. 20005
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, N.A. (formerly The First National
Bank of Boston), 100 Federal Street, Boston, Massachusetts 02106, acts as the
custodian of each Fund's assets. The custodian's responsibilities include
safeguarding and controlling the Funds' cash and securities, determining income
and collecting interest on Fund investments.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, independent
auditors, act as auditors for the Trust.
FINANCIAL STATEMENTS
The financial statements of each Fund for the year ended March 31, 1998 (which
include a statement of assets and liabilities, a statement of operations, a
statement of changes in net assets, notes to financial statements, financial
highlights, a statement of investments and the auditors' report thereon) are
included in the Annual Report to Shareholders delivered along with this SAI and
are incorporated herein by reference.
37
<PAGE>
APPENDIX A
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
OAK HALL SMALL CAP CONTRARIAN FUND ------------ -------------
- ----------------------------------
Maryann Wolf 13.30% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 9.05% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.73% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.70% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 5.48% 16,870.661
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS GOVERNMENT FUND ------------ -------------
INSTITUTIONAL SHARES
- ---------------------
H M Payson & Co. Custody Account 56.56% 18,033,015.150
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 43.44% 13,850,465.390
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 16.52% 826,387.330
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 15.90% 795,276.550
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Lansdowne Parking Associates LP 9.99% 499,939.120
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.920
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 46.30% 12,236,932.890
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS CASH FUND ------------ -------------
INSTITUTIONAL SHARES CON'T
- --------------------------
H M Payson & Co. Custody Account 34.44% 9.101,914.440
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 19.27% 5,092,100.590
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
Cutler Approved List Equity Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 18.12% 951,550.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM All Cap Value Fund 9.45% 496,164.720
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Mid Cap Value Fund 5.70% 299,263.830
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS CASH FUND ------------ ------------
INVESTORS SHARES
Forum Administrative Services, Inc. 100% 101.200
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 72.89% 11,915,149.240
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 26.73% 4,368,592.160
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Dirigo Drywall Assoc. 22.89% 682,716.350
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 19.58% 583,950,000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND ------------ ------------
INSTITUTIONAL SERVICE SHARES-CON'T
Cutler Equity Income Fund 9.05% 269,894.440
C/O Forum Financial Services, Inc.
Two Portland Square
CRM All Cap Value Fund 6.23% 185,729.030
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.900
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 46.72% 9,494,221.860
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 25.38% 5,157,680.310
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.96% 4,868,005.220
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financing 100% 5.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS MUNICIPAL FUND ------------ ------------
INVESTOR SHARES
Forum Administrative Services, LLC 100% 100.060
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 65.16% 62,106,021.450
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 34.84% 33,201,966.980
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE
Allagash & Co. 99.10% 1,657,595.720
c/o Bank of New Hampshire
P.O. Box 477
CONCORD, NH 03302-0477
INVESTORS BOND FUND
- -------------------
Firstrust Co. 72.38% 5,714,958.415
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.10% 876,782.753
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
FORUM TAXSAVER BOND FUND
- ------------------------
First Trust Co. 49.33% 1,717,000.264
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 21.80% 758,668.285
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 6.03% 209,963.557
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.41% 188,185.433
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.76% 3.451,019.518
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
PAYSON BALANCED FUND
- --------------------
ALA & Co. 15.49% 258,329.088
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.98% 249,788.506
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
- -----------------
Payse & Co. 21.90% 208,621.301
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.09% 172,271.808
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
- ---------------------
Babb & Co. #02-6004105 94.40% 2,383,117.225
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.18% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
</TABLE>
A-8
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
INTERNATIONAL EQUITY FUND
- -------------------------
Forum Financing 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. 99.95% 3,013,520.631
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
- -----------------
Allagash & Co. 99.27% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 100% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
A-9
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
QUADRA VALUE EQUITY FUND
- ------------------------
Holly Melosi & Arturo R. Melosi TTEE 80.77% 406,724.176
FBO Atrgur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.41%% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
QUADRA GROWTH FUND
- ------------------
Holly Melosi & Arturo R. Melosi TTEE 77.64% 454,757.022
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.52 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
- -------------------------
David Solomont 11.39% 271,791.712
c/o Utopia Inc.
200 Fifth Avenue
Waltham, MA 02154
DCGT TR 5.35% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
</TABLE>
A-10
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE AND MUNICIPAL BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
B-1
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal payments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated C typically are subordinated to senior debt which as assigned an
actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
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FITCH IBCA, INC.. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
2. PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
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An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
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The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
3. SHORT TERM MUNICIPAL LOANS
MOODY'S INVESTORS SERVICE, INC.
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the MIG-1/VMIG-1 group.
MIG 3/VMIG 3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and, although not
distinctly or predominantly speculative, there is specific risk.
STANDARD AND POOR'S CORPORATION
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
which are determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SP-3. Speculative capacity to pay principal and interest.
4. OTHER MUNICIPAL SECURITIES AND COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
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Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC..
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 rating.
F-3. Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
5. SHORT-TERM AND LONG-TERM DEBT RATINGS BY THOMSON BANKWATCH
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which is issued by United
States commercial banks, thrifts and non-bank banks; non-United States banks;
and broker-dealers. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
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"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
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APPENDIX C
DESCRIPTION OF MUNICIPAL SECURITIES
1. MUNICIPAL BONDS
Municipal Bonds which meet longer term capital needs and generally have
maturities of more than one year when issued, have three principal
classifications:
GENERAL OBLIGATION BONDS are issued by such entities as states, counties,
cities, towns, and regional districts. The proceeds of these obligations are
used to fund a wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer systems. The
basic security behind General Obligation Bonds is the issuer's pledge of its
full faith and credit and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount of special assessments.
REVENUE BONDS in recent years have come to include an increasingly wide variety
of types of municipal obligations. As with other kinds of municipal obligations,
the issuers of revenue bonds may consist of virtually any form of state or local
governmental entity, including states, state agencies, cities, counties,
authorities of various kinds, such as public housing or redevelopment
authorities, and special districts, such as water, sewer or sanitary districts.
Generally, revenue bonds are secured by the revenues or net revenues derived
from a particular facility, group of facilities, or, in some cases, the proceeds
of a special excise or other specific revenue source. Revenue bonds are issued
to finance a wide variety of capital projects including electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Many of these bonds provide additional
security in the form of a debt service reserve fund to be used to make principal
and interest payments. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Housing authorities have a wide range of security, including
partially or fully insured mortgages, rent subsidized and/or collateralized
mortgages, and/or the net revenues from housing or other public projects. Some
authorities provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
In recent years, revenue bonds have been issued in large volumes for projects
that are privately owned and operated as described below.
PRIVATE ACTIVITY BONDS are considered municipal bonds if the interest paid
thereon is exempt from Federal income tax and are issued by or on behalf of
public authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing and health. These bonds are
also used to finance public facilities such as airports, mass transit systems
and ports. The payment of the principal and interest on such bonds is dependent
solely on the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property as security for such
payment.
While, at one time, the pertinent provisions of the Internal Revenue Code (the
"Code") permitted private activity bonds to bear tax-exempt interest in
connection with virtually any type of commercial or industrial project (subject
to various restrictions as to authorized costs, size limitations, state per
capita volume restrictions, and other matters), the types of qualifying projects
under the Code have become increasingly limited, particularly since the
enactment of the Tax Reform Act of 1986. Under current provisions of the Code,
tax-exempt financing remains available, under prescribed conditions, for
owner-occupied housing, certain privately owned and operated rental multi-family
housing facilities, nonprofit hospital and nursing home projects, certain
manufacturing or industrial projects, and solid waste disposal projects, among
others, and for the refunding (that is, the tax-exempt refinancing) of various
kinds of other private commercial projects originally financed with tax-exempt
bonds. In future years, the types of projects qualifying under the Code for
tax-exempt financing are expected to become increasingly limited.
Because of terminology formerly used in the Code, virtually any form of private
activity bond may still be referred to as an "industrial development bond," but
more and more frequently revenue bonds have become classified
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according to the particular type of facility being financed, such as hospital
revenue bonds, nursing home revenue bonds, multifamily housing revenues bonds,
single family housing revenue bonds, industrial development revenue bonds and
solid waste resource recovery revenue bonds.
Tax-exempt bonds are also categorized according to whether the interest is or is
not includible in the calculation of alternative minimum taxes imposed on
individuals, according to whether the costs of acquiring or carrying the bonds
are or are not deductible in part by banks and other financial institutions, and
according to other criteria relevant for Federal income tax purposes. Due to the
increasing complexity of Code and related requirements governing the issuance of
tax-exempt bonds, industry practice has uniformly required, as a condition to
the issuance of such bonds, but particularly for revenue bonds, an opinion of
nationally recognized bond counsel as to the tax-exempt status of interest on
the bonds.
2. MUNICIPAL NOTES
Municipal Notes generally are used to provide for short-term capital needs and
usually have maturities of one year or less. They include the following:
TAX ANTICIPATION NOTES are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal
tax revenues, such as income, sales, use and business taxes, and are payable
from these specific future taxes.
REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other types
of revenues, such as Federal revenues available under the Federal Revenue
Sharing Programs.
BOND ANTICIPATION NOTES are issued to provide interim financing until long-term
financing can be arranged. In most cases, the long-term bonds then provide the
money for the repayment of the Notes.
CONSTRUCTION LOAN NOTES are sold to provide construction financing. After
successful completion and acceptance, many projects receive permanent financing
through the Federal Housing Administration under the Federal National Mortgage
Association or the Government National Mortgage Association.
TAX-EXEMPT COMMERCIAL PAPER is a short-term obligation with a stated maturity of
365 days or less. It is issued by agencies of state and local governments to
finance seasonal working capital needs or as short-term financing in
anticipation of longer term financing.
3. MUNICIPAL LEASES
Municipal Leases, which may take the form of a lease or an installment purchase
or conditional sale contract, are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities such as fire
and sanitation vehicles, telecommunications equipment and other capital assets.
Municipal leases frequently have special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the government issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. To reduce this risk, the Fund will only purchase municipal
leases subject to a non-appropriation clause when the payment of principal and
accrued interest is backed by an unconditional irrevocable letter of credit or
guarantee of a bank or other entity that meets the criteria described in the
Prospectus.
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APPENDIX D
HEDGING STRATEGIES
A. INVESTORS BOND FUND
TAXSAVER BOND FUND
As discussed in the Prospectus, the Adviser to each Fund may engage in certain
options and futures strategies to attempt to hedge a Fund's portfolio. The
instruments in which the Fund may invest include (i) options on securities and
stock indexes, (ii) stock index and interest rate futures contracts ("futures
contracts"), and (iii) options on futures contracts. Use of these instruments is
subject to regulation by the Securities and Exchange Commission ("SEC"), the
several options and futures exchanges upon which options and futures are traded,
and the Commodity Futures Trading Commission ("CFTC").
The various hedging and income strategies referred to herein and in each Fund's
Prospectus are intended to illustrate the type of strategies that are available
to, and may be used by, the Adviser in managing a Fund's portfolio. Depending on
prevailing market conditions, use of these strategies may enable the Adviser to
reduce investment risks to which a Fund may be subject. No assurance can be
given, however, that any strategies will succeed.
The Funds will not use leverage in their hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities or other
options or futures positions whose values are expected to offset ("cover") its
obligations thereunder. A Fund will not enter into a hedging strategy that
exposes the Fund to an obligation to another party unless it owns either (1) an
offsetting ("covered") position or (2) cash, U.S. government securities or other
liquid assets with a value sufficient at all times to cover its potential
obligations. Each Fund will comply with guidelines established by the SEC with
respect to coverage and, if the guidelines so require, will set aside cash, U.S.
government securities or other liquid assets in a segregated account with its
custodian in the prescribed amount. Securities, options or futures positions
used for cover and assets held in a segregated account cannot be sold or closed
out while the hedging strategy is outstanding, unless they are replaced with
similar assets. As a result, there is a possibility that the use of cover or
segregation involving a large percentage of a Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
OPTIONS STRATEGIES. The Funds may purchase put and call options written by
others and write (sell) put and call options covering specified securities or
stock index-related amounts. A put option (sometimes called a "standby
commitment") gives the buyer of such option, upon payment of a premium, the
right to deliver a specified amount of a security or specified amount of cash
(on stock-index options) to the writer of the option on or before a fixed date
at a predetermined price. A call option (sometimes called a "reverse standby
commitment") gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified amount of a security or
specified amount of cash (on stock-index options) or before a fixed date, at a
predetermined price. The predetermined prices may be higher or lower than the
market value of the underlying currency or security. A Fund may buy or sell both
exchange-traded and over-the-counter ("OTC") options. A Fund will purchase or
write an option only if that option is traded on a recognized U.S. options
exchange or if the Adviser believes that a liquid secondary market for the
option exists. When a Fund purchases an OTC option, it relies on the dealer from
which it has purchased the OTC option to make or take delivery of the securities
or currency underlying the option. Failure by the dealer to do so would result
in the loss of the premium paid by the Fund as well as the loss of the expected
benefit of the transaction. OTC options and the securities underlying these
options are currently treated as illiquid securities.
A Fund may purchase call options on equity securities that the Adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security
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increases above the exercise price and the Fund either sells or exercises the
option, any profit eventually realized will be reduced by the premium paid. The
Funds may similarly purchase put options in order to hedge against a decline in
market value of securities held in its portfolio. The put enables a Fund to sell
the underlying security at the predetermined exercise price; thus the potential
for loss to the Fund is limited to the option premium paid. If the market price
of the underlying security is higher than the exercise price of the put, any
profit the Fund realizes on the sale of the security would be reduced by the
premium paid for the put option less any amount for which the put may be sold.
A Fund may write covered call options when the Adviser believes that the market
value of the underlying security will not rise to a value greater than the
exercise price plus the premium received. Call options may also be written to
provide limited protection against a decrease in the market price of a security,
in an amount equal to the call premium received less any transaction costs. The
Fund may write covered put options only to effect closing transactions.
A Fund may purchase and write put and call options on stock indices in much the
same manner as the equity and debt security options discussed above, except that
stock index options may serve as a hedge against overall fluctuations in the
securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING. The Funds may effectively
terminate their right or obligation under an option contract by entering into a
closing transaction. For instance, if a Fund wished to terminate its potential
obligation to sell securities under a call option it had written, a call option
of the same series (an identical call option) would be purchased by the Fund.
Closing transactions essentially permit the Funds to realize profits or limit
losses on its options positions prior to the exercise or expiration of the
option. In addition:
(1) The successful use of options as a hedging strategy depends upon the
Adviser's ability to forecast the direction of price fluctuations in the
underlying securities markets, or in the case of a stock index option,
fluctuations in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options that
expire unexercised have no value. Unless an option purchased by a Fund is
exercised or unless a closing transaction is effected with respect to that
position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange listed option may be closed out only on an
exchange which provides a market for identical options. Most exchange listed
options relate to equity securities. Exchange markets for options on debt
securities are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on debt
securities) only by negotiating directly with the other party to the option
contract or in a secondary market for the option if such market exists. There is
no assurance that a liquid secondary market will exist for any particular option
at any specific time. If it is not possible to effect a closing transaction, a
Fund would have to exercise the option which it purchased in order to realize
any profit. The inability to effect a closing transaction on an option written
by a Fund may result in material losses to that Fund.
(4) The Funds' activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES. Several interest rate futures contracts currently are
traded; these include various futures contracts on Treasury bonds, notes and
bills on the Chicago Board of Trade as well as a 30 Interest Rate contract also
traded on the Chicago Board of Trade. Futures contracts on a municipal bond
index are traded on the Chicago Board of Trade. This index assigns relative
values, which fluctuate in accordance with current market conditions, to the
municipal bonds comprising the index. Options on various of these futures
contracts are also traded.
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A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash or securities as called for
in the contract at a specified future date and at a specified price. For stock
index futures contracts, delivery is of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the time of
the contract and the close of trading of the contract. For interest rate futures
contracts, delivery is of the underlying debt securities.
A Fund may use interest rate futures contracts and options thereon to hedge its
portfolio against changes in the general level of interest rates. A Fund may
purchase an interest rate futures contract when it intends to purchase debt
securities but has not yet done so. This strategy may minimize the effect of all
or part of an increase in the market price of the debt security which the Fund
intended to purchase in the future. A Fund may sell an interest rate futures
contract in order to continue to receive the income from a debt security, while
endeavoring to avoid part or all of the decline in market value of that security
which would accompany an increase in interest rates.
A Fund may purchase a call option on an interest rate futures contract to hedge
against a market advance in debt securities which the Fund planned to acquire at
a future date. The purchase of a call option on an interest rate futures
contracts is analogous to the purchase of a call option on an individual debt
security which can be used as a temporary substitute for a position in the
security itself. A Fund may also write covered call options on interest rate
futures contracts as a partial hedge against a decline in the price of debt
securities held in the Fund's portfolio or purchase put options on interest rate
futures contracts in order to hedge against a decline in the value of debt
securities held in the Fund's portfolio.
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING. The
following relate to each Fund's use of futures contracts and options on futures
contracts and, to the extent in the future they were to be permitted, foreign
currency and other options traded on a commodities exchange (collectively,
"futures contracts and related options").
No price is paid upon entering into futures contracts. Instead, upon entering
into a futures contract, a Fund would be required to deposit with its custodian
in a segregated account in the name of the futures broker an amount of cash or
U.S. government securities generally equal to 5% or less of the contract value.
This amount is known as "initial margin." Subsequent payments, called "variation
margin," to and from the broker, would be made on a daily basis as the value of
the futures position varies, a process known as "marking to the market." When
writing a call option on a futures contract, variation margin must be deposited
in accordance with applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Holders and writers of futures and related options can enter into offsetting
closing transactions, similar to closing transactions on options, by selling or
purchasing, respectively, a futures contract or related option with the same
terms as the position held or written. Positions in futures contracts may be
closed only on an exchange providing a secondary market for the futures
contracts.
Under certain circumstances, futures exchanges may establish daily limits in the
amount that the price of a futures contract or related option may vary either up
or down from the previous day's settlement price. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. Futures or options contract prices could move to the daily
limit for several consecutive trading days with little or no trading and thereby
prevent prompt liquidation of positions. In such event, it may not be possible
for a Fund to close a position, and in the event of adverse price movements, a
Fund would have to make daily cash payments of variation margin (except in the
case of purchased options). In addition:
(1) Successful use by a Fund of futures contracts and related options will
depend upon the Adviser's ability to predict accurately movements in the
direction of the overall securities and interest rate markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the current
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level of the underlying instrument but to the anticipated levels at some point
in the future; thus, for example, trading of index futures may not reflect the
trading of the securities which are used to formulate an index or even actual
fluctuations in the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with movement in
the price of the hedged securities due to price distortions in the futures
market. There may be several reasons unrelated to the value of the underlying
securities which cause this situation to occur. As a result, a correct forecast
of general market trends may still not result in successful hedging through the
use of futures contracts over the short term. Activities of large traders in
both the futures and securities markets involving arbitrage and other investment
strategies may result in temporary price distortions.
(3) Although the Funds intend to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular
contract at any particular time. In such event, it may not be possible to close
a futures position, and in the event of adverse price movements, the Funds would
continue to be required to make daily cash payments of variation margin.
(4) Like other options, options on futures contracts have a limited life. The
Funds will not trade options on futures contracts unless and until, in the
Adviser's opinion, the market for such options has developed sufficiently that
the risks in connection with options are not greater than the risks in
connection with futures transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at the time
of purchase. This amount and the transaction costs is all that is at risk.
Sellers of options on futures contracts, however, must post an initial margin
and are subject to additional margin calls which could be substantial in the
event of adverse price movements.
(6) Each Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
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B. MAINE MUNICIPAL BOND FUND
1. BOND INDEX FUTURES
Futures contracts on a municipal bond index (the "Index") are traded on the
Chicago Board of Trade. Maine Municipal Bond Fund may seek to hedge itself
against changes in interest rates by purchasing and selling futures contracts on
the Index or any municipal bond index hereafter approved for trading by the
Commodity Futures Trading Commission. The Index assigns numerical values to the
municipal securities comprising the Index and, based on those values, fluctuates
in accordance with market movements of the municipal bonds comprising the Index.
The purchaser or seller of a futures contract on the Index agrees to take or
make delivery of an amount of cash equal to the difference between a specified
dollar multiple of the value of the Index on the expiration date of the
contract, "current contract value," and the price at which the contract was
originally purchased or sold.
No physical delivery of the municipal bonds underlying the Index is made.
BOND INDEX FUTURES CHARACTERISTICS. Unlike the purchase or sale of a specific
security by the Fund, no price is paid or received by the Fund upon the purchase
or sale of an index futures contract. Initially, the Fund will be required to
deposit with the broker through which such transaction is effected or in a
segregated account with the Fund's custodian an amount of cash or U.S. Treasury
bills equal to a specified dollar amount per contract as of the date thereof.
This amount is known as initial margin. The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve the borrowing of funds to finance
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. Subsequent payments, called variation margin, to and from the
broker will be made on a daily basis as the price of the underlying index
fluctuates, a process known as "marking to the market." For example, when the
Fund has purchased an index futures contract and the price of the futures
contract has risen in response to a rise in the Index, that position will have
increased in value and the Fund will receive from the broker a variation margin
payment equal to that increase in value. Conversely, where the Fund has
purchased an index futures contract and the price of the futures contract has
declined in response to a decrease in the Index, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the broker. At any time prior to expiration of the futures contract, the Adviser
may elect to close the position by taking an opposite position which will
operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain.
RISKS OF TRANSACTIONS IN INDEX FUTURES. There are several risks in connection
with the use of index futures by the Fund as a hedging device. One risk arises
because of the imperfect correlation between movements in the price of the index
futures and the hedge. The price of the index futures may move more than or less
than the price of the securities being hedged. If the price of the index futures
moves less than the price of the securities which are the subject of the hedge,
the hedge will not be fully effective but, if the price of the securities being
hedged has moved in an unfavorable direction, the Fund would be in a better
position than if it had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the index future. If the price of the future moves more
than the price of the underlying securities, the Fund will experience either a
loss or gain on the future which will not be completely offset by movements in
the price of the securities which are the subject of the hedge. To compensate
for the imperfect correlation of movements in the price of securities being
hedged and movements in the price of the index futures, the Fund may buy or sell
index futures of a greater contract value than the dollar amount of securities
being hedged if the volatility over a particular time period of the prices of
such securities has been greater than the volatility over such time period of
the Index, or if otherwise deemed to be appropriate by the Adviser. Conversely,
the Fund may buy or sell fewer index futures if the volatility over a particular
time period of the prices of the securities being hedged is less than the
volatility over such time period of the Index, or it is otherwise deemed to be
appropriate by the Adviser. It is also possible that, where the Fund has sold
index futures to hedge its portfolio against a decline in the market, the market
may advance and the value of securities held in the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in the value of its portfolio securities. However, over time the value of a
diversified portfolio should tend to move in the same direction as the Index,
although there may be deviations arising from differences between the
composition of the Fund's portfolios and the securities comprising the Index.
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When index futures are purchased to hedge against possible increases in the
price of municipal bonds before the Fund is able to invest its cash (or cash
equivalents) in municipal bonds in an orderly fashion, it is possible that the
market may decline instead. If the Fund then determines not to invest in
municipal bonds at that time because of concern as to possible further market
decline or for other reasons, the Fund will realize a loss on the index futures
that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the index futures and the portion of
the portfolio being hedged, the price of index futures may not correlate
perfectly with movement in the Index due to certain market distortions. Rather
than meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the Index and the index futures markets. Secondly, from the
point of view of speculators, deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the index futures market may also
cause temporary price distortions. Due to the possibility of price distortion in
the index futures market, and because of the imperfect correlation between the
movements in the Index and movements in the price of index futures, a correct
forecast of general market trends by the Adviser may still not result in a
successful hedging transaction over a short time frame.
Positions in futures on the Index may be closed out only on the Chicago Board of
Trade which provides a secondary market for such futures. Although the Fund
intends to purchase or sell index futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close an index futures investment position, and in the event of
adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. However, in the event index futures have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the index futures. However, as described above, there is no guarantee that the
price of the securities will in fact correlate with the price movements in the
futures markets and thus provide an offset on index futures.
Successful use of index futures by the Fund is also subject to the Adviser's
ability to predict correctly movements in the direction of the municipal bond
markets. For example, if the Fund has hedged against the possibility of a
decline in the municipal bond market and bond prices increase instead, the Fund
will lose part or all of the benefit of the increased value of the portfolio
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the rising market. The Fund may have to sell
portfolio securities at a time when it may be disadvantageous to do so.
2. OTHER FUTURES CONTRACTS AND OPTIONS ON FUTURES
The Fund may invest in certain other financial futures contracts ("futures
contracts") and options thereon. The Fund may sell a futures contract or a call
option thereon or purchase a futures contract or a put option thereon as a hedge
against a decrease in the value of the Fund's securities. A futures contract
sale creates an obligation by the Fund, as seller, to deliver the specific type
of instrument called for in the contract at a specified future time for a
specified price. A futures contract purchase creates an obligation by the Fund,
as purchaser, to take delivery of the specific type of financial instrument at a
specified future time at a specified price. The Fund is required to maintain
margin deposits with brokerage firms through which it effects futures contracts
as described under "Bond Index Futures Characteristics."
Although the terms of futures contracts specify actual delivery or receipt of
securities, in most instances the contracts are closed out before the settlement
date without the making or taking of delivery of the securities. Closing out of
a futures contract is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a futures contract sale is effected
by entering into a futures contract purchase for the same aggregate amount of
the specific type of financial instrument and same delivery date. If the price
in the sale exceeds the price
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in the offsetting purchase, the Fund is immediately paid the difference and thus
realizes a gain. If the purchase price of the offsetting transaction exceeds the
sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the offsetting sale price is less than
the purchase price, the Fund realizes a loss.
Unlike a futures contract, which requires the parties to buy and sell a security
on a set date, an option on a futures contract entitles its holder to decide on
or before a future date whether to enter into such a contract. If the holder
decides not to enter into the contract, the premium paid for the option is lost.
Since the value of the option is fixed at the point of sale, the holder is not
required to make daily payments of cash to reflect the change in the value of
the underlying contract as would be the case for a purchaser or seller of a
futures contract. The value of the option does change and is reflected in the
net asset value of the Fund.
Currently, futures contracts can be purchased on certain debt securities issued
by the U.S. Treasury, certificates of the Government National Mortgage
Association and bank certificates of deposit. The Fund may invest in futures
contracts covering these types of financial instruments as well as in new types
of such contracts that become available in the future.
Financial futures contracts are traded in an auction environment on the floors
of several exchanges --principally, the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership which is also
responsible for handling daily account of deposit or withdrawals of margin.
Investing in futures contracts involves the risks of imperfect correlations,
secondary market illiquidity and the Adviser's incorrect predictions of market
movements, as described under "Bond Index Futures Characteristics."
Put and call options on financial futures have characteristics similar to those
of other options. For a further description of options, see "Put and Call
Options" below.
In addition to the risks associated with investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary market.
It is not certain that this market will develop.
The Fund may not enter into futures contracts or related options thereon if
immediately thereafter (i) the amount committed to margin plus the amount paid
for option premiums exceeds 5% of the value of the Fund's total assets or (ii)
the sum of the current contract values of open futures contracts purchased and
sold by the Fund would exceed 30% of the value of the Fund's total assets. In
instances involving the purchase of futures contracts by the Fund, an amount
equal to the market value of the futures contract will be deposited in a
segregated account of cash and cash equivalents to collateralize the position
and thereby insure that the use of such futures contract is unleveraged.
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3. PUT AND CALL OPTIONS
The Fund may purchase put and call options written by others and write put and
call options covering the types of securities in which the Fund may invest. A
put option (sometimes called a "standby commitment") gives the buyer of such
option, upon payment of a premium, the right to deliver a specified amount of a
security to the writer of the option on or before a fixed date at a
predetermined price. A call option (sometimes called a "reverse standby
commitment") gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified amount of a security on or
before a fixed date, at a predetermined price. The Fund will not purchase any
option if, immediately thereafter, the aggregate cost of all outstanding options
purchased by the Fund would exceed 5% of the value of its total assets; a Fund
will not write any option (other than options on futures contracts) if,
immediately thereafter, the aggregate value of its portfolio securities subject
to outstanding options would exceed 30% of its total assets.
When the Fund writes a put option it maintains in a segregated account cash or
U.S. Government securities in an amount adequate to purchase the underlying
security should the put be exercised. When the Fund writes a call option it must
own at all times during the option period either the underlying securities or an
offsetting call option on the same securities. If a put option written by the
Fund were exercised, the Fund would be obligated to purchase the underlying
security at the exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying security at the
exercise price.
The risk involved in writing a put option is that there could be a decrease in
the market value of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised and the
underlying security would then be sold to the Fund at a higher price than its
current market value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying security caused by
declining interest rates or other factors. If this occurred, the option could be
exercised and the underlying security would then be sold by the Fund at a lower
price than its current market value. These risks could be reduced by entering
into a closing transaction as described below. The Fund retains the premium
received from writing a put or call option whether or not the option is
exercised.
The Fund may dispose of an option which it has purchased by entering into a
"closing sale transaction" with the writer of the option. A closing sale
transaction terminates the obligation of the writer of the option and does not
result in the ownership of an option. The Fund realizes a profit or loss from a
closing sale transaction if the premium received from the transaction is more
than or less than the cost of the option.
The Fund may terminate its obligation to the holder of an option written by the
Fund through a "closing purchase transaction." The Fund may not, however, effect
a closing purchase transaction with respect to such an option after it has been
notified of the exercise of such option. The Fund realizes a profit or loss from
a closing purchase transaction if the cost of the transaction is more or less
than the premium received by the Fund from writing the option.
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APPENDIX E
ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which is currently in use is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 120
mutual funds for 17 different fund managers, with more than $30 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 230 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
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Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has 8 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals with decades of experience with some of the country's major
financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over $175 billion as of September 30, 1997.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.4 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
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The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
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TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered
close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 146 funds with
more than $36 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.7 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1 billion in assets under management and $300 million in
non-managed custodial accounts. The Payson value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
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FORUM FINANCIAL GROUP:
- ---------------------
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks
*Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*ADMINISTRATION AND DISTRIBUTION SERVICES: Regulatory, compliance,
expense accounting, budgeting for all funds
*FUND ACCOUNTING SERVICES: Portfolio valuation, accounting, dividend
declaration, and tax advice
*SHAREHOLDER SERVICES: Preparation of statements, distribution support,
inquiries and processing of trades
*CLIENT ASSETS UNDER ADMINISTRATION AND DISTRIBUTION: $36.9 billion
*CLIENT ASSETS PROCESSED BY FUND ACCOUNTING: $47.6 billion
*CLIENT FUNDS UNDER ADMINISTRATION AND DISTRIBUTION: 146 mutual funds with 219
share classes
*INTERNATIONAL VENTURES:
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*FORUM EMPLOYEES: United States -198, Poland - 61, Bermuda - 3
FORUM CONTACTS:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment
Advisers, LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
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H.M. PAYSON & CO.:
- -----------------
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.15 Billion
*Non-managed Custody Assets: $388 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 12 shareholders; 12 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
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PAYSON VALUE FUND
PAYSON BALANCED FUND
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Investment Adviser: Account Information and
H.M. Payson & Co. Shareholder Servicing:
One Portland Square Forum Shareholder Services, LLC.
P.O. Box 31 P.O. Box 446
Portland, Maine 04112 Portland, Maine 04112
207-772-3761 207-879-0009
800-456-6710 800-805-8258
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STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998,
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectus dated August 1,
1998 offering shares of Payson Value Fund and Payson Balanced Fund (collectively
the "Funds" and individually a "Fund") and should be read only in conjunction
with the Prospectus, a copy of which may be obtained without charge by
contacting the Trust's Distributor, Forum Financial Services, Inc., Two Portland
Square, Portland, Maine 04101.
TABLE OF CONTENTS
Page
----
1. General......................................................
2. Investment Policies..........................................
3. Additional Investment Policies...............................
4. Performance Data.............................................
5. Management...................................................
6. Determination of Net Asset Value.............................
7. Portfolio Transactions.......................................
8. Additional Purchase and
Redemption Information.......................................
9. Tax Matters..................................................
10. Other Information............................................
Appendix A - Control Persons and Principal Holders of Securities...... A-1
Appendix B - Description of Securities Ratings........................ B-1
Appendix C - Additional Advertising Materials......................... C-1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
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1. GENERAL
THE TRUST. The Trust is registered with the SEC as an open-end, management
investment company and was organized as a business trust under the laws of the
State of Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to
the assets and liabilities of Forum Funds, Inc. Forum Funds, Inc. was
incorporated on March 24, 1980 and assumed the name of Forum Funds, Inc. on
March 16, 1987. The Board of Trustees ("Board"), without shareholder approval,
has the authority to issue an unlimited number of shares of beneficial interest
of separate series with no par value per share and to create separate classes of
shares within each series (such as Investor and Institutional). The Trust
currently offers shares of 23 series. The series of the Trust are as follows:
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Austin Global Equity Fund
High Grade Bond Fund Quadra Value Equity Fund
Maine Municipal Bond Fund Quadra Growth Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Treasury Obligations Fund Equity Index Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Government Obligations Fund International Equities Fund
Daily Assets Municipal Fund Emerging Markets Fund
Payson Value Fund Investors Growth Fund
Payson Balanced Fund
Each share of each Fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when required by Federal or state law. Shareholders (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders. A shareholder in a portfolio is entitled to the
shareholder's pro rata share of all dividends and distributions arising from
that portfolio's assets and, upon redeeming shares, will receive the portion of
the portfolio's net assets represented by the redeemed shares.
As of July 1, 1998, the officers and Directors of the Trust as a group owned
less than 1% of the outstanding shares of each Fund. Also as of that date,
Appendix A identifies all shareholders who own of record 5% or more of the
outstanding shares of any of the Registrant's series.
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DEFINITIONS. As used in this Statement of Additional Information, the following
terms shall have the meanings listed:
"Board" means the Board of Trustees of Forum Funds.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FFC" means Forum Financial Corp.
"FFSI" means Forum Financial Services, Inc.
"Adviser" " means H.M. Payson & Co.
"Funds" means Payson Value Fund and Payson Balanced Fund
"Fund Business Day" has the meaning ascribed thereto in the current Prospectus
of the Fund.
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" has the meaning ascribed thereto by the current
Prospectus of the Funds.
"1940 Act" means the Investment Company Act of 1940, as amended.
2. INVESTMENT POLICIES
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P") and other nationally recognized statistical rating organizations
("NRSROs") are private services that provide ratings of the credit quality of
debt obligations, including convertible securities. A description of the range
of ratings assigned to bonds and other securities by several NRSROs is included
in Appendix B to this Statement of Additional Information. The Funds may use
these ratings to determine whether to purchase, sell or hold a security.
However, ratings are general and are not absolute standards of quality.
Consequently, securities with the same maturity, interest rate and rating may
have different market prices. If an issue of securities ceases to be rated or if
its rating is reduced after it has been purchased by a Fund, H.M. Payson & Co.
(the "Adviser"), the Funds' investment adviser, will determine whether the Fund
should continue to hold the obligation. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit ratings. An issuer's current financial condition may be better
or worse than a rating indicates.
Each Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the Adviser
to be of comparable quality) if the Adviser determines that retaining such
security is in the best interests of the Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
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Each Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but settlements delayed beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
dividends or interest accrues to the purchaser from the transaction. At the time
a Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction as a purchase and
thereafter reflect the value each day of such securities in determining its net
asset value.
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, a Fund might sell
securities that 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 commitment transactions at prices
inferior to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds enter into when-issued and forward commitment
transactions only with the intention of actually receiving or delivering the
securities, as the case may be. If a Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. When-issued securities may include bonds purchased on a "when, as and if
issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Any significant commitment of a Fund's assets
to the purchase of securities on a "when, as and if issued" basis may increase
the volatility of its net asset value.
Each Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities (as defined in the Prospectus) and other liquid
assets in an amount at least equal to its commitments to purchase securities on
a when-issued or forward commitment basis.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Trust's Board has the ultimate responsibility for determining whether
specific securities are liquid or illiquid. The Board has delegated the function
of making day-to-day determinations of liquidity to the Adviser, pursuant to
guidelines approved by the Board. The Adviser takes into account a number of
factors in reaching liquidity decisions, including but not limited to: (1) the
frequency of trades and quotations for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) the willingness of dealers to undertake to make a market in the
security; and (4) the nature of the marketplace trades, including the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. The Adviser monitors the liquidity of the securities
in each Fund's portfolio and reports periodically on such decisions to the
Board.
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CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
TEMPORARY DEFENSIVE POSITION.
When a Fund assumes a temporary defensive position it may invest without limit
in (i) short-term U.S. Government Securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States that have, at the time of investment, total
assets in excess of one billion dollars and that are insured by the Federal
Deposit Insurance Corporation, (iii) commercial paper of prime quality rated
Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the Adviser to be of comparable quality, (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (v) money market mutual funds.
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SECURITIES OF INVESTMENT COMPANIES
The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. Under normal circumstances, each Fund intends
to invest less than 5% of the value of its net assets in the securities of other
investment companies. In addition to the Fund's expenses (including the various
fees), as a shareholder in another investment company, a Fund would bear its pro
rata portion of the other investment company's expenses (including fees).
FUTURES CONTRACTS AND OPTIONS
Each Fund may in the future seek to hedge against a decline in the value of
securities it owns or an increase in the price of securities which it plans to
purchase through the writing and purchase of exchange-traded and
over-the-counter options and the purchase and sale of futures contracts and
options on those futures contracts. Payson Value Fund may buy or sell stock
index futures contracts, such as contracts on the S&P 500 stock index, and
Payson Balanced Fund may buy and sell bond index futures contracts. In addition,
both Funds may buy or sell futures contracts on Treasury bills, Treasury bonds
and other financial instruments. The Funds may write covered options and buy
options on the futures contracts in which they may invest.
In addition, the Funds may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid, assets in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option.
The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options, futures contracts or related options and movements in the
price of the securities hedged or used for cover; (3) the fact that skills and
techniques needed to trade these instruments are different from those needed to
select the other securities in which the Funds invest; (4) lack of assurance
that a liquid secondary market will exist for any particular instrument at any
particular time; and (5) the possible need to defer closing out of certain
options, futures contracts and related options to avoid adverse tax
consequences. Other risks include the inability of the Fund, as the writer of
covered call options, to benefit from the appreciation of the underlying
securities above the exercise price and the possible loss of the entire premium
paid for options purchased by the Fund.
Neither Fund will hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, neither
Fund will buy futures contracts or write put options whose underlying value
exceeds 10% of the Fund's total assets and will not purchase call options if the
value of purchased call options would exceed 5% of the Fund's total assets. A
Fund will not enter into futures contracts and options thereon if immediately
thereafter more than 5% of the value of the Fund's total assets would be
invested in these options or committed to margin on futures contracts.
A Fund will only invest in futures and options contracts after providing notice
to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain other limitations.
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3. ADDITIONAL INVESTMENT POLICIES
The investment objective and the investment policies of a Fund that are
designated as fundamental policies may not be changed without approval of the
holders of a majority of that Fund's outstanding voting securities. A majority
of a Fund's outstanding voting securities means the lesser of (1) 67% of the
shares of that Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the shares are present or represented, or (2)
more than 50% of the outstanding shares of the Fund. Except as otherwise
indicated, investment policies of the Funds are not fundamental and may be
changed by the Board without shareholder approval. A further description of the
Funds' investment policies is contained in the SAI.
The Funds have adopted the following fundamental investment limitations which
are in addition to those contained in the Funds' Prospectus and which may not be
changed without shareholder approval. Neither Fund may:
(1) Borrow money, except for temporary or emergency purposes
(including the meeting of redemption requests) and except for
entering into reverse repurchase agreements, and provided that
borrowings do not exceed 33 1/3% of the Fund's total assets
(computed immediately after the borrowing).
(2) Purchase securities, other than U.S. Government Securities,
if, immediately after each purchase, more than 25% of the
Fund's total assets taken at market value would be invested in
securities of issuers conducting their principal business
activity in the same industry.
(3) With respect to 75% of its assets, purchase securities, other
than U.S. Government Securities, of any one issuer, if (a)
more than 5% of the Fund's total assets taken at market value
would at the time of purchase be invested in the securities of
that issuer, or (b) such purchase would at the time of
purchase cause the Fund to hold more than 10% of the
outstanding voting securities of that issuer.
(4) Act as an underwriter of securities of other issuers, except
to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(5) Make loans to other persons except for loans of portfolio
securities and except through the use of repurchase agreements
and through the purchase of commercial paper or debt
securities which are otherwise permissible investments.
(6) Purchase or sell real estate or any interest therein, except
that the Fund may invest in securities issued or guaranteed by
corporate or governmental entities secured by real estate or
interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies
that invest in real estate or interests therein.
(7) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies and
currency-related contracts will not be deemed to be physical
commodities.
(8) Issue senior securities except pursuant to Section 18 of the
Investment Company Act of 1940 ("1940 Act") and except that
the Fund may borrow money subject to investment limitations
specified in the Fund's Prospectus.
(9) Invest in interests in oil or gas or interests in other
mineral exploration or development programs.
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Neither Fund may:
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(a) Pledge, mortgage or hypothecate its assets, except to secure
permitted indebtedness. The deposit in escrow of securities in
connection with the writing of put and call options,
collateralized loans of securities and collateral arrangements
with respect to margin for futures contracts are not deemed to
be pledges or hypothecations for this purpose.
(b) Invest in securities of another registered investment company,
except in connection with a merger, consolidation, acquisition
or reorganization; and except that the Fund may invest in
money market funds and privately-issued mortgage related
securities to the extent permitted by the 1940 Act.
(c) Purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary
for the clearance of purchases and sales of portfolio
securities, but the Fund may make margin deposits in
connection with permitted transactions in options, futures
contracts and options on futures contracts.
(d) Purchase securities for investment while any borrowing
equaling 10% or more of the Fund's total assets is outstanding
or borrow for purposes other than meeting redemptions in an
amount exceeding 10% of the value of the Fund's total assets.
(e) Acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (i) 15%
of the Fund's net assets (taken at current value) would be
invested in r epurchase agreements not entitling the holder
to payment of principal within seven days and in securities
which are not readily marketable, including securities that
are illiquid by virtue of restrictions on the sale of such
securities to the public without registration under the
Securities Act of 1933 ("Restricted Securities") or (ii) 10%
of the Fund's total assets would be invested in Restricted
Securities.
(f) Purchase or sell real property (including limited partnership
interests but excluding readily marketable interests in real
estate investment trusts or readily marketable securities of
companies which invest in real estate.)
g) Invest in warrants if (i) more than 5% of the value of the
Fund's net assets will be invested in warrants (valued at the
lower of cost or market) or (ii) more than 2% of the value of
the Fund's net assets would be invested in warrants which are
not listed on the New York Stock Exchange or the American
Stock Exchange. For purpose of this limitation, warrants
acquired by the Fund in units or attached to securities are
deemed to have no value.
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of the
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
4. PERFORMANCE DATA
The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
indicate future returns. A Fund's net asset value, yield and total return
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
Total return information for the Funds as of March 31,1998, is set forth in the
following table:
Total Return
Total Return 1 Total Return Since
Year 5 Year Inception
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39.48% 19.01% 18.78%
PAYSON VALUE FUND
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PAYSON BALANCED FUND 26.02% 13.72% 13.68%
*Payson Value Fund commenced operations on July 31, 1992. Payson Balanced Fund
commenced operations on November 25, 1991.
In advertising performance, the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDC/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). In addition, a Fund may compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Salomon Brothers Bond Index, the Shearson
Lehman Bond Index, the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. A Fund may refer in such materials
to mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of a Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
YIELD CALCULATIONS
Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced with
respect to bonds purchased at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. Also, Processing Organizations (as defined
in the Prospectus) may charge their customers direct fees in connection with an
investment in a Fund, which will have the effect of reducing the Fund's net
yield to those shareholders. The yields of each Fund are not fixed or
guaranteed, and an investment in a Fund is not insured or guaranteed.
Accordingly, yield information may not necessarily be used to compare shares of
a Fund with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. Also, it may not be appropriate
to compare a Fund's yield information directly to similar information regarding
investment alternatives which are insured or guaranteed.
TOTAL RETURN CALCULATIONS
Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Funds.
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Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value.
ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments and/or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gain and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted with or without taking into consideration a
Fund's front-end sales charge; excluding sales charges from a total return
calculation produces a higher return figure. Total returns, yields and other
performance information may be quoted numerically or in a table, graph or
similar illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return.
The other definitions are the same as in average
annual total return above.
Investors who purchase and redeem shares of a Fund through a customer account
maintained at a Processing Organization may be charged one or more of the
following types of fees as agreed upon by the Processing Organization and the
investor, with respect to the customer services provided by the Processing
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
these assets). As stated above, these fees will have the effect of reducing the
average annual total return of the Fund for those investors.
OTHER ADVERTISING MATTERS
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals,
10
<PAGE>
such as annually, quarterly or daily); (4) information relating to inflation and
its effects on the dollar; for example, after ten years the purchasing power of
$25,000 would shrink to $16,621, $14,968, $13,465 and $12,100, respectively, if
the annual rates of inflation were 4%, 5%, 6% and 7%, respectively; (5)
information regarding the effects of automatic investment and systematic
withdrawal plans, including the principal of dollar cost averaging; (6)
background information regarding the Funds' Adviser and biographical
descriptions of the management staff of the Adviser; (7) summaries of the views
of the Adviser with respect to the financial markets; (8) background information
regarding the Trust; (9) the results of a hypothetical investment in a fund over
a given number of years, including the amount that the investment would be at
the end of the period; (10) the effects of investing in a tax-deferred account,
such as an individual retirement account or Section 401(k) pension plan; and
(11) the net asset value, net assets or number of shareholders of the Funds as
of one or more dates.
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 56)
President, Forum Financial Group, LLC (mutual fund services company
holding company). Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
Costas Azariadis, Trustee (age 55)
Professor of Economics, University of California, Los Angeles, since
July 1992. 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 56)
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 54)
Partner at the law firm of Reid and Priest, LLP, since 1995. From 1989
to 1995, he was a partner at the law firm of Winthrop, Stimson, Putnam
& Roberts from 1989 to 1995. 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 West 57th Street, New York, New
York 10019.
Mark D. Kaplan, Vice President (age 42)
Director, Investments, Forum Financial Group, LLC, with which he has
been associated since September 1995. Prior thereto, Mr. Kaplan was
Managing Director and Director of Research at H.M. Payson & Co. His
address is Two Portland Square, Portland, Maine 04101.
Stacey Hong, Treasurer (age 32)
11
<PAGE>
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hong was a
Senior Accountant with Ernst & Young, LLP. His address is Two Portland
Square, Portland Maine 04101.
Max Berueffy, Secretary (age 46)
Senior Counsel, Forum Financial Group, LLC, 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 also
serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. His address is Two Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary (age 33)
Assistant Counsel, Forum Financial Group, LLC, with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
Pamela Stutch, Assistant Secretary (age 31)
Fund Administrator, Forum Financial Group, LLC, with which she has
been associated since May 1998. Prior thereto, Ms. Stutch attended
Temple University School of Law and graduated in 1997. Ms. Stutch was
also a legal intern for the Maine Department of the Attorney General.
Ms. Stutch also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. Her address is Two Portland Square, Portland, Maine
04101.
TRUSTEE COMPENSATION
Each Trustee of the Trust (other than John Y. Keffer, who is an interested
person of the Trust) is paid $1,000 for each Board meeting attended (whether in
person or by electronic communication) and is paid $1,000 for each committee
meeting attended on a date when a Board meeting is not held. As of 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 $9,718.64 None None $9,718.64
Mr. Cheng $9,718.64 None None $9,718.64
Mr. Parish $9,718.64 None None $9,718.64
</TABLE>
TRUSTEE COMPENSATION FOR CORE TRUST (DELAWARE)
Each of the Trustees of the Trust is also a Trustee of Core Trust (Delaware), a
registered, open-end management investment company ("Core Trust"). Each Trustee
of Core Trust (other than John Y. Keffer, who is an interested
12
<PAGE>
person of Core Trust) is paid $1,000 for each Core Trust Board meeting attended
(whether in person or by electronic communication) plus $100 per active
portfolio of Core Trust and is paid $1,000 for each committee meeting attended
on a date when a Core Trust Board meeting is not held. To the extent a meeting
relates to only certain portfolios of Core Trust, trustees are paid the $100 fee
only with respect to those portfolios. Core Trust trustees are also reimbursed
for travel and related expenses incurred in attending meetings of the Core
THE ADVISER
Pursuant to an Investment Advisory Agreement with the Trust, H.M. Payson & Co.,
(the Adviser) furnishes, at its own expense, all services, facilities and
personnel necessary in connection with managing each Fund's investments and
effecting portfolio transactions for each Fund. Subject to the general control
of the Board, the Adviser is responsible for among other things, developing a
continuing investment program for the Fund in accordance with its investment
objective and reviewing the investments, investment strategies and policies of
the Fund In this regard, it is the responsibility of the Adviser to make
decisions relating to the Fund's investments and to place purchase and sale
orders regarding such investments with brokers or dealers selected by it in its
discretion. The Adviser also furnishes to the Board, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of the Fund. Under the terms of the investment
advisory agreement, the Adviser is required to manage the Fund's investment
portfolio in accordance with applicable laws and regulations.
The Investment Advisory Agreement provides, with respect to a Fund, for an
initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
approved annually (1) by majority vote of the shareholders of a Fund or by the
Board and (2) by majority vote of the Trustees who are not parties to such
agreement or "interested persons" (as defined in the 1940 Act) of any such
party. The Investment Advisory Agreement is terminable with respect to a Fund,
without penalty, by the Board or by majority vote of the shareholders of a Fund
on 60 days' written notice to the Adviser, or by the Adviser o on not more than
60 days' nor less than 30 days' written notice to the Board, and will
automatically terminate if assigned. The Investment Advisory Agreement also
provides that, with respect to each Fund, the Adviser shall not be liable for
any mistake of judgment or in any event with respect to a o Fund, except for
willful misfeasance, bad faith, gross negligence, or reckless disregard in the
performance of the Advisor's duties under the Investment Advisory Agreement. In
addition, if the Adviser ceases to act as a Fund's investment adviser, or in the
event the Adviser so requests in writing, the Trust will change a Fund's name so
as not to include the word "Payson." The Advisory Agreement provides that the
Adviser may render services to others.
For its services under the Investment Advisory Agreement, H.M. Payson & Co.
receives a fee at an annual rate of 0.80% and 0.60% of the average daily net
assets of Payson Value Fund and Payson Balanced Fund, respectively. The
following table shows the dollar amount of fees payable under the Investment
Advisory Agreement, the amount of fees waived by the Adviser, if any, and the
actual fees received by the Adviser. The data is for the past three fiscal
years.
PAYSON VALUE FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $131,769 $0 $131,769
1997 $92,360 $0 $92,360
1996 $71,662 $0 $71,662
13
<PAGE>
PAYSON BALANCED FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $131,512 $0 $131.512
1997 $107,243 $0 $107,243
1996 $95,588 $0 $95,588
1995 $75,058 $0 $75,058
</TABLE>
In addition to receiving its advisory fee from the Funds, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets that are invested in a 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 a Fund an amount equal to all or a portion of the fees received
by the Adviser or any affiliate of the Adviser from a Fund with respect to the
client's assets invested in that Fund.
THE ADMINISTRATOR
Pursuant to an Administration Agreement approved by the Board on June 19, 1997,
Forum Administrative Services, LLC ("FAdS") acts as administrator to the Trust
on behalf of the Funds. As administrator, FAdS provides management and
administrative services necessary to the operation of the Trust (including,
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),
and provides the Trust with general office facilities. At the request of the
Board, FAdS provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers, as well as certain other employees and Trustees of
the Trust, may be directors, officers or employees of FAdS, or its 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. Prior to June 19, 1997,
administrative services were provided to the Funds by Forum Financial Services,
Inc. ("FFSI") pursuant to a Management and Distribution Agreement between the
Trust and FFSI.
The Administration Agreement will remain in effect with respect to a fund 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 (1) by the Board or by majority vote of the shareholders of a Fund and
(2) by a majority of the Trustees who are not parties to the agreement or
interested persons of any such party (other than as Trustees of the Trust). The
Administration Agreement may be terminated with respect to any Fund, without
payment of a penalty, by the Board or FAdS on 60 days' written notice. The
Administration Agreement provides that FAdS shall not be liable for any action
or inaction in the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard in the performance of its duties under the Administration
Agreement.
For its services under the Administration Agreement, FAdS receives t an annual
rate of 0.20% of the average daily net assets of each Fund. Under the former
Management and Distribution Agreement, FFSI received 0.20% of the average daily
net assets of each Fund. The following table shows the dollar amount of fees
payable, the amount of fees waived, and the net fees received under the
Administration Agreement and/or the Management and Distribution Agreement for
the Funds' prior three fiscal years.
PAYSON VALUE FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $32,942 $28,750 $4,192
1997 $23,090 $23,090 $0
1996 $17,916 $17,916 $0
14
<PAGE>
PAYSON BALANCED FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $43,837 $38,278 $5,559
1997 $35,748 $35,748 $0
1996 $31,863 $31,863 $0
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement, Forum Financial Services, Inc., FFSI is
the Trust's distributor and acts as the agent of the Trust in connection with
the offering of the shares of the Fund. The Distributor is under no obligation
to sell a specific amount of Fund shares. All subscriptions of shares obtained
by FFSI are directed to the Trust for acceptance and are not binding on the
Trust until accepted by it.
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 (1) by the Board
or by a majority vote of the shareholders, (2) 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
and with respect to any class for which the Trust has adopted a distribution
plan,have no direct or indirect financial interest in the operation of that
distribution plan or the Distribution Agreement. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without penalty
by the Board or by a vote of a majority of the outstanding voting securities of
the Fund on 60 days' written notice to the FFSI or by FFSI on 60 days' written
notice to the Board. The Distribution Agreement 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.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Funds. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Funds are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Funds.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
Pursuant to the Distribution Agreement, FFSI receives, and may reallow to
certain financial institutions, the sales charge paid by the purchasers of each
Fund's shares. The aggregate sales charges payable to FFSI with respect to each
Fund are outlined in the following table:
15
<PAGE>
PAYSON VALUE FUND
<TABLE>
<S> <C> <C> <C>
Fiscal Year Ended
March 31 Aggregate Sales Charge Amount Retained Amount Reallowed
1998 $3,715 $462 $3,253
PAYSON BALANCED FUND
Fiscal Year Ended
March 31 Aggregate Sales Charge Amount Retained Amount Reallowed
1998 $186 $186 $0
</TABLE>
DISTRIBUTION PLAN
In accordance with Rule 12b-1 under the 1940 Act, the Trust adopted a
distribution plan (the "Plan") which provides that all written agreements
relating to the Plan must be in a form satisfactory to the Board. In addition,
the Plan requires the Trust, the Adviser and FFSI to prepare, at least
quarterly, written reports setting forth all amounts expended for distribution
purposes by the Trust, the Adviser and FFSI pursuant to the Plan and identifying
the distribution activities for which those expenditures were made.
The Plan provides that it will remain in effect for one year from the date of
its adoption and thereafter shall continue in effect provided it is approved at
least annually by the shareholders or by the Board, including a majority of
directors who are not interested persons of the Trust and who have no direct or
indirect interest in the operation of the Plan or in any agreement related to
the Plan. The Plan further provides that it may not be amended to increase
materially the costs which may be borne by the Trust for distribution pursuant
to the Plan without shareholder approval and that other material amendments of
the Plan must be approved by the Trustees in the manner described in the
preceding sentence. The Plan may be terminated at any time by a vote of the
Board or, with respect to either Fund, by the Fund's shareholders.
During the fiscal year ended March 31, 1998, neither Fund paid any distribution
related expenses pursuant to the Distribution Plan.
THE TRANSFER AGENT
Pursuant to a Transfer Agency and Services Agreement with the Trust dated May
19, 1998, Forum Shareholder Services, LLC ("FSS") acts as transfer agent of the
Trust. FSS became the transfer agent effective January 1, 1998 when it succeeded
to the transfer agency business of Forum Financial Corp.
(FSS and Forum Financial Corp. ("FFC") are commonly controlled entities).
The Transfer Agency and Services Agreement provides, with respect to each Fund,
for an initial term of one year from its effective date and for its continuance
in effect for successive twelve-month periods thereafter, provided that the
agreement is specifically approved at least annually (1) by the Board or, with
respect to either Fund, by a majority vote of the shareholders of that Fund and
(2) by a majority of the Trustees who are not parties to the Transfer Agency and
Services Agreement or interested persons of any such party. The Transfer Agency
Agreement may also be terminated on 60 days written notice by either the Board
or FSS. The Transfer Agency Agreement also provides that FSS shall not be liable
for any action, failure, or omission except for willful misfeasance, bad faith,
and gross negligence in the performance of its duties under the Transfer Agency
and Services Agreement.
Among the responsibilities of FSS agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Funds may be effected and certain
other matters pertaining to the Funds; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing
16
<PAGE>
periodic statements and confirmations of purchases and redemptions; (7)
arranging for the transmission of proxy statements, annual reports, prospectuses
and other communications from the Trust to its shareholders; (8) arranging for
the receipt, tabulation and transmission to the Trust of proxies executed by
shareholders with respect to meetings of shareholders of the Trust; and (9)
providing such other related services as the Trust or a shareholder may
reasonably request.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation for acting as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Funds. FSS or any sub-transfer agent or other
processing agent may elect to credit against the fees payable to it by its
clients or customers all or a portion of any fee received from the Trust or from
FSS with respect to assets of those customers or clients invested in the Funds.
FSS, FAdS or sub-transfer agents or processing agents retained by FSS may be
Processing Organizations (as defined in the Prospectus) and, in the case of
sub-transfer agents or processing agents, may also be affiliated persons of FSS
or FAdS.
For its services, FSS receives with respect to each Fund .25% of the average
daily net assets, an annual fee of $12,000 plus $18 per shareholder account. FFC
served as the transfer agent for the Trust pursuant to similar terms and
compensation as FSS. The following table shows the dollar amount of fees
payable, the amount of fee that was waived, and the net fees received under the
Transfer Agency Agreement for the Funds' prior three fiscal years.
<TABLE>
PAYSON VALUE FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $58,869 $39,896 $18,973
1997 $45,916 $27,131 $18,785
1996 $38,519 $21,273 $17,246
PAYSON BALANCED FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $73,628 $53,159 $20,469
1997 $63,723 $42,011 $21,712
1996 $58,767 $37,798 $20,969
</TABLE>
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust dated June 19, 1997,
Forum Accounting Services, LLC ("FAcS") provides the Funds with portfolio
accounting. Under the Fund Accounting Agreement, FAcS prepares and maintains
books and records of the Fund on behalf of the Trust as required under the 1940
Act, calculates the net asset value per share of each Fund and their dividends
and capital gain distributions and prepares periodic reports to shareholders and
the Securities and Exchange Commission. Prior to June 19, 1997, accounting
services were provided to the Trust by FFC.
The Fund Accounting Agreement will remain in effect with respect to a Fund for
one year and will continue in effect thereafter only if its continuance is
specifically approved at least annually (1) by the Board or by majority vote of
the shareholders of a Fund and (2) by a majority of the Trustees who are not
parties to the respective agreement or interested persons of any such party. The
Fund Accounting Agreement may also be terminated on 60 days written notice by
either the Board or FAcS, respectively. The Fund Accounting Agreement also
provides that
17
<PAGE>
FAcS shall not be liable for any action or inaction taken except for willful
misfeasance, bad faith or gross negligence in the performance of its duties
under the Fund Accounting Agreement.
For services provided under the Fund Accounting Agreement, FAcS receives and FSS
received an annual base fee of $36,000 plus certain surcharges depending upon
the amount and type of the Funds" portfolio transactions and positions. The
following table shows the dollar amount of fees payable, the amount of fee that
was waived, and the net fees received under the Fund Accounting Agreement for
the Funds' prior three fiscal years:
<TABLE>
PAYSON VALUE FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $36,000 $0 $36,000
1997 $36,000 $0 $36,000
1996 $37,000 $0 $37,000
18
<PAGE>
PAYSON BALANCED FUND
FISCAL YEAR ENDED
MARCH 31 GROSS FEE WAIVED FEE NET FEE
- -------- --------- ---------- -------
1998 $37,000 $0 $37,000
1997 $37,000 $0 $37,000
1996 $38,000 $0 $38,000
</TABLE>
6. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Funds as of 4:00p.m.,
Eastern Time, on each Fund Business Day as defined in the Prospectus by dividing
the value of the Fund's net assets (I.E., the value of its portfolio securities
and other assets less its liabilities) by the number of that Fund's shares
outstanding at the time the determination is made. Securities owned by the Fund
listed on the recognized stock exchanges are valued at the last reported trade
price, prior to the time when the assets are valued, on the exchange on which
the securities are principally traded. Listed securities traded on recognized
stock exchanges where last trade prices are not available are valued at
mid-market prices. Securities traded in over-the-counter markets, or listed
securities for which no trade is reported on the valuation date, are valued at
the most recent reported mid-market price. Other securities and assets for which
market quotations are not readily available are valued at fair value as
determined in good faith using methods approved by the Purchases and redemptions
are effected at the time of the next determination of net asset value following
the receipt of any purchase or redemption order.
7. PORTFOLIO TRANSACTIONS
Purchases and sales of debt securities for Payson Balanced Fund usually are
principal transactions. Debt securities for that Fund are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually are no brokerage commissions paid for such purchases.
Purchases from underwriters of portfolio securities include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers include the spread between the bid and asked prices.
Payson Value Fund and Payson Balanced Fund (with respect to purchases of equity
securities) will effect purchases and sales through brokers who charge
commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund. For
the fiscal years ended March 31, 1998, 1997 and 1996, the aggregate brokerage
commissions paid by Payson Value Fund were $29,682, $17,303, and $27,008,
respectively. For the fiscal years ended March 31, 1998, 1997, and 1996, the
aggregate brokerage commissions paid by Payson Balanced Fund were $41,370,
$37,474, and $36,756, respectively. For the fiscal year ended March 31, 1998,
$0.00, or 0.0% of aggregate brokerage commissions paid, was paid to H.M. Payson
an affiliated broker and 0.0% of the total dollar amount of transactions
involving payment of commission was effected through an affiliated broker. As of
March 31, 1998, the Payson Balanced Fund owned approximately $152,000 in
corporate bonds/notes issued by Bear Stearns & Co., Inc. ("Bear Stearns"). Bear
Stearns is one of a number of brokers that the Payson Balance Fund utilizes to
affect transactions on its behalf. As of the same date, the Payson Value Fund
owned approximately $394,000 of stock issued by A.G. Edwards, Inc. ("A.G.
Edwards"). A.G. Edwards is one of a number of brokers that the Payson Value Fund
utilizes to affect transactions on its behalf.
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with Fund transactions, the Adviser takes into account such factors
as size of the order, difficulty of execution, efficiency of the executing
broker's facilities (including the services described below) and any risk
assumed by the executing broker. The Adviser may also take
19
<PAGE>
into account payments made by brokers effecting transactions for a Fund (i) to
the Fund or (ii) to other persons on behalf of the Fund for services provided to
it for which it would be obligated to pay.
In addition, the Adviser may give consideration to research and investment
analysis services furnished by brokers or dealers to the Adviser for its use and
may cause the Fund to pay these brokers a higher amount of commission than may
be charged by other brokers. Such research and analysis is of the types
described in Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended, and is designed to augment the Adviser's own internal research and
investment strategy capabilities. The Adviser may use the research and analysis
in connection with services to clients other than 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 Funds will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. If, however, a Fund and other investment
companies or accounts managed by the Adviser are contemporaneously engaged in
the purchase or sale of the same security, the transactions may be averaged as
to price and allocated equitably to each account. In some cases, this policy
might adversely affect the price paid or received by a Fund or the size of the
position obtainable for the Fund. In addition, when purchases or sales of the
same security for a Fund and for other investment companies and accounts managed
by the Adviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
In the future the Funds, consistent with the policy of obtaining best net
results, may conduct brokerage transactions through the Adviser's affiliates,
affiliates of those persons or FFSI. If a Fund anticipates conducting brokerage
transactions through these persons, the Board will adopt procedures in
conformity with applicable rules under the 1940 Act to ensure that all brokerage
commissions paid to these persons are reasonable and fair.
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis by FFSI.
Set forth below is an example of the method of computing the offering price of
each Fund's shares. The example assumes a purchase of shares of beneficial
interest aggregating less than $100,000 subject to the schedule of sales charges
set forth in the Prospectuses at a price based on the net asset value per share
of each Fund on March 31, 1998.
Payson Payson
Value Balanced
Fund Fund
---- ----
Net Asset Value Per Share $21.670 $14.79
Sales Charge, 4.00% of offering
price (4.17% of net asset value
per share) $0.90 $0.62
Offering to Public $22.57 $15.41
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse a Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to a Fund's shares as provided in the
Prospectus.
20
<PAGE>
The Trust has filed an election with the SEC pursuant to which a Fund will only
effect a redemption in portfolio securities if a shareholder is redeeming more
than $250,000 or 1% of the Fund's total net assets, whichever is less, during
any 90-day period.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any other fund of the Trust or shares of certain other
portfolios of investment companies which retain FAdS or FFSI or its affiliates
administrator or distributor and which participate in the Trust's exchange
privilege program ("Participating Fund"). For Federal income tax purposes,
exchange transactions are treated as sales on which a purchaser will realize a
capital gain or loss depending on whether the value of the shares redeemed is
more or less than his basis in such shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FSS to be genuine.
The records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge may
be redeemed and the proceeds used to purchase, without a sales charge, shares of
any other Participating Fund otherwise sold with the same or a lesser sales
charge. If the Participating Fund purchased in the exchange transaction imposes
a higher sales charge than was paid originally on the exchanged shares, the
shareholder will be responsible for the difference between the two sales
charges. Shares acquired through the reinvestment of dividends and distributions
are deemed to have been acquired with a sales charge rate equal to that paid on
the shares on which the dividend or distribution was paid.
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
PAYROLL PURCHASE PROGRAM
Shares of the Funds may be purchased by employees of employers participating in
the Payroll Purchase Program ("PPP"). Employers wishing to participate must
arrange payroll deduction or other bulk transmission of investments to the
Funds. An employer may not participate unless, at all times, at least five of
the employer's employees are participating in this program.
Once an employer chooses to participate in PPP through a payroll deduction or
other bulk purchase plan, subsequent investments will be automatic and will
continue until such time as the investor notifies the applicable Fund and his
employer to discontinue further investments. Due to the varying procedures to
prepare, process and forward the transmission to the Fund, there may be a delay
between the time of the deduction and the time the money reaches the Fund. An
investment in the Fund will be made at the applicable offering price determined
on the day that both the check and the payroll deduction data are received in
required form by the Transfer Agent.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The Funds offer an individual retirement plan (an "IRA") for individuals who
wish to use shares of the Funds as a medium for funding individual retirement
savings. Under the IRA, distributions of net investment income and capital gain
will be automatically reinvested in the IRA established for the investor. The
Funds' custodian furnishes
21
<PAGE>
custodial services to the IRAs for a service fee. Shareholders wishing to invest
through an IRA should contact the Transfer Agent for further details and
information.
9. TAX MATTERS
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, does not involve governmental supervision of management or
investment practices or policies. Investors should consult their own counsel for
a complete understanding of the requirements the Funds must meet to qualify for
such treatment. The information set forth in the Prospectus and the following
discussion relate solely to Federal income taxes on dividends and distributions
by a Fund and assume that each Fund qualifies as a regulated investment company.
Investors should consult their own counsel for further details and for the
application of state and local tax laws to the investor's particular situation.
For federal income and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or December of a given
year but actually paid during the immediately following January will be treated
as if paid by a Fund on December 31 of that calendar year, and will be taxable
to these shareholders for the year declared, and not for the year in which the
shareholders actually received the dividend.
Payson Value Fund expects to derive a substantial amount of its gross income
(exclusive of capital gain) from dividends from domestic corporations.
Accordingly, that portion of that Fund's dividends so derived will qualify for
the dividends-received deduction for corporations. Payson Balanced Fund expects
to derive substantially all of its gross income (exclusive of capital gain) from
sources other than dividends. Accordingly, it is expected that most of that
Fund's dividends or distributions will not qualify for the dividends-received
deduction for corporations.
Certain listed options and regulated futures contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256 contracts held by
a Fund at the end of each taxable year will be "marked to market" and treated
for Federal income tax purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by a Fund on section
1256 contracts generally will be considered 60% long-term and 40% short-term
capital gain or loss. A Fund can elect to exempt its section 1256 contracts
which are part of a "mixed straddle" from the application of section 1256.
With respect to equity or over-the-counter put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the
respective Fund's holding period with respect to such option. However, gain or
loss realized upon the lapse or closing out of such options that are written by
a Fund will be treated as short-term capital gain or loss. In general, if a Fund
exercises an option, or if an option that a Fund has written is exercised, gain
or loss on the option will not be separately recognized but the premium received
or paid will be included in the calculation of gain or loss upon disposition of
the property underlying the option.
In addition, the use of certain hedging strategies such as writing and
purchasing options, futures contracts and options on futures contracts involves
complex rules that will determine for income tax purposes the character and
timing of recognition of income received in connection therewith.
10. OTHER INFORMATION
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, N.A. (formerly The First National
Bank of Boston), 100 Federal Street, Boston, MA 02106, acts as the custodian of
the Funds' assets. The custodian's responsibilities include safeguarding and
controlling the Funds' cash and securities, determining income and collecting
interest on Fund investments.
22
<PAGE>
COUNSEL
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, 1200 G Street,
N.W., Washington, D.C. 20005
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, act as auditors for the Trust.
FINANCIAL STATEMENTS
The financial statements of Payson Balanced Fund for the year ended March 31,
1998, which are included in the Annual Report to Shareholders of the Trust and
delivered along with this Statement of Additional Information, are incorporated
herein by reference.
23
<PAGE>
APPENDIX A
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
OAK HALL SMALL CAP CONTRARIAN FUND
- ----------------------------------
Maryann Wolf 13.30% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 9.05% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.73% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.70% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 5.48% 16,870.661
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
A-1
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS GOVERNMENT FUND ------------ -------------
INSTITUTIONAL SHARES
- ---------------------
H M Payson & Co. Custody Account 56.56% 18,033,015.150
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 43.44% 13,850,465.390
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 16.52% 826,387.330
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 15.90% 795,276.550
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Lansdowne Parking Associates LP 9.99% 499,939.120
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.920
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 46.30% 12,236,932.890
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
A-2
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS CASH FUND ------------ -------------
INSTITUTIONAL SHARES CON'T
H M Payson & Co. Custody Account 34.44% 9.101,914.440
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 19.27% 5,092,100.590
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
Cutler Approved List Equity Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 18.12% 951,550.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM All Cap Value Fund 9.45% 496,164.720
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Mid Cap Value Fund 5.70% 299,263.830
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-3
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS CASH FUND
INVESTORS SHARES
Forum Administrative Services, Inc. 100% 101.200
Two Portland Square
Portland, ME 04101
<PAGE>
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
Allagash & Co. 72.89% 11,915,149.240
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 26.73% 4,368,592.160
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Dirigo Drywall Assoc. 22.89% 682,716.350
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc./
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 19.58% 583,950,000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-4
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND ------------ ------------
INSTITUTIONAL SERVICE SHARES-CON'T
Cutler Equity Income Fund 9.05% 269,894.440
C/O Forum Financial Services, Inc.
Two Portland Square
CRM All Cap Value Fund 6.23% 185,729.030
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.900
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 46.72% 9,494,221.860
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 25.38% 5,157,680.310
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.96% 4,868,005.220
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financing 100% 5.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
A-5
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS MUNICIPAL FUND ------------ ------------
INVESTOR SHARES
Forum Administrative Services, LLC 100% 100.060
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 65.16% 62,106,021.450
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 34.84% 33,201,966.980
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE
Allagash & Co. 99.10% 1,657,595.720
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
INVESTORS BOND FUND
- -------------------
Firstrust Co. 72.38% 5,714,958.415
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.10% 876,782.753
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
A-6
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
FORUM TAXSAVER BOND FUND
- ------------------------
First Trust Co. 49.33% 1,717,000.264
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 21.80% 758,668.285
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 6.03% 209,963.557
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.41% 188,185.433
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.76% 3.451,019.518
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
MAINE MUNICIPAL BOND FUND
Administrative Data Management Corp. 42.71% 1,110,715.231
Attn: Sue Needell
581 Main Street
Woodbridge, NJ 07095-1198
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
A-7
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
PAYSON BALANCED FUND
- --------------------
ALA & Co. 15.49% 258,329.088
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.98% 249,788.506
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
- -----------------
Payse & Co. 21.90% 208,621.301
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.09% 172,271.808
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
- ---------------------
Babb & Co. #02-6004105 94.40% 2,383,117.225
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.18% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
A-8
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
INTERNATIONAL EQUITY FUND
- -------------------------
Forum Financing 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. 99.95% 3,013,520.631
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
- -----------------
Allagash & Co. 99.27% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 100% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
A-9
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
QUADRA VALUE EQUITY FUND
- ------------------------
Holly Melosi & Arturo R. Melosi TTEE 80.77% 406,724.176
FBO Atrgur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.41%% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
QUADRA GROWTH FUND
- ------------------
Holly Melosi & Arturo R. Melosi TTEE 77.64% 454,757.022
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.52 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
- -------------------------
David Solomont 11.39% 271,791.712
c/o Utopia Inc.
200 Fifth Avenue
Waltham, MA 02154
DCGT TR 5.35% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
</TABLE>
A-10
<PAGE>
PAYSON VALUE FUND
PAYSON BALANCED FUND
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
B-1
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated CC typically are debt subordinated to senior debt which is assigned
an actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
B-2
<PAGE>
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rated F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
2. PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
B-3
<PAGE>
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
The rating CC is reserved for a preferred stock issue in arrears on dividends or
sinking fund payments but that is currently paying.
B-4
<PAGE>
A preferred stock rated C is a non-paying issue.
A preferred stock rated D is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
3. SHORT-TERM DEBT (COMMERCIAL PAPER)
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2, both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC..
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.
B-5
<PAGE>
F-3. Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D. Issues assigned this rating are in actual or imminent payment default.
B-6
<PAGE>
APPENDIX C
ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which is currently in use is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 120
mutual funds for 17 different fund managers, with more than $30 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 230 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
C-1
<PAGE>
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has 8 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals with decades of experience with some of the country's major
financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over $175 billion as of September 30, 1997.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.4 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
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<PAGE>
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
C-3
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 146 funds with
more than $36 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.7 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1 billion in assets under management and $300 million in
non-managed custodial accounts. The Payson Value
Fund and Payson Balanced Fund are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
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<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks
*Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*ADMINISTRATION AND DISTRIBUTION SERVICES: Regulatory, compliance,
expense accounting, budgeting for all funds
*FUND ACCOUNTING SERVICES: Portfolio valuation, accounting, dividend
declaration, and tax advice
*SHAREHOLDER SERVICES: Preparation of statements, distribution support,
inquiries and processing of trades
*CLIENT ASSETS UNDER ADMINISTRATION AND DISTRIBUTION: $36.9 billion
*CLIENT ASSETS PROCESSED BY FUND ACCOUNTING: $47.6 billion
*CLIENT FUNDS UNDER ADMINISTRATION AND DISTRIBUTION: 146 mutual funds with 219
share classes
*INTERNATIONAL VENTURES:
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*FORUM EMPLOYEES: United States -198, Poland - 61, Bermuda - 3
FORUM CONTACTS:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment
Advisors, LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
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<PAGE>
H.M. PAYSON & CO.:
- -----------------
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.5 Billion
*Non-Managed Custody Assets: $388 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 12 shareholders; 12 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
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<PAGE>
AUSTIN GLOBAL EQUITY FUND
- --------------------------------------------------------------------------------
Investment Advisor: Account Information and
Austin Investment Management, Inc. Shareholder Servicing:
375 Park Avenue, Suite 2102 Forum Shareholder Services, LLC
New York, New York 10152 Two Portland Square
(212) 888-9292 Portland, Maine 04101
207-879-0001
800-754-8759
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
Austin Global Equity Fund (the "Fund') is a series of Forum Funds (the "Trust"),
a registered open-end investment company. This Statement of Additional
Information ("SAI") supplements the Prospectus dated August 1, 1998 offering
shares of the Austin Global Equity Fund (the "Fund") and should be read only in
conjunction with the Prospectus, a copy of which may be obtained without charge
by contacting Forum Shareholder Services, LLC at the address listed above.
TABLE OF CONTENTS
Page
----
1. General......................................................
2. Investment Policies..........................................
3. Additional Investment Policies...............................
4. Performance Data.............................................
5. Management...................................................
6. Determination of Net Asset Value.............................
7. Portfolio Transactions.......................................
8. Additional Purchase and
Redemption Information.....................................
9. Tax Matters..................................................
10. Other Matters................................................
Appendix A - Control Persons and Principal Holders of Securities...... A-1
Appendix B - Description of Securities Ratings
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
<PAGE>
1. GENERAL
THE TRUST. The Trust is registered with the SEC as an open-end, management
investment company and was organized as a business trust under the laws of the
State of Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to
the assets and liabilities of Forum Funds, Inc. Forum Funds, Inc. was
incorporated on March 24, 1980 and assumed the name of Forum Funds, Inc. on
March 16, 1987. The Board of Directors ("Board"), without shareholder approval,
has the authority to issue an unlimited number of shares of beneficial interest
with no par value per share and create separate classes of shares with each
series (such as Investor and Institutional Shares). The Trust currently offers
shares of 23 series. The series of the Trust are as follows:
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Austin Global Equity Fund
Investors High Grade Bond Fund Quadra Value Equity Fund
Maine Municipal Bond Fund Quadra Growth Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Treasury Obligations Fund Equity Index Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Government Obligations Fund International Equities Fund
Daily Assets Municipal Fund Emerging Markets Fund
Payson Value Fund Investors Growth Fund
Payson Balanced Fund
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
As of July 1, 1998, the Officers and Directors of the Trust as a group owned
less than 1% of the outstanding shares of the Fund. Also as of that date,
Appendix A identifies all shareholders who own of record 5% or more of the
outstanding shares of any of the Registrant's series.
DEFINITIONS. As used in this Statement of Additional Information, the following
terms shall have the meanings listed:
"Board" means the Board of Trustees of Forum Funds.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FFC" means Forum Financial Corp.
"FFSI" means Forum Financial Services, Inc.
2
<PAGE>
"Adviser" " means Austin Investment Management, Inc.
"Fund" means Austin Global Equity Fund
"Fund Business Day" has the meaning ascribed thereto in the current Prospectus
of the Fund.
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" has the meaning ascribed thereto by the current
Prospectus of the Fund.
"1940 Act" means the Investment Company Act of 1940, as amended.
2. INVESTMENT POLICIES
The Fund's investment adviser, Austin Investment Management, Inc. (the
"Adviser"), in determining the composition of the Fund's portfolio, seeks to
distribute investments among various countries, including the United States, and
various geographic regions. In making investment decisions, the Adviser
considers many factors, including: prospects for economic growth among the
various countries; relative amounts of capital invested in foreign countries;
expected levels of inflation; government policies influencing business
conditions; outlooks for relative currency exchange rates in the future; and the
range of investment opportunities available.
INVESTMENT IN FOREIGN SECURITIES
The Fund invests primarily in issuers based in the United States, Europe, Japan
and the Pacific Basin. The European and Pacific Basin countries in which issuers
will be based are primarily those of Western Europe, such as the United Kingdom,
Germany, France, Italy and the Scandinavian countries, and South Korea,
Australia and New Zealand.
Foreign securities are generally purchased in over-the-counter markets or on
stock exchanges located in the countries in which the respective principal
offices of the issuers of the various securities are located, if that is the
best available market. Foreign securities markets are generally not as developed
or efficient as those in the United States, and securities of foreign companies
may be less liquid and more volatile than securities of comparable United States
companies. Fixed commissions on foreign stock exchanges are generally higher
than negotiated commissions on United States exchanges, although the Fund will
endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies than in the United States. Foreign
countries may place limitations on the removal of funds or other assets of the
Fund, and diplomatic developments could affect United States investments in
those countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the United States' economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, self-sufficiency of
natural resources and balance of payments position.
The dividends and interest payable on certain of the Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund's shareholders. A
shareholder otherwise subject to United States federal income taxes may, subject
to certain limitations, be entitled to claim a credit or deduction for U.S.
federal income tax purposes for the shareholder's proportionate share of foreign
taxes paid by the Fund. (See "Tax Matters.")
3
<PAGE>
Although the Fund values its assets daily in terms of U.S. dollars, it will not
normally convert its holdings of foreign currencies into U.S. dollars on a daily
basis. It will do so from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference (commonly
known as the "spread") between the price at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Investors should understand that the expense ratio of the Fund can be expected
to be higher than that of other investment companies investing solely in
domestic securities due to, among other things, the greater cost of maintaining
the custody of foreign securities and higher transaction charges, such as stamp
duties and turnover taxes that may be associated with the purchase and sale of
portfolio securities.
RATINGS AS INVESTMENT CRITERIA
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P") are private services that provide ratings of the credit quality of debt
obligations, including convertible securities. A description of the range of
ratings assigned to corporate bonds, including convertible securities by Moody's
and S&P is included in Appendix B to this Statement of Additional Information.
The Fund may use these ratings in determining whether to purchase, sell or hold
a security. It should be emphasized, however, that ratings are general and are
not absolute standards of quality. Consequently, securities with the same
maturity, interest rate and rating may have different market prices. Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its
rating may be reduced. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Credit ratings attempt
to evaluate the safety of principal and interest payments and do not evaluate
the risks of fluctuations in market value. Also, rating agencies may fail to
make timely changes in credit ratings in response to subsequent events, so that
an issuer's current financial condition may be better or worse than the rating
indicates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a bond,
debenture, note, preferred stock or other security that may be converted into or
exchanged for a prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Although no
securities investment is without some risk, investment in convertible securities
generally entails less risk than in the issuer's common stock. However, the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The investment value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible security is
governed principally by its investment value and generally the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. In addition, a convertible security generally will sell at
a premium over its conversion value determined by the extent to which investors
place value on the right to acquire the underlying common stock while holding a
fixed income security.
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A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
WARRANTS
The Fund may invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. To the extent
that the market value of the security that may be purchased upon exercise of the
warrant rises above the exercise price, the value of the warrant will tend to
rise. To the extent that the exercise price equals or exceeds the market value
of such security, the warrants will have little or no market value. If a warrant
is not exercised within the specified time period, it will become worthless and
the Fund will lose the purchase price paid for the warrant and the right to
purchase the underlying security.
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FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve currencies of foreign
countries. In addition, the Fund may temporarily hold funds in bank deposits in
foreign currencies during the completion of investment programs. Accordingly,
the value of the assets of the Fund as measured in United States dollars may be
affected by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into foreign currency forward
contracts ("forward contracts") to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers and involve the risk that the other party to the contract may
fail to deliver currency when due, which could result in losses to the Fund. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. Foreign exchange dealers realize a profit based
on the difference between the price at which they buy and sell various
currencies.
The Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, the Fund may enter into forward currency contracts in connection with
existing portfolio positions. For example, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Adviser does
not intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such contracts or the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
At or before the settlement of a forward currency contract, the Fund may either
make delivery of the foreign currency or terminate its contractual obligation to
deliver the foreign currency by purchasing an offsetting contract. If the Fund
chooses to make delivery of the foreign currency, it may be required to obtain
the currency through the conversion of assets of the Fund into the currency. The
Fund may close out a forward contract obligating it to purchase a foreign
currency by selling an offsetting contract. If the Fund engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been a change in forward contract prices. Additionally, although forward
contracts may tend to minimize the risk of loss due to a decline in the value of
the hedged currency, at the same time they tend to limit any potential gain
which might result should the value of such currency increase.
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.
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Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global, around-the-clock market.
When required by applicable regulatory guidelines, the Fund will set aside cash,
U.S. Government Securities (as defined in the Prospectus) or other liquid assets
in a segregated account with its custodian in the prescribed amount.
HEDGING STRATEGIES
As discussed in the Prospectus, the Adviser may engage in certain options and
futures strategies to attempt to hedge the Fund's portfolio. The instruments in
which the Fund may invest include (i) options on securities, stock indexes and
foreign currencies, (ii) stock index and foreign currency futures contracts
("futures contracts"), and (iii) options on futures contracts. Use of these
instruments is subject to regulation by the Securities and Exchange Commission
(the "SEC"), the several options and futures exchanges upon which options and
futures are traded, and the Commodities Futures Trading Commission (the "CFTC").
The various strategies referred to herein and in the Fund's Prospectus are
intended to illustrate the type of strategies that are available to, and may be
used by, the Adviser in managing the Fund's portfolio. No assurance can be
given, however, that any strategies will succeed.
The Fund will not use leverage in its hedging strategies. In the case of
transactions entered into as a hedge, the Fund will hold securities, currencies
or other options or futures positions whose values are expected to offset
("cover") its obligations thereunder. The Fund will not enter into a hedging
strategy that exposes the Fund to an obligation to another party unless it owns
either (1) an offsetting ("covered") position or (2) cash, U.S. Government
Securities or other liquid 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 replaced with similar
assets. As a result, there is a possibility that the use of cover or segregation
involving a large percentage of a Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
The Fund is subject to the following restrictions in its use of options and
futures contracts. The Fund will not (i) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the Fund's
total assets would be hedged through the use of options or futures contracts,
(ii) purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets, or (iii) purchase call
options if, as a result, the current value of options premiums for options
purchased would exceed 5% of the Fund's total assets.
OPTIONS STRATEGIES
The Fund may purchase put and call options written by others and write (sell)
put and call options covering specified securities, stock index-related amounts
or currencies. A put option (sometimes called a "standby commitment") gives the
buyer of the option, upon payment of a premium, the right to deliver a specified
amount of a security or currency to the writer of the option on or before a
fixed date at a predetermined price. A call option (sometimes called a "reverse
standby commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified amount of a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. The Fund may buy or sell both exchange-traded
and over-the-counter ("OTC") options. The Fund will purchase or write an option
only if that option is traded on a recognized U.S. options exchange or if the
Adviser believes that a liquid secondary market for the option exists. When the
Fund purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the 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.
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The Fund may purchase call options on equity securities that the Adviser intends
to include in the Fund's portfolio in order to fix the cost of a future
purchase. Call options may also be purchased as a means of participating in an
anticipated price increase of a security on a more limited risk basis than would
be possible if the security itself were purchased. In the event of a decline in
the price of the underlying security, use of this strategy would serve to limit
the potential loss to the Fund to the option premium paid; conversely, if the
market price of the underlying security increases above the exercise price and
the Fund either sells or exercises the option, any profit eventually realized
will be reduced by the premium paid. The Fund may similarly purchase put options
in order to hedge against a decline in market value of securities held in its
portfolio. The put enables the Fund to sell the underlying security at the
predetermined exercise price; thus the potential for loss to the Fund is limited
to the option premium paid. If the market price of the underlying security is
lower than the exercise price of the put, any profit the Fund realizes on the
sale of the security would be reduced by the premium paid for the put option
less any amount for which the put may be sold.
The Fund may write covered call options. The Fund may write call options when
the Adviser believes that the market value of the underlying security will not
rise to a value greater than the exercise price plus the premium received. Call
options may also be written to provide limited protection against a decrease in
the market price of a security, in an amount equal to the call premium received
less any transaction costs. The Fund may write covered put options only to
effect closing transactions.
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 which it intends to purchase. Options on foreign
currencies are affected by the factors discussed in "Options Strategies" above
and "Foreign Currency Forward Transactions" which influence foreign exchange
sales and investments generally.
The value of foreign currency options is dependent upon the value of the foreign
currency relative to the U.S. dollar and has no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, the Fund may be disadvantaged
by having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies remains open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
The Fund may effectively terminate its right or obligation under an option
contract by entering into a closing transaction. For instance, if the Fund
wished to terminate its potential obligation to sell securities or currencies
under a call option it had written, a call option of the same type would be
purchased by the Fund. Closing transactions essentially permit the Fund to
realize profits or limit losses on its options positions prior to the exercise
or expiration of the option. In addition:
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(1) The successful use of options depends upon the Adviser's ability to
forecast the direction of price fluctuations in the underlying securities or
currency markets, or in the case of a stock index option, fluctuations in the
market sector represented by the index.
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, the Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by the Fund may result in material losses to
the Fund.
(4) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to accept,
and the other party agrees to make, delivery of cash, securities or currencies
as called for in the contract at a specified future date and at a specified
price. For stock index futures contracts, delivery is of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the time of the contract and the close of trading of the contract.
The Fund may sell stock index futures contracts in anticipation of a general
market or market sector decline that may adversely affect the market values of
the Fund's securities. To the extent that the Fund's portfolio correlates with a
given stock index, the sale of futures contracts on that index could reduce the
risks associated with a market decline and thus provide an alternative to the
liquidation of securities positions. The Fund may purchase a stock index futures
contract if a significant market or market sector advance is anticipated. These
purchases would serve as a temporary substitute for the purchase of individual
stocks, which stocks may then be purchased in the future.
The Fund may purchase call options on a stock index future as a means of
obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. The Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Fund may write covered call options on
stock index futures contracts as a partial hedge against a decline in the prices
of stocks held in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to hedge against possible
variations in the exchange rate of the foreign currency in relation to the U.S.
dollar. In addition, the Fund may sell foreign currency futures contracts when
the Adviser anticipates a general weakening of foreign currency exchange rates
that could adversely affect the market values of the Fund's foreign securities
holdings. The Fund may purchase a foreign currency futures contract to hedge
against an anticipated foreign exchange rate increase pending completion of
anticipated transactions. Such a purchase would serve as a temporary measure to
protect the Fund against such increase. The Fund may also purchase call or put
options on foreign currency futures contracts to obtain a fixed foreign exchange
rate at limited
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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.
(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 futures
contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. The Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in the Adviser's opinion, the market for such
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
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margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, the Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents, and
the Fund may be required to pay any fees, taxes or charges associated with such
delivery which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
The Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. The Fund
will only invest in futures contracts, options on futures contracts and other
options contracts that are subject to the jurisdiction of the CFTC after filing
a notice of eligibility and otherwise complying with the requirements of Section
4.5 of the rules of the CFTC. Under that section the Fund would be permitted to
purchase such futures or options contracts only for bona fide hedging purposes
within the meaning of the rules of the CFTC; provided, however, that in
addition, with respect to positions in commodity futures and option contracts
not for bona fide hedging purposes, the Fund represents that the aggregate
initial margin and premiums required to establish these positions (subject to
certain exclusions) will not exceed 5% of the liquidation value of the Fund's
assets after taking into account unrealized profits and losses on any such
contract the Fund has entered into.
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. A counterparty
to a reverse repurchase agreement must be a primary dealer that reports to the
Federal Reserve Bank of New York ("primary dealers") or one of the largest 100
commercial banks in the United States.
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 a Fund with those monies. The use of reverse repurchase
agreement proceeds to make investments may be considered to be a speculative
technique.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase or sell portfolio securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a 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 delayed delivery
transaction, it becomes obligated to purchase securities and it has all
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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 a Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction as a purchase
and thereafter reflect the value each day of such securities in determining its
net asset value. The 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, the
Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices inferior to the
current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. If the Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. The Fund will establish and maintain with its custodian a separate account
with cash, U.S. Government Securities or other liquid assets in an amount at
least equal to such commitments. No when-issued or forward commitments will be
made by the Fund if, as a result, more than 10% of the value of the Fund's total
assets would be committed to such transactions.
INVESTMENT COMPANY SECURITIES
In connection with managing its cash positions, the Fund may invest in the
securities of other investment companies that are money market funds within the
limits proscribed by the Investment Company Act of 1940 ("1940 Act"). The Fund
may invest up to 10% of the value of its net assets in the securities of money
market funds. In addition to the Fund's expenses (including the various fees),
as a shareholder in another investment company, a Fund would bear its pro rata
portion of the other investment company's expenses (including fees).
TEMPORARY DEFENSIVE POSITION
The cash or cash equivalents in which the Fund may invest include (i) short-term
U.S. Government Securities, (ii) certificates of deposit, bankers' acceptances
and interest-bearing savings deposits of commercial banks doing business in the
United States that are members of the Federal Deposit Insurance Corporation and
whose short term ratings are rated in one of the two highest rating categories
by S&P or Moody's or, if not rated by those agencies, determined by the Adviser
to be of comparable quality, (iii) commercial paper of prime quality rated A-2
or higher
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by S&P or Prime-2 or higher by Moody's or, if not rated by those agencies,
determined by the Adviser to be of comparable quality, and (iv) repurchase
agreements covering any of the securities in which the Fund may invest directly.
3. ADDITIONAL INVESTMENT POLICIES
The Investment objective and all investment policies of the Fund that are
designed as fundamental may be changed only with the approval of the holders a
majority of the outstanding voting securities of the Fund. A majority of
outstanding voting securities means the lesser of (1) 67% of the shares
presented or represented at a shareholder meeting at which the holders of more
than 50% of the outstanding shares are present or represented, or (2) more than
50% of outstanding shares. Unless otherwise indicated, all investment policies
are not fundamental and may be changed by the Trust's Board without approval by
the shareholders of the Fund.
In addition to the fundamental policies identified in the Prospectus, the Fund
has adopted the following fundamental investment limitations, which may not be
changed without shareholder approval. The Fund may not:
(1) 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.
(2) Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total assets taken
at market value would be invested in securities of issuers conducting their
principal business activity in the same industry.
(3) With respect to 75% of the value of its total assets, purchase
securities, other than U.S. Government Securities, of any one issuer, if (a)
more than 5% of the Fund's total assets taken at market value would at the time
of purchase be invested in the securities of that issuer, or (b) such purchase
would at the time of purchase cause the Fund to hold more than 10% of the
outstanding voting securities of that issuer.
(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter for purposes of the Securities Act of
1933.
(5) Make loans to other persons except for loans of portfolio
securities and except through the use of repurchase agreements and through the
purchase of debt securities which are otherwise permissible investments.
(6) Purchase or sell real estate or any interest therein, except that
the Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such as
mortgage pass-throughs and collateralized mortgage obligations, or issued by
companies that invest in real estate or interests therein.
(7) Purchase or sell physical commodities 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).
(8) Issue any senior security(as defined in the 1940 Act), 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 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.
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<PAGE>
In addition to the nonfundamental policies identified in the Prospectus, the
Fund has also adopted the following nonfundamental investment limitations that
may be changed by the Trust's without shareholder approval. The Fund:
(a) 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.
(b) May not pledge, mortgage or hypothecate its assets, except to
secure permitted indebtedness. The deposit in escrow of securities in connection
with the writing of put and call options, collateralized loans of securities and
collateral arrangements with respect to margin for futures contracts are not
deemed to be pledges or hypothecations for this purpose.
(c) May not invest in securities of another registered investment
company, except in connection with a merger, consolidation, acquisition or
reorganization; and except that the Fund may invest in money market funds and
privately-issued mortgage related securities to the extent permitted by the 1940
Act.
(d) May not purchase securities on margin, or make short sales of
securities (except short sales against the box), except for the use of
short-term credit necessary for the clearance of purchases and sales of
portfolio securities, but the Fund may make margin deposits in connection with
permitted transactions in options, futures contracts and options on futures
contracts.
(e) May not purchase securities for investment while any borrowing
equaling 5% or more of the Fund's total assets is outstanding or borrow money,
except for temporary or emergency purposes (including the meeting of redemption
requests), in an amount exceeding 5% of the value of the Fund's total assets.
(f) May not acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (i) 15% of the Fund's net
assets (taken at current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days and in securities
which are not readily marketable, including securities that are illiquid by
virtue of restrictions on the sale of such securities to the public without
registration under the Securities Act of 1933 ("Restricted Securities") or (ii)
10% of the Fund's total assets would be invested in Restricted Securities.
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 policies
or limitations.
4. 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.
Total return information for the Fund as of March 31, 1998 is set forth in the
following table:
14
<PAGE>
Total Return
Total Return Since
1 Year Inception*
Austin Global Equity Fund 39.88% 17.26%
* Austin Global Equity Fund commenced operations on December 8, 1993.
In advertising performance, 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"). Each Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index, the
Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Funds may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Funds may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of the
Funds and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Fund may advertise total return. Total returns quoted in advertising reflect
all aspects of the Fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the Fund's net asset value per
share over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in the Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual rate that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the performance is not
constant over time but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
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. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, as series or investments, and/or a series of redemptions. 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:
15
<PAGE>
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total
return above.
Investors who purchase and redeem shares of the Fund through a customer account
maintained at a Processing Organization may be charged one or more of the
following types of fees as agreed upon by the Processing Organization and the
investor, with respect to the customer services provided by the Processing
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
these assets). Such fees will have the effect of reducing the average annual
total return of the Fund for those investors.
OTHER ADVERTISING MATTERS
The Fund may also include various information in their advertisements including,
but not limited to: (1) portfolio holdings and portfolio allocation as of
certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Fund's Adviser and biographical descriptions of the management staff of the
Adviser; (7) summaries of the views of the Adviser with respect to the financial
markets; (8) background information regarding the Trust; (9) the results of a
hypothetical investment in a fund over a given number of years, including the
amount that the investment would be at the end of the period; (10) the effects
of investing in a tax-deferred account, such as an individual retirement account
or Section 401(k) pension plan; and (11) the net asset value, net assets or
number of shareholders of the Fund as of one or more dates.
5 MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 54)
President , Forum Financial Group, LLC (mutual fund services company
holding company)., Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
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<PAGE>
Costas Azariadis, Trustee (age 55)
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 56)
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 54)
Partner at the law firm of Reid & Priest L.L.P. since 1995. From 1989
to 1995, he was a partner at Winthrop, Stimson, Putnam & Roberts.
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
West 57th Street, New York, New York 10019.
Mark D. Kaplan, Vice President (age 42)
Director, Investments, Forum Financial Group, LLC with which he has
been associated since September 1995. Prior thereto, Mr. Kaplan was
Managing Director and Director of Research at H.M. Payson & Co. His
address is Two Portland Square, Portland, Maine 04101.
Stacey Hong, Treasurer (age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hongwas a
Senior Accountant at Ernst & Young, LLP. His address is Two Portland
Square, Portland, Maine 04101.
Max Berueffy, Secretary (age 46)
Senior Counsel, Forum Financial Group, LLC, 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 also
serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provided
services. His address is Two Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary (age 33)
Assistant Counsel, Forum Financial Group, LLC, with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
Pamela Stutch, Assistant Secretary (age 31).
Fund Administrator, Forum Financial Group, LLC, with which she has
been associated since May 1998. Ms. Stutch attended Temple University
School of Law and graduated in 1997. Ms. Stutch was also a legal
intern for the Maine Department of the Attorney General. Ms. Stutch
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
17
<PAGE>
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) plus $100 per active portfolio of the
Trust and is paid $1,000 for each committee meeting attended on a date when a
Board meeting is not held. 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, 1998.
<TABLE>
<S> <C> <C> <C> <C>
Accrued Annual
Aggregate Pension Benefits Upon Total
Trustee Compensation Benefits Retirement Compensation
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $9,718.64 None None $9,718.64
Mr. Cheng $9,718.64 None None $9,718.64
Mr. Parish $9,718.64 None None $9,718.64
</TABLE>
TRUSTEE COMPENSATION FOR CORE TRUST (DELAWARE)
Each of the Trustees of the Trust is also a Trustee of Core Trust (Delaware), a
registered, open-end management investment company ("Core Trust"). Each Trustee
of Core Trust (other than John Y. Keffer, who is an interested person of Core
Trust) is paid $1,000 for each Core Trust Board meeting attended (whether in
person or by electronic communication) plus $100 per active portfolio of Core
Trust and is paid $1,000 for each committee meeting attended on a date when a
Core Trust Board meeting is not held. To the extent a meeting relates to only
certain portfolios of Core Trust, trustees are paid the $100 fee only with
respect to those portfolios. Core Trust trustees are also reimbursed for travel
and related expenses incurred in attending meetings of the Core Trust Board.
THE ADVISER
Pursuant to an Investment Advisory Agreement with the Trust , the Fund's
investment adviser, Austin Investment Management, Inc. (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. Subject to the general supervision of the Board, the Adviser is
responsible for, among other things, developing a continuing investment program
for the Fund in accordance with its investment objectives and reviewing the
investments, investment strategies, and policies of the Fund. In this regard, it
is the responsibility of the Adviser to make decisions relating to the Fund's
investments and to place purchase and sale orders regarding such investments
with brokers or dealers selected by it in its discretion. The Adviser also
furnishes to the Board, which has overall responsibility for the business and
affairs of the Trust, periodic reports on the investment performance of the
Fund.
The Investment 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 (1) by the
Board or by a majority vote of the shareholders and (2) by a majority of the
Trustees who are not parties to the Investment Advisory Agreement or interested
persons of any such party. The Investment Advisory Agreement is terminable
without penalty by the Trust or by majority vote of the shareholders on 60 days'
written notice to the Adviser or by the Adviser on 60 days' written notice to
the Trust and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that, with respect to the Fund, the
Adviser shall not be liable for any mistake of judgment or in any event 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 Investment Advisory Agreement.
18
<PAGE>
The Investment Advisory Agreement provides that the Adviser may render services
to others. The Adviser may also act and be compensated as investment manager for
its clients with respect to assets which are invested in the Fund. In some
instances the Adviser may elect to credit against any investment management fee
received from a client who is also a shareholder in the Fund an amount equal to
all or a portion of the fees received by the Adviser or any affiliate of the
Adviser from the Fund with respect to the client's assets invested in the Fund.
The Adviser has agreed to reimburse the Trust for certain of the Fund's
operating expenses which in any year exceed the limits prescribed by any state
in which the Fund's shares are qualified for sale. The Trust may elect not to
qualify its shares for sale in every state. For the purpose of this obligation
to reimburse expenses, the Fund's annual expenses are estimated and accrued
daily, and any appropriate estimated payments will be made by the Adviser
monthly. Subject to the obligations of the Adviser to reimburse the Trust for
its excess expenses, the Trust has, under the Investment Advisory Agreement,
confirmed its obligation to pay all its other expenses. The Fund believes that
currently the most restrictive expense ratio limitation imposed by any state is
2-1/2% of the first $30 million of the Fund's average net asset, 2% of the next
$70 million of its average net assets and 1-1/2% of its average net assets in
excess of $100 million.
For its services under the Investment Advisory Agreement, the Adviser receives a
fee at an annual rate of 1.5% of the average net daily assets of the Fund. The
following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between the Trust and Austin Investment Management, Inc., the
amount of fee that was waived by the Adviser, if any, and the actual fee
received by the Advisor. The data is for the past three years.
<TABLE>
<S> <C> <C> <C>
Advisory Fee Payable Advisory Fee Waived Advisory Fee Retained
Austin Global Value Fund
Year Ended March 31, 1998 $195,053 $24,463 $170,590
Year Ended March 31, 1997 $118,156 $69,562 $48,594
Year Ended June 30, 1996 $142,592 $71,022 $71,570
</TABLE>
THE ADMINISTRATOR
Pursuant to an Administration Agreement with the Trust,, Forum Administrative
Services, LLC ("FAdS") acts as the administrator to the Trust on behalf of the
Fund. As administrator, FAdS provides management and administrative services
necessary to the operation 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) and provides
the Trust with general office facilities.. FAdS also provides persons
satisfactory to the Board to serve as officers of the Trust. Those officers, as
well as certain other employees and Trustees of the Trust, may be directors,
officers or employees of FAdS, the Adviser 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.
The Administration 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 (1) by the Board
or by majority vote of the shareholders and (2) by a majority of the Trustees
who are not parties to the agreement or interested persons of any such party
(other than as Trustees of the Trust). The Administration Agreement may be
terminated with respect to the Fund, without payment of a penalty, by the Board
or FAdS on 60 days' written notice. The Administration Agreement provides that
FAdS shall not be liable for any action or inaction taken in the administration
or management of the Trust, except for willful misfeasance, bad faith, gross
negligence, or reckless disregard in the performance of its duties under the
Administration Agreement.
Until May 31, 1994, Stone Bridge Trust Company ("SBTC"), as administrator, and
Forum Financial Services, Inc. ("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
19
<PAGE>
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, 1998 and 1997 and June 30, 1996, the total
administration fees paid were $32,509, $19,693, and $23,765, respectively.
THE DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, FFSI acts as distributor of
the Fund's shares The Distributor is under no obligation to sell a specific
amount of Fund shares. All subscriptions of shares obtained by FFSI are directed
to the Trust for acceptance and are not binding on the Trust until accepted.
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 (1) by the Board
or by majority vote of shareholders and (2) 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 Fundby 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.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
On May 19, 1998, the Board terminated a distribution plan previously adopted by
the Board 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, 1998, the Plan did
not incur any expenses.
THE TRANSFER AGENT
Pursuant to a Transfer Agency and Services Agreement with the Trust dated May
19, 1998, Forum Shareholder Services, LLC ("FSS") acts as transfer agent and
dividend disbursing agent of the Trust. FSS became the transfer
20
<PAGE>
agent effective January 1, 1998 when it succeeded to the transfer agency
business of Forum Financial Corp. (FSS and Forum Financial Corp. are commonly
controlled entities).
The Transfer Agency and Services Agreement 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 (1) by the Board or by majority vote of
the shareholders and (2) by a majority of the Trustees who are not parties to
the respective agreement or interested persons of any such party. The Transfer
Agency and Services Agreement may also be terminated on 60 days written notice
by either the Board or FSS. The Transfer Agency and Services Agreement also
provides that FSS shall not be liable for any action, failure, or omission
except for willful misfeasance, bad faith, and gross negligence in the
performance of its duties under the Transfer Agency and Services Agreement.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Funds may be effected and certain
other matters pertaining to the Funds; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the Trust to its
shareholders; (8) arranging for the receipt, tabulation and transmission to the
Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation for acting as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Funds. FSS or any sub-transfer agent or other
processing agent may elect to credit against the fees payable to it by its
clients or customers all or a portion of any fee received from the Trust or from
FSS with respect to assets of those customers or clients invested in the Funds.
FSS, FAdS or sub-transfer agents or processing agents retained by FSS may be
Processing Organizations (as defined in the Prospectus) and, in the case of
sub-transfer agents or processing agents, may also be affiliated persons of FSS
or FAdS.
For its services, FSS receives with respect to the Fund an annual fee of $12,000
plus $25 per shareholder account. FFC served as the transfer agent for the Trust
pursuant to similar terms and compensation as FSS.
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust dated June 19, 1997,
Forum Accounting Services, LLC ("FAcS") provides the Fund with portfolio
accounting, including the calculation of the Fund's net asset value. Prior to
June 19, 1997, accounting services were provided to the Trust by FFC.
The Fund Accounting Agreement 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 (1) by the Board or by majority vote of the
shareholders and (2) by a majority of the Trustees who are not parties to the
respective agreement or interested persons of any such party. The Fund
Accounting Agreement may also be terminated on 60 days written notice by either
the Board or FAcS. The Fund Accounting Agreement also provides that FAcS shall
not be liable for any action or inaction taken except for willful misfeasance,
bad faith ,gross negligence, or reckless disregard in the performance of its
duties under the Fund Accounting Agreement. For services provided under the Fund
Accounting Agreement, FAcS receives and FFC received with respect to the Fund an
annual fee of $36,000 plus certain surcharges depending upon the amount and type
of the Fund's portfolio transactions and positions. For fiscal years ending
March 31, 1998 and 1997 and June 30, 1996, the accounting fees were $36,000,
$27,000, and $39,000, respectively.
4. DETERMINATION OF NET ASSET VALUE
21
<PAGE>
The Trust determines the net asset value per share of the Fund as of 4:00 P.M.,
Eastern time, on Fund Business Days (as defined in the Prospectus), by dividing
the value of the Fund's net assets (i.e., the value of its securities and other
assets less its liabilities, including expenses payable or accrued) by the
number of shares outstanding at the time the determination is made. The Trust
does not determine net asset value on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
Securities listed or traded on United States or foreign securities exchanges are
valued at the last quoted sales prices on such exchanges prior to the time when
assets are valued. Securities listed or traded on certain foreign exchanges
whose operations are similar to the United States over-the-counter market are
valued at the price within the limits of the latest available current bid and
asked prices deemed best to reflect market value. Listed securities that are not
traded on a particular day, and securities regularly traded in the
over-the-counter market, are valued at the price within the limits of the latest
available current bid and asked prices deemed best to reflect market value. In
instances where market quotations are not readily available, the security is
valued in a manner intended to reflect its fair value. All other securities and
assets are valued in a manner determined to reflect their fair value. For
purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by any major bank.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of each Fund Business Day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not Fund Business Days in New York and on which the Fund's net asset
value is not calculated. Calculation of the net asset value per share of the
Fund does not take place contemporaneously with the determination of the prices
of the majority of the portfolio securities used in such calculation. Events
affecting the values of portfolio securities that occur between the time their
prices are determined and the close of the New York Stock Exchange, Inc. will
not be reflected in the Fund's calculation of net asset value unless it is
deemed that the particular event would materially affect net asset value, in
which case an adjustment will be made.
5. PORTFOLIO TRANSACTIONS
The Fund generally will effect purchases and sales through brokers who charge
commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Adviser in its best judgment and
in a manner deemed to be in the best interest of shareholders of the Fund rather
than by any formula. The primary consideration is prompt execution of orders in
an effective manner and at the most favorable price available to the Fund.
Transactions on stock exchanges involve the payment of brokerage commissions. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on foreign stock exchanges these commissions are generally
fixed. In the case of securities traded in the foreign and domestic
over-the-counter markets, there is generally no stated commission, but the price
usually includes an undisclosed commission or markup. In underwritten offerings,
the price includes a disclosed fixed commission or discount. Where transactions
are executed in the over-the-counter market, the Fund will seek to deal with the
primary market makers; but when necessary in order to obtain best execution, it
will utilize the services of others. In all cases the Fund will attempt to
negotiate best execution.
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commission, including certain dealer spreads, paid
in connection with Fund transactions, the Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the services described below) and any
risk assumed by the executing broker. The Adviser may also take
22
<PAGE>
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 FFSI. The Advisory Agreement
authorizes the Adviser to so execute trades. The Board has adopted procedures in
conformity with applicable rules under the Investment Company Act to ensure that
all brokerage commissions paid to these persons are reasonable and fair. For the
fiscal years ended March 31, 1998 and 1997 and June 30, 1996 , the aggregate
brokerage commissions incurred by the Fund were $19,974, $11,976, and $22,929,
of which 0% ($0.00) was paid in each year to American Securities Corporation, an
affiliate of the Adviser. During those periods, 0.0% of the total dollar amount
of transactions by the Fund involving the payment of commissions were effected
through American Securities Corporation.
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are sold on a continuous basis by FFSI at net asset value
without any sales charge. As of March 31, 1998, the Fund's net asset value per
share was $16.27%.
REDEMPTIONS IN KIND
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partly in portfolio securities if the Board 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 SEC
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 SEC determines that
trading thereon is restricted, (ii) for any period during which an emergency (as
determined by the SEC) exists as a result of which disposal by the Fund of its
securities is not reasonably practicable or as a result of
23
<PAGE>
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 SEC may by order
permit for the protection of the shareholders of the Fund.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Fund to exchange their shares
for Investor shares of the Daily Asset Government Fund, a money market fund of
the Trust (the "Daily Assets Fund"). For Federal income tax purposes, exchange
transactions are treated as sales on which a purchaser will realize a capital
gain or loss depending on whether the value of the shares redeemed is more or
less than his basis in such shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FSS to be genuine.
The records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in the Daily Assets Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction. Shares of the Fund may be
redeemed and the proceeds used to purchase, without a sales charge, shares of
the Daily Assets Fund. The terms of the exchange privilege are subject to
change, and the privilege may be terminated by the Daily Assets Fund or the
Trust. However, the privilege will not be terminated, and no material change
that restricts the availability of the privilege to shareholders will be
implemented, without reasonable advance notice to shareholders.
8. TAX MATTERS
FOREIGN INCOME TAXES
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries which entitle the Fund to
a reduced rate of such taxes or exemption from taxes on such income. It is
impossible to know the effective rate of foreign tax in advance since the amount
of the Fund's assets to be invested within various countries cannot be
determined.
U.S. FEDERAL INCOME TAXES
The Fund intends for each taxable year to qualify for tax treatment as a
"regulated investment Trust" under the Internal Revenue Code of 1986, as amended
(the "Code"). 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.
Income received by the Fund from sources within various foreign countries may be
subject to foreign income tax. If more than 50% of the value of the Fund's total
assets at the close of its taxable year consists of the stock or securities of
foreign corporations, the Fund may elect to "pass through" to the Fund's
shareholders the amount of foreign income taxes paid by the Fund. Pursuant to
that election, shareholders would be required: (i) to include in gross income,
even though not actually received, their respective pro-rata share of foreign
taxes paid by the Fund; and (ii) either to deduct their pro-rata share of
foreign taxes in computing their taxable income, or, subject to certain
limitations, to use it as a foreign tax credit against federal income taxes (but
not both). No deduction for foreign taxes could be claimed by a shareholder who
does not itemize deductions.
The Fund may or may not meet the requirements of the Code to "pass through" to
its shareholders foreign income taxes paid. Each shareholder will be notified
after the close of each taxable year of the Fund whether the foreign taxes paid
by the Fund will "pass through" for that year, and, if so, the amount of each
shareholder's pro-rata share (by country) of (i) the foreign taxes paid, and
(ii) the Fund's gross income from foreign sources. Shareholders who
24
<PAGE>
are not liable for Federal income taxes, such as retirement plans qualified
under Section 401 of the Code, will not be affected by any "pass through" of
foreign taxes.
For Federal income tax purposes, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues interest or other
receivables 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 (i) foreign currencies, (ii) debt securities
denominated in a foreign currency, or (iii) 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 assets and the date of
disposition also are treated as ordinary gain or loss.
The use of certain hedging strategies such as writing and purchasing options,
futures contracts and options on futures contracts and entering into foreign
currency forward contracts and other foreign instruments, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of income received by the Fund in connection therewith.
Dividends out of net ordinary income and distributions of net short-term capital
gain are eligible, in the case of corporate shareholders, for the
dividends-received deduction, subject to proportionate reduction of the amount
eligible for deduction if the aggregate qualifying dividends received by the
Fund from domestic corporations in any year are less than 100% of its gross
income (excluding long-term capital gain from securities transactions). A
corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund more than 45 days. Furthermore, provisions
of the tax law disallow the dividends-received deduction to the extent a
corporation's investment in shares of the Fund is financed with indebtedness.
9. OTHER MATTERS
COUNSEL
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by Seward & Kissel, 1200 G Street, N.W.,
Washington, D.C. 20005.
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston,N.A. (formerly The First National
Bank of Boston), 100 Federal Street, Boston, MA 02106, acts as the custodian of
the Fund's assets. The custodian's responsibilities include safeguarding and
controlling the Fund's cash and securities, determining income and collecting
interest on Fund investments.
INDEPENDENT AUDITORS
Deloitte & Touche, LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, have been selected as auditors for the Trust.
25
<PAGE>
APPENDIX A
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
OAK HALL SMALL CAP CONTRARIAN FUND
- ----------------------------------
Maryann Wolf 13.30% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 9.05% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.73% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.70% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 5.48% 16,870.661
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS GOVERNMENT FUND ------------ -------------
INSTITUTIONAL SHARES
- ---------------------
H M Payson & Co. Custody Account 56.56% 18,033,015.150
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 43.44% 13,850,465.390
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 16.52% 826,387.330
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 15.90% 795,276.550
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Lansdowne Parking Associates LP 9.99% 499,939.120
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.920
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 46.30% 12,236,932.890
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS CASH FUND ------------ -------------
INSTITUTIONAL SHARES CON'T
H M Payson & Co. Custody Account 34.44% 9.101,914.440
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 19.27% 5,092,100.590
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
Cutler Approved List Equity Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 18.12% 951,550.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM All Cap Value Fund 9.45% 496,164.720
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Mid Cap Value Fund 5.70% 299,263.830
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS CASH FUND
INVESTORS SHARES
Forum Administrative Services, Inc. 100% 101.200
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 72.89% 11,915,149.240
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 26.73% 4,368,592.160
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Dirigo Drywall Assoc. 22.89% 682,716.350
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 19.58% 583,950,000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND ------------ ------------
INSTITUTIONAL SERVICE SHARES-CON'T
Cutler Equity Income Fund 9.05% 269,894.440
C/O Forum Financial Services, Inc.
Two Portland Square
CRM All Cap Value Fund 6.23% 185,729.030
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.900
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 46.72% 9,494,221.860
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 25.38% 5,157,680.310
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.96% 4,868,005.220
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financing 100% 5.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INVESTOR SHARES
Forum Administrative Services, LLC 100% 100.060
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 65.16% 62,106,021.450
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 34.84% 33,201,966.980
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE
Allagash & Co. 99.10% 1,657,595.720
c/o Bank of New Hampshire
P.O. Box 477
CONCORD, NH 03302-0477
INVESTORS BOND FUND
- -------------------
Firstrust Co. 72.38% 5,714,958.415
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.10% 876,782.753
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
FORUM TAXSAVER BOND FUND
- ------------------------
First Trust Co. 49.33% 1,717,000.264
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 21.80% 758,668.285
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 6.03% 209,963.557
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.41% 188,185.433
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.76% 3.451,019.518
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
PAYSON BALANCED FUND
- --------------------
ALA & Co. 15.49% 258,329.088
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.98% 249,788.506
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
- -----------------
Payse & Co. 21.90% 208,621.301
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.09% 172,271.808
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
- ---------------------
Babb & Co. #02-6004105 94.40% 2,383,117.225
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.18% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
</TABLE>
A-8
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
INTERNATIONAL EQUITY FUND
- -------------------------
Forum Financing 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. 99.95% 3,013,520.631
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
- -----------------
Allagash & Co. 99.27% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 100% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
A-9
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
QUADRA VALUE EQUITY FUND
- ------------------------
Holly Melosi & Arturo R. Melosi TTEE 80.77% 406,724.176
FBO Atrgur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.41%% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
QUADRA GROWTH FUND
- ------------------
Holly Melosi & Arturo R. Melosi TTEE 77.64% 454,757.022
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.52 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
- -------------------------
David Solomont 11.39% 271,791.712
c/o Utopia Inc.
200 Fifth Avenue
Waltham, MA 02154
DCGT TR 5.35% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
</TABLE>
A-10
<PAGE>
APPENDIX B
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.
B-1
<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 `C' is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated `D' are in payment default. The `D' rating category
is used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P believes
that such payments will made during such grace period. The `D' rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
PREFERRED STOCK
(A) MOODY'S
Moody's rates preferred stock issues as follows:
B-2
<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.
The rating "CC" is reserved for a preferred stock issue in arrears on dividends
or sinking fund payments but that is currently paying.
B-3
<PAGE>
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.
B-4
<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 Shareholder Services, LLC
New York, New York 10005 Two Portland Square
(212) 455-9600 Portland, Maine 04101
800-625-4255
207-879-0001
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1998
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information ("SAI") supplements the Prospectus dated
August 1, 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 Shareholder Services, LLC at the address listed above.
TABLE OF CONTENTS
Page
----
1. General......................................................
2. Investment Policies..........................................
3. Additional Investment Policies...............................
4. Performance Data.............................................
5. Management...................................................
6. Determination of Net Asset Value.............................
7. Portfolio Transactions.......................................
8. Additional Purchase and
Redemption Information.....................................
9. Tax Matters..................................................
10. Other Matters................................................
Appendix A - Control Persons and Principal Holders of Securities B-1
Appendix B - Description of Securities Ratings A-1
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. GENERAL
THE TRUST
The Trust is registered with the SEC as an open-end, management investment
company and was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to the
assets and liabilities of Forum Funds, Inc. Forum Funds, Inc. was incorporated
on March 24, 1980 and assumed the name of Forum Funds, Inc. on March 16, 1987.
The Board of Directors ("Board") without shareholder approval, has the authority
to issue an unlimited number of shares of beneficial interest of separate series
with no par value per share and to create separate classes of shares within each
series. The Trust currently offers shares of 23 series. The series of the Trust
are as follows:
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Austin Global Equity Fund
High Grade Bond Fund Quadra Value Equity Fund
Maine Municipal Bond Fund Quadra Growth Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Treasury Obligations Fund Equity Index Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Government Obligations Fund International Equities Fund
Daily Assets Municipal Fund Emerging Markets Fund
Payson Value Fund Investors Growth Fund
Payson Balanced Fund
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
As of July 1, 1998, the Officers and Directors of the Trust as a group owned
less than 1% of the outstanding shares of the Fund. Also as of that date,
Appendix A identifies all shareholders who own of record 5% or more of the
outstanding shares of any of the Registrant's series.
DEFINITIONS
As used in this Statement of Additional Information, the following terms shall
have the meanings listed:
"Board" means the Board of Trustees of Forum Funds.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
2
<PAGE>
"FFC" means Forum Financial Corp.
"FFSI" means Forum Financial Services, Inc.
"Adviser" " means Oak Hall Capital Advisors, L.P
"Fund" means Oak Hall(R) Small Cap Contrarian Fund
"Business Day" has the meaning ascribed thereto in the current Prospectus of the
Fund.
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" has the meaning ascribed thereto by the current
Prospectus of the Funds.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
2. INVESTMENT POLICIES
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 B 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.
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 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.
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
4
<PAGE>
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.
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 Moody's and
S&P, respectively. 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. Convertible securities which are rated B by
Moody's and S&P generally lack characteristics of a desirable investment.
Preferred 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 (1) short-term obligations of the U.S. Government and its
agencies or instrumentalities ("U.S. Government Securities"), (2) prime quality
certificates of deposit, bankers' acceptances and
5
<PAGE>
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, (3i) prime commercial paper 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 subject to the limits of the 1940 Act, and (5) money market mutual funds.
During periods when the Fund has assumed a temporary defensive position, it is
not pursuing its investment objective.
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 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. 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."
The Fund may enter into forward contracts under two circumstances. First, with
respect to specific transactions, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
may be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, the Fund may enter into forward currency contracts in connection with
existing portfolio positions. For example, when the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Adviser does
not intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such
6
<PAGE>
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 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
7
<PAGE>
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
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
8
<PAGE>
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.
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
9
<PAGE>
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.
(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.
10
<PAGE>
(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.
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
11
<PAGE>
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.
3. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of the Fund. A majority of
the Fund's outstanding voting securities means the lesser of (1) 67% of the
shares of the Fund present or represented at a meeting at which the holders of
more than 50% of the outstanding shares of the Fund are present or represented
or, (2) more than 50% of the outstanding shares of the Fund. Unless otherwise
indicated, all investment policies are not fundamental and may be changed by the
Board without shareholder approval.
In addition to the fundamental investment policies identified in the Prospectus,
the Fund has adopted the following fundamental investment limitations, which 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
12
<PAGE>
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 any senior securities (as defined in the Investment Company
Act of 1940 (the "1940 Act"), 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 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 in the prospectus, the Fund may borrow money as authorized by
the 1940 Act.
In addition to the nonfundamental investment policies identified in the
Prospectus, the Fund has adopted the following nonfundamental investment
limitations that may be changed by the Trust's Board 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 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.
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<PAGE>
4. 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.
Total return information for the Funds as of March 31, 1998 is set forth in the
following table:
<TABLE>
<S> <C> <C> <C>
Total Return Since
Total Return 1 Year Total Return 5 Year Inception*
Oak Hall Small Cap Contrarian Fund 49.71% 15.27% 16.96%
</TABLE>
*Oak Hall Small Cap Contrarian Fund commenced operations on July 13, 1992.
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.
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.
14
<PAGE>
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. Average annual and cumulative total returns may be quoted
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over time. 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.
OTHER ADVERTISING MATTERS
The Fund may also include various information in their advertisements including,
but not limited to: (1) portfolio holdings and portfolio allocation as of
certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Fund's Adviser and biographical descriptions of the management staff of the
Adviser; (7) summaries of the views of the Adviser with respect to the financial
markets; (8) background information regarding the Trust; (9) the results of a
hypothetical investment in a fund over a given number of years, including the
amount that the investment would be at the end of the period; (10) the effects
of investing in a tax-deferred account, such as an individual retirement account
or Section 401(k) pension plan; and (11) the net asset value, net assets or
number of shareholders of the Fund as of one or more dates.
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 56)
President, Forum Financial Group, LLC (mutual fund services company
holding company).. Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
15
<PAGE>
Costas Azariadis, Trustee (age 55)
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 56)
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 54)
Partner at the law firm of Reid & Priest L.L.P. since 1995. From 1989
to 1995, he was a partner at the law firm of Winthrop, Stimson, Putnam
& Roberts. 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 West 57th Street, New York, New York 10019.
Mark D. Kaplan, Vice President (age 42)
Director, Investments, Forum Financial Group, LLC, with which he has
been associated since September 1995. Prior thereto, Mr. Kaplan was
Managing Director and Director of Research at H.M. Payson & Co. His
address is Two Portland Square, Portland, Maine 04101.
Stacey Hong, Treasurer (age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hong was a
Senior Accountant with Ernst & Young, LLP. His
address is Two Portland Square, Portland, Maine 04101.
Max Berueffy, Secretary (age 46)
Senior Counsel, Forum Financial Group, LLC, 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 also
serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. His address is Two Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary (age 33)
Assistant Counsel, Forum Financial Group LLC, with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, ME 04101.
Pamela Stutch, Assistant Secretary (age 30)
Fund Administrator, Forum Financial Group, LLC, with which she has
been associated since May 1998. Prior thereto, Ms. Stutch attended
Temple University School of Law and graduated in 1997. Ms. Stutch was
also a legal intern for the Maine Department of the Attorney General.
Ms. Stutch also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. Her address is Two Portland Square, Portland, ME
04101.
16
<PAGE>
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, 1998.
<TABLE>
<S> <C> <C> <C> <C>
ACCRUED ANNUAL
AGGREGATE PENSION BENEFITS UPON TOTAL
TRUSTEE COMPENSATION BENEFITS RETIREMENT COMPENSATION
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $9,718.64 None None $9,718.64
Mr. Cheng $9,718.64 None None $9,718.64
Mr. Parish $9,718.64 None None $9,718.64
</TABLE>
TRUSTEE COMPENSATION FOR CORE TRUST (DELAWARE)
Each of the Trustees of the Trust is also a Trustee of Core Trust (Delaware), a
registered, open-end management investment company ("Core Trust"). Each Trustee
of Core Trust (other than John Y. Keffer, who is an interested person of Core
Trust) is paid $1,000 for each Core Trust Board meeting attended (whether in
person or by electronic communication) plus $100 per active portfolio of Core
Trust and is paid $1,000 for each committee meeting attended on a date when a
Core Trust Board meeting is not held. To the extent a meeting relates to only
certain portfolios of Core Trust, trustees are paid the $100 fee only with
respect to those portfolios. Core Trust trustees are also reimbursed for travel
and related expenses incurred in attending meetings of the Core Trust Board.
THE ADVISER
Pursuant to an Investment Advisory Agreement with the Trust , , 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. Subject to the general
supervision of the Board, the Adviser is responsible for, among other things,
developing a continuing investment program for the Fund in accordance with its
investment objectives and reviewing the investments, investment strategies, and
policies of the Fund. In this regard, it is the responsibility of the Adviser to
make decisions relating to the Fund's investments and to place purchase and sale
orders regarding such investments with brokers or dealers selected by it in its
discretion. The Adviser also furnishes to the Board, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of the Fund.
The Investment 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 (1) by the
Board or by majority vote of the shareholders and (2) by a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party.
The Investment Advisory Agreement is terminable without penalty by the Board or
a majority vote of the shareholders on 60 days' written notice to the Adviser,
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
17
<PAGE>
in the performance of its duties or by reason of reckless disregard of its
obligations and duties under the Investment Advisory Agreement.
The Investment Advisory Agreement provides that the Adviser may render services
to others. 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.
For its services under the Investment Advisory Agreement, the Adviser receives a
fee at an annual rate of 0.75% of the average daily net assets of the Fund. The
following table shows the dollar amount of fees payable under the Investment
Advisory Agreement between the Fund and Oak Hall Capital Advisors, L.P., the
amount of fee that was waived by the Adviser, if any, and the actual fee
received by the Adviser. The data is for the past three fiscal years.
<TABLE>
<S> <C> <C> <C>
Advisory Fee Advisory Fee Advisory Fee
Payable Waived Retained
Oak Hall Small Cap Contrarian Fund ------- ------ --------
Year Ended March 31, 1998 $49,135 $49,135 $0
Year Ended March 31, 1997 $54,263 $54,263 $0
Year Ended June 30, 1996 110,257 64,502 45,755
</TABLE>
THE ADMINISTRATOR
Pursuant to an Administration Agreement with the Trust, Forum Administrative
Services, LLC ("FAdS") acts as the administrator of the Trust on behalf of the
Fund. As administrator, FAdS provides management and administrative services
necessary to the operation 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) and provided
the Trust with general office facilities. At the request of the Board, FAdS also
provides persons satisfactory to the Board to serve as officers of the Trust.
Those officers, as well as certain other employees and Trustees of the Trust,
may be directors, officers or employees of FAdS, the Adviser 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.
The Administration 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 or by
majority vote of 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 (other than as Trustees of the Trust). The Administration Agreement may be
terminated with respect to any Fund, without payment of a penalty, by the Board
or FAdS on 60 days' written notice. The Administration Agreement provides that
FAdS shall not be liable for any action or inaction taken in the administration
or management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties under the Administration Agreement.
Until May 31, 1994, Stone Bridge Trust Company ("SBTC"), as administrator, and
Forum Financial Services, Inc. ("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.
18
<PAGE>
For the fiscal years ending March 31, 1998 and 1997 and June 30, 1996, the
administration fees were $ 16,378, $18,088, and $36,752 , respectively.
THE DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, FFSI acts as distributor of
the Fund's shares (the The Distributor is under no obligation to sell any
specific amount of the Fund's shares. All subscriptions of shares that are
obtained by FFSI are directed to the Trust for acceptance and are not binding on
the Trust until accepted.
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 (1) by the Board
or by majority vote of the shareholders and (2) 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 majority vote of the
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.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
On December 5, 1997, the Board terminated a distribution plan previously adopted
by the Board 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, 1998, the Plan did
not incur any expenses,
THE TRANSFER AGENT
Pursuant to a Transfer Agency and Services Agreement with the Trust dated May
19, 1998, Forum Shareholder Services, LLC ("FSS") acts as transfer agent and
dividend disbursing agent of the Trust. FSS became the transfer agent effective
January 1, 1998 when it succeeded to the transfer agency business of Forum
Financial Corp. (FSS and Forum Financial Corp. ("FFC") are commonly controlled
entities).
The Transfer Agency and Services Agreement 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 (1) by the Board or by majority vote of
the shareholders and (2) by a majority of the Trustees who are not parties to
the respective agreement or interested persons of any such party. The Transfer
Agency and Services Agreement may also be terminated on 60
19
<PAGE>
days written notice by either the Board or FSS. The Transfer Agency and Services
Agreement also provides that FSS shall not be liable for any action or inaction
taken except for willful misfeasance, bad faith, and gross negligence in the
performance of its duties under the Fund Accounting Agreement.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Funds may be effected and certain
other matters pertaining to the Funds; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the Trust to its
shareholders; (8) arranging for the receipt, tabulation and transmission to the
Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation for acting as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Funds with
respect to assets invested in the Funds. FSS or any sub-transfer agent or other
processing agent may elect to credit against the fees payable to it by its
clients or customers all or a portion of any fee received from the Trust or from
FSS with respect to assets of those customers or clients invested in the Funds.
FSS, FAdS or sub-transfer agents or processing agents retained by FSS may be
Processing Organizations (as defined in the Prospectus) and, in the case of
sub-transfer agents or processing agents, may also be affiliated persons of FSS
or FAdS.
For its services, FSS receives with respect to the Fund an annual fee of $12,000
plus $25 per shareholder account. FFC served as the transfer agent for the Trust
pursuant to similar terms and compensation as FSS.
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust, Forum Accounting
Services, LLC ("FAcS") 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.
The Fund Accounting Agreement 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 (1) by the Board or by majority vote of the
shareholders and (2) by a majority of the Trustees who are not parties to the
respective agreement or interested persons of any such party. The Fund
Accounting Agreement may also be terminated on 60 days written notice by either
the Board or FAcS. The Fund Accounting Agreement also provides that FAcS shall
not be liable for any action or inaction taken except for willful misfeasance,
bad faith or gross negligence in the performance of its duties under the Fund
Accounting Agreement.
For the fiscal years ending March 31, 1998 and 1997 and June 30, 1996, the
accounting fees were $41,000, $30,000, and $40,000, respectively.
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
20
<PAGE>
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.
6. 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
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.
7. 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 (1) to the Fund or
(2) 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 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, 1998, March 31, 1997, and June 30, 1996 the
aggregate brokerage commissions incurred by the Fund were $26,268, $66,316, and
$198,598, respectively, of which 0%, 0%, and 5.1% ($0, $0, and $10,095,
respectively) was paid to American Securities Corporation, an affiliate of the
21
<PAGE>
Adviser. During those periods, approximately 0%, 0%, and 4.67% , respectively,
of the total dollar amount of transactions by the Fund involving the payment of
commissions were effected through American Securities Corporation.
8. 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, 1998, the Fund's net
asset value was $20.66.
REDEMPTION IN KIND
Proceeds of redemptions normally are paid in cash. However, payments may be made
wholly or partly in portfolio securities if the Board 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).
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Fund to exchange their shares
for Investor shares of the Daily Asset Government Fund, a money market fund of
the Trust (the "Daily Assets Fund"). For Federal income tax purposes, exchange
transactions are treated as sales on which a purchaser will realize a capital
gain or loss depending on whether the value of the shares redeemed is more or
less than his basis in such shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FSS to be genuine.
The records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in the Daily Assets Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction. Shares of the Fund may be
redeemed and the proceeds used to purchase, without a sales charge, shares of
the Daily Assets Fund. The terms of the exchange privilege are subject to
change, and the privilege may be
22
<PAGE>
terminated by the Daily Assets Fund or the Trust. However, the privilege will
not be terminated, and no material change that restricts the availability of the
privilege to shareholders will be implemented, without reasonable advance notice
to shareholders.
9. TAX MATTERS
The 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.
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.
10. OTHER INFORMATION
COUNSEL
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.
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, N.A. (formerly 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
23
<PAGE>
include safeguarding and controlling the Fund's cash and securities, determining
income and collecting interest on Fund investments.
INDEPENDENT AUDITORS
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,
1998 (included in the Annual Report to Shareholders), which are delivered along
with this Statement of Additional Information, are incorporated herein by
reference.
24
<PAGE>
APPENDIX A
----------
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
---------------------------------------------------
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
OAK HALL SMALL CAP CONTRARIAN FUND
- ----------------------------------
Maryann Wolf 13.30% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 9.05% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.73% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.70% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 5.48% 16,870.661
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS GOVERNMENT FUND ------------ -------------
INSTITUTIONAL SHARES
- ---------------------
H M Payson & Co. Custody Account 56.56% 18,033,015.150
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 43.44% 13,850,465.390
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 16.52% 826,387.330
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 15.90% 795,276.550
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Lansdowne Parking Associates LP 9.99% 499,939.120
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.920
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 46.30% 12,236,932.890
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS CASH FUND ------------ -------------
INSTITUTIONAL SHARES CON'T
H M Payson & Co. Custody Account 34.44% 9.101,914.440
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 19.27% 5,092,100.590
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
Cutler Approved List Equity Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 18.12% 951,550.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM All Cap Value Fund 9.45% 496,164.720
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Mid Cap Value Fund 5.70% 299,263.830
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS CASH FUND
INVESTORS SHARES
Forum Administrative Services, Inc. 100% 101.200
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 72.89% 11,915,149.240
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 26.73% 4,368,592.160
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Dirigo Drywall Assoc. 22.89% 682,716.350
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc./
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 19.58% 583,950,000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND ------------ ------------
INSTITUTIONAL SERVICE SHARES-CON'T
Cutler Equity Income Fund 9.05% 269,894.440
C/O Forum Financial Services, Inc.
Two Portland Square
CRM All Cap Value Fund 6.23% 185,729.030
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.900
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 46.72% 9,494,221.860
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 25.38% 5,157,680.310
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.96% 4,868,005.220
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financing 100% 5.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS MUNICIPAL FUND ------------ ------------
INVESTOR SHARES
Forum Administrative Services, LLC 100% 100.060
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------
Babb & Co. #02-6004105 65.16% 62,106,021.450
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 34.84% 33,201,966.980
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE
Allagash & Co. 99.10% 1,657,595.720
c/o Bank of New Hampshire
P.O. Box 477
CONCORD, NH 03302-0477
INVESTORS BOND FUND
- -------------------
Firstrust Co. 72.38% 5,714,958.415
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.10% 876,782.753
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
FORUM TAXSAVER BOND FUND
- ------------------------
First Trust Co. 49.33% 1,717,000.264
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 21.80% 758,668.285
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 6.03% 209,963.557
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.41% 188,185.433
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.76% 3.451,019.518
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
PAYSON BALANCED FUND
- --------------------
ALA & Co. 15.49% 258,329.088
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.98% 249,788.506
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
- -----------------
Payse & Co. 21.90% 208,621.301
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.09% 172,271.808
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
- ---------------------
Babb & Co. #02-6004105 94.40% 2,383,117.225
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.18% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
</TABLE>
A-8
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
INTERNATIONAL EQUITY FUND
- -------------------------
Forum Financing 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. 99.95% 3,013,520.631
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
- -----------------
Allagash & Co. 99.27% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 100% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
A-9
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
QUADRA VALUE EQUITY FUND
- ------------------------
Holly Melosi & Arturo R. Melosi TTEE 80.77% 406,724.176
FBO Atrgur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.41%% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
QUADRA GROWTH FUND
- ------------------
Holly Melosi & Arturo R. Melosi TTEE 77.64% 454,757.022
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.52 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
- -------------------------
David Solomont 11.39% 271,791.712
c/o Utopia Inc.
200 Fifth Avenue
Waltham, MA 02154
DCGT TR 5.35% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
</TABLE>
A-10
<PAGE>
APPENDIX B
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.
B-1
<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:
B-2
<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.
B-3
<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.
B-4
<PAGE>
INVESTORS GROWTH FUND
- --------------------------------------------------------------------------------
Account Information and
Shareholder Servicing: Distributor:
Forum Shareholder Servicing, LLC Forum Financial Services, Inc.
P.O. Box 446 Two Portland Square
Portland, Maine 04112 Portland, Maine 04101
207-879-0001 207-879-1900
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1998
Investors Growth Fund (the "Fund") is a series of Forum Funds (the "Trust"), a
registered, open-end investment company. This Statement of Additional
Information supplements the Prospectus dated August 1, 1998 offering shares of
the Fund, and should be read only in conjunction with the Prospectus, a copy of
which may be obtained by an investor without charge by contacting the Trust's
Distributor at the address listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
TABLE OF CONTENTS
Page
----
1. General......................................................
2. Investment Policies..........................................
3. Additional Investment Policies...............................
4. Performance Data.............................................
5. Management...................................................
6. Determination of Net Asset Value.............................
7. Portfolio Transactions.......................................
8. Additional Purchase and
Redemption Information.......................................
9. Tax Matters..................................................
10. Other Information............................................
Appendix A - Control Persons and Principal Holders of Securities......A-1
Appendix B - Description of Securities Ratings........................B-1
Appendix C - Additional Advertising Materials.........................C-1
<PAGE>
1. GENERAL
THE TRUST. The Trust is registered with the SEC as an open-end, management
investment company and was organized as a business trust under the laws of the
State of Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to
the assets and liabilities of Forum Funds, Inc. Forum Funds, Inc. was
incorporated on March 24, 1980 and assumed the name of Forum Funds, Inc. on
March 16, 1987. The Board of Trustees (the "Board") without shareholder
approval, has the authority to issue an unlimited number of shares of beneficial
interest of separate series with no par value per share and create separate
classes of shares within each series (such as Investor and Institutional
Shares). The Trust currently offers shares of 23 series The series of the Trust
are as follows:
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Austin Global Equity Fund
High Grade Bond Fund Quadra Value Equity Fund
Maine Municipal Bond Fund Quadra Growth Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Treasury Obligations Fund Equity Index Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Government Obligations Fund International Equities Fund
Daily Assets Municipal Fund Emerging Markets Fund
Payson Value Fund Investors Growth Fund
Payson Balanced Fund
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
As of July 1, 1998, the Officers and Directors of the Trust as a group owned
less than 1% of the outstanding shares of the Fund. Also as of that date,
Appendix A identifies all shareholders who own of record 5% or more of the
outstanding shares of any of the Registrant's series.
DEFINITIONS. As used in this Statement of Additional Information, the following
terms shall have the meanings listed:
"Board" means the Board of Trustees of Forum Funds.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FFC" means Forum Financial Corp.
"FFSI" means Forum Financial Services, Inc.
2
<PAGE>
"Adviser" " means Forum Investment Advisors, LLC
"Fund" means Investors Growth Fund, a separate series of Forum Funds.
"Fund Business Day" has the meaning ascribed thereto in the current Prospectus
of the Fund.
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" has the meaning ascribed thereto by the current
Prospectus of the Funds.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
2. INVESTMENT POLICIES
The following information supplements the discussion found under "Investment
Objective and Policies" and "Additional Investment Policies" in the Prospectus.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes, to accumulate cash for investments, or to meet
anticipated redemptions, the Fund may invest in (or enter into repurchase
agreements with banks and broker dealers with respect to) short-term debt
securities, including Treasury bills and other U.S. Government securities, and
certificates of deposit and bankers' acceptances of U.S. banks.
ILLIQUID AND RESTRICTED SECURITIES
"Illiquid and Restricted Securities" under "Additional Investment Policies" in
the Prospectus sets forth the circumstances in which the Fund may invest in
"restricted securities". In connection with the Fund's original purchase of
restricted securities it may negotiate rights with the issuer to have such
securities registered for sale at a later time. Further, the registration
expenses of illiquid restricted securities may also be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund. When
registration is required, however, a considerable period may elapse between the
decision to sell the securities and the time the Fund would be permitted to sell
such securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, the Fund may not be
able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
U.S. GOVERNMENT SECURITIES
The Fund may invest in obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities which have remaining maturates not
exceeding one year. Agencies and instrumentalities which issue or guarantee debt
securities and which have been established or sponsored by the U.S. Government
include the Bank for Cooperatives, the Export-Import Bank, the Federal Farm
Credit System, the Federal Home Loan Banks, the Federal Home Loan Mortgage
Corporation, the Federal Intermediate Credit Banks, the Federal Land Banks, the
Federal National Mortgage Association, the Government National Mortgage
Association and the Student Loan Marketing Association. Except for obligations
issued by the U.S. Treasury and the Government National Mortgage Association,
none of the obligations of the other agencies or instrumentalities referred to
above are backed by the full faith and credit of the U.S.
Government.
4
<PAGE>
BANK OBLIGATIONS
The Fund may invest in obligations of U.S. banks (including certificates of
deposit and bankers' acceptances) having total assets at the time of purchase in
excess of $1 billion. Such banks must be members of the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance Corporation.
The Fund also may invest in certificates of deposit issued by foreign banks,
denominated in any major foreign currency. The Fund will invest in instruments
issued by foreign banks which, in the view of its investment adviser and the
Trustees of the Trust, are of credit-worthiness and financial stature in their
respective countries comparable to U.S. banks used by the Fund.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities subject to the restrictions stated in
the Prospectus. Under applicable regulatory requirements (which are subject to
change), the loan collateral must (a) on each business day, at least equal the
market value of the loaned securities and (b) must consist of cash, bank letters
of credit, U.S. Government securities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. When lending portfolio securities, the Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan plus the interest on the collateral
securities (less any finders' or administrative fees the Fund pays in arranging
the loan). A Fund may share the interest it receives on the collateral
securities with the borrower as long as it realizes at least a minimum amount of
interest required by the lending guidelines established by the Board. The Fund
will not lend its portfolio securities to any officer, director, employee or
affiliate of the Fund or the investment adviser to the Fund. The terms of the
Fund's loans must meet certain tests under the Internal Revenue Code and permit
the Fund to reacquire loaned securities on five business days' notice or in time
to vote on any important matter.
SHORT-TERM DEBT SECURITIES
The Fund may invest in commercial paper, that is short-term unsecured promissory
notes issued in bearer form by bank holding companies, corporations and finance
companies. The commercial paper purchased by the Fund for temporary defensive
purposes consists of direct obligations of domestic issuers which, at the time
of investment, are rated "P-1" by Moody's Investors Service, Inc. ("Moody's") or
"A-1" by Standard & Poor's Corporation ("S&P"), or securities which, if not
rated, are issued by companies having an outstanding debt issue currently rated
Aa by Moody's or AAA or AA by S&P. The rating "P-1" is the highest commercial
paper rating assigned by Moody's and the rating "A-1" is the highest commercial
paper ratings assigned by S&P.
REPURCHASE AGREEMENTS
The Fund may invest in securities subject to repurchase agreements with U.S.
banks or broker-dealers maturing in seven days or less. In a typical repurchase
agreement the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed-upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed-upon rate is unrelated to the interest rate on that
security. The Fund's investment adviser will monitor the value of the underlying
security at the time the transaction is entered into and at all times during the
term of the repurchase agreement to insure that the value of the security always
equals or exceeds the repurchase price. In the event of default by the seller
under the repurchase agreement, the Fund may have difficulties in exercising its
rights to the underlying securities and may incur costs and experience time
delays in connection with
5
<PAGE>
the disposition of such securities. To evaluate potential risks, the investment
adviser reviews the credit-worthiness of those banks and dealers with which the
Fund enters into repurchase agreements.
CONVERTIBLE SECURITIES
The Fund may invest in convertible preferred stocks and convertible debt
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. Convertible securities rank
senior to common stocks in a corporation's capital structure and, therefore,
carry less risk than the corporation's common stock. The value of a convertible
security is a function of its "investment value" (its value as if it did not
have a conversion privilege), and its "conversion value" (the security's worth
if it were to be exchanged for the underlying security, at market value,
pursuant to its conversion privilege).
DEPOSITARY RECEIPTS
Investments in securities of foreign issuers may be in the form of sponsored or
unsponsored American Depositary Receipts ("ADRs") or European Depositary
Receipts ("EDRs"), or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued in the United States by a bank or trust company, evidencing
ownership of the underlying securities. EDRs are typically issued in Europe
under a similar arrangement. Generally, ADRs, in registered form, are designed
for use in the U.S. securities markets and EDRs, in bearer form, are designed
for use in European securities markets. Unsponsored ADRs may be created without
the participation of the foreign issuer. Holders of these ADRs generally bear
all the costs of the ADR facility, whereas foreign issuers typically bear
certain costs in a sponsored ADR. The bank or trust company depository of an
unsponsored ADR may be under no obligation to distribute shareholder
communications received from the foreign issuer or to pass through voting
rights.
FOREIGN SECURITIES
Investment in the securities of foreign issuers may involve risks in addition to
those normally associated with investments in the securities of U.S. issuers.
There may be less publicly available information about foreign issuers than is
available for U.S. issuers, and foreign auditing, accounting and financial
reporting practices may differ from U.S. practices. Foreign securities markets
may be less active than U.S. markets, trading may be thin and consequently
securities prices may be more volatile. The Fund's investment adviser, will, in
general, invest only in securities of companies and governments of countries
which, in its judgment, are both politically and economically stable.
Nevertheless, all foreign investments are subject to risks of foreign political
and economic instability, adverse movements in foreign exchange rates, the
imposition or tightening of exchange controls or other limitations on the
repatriation of foreign capital and changes in foreign governmental attitudes
toward private investment, possibly leading to nationalization, increased
taxation, or confiscation of Fund assets.
WARRANTS AND STOCK RIGHTS
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). A Fund may not invest more than 5% of its net assets (at
the time of investment) in warrants (other than those that have been acquired in
units or attached to other securities). No more than 2% of the Fund's net assets
(at the time of investment) may be invested in warrants that are not listed on
the New York or American Stock Exchanges. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale of
the warrants, potential price fluctuations as a result of speculation or other
factors and failure of the price of the underlying security to reach a level at
which the warrant can be prudently exercised (in which case the warrant may
expire without being exercised, resulting in the loss of the Fund's entire
investment therein). The prices of warrants do not necessarily move parallel to
the prices of the underlying securities. Warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
6
<PAGE>
In addition, the Fund may invest up to 5% of its assets (at the time of
investment) in stock rights. A stock right is an option given to a shareholder
to buy additional shares at a predetermined price during a specified time
period.
3. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of the Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of the Fund. A majority of
outstanding voting securities means the lesser of (1) 67% of the shares present
or represented at a shareholder meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or (2) more than 50% of
outstanding shares. Unless otherwise indicated, all investment policies are not
fundamental and may be changed by the Board without approval by shareholders of
the Fund. The Fund has adopted the following investment policies in addition to
those described under "Investment Objective and Policies" and "Additional
Investment Policies" in the Prospectus.
(a) DIVERSIFICATION:
The Fund may not, with respect to 75% of its assets, purchase a
security if as a result: (i) more than 5% of its assets would be
invested in the securities of any single issuer or (ii) the Fund would
own more than 10% of the outstanding voting securities of any single
issuer. This restriction does not apply to securities issued by the
U.S. Government, its agencies or instrumentalities.
(b) ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in "illiquid
securities", which are securities that cannot be disposed of within
seven days at their then current value. For purposes of this
limitation, "illiquid securities" includes, except in those
circumstances described below, (i) "restricted securities", which are
securities that cannot be resold to the public without registration
under the Federal securities laws, and (ii) securities of issuers
having a record (together with all predecessors) of less than three
years of continuous operation.
(c) CONCENTRATION
The Fund will not invest 25% or more of the value of its total assets
in any one industry.
(d) UNDERWRITING ACTIVITIES
The Fund will not underwrite securities issued by other persons except
to the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under U.S.
securities laws.
(e) BORROWING
The Fund may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, but not in excess of 33
1/3% of the value of the Fund's total assets (computed immediately
after the borrowing).
(f) PLEDGING
As a non-fundamental policy, the Fund may not pledge, mortgage,
hypothecate or encumber any of its assets except to secure permitted
borrowings or to secure other permitted transactions.
(g) MARGIN AND SHORT SALES
7
<PAGE>
The Fund may not purchase securities on margin; however, the Fund may
make margin deposits in connection with any Hedging Instruments, which
it may use as permitted by any of its other fundamental policies.
The Fund may not sell securities short.
(h) INVESTING FOR CONTROL
The Fund may not make investments for the purpose of exercising control
or management.
(i) REAL ESTATE
The Fund may not purchase or sell real estate, provided that the Fund
may invest in securities issued by companies which invest in real
estate or interests therein.
(j) LENDING
The Fund will not lend money except in connection with the acquisition
of that portion of publicly-distributed debt securities which the
Fund's investment policies and restrictions permit it to purchase (see
"Investment Objective and Policies" and "Additional Investment
Policies" in the Prospectus); the Fund may also make loans of portfolio
securities (see "Loans of Portfolio Securities") and enter into
repurchase agreements (see "Repurchase Agreements");
(k) SENIOR SECURITIES
The Fund will not issue senior securities except pursuant to Section 18
of the Investment Company Act of 1940 ("1940 Act") and except that the
Fund may borrow money subject to investment limitations specified in
the Fund's Prospectus
(l) PURCHASES AND SALES OF COMMODITIES
The Fund will not invest in commodities or commodity contracts (other
than Hedging Instruments which it may use as permitted by any of its
other fundamental policies, whether or not any such Hedging Instrument
is considered to be a commodity or a commodity contract);
(m) OPTIONS AND FUTURES CONTRACTS
The Fund may not purchase or write puts or calls except as permitted by
any of its other fundamental investment policies.
(n) WARRANTS
The Fund may not invest in warrants, valued at the lower of cost or
market, more than 5% of the value of the Fund's net assets (included
within that amount, but not to exceed 2% of the value of the Fund's net
assets, may be warrants which are not listed on the New York or
American Stock Exchange. Warrants acquired by the Fund in units or
attached to securities may be deemed to be without value).
4. 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.
8
<PAGE>
For the period beginning December 12, 1997 (the commencement of operations) to
March 31, 1998, the Fund's unannualized total return was 8.96%. The total return
figure takes into consideration the applicable maximum sales charge.
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.
TOTAL RETURN CALCULATIONS
The Fund may, from time to time, include quotations of its average annual total
return in advertisements or reports to shareholders or prospective investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:
P (1+T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of Fund expenses (net of certain
reimbursed expenses) on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Quotations of total return will reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. Total return for
the Fund will vary based on changes in market conditions and the level of the
Fund's expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future.
In connection with communicating total return to current or prospective
investors, the Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments and/or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted with or without taking into consideration a
Fund's front-end sales charge; excluding sales charges from a total return
calculation produces a higher return figure. Total returns, yields, and other
performance information may be quoted numerically or in a table, graph, or
similar illustration.
9
<PAGE>
Period total return is calculated according to the following formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total
return above.
Investors who purchase and redeem shares of the Fund through a customer account
maintained at a Service Organization may be charged one or more of the following
types of fees as agreed upon by the Service Organization and the investor, with
respect to the customer services provided by the Service Organization: account
fees (a fixed amount per month or per year); transaction fees (a fixed amount
per transaction processed); compensating balance requirements (a minimum dollar
amount a customer must maintain in order to obtain the services offered); or
account maintenance fees (a periodic charge based upon a percentage of the
assets in the account or of the dividends paid on these assets). Such fees will
have the effect of reducing the average annual total return of the Fund for
those investors.
OTHER ADVERTISING MATTERS
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Funds' Adviser and biographical descriptions of the management staff of the
Adviser; (7) summaries of the views of the Adviser with respect to the financial
markets; (8) background information regarding the Trust; (9) the results of a
hypothetical investment in a fund over a given number of years, including the
amount that the investment would be at the end of the period; (10) the effects
of investing in a tax-deferred account, such as an individual retirement account
or Section 401(k) pension plan; and (11) the net asset value, net assets or
number of shareholders of the Funds as of one or more dates.
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 55)
President, Forum Financial Group, LLC (mutual fund services company
holding company). Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services.. His address is Two Portland
Square, Portland, Maine 04101.
10
<PAGE>
Costas Azariadis, Trustee (age 55)
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 56)
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 54)
Partner at the law firm of Reid and Priest, LLP, since 1995. Prior
thereto, he was a partner at the law firm of Winthrop, Stimson, Putnam
& Roberts from 1989 to 1995 and 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 West 57th Street, New York, New York 10019.
Mark D. Kaplan, Vice President (age 42)
Director, Investments, Forum Financial Group, LLC, with which he has
been associated since September 1995. Prior thereto, Mr. Kaplan was
Managing Director and Director of Research at H.M. Payson & Co. His
address is Two Portland Square, Portland, Maine 04101.
Stacey Hong, Treasurer (age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hong was a
Senior Accountant with Ernst & Young, LLP. His address is Two Portland
Square, Portland, Maine 04101.
Max Berueffy, Secretary (age 46)
Senior Counsel, Forum Financial Group, LLC, 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 also
serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. His address is Two Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary (age 33)
Assistant Counsel, Forum Financial Group LLC with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
Her address is Two Portland Square, Portland, ME 04101.
Pamela Stutch, Assistant Secretary (age 31)
Fund Administrator, Forum Financial Group, LLC with which she has been
associated since May 1998. Prior thereto, Ms. Stutch attended Temple
University School of Law and graduated in 1997. Ms. Stutch was also a
legal intern for the Maine Department of the Attorney General. Ms.
Stutch also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provides services. Her address is Two Portland Square, Portland, Maine
04101.
11
<PAGE>
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, 1998.
<TABLE>
<S> <C> <C> <C> <C>
ACCRUED ANNUAL
AGGREGATE PENSION BENEFITS UPON TOTAL
TRUSTEE COMPENSATION BENEFITS RETIREMENT COMPENSATION
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $9,718.64 None None $9,718.64
Mr. Cheng $9,718.64 None None $9,718.64
Mr. Parish $9,718.64 None None $9,718.64
</TABLE>
TRUSTEE COMPENSATION FOR CORE TRUST (DELAWARE)
Each of the Trustees of the Trust is also a Trustee of Core Trust (Delaware), a
registered, open-end management investment company ("Core Trust"). Each Trustee
of Core Trust (other than John Y. Keffer, who is an interested person of Core
Trust) is paid $1,000 for each Core Trust Board meeting attended (whether in
person or by electronic communication) plus $100 per active portfolio of Core
Trust and is paid $1,000 for each committee meeting attended on a date when a
Core Trust Board meeting is not held. To the extent a meeting relates to only
certain portfolios of Core Trust, trustees are paid the $100 fee only with
respect to those portfolios. Core Trust trustees are also reimbursed for travel
and related expenses incurred in attending meetings of the Core Trust Board. For
the fiscal year ended March 31, 1997, each Core Trust trustee received fees
totaling $7,200.
THE ADVISER
Pursuant to an Investment Advisory Agreement with the Trust, Forum Investment
Advisors, LLC ("Adviser") furnishes, at its own expense, all services,
facilities and personnel necessary in connection with managing the Fund's
investments and effecting portfolio transactions. Subject to the general
supervision of the Board, the Adviser is responsible for among other things,
developing a continuing investment program for the Fund in accordance with its
investment objective and reviewing the investments, investment strategies and
policies of the Fund In this regard, it is the responsibility of the Adviser to
make decisions relating to the Fund's investments and to place purchase and sale
orders regarding such investments with brokers or dealers selected by it in its
discretion. The Adviser also furnishes to the Board, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of the Fund. Under the terms of the Investment
Advisory Agreement, the Adviser is required to manage the Fund's investment
portfolio in accordance with applicable laws and regulations. In making its
investment decisions, the Adviser does not use material information that may be
in its possession or in the possession of its affiliates.
The Investment Advisory Agreement provides, with respect to the Fund, for an
initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
approved annually (1) by the Board or by majority vote of shareholders and (2)
by a majority of the Trustees who are not parties to such agreement or
"interested persons" (as defined in the 1940 Act) of any such party. The
Investment Advisory Agreement may be terminated, without penalty, by vote of the
Board or by majority vote of the shareholders of the Fund on 30 days' written
notice to the Adviser, or by the Adviser on 90
12
<PAGE>
days' written notice to the Trust and it will terminate automatically if
assigned. The Investment Advisory Agreement also provides that, with respect to
the Fund, the Adviser shall not be liable for any mistake of judgment, or in any
event whatsoever, except for willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of reckless disregard of its or
their obligations and duties under the investment advisory agreement.
For services under the Investment Advisory Agreement, the Adviser received a fee
at an annual rate of 0.65% of the average daily net assets of the Fund. The
following table shows the dollar amount of fees payable to the Adviser for
services rendered to the Fund under the Investment Advisory Agreement, 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 period of December 12, 1997 (the
date the Fund commenced public operations) through March 31, 1998.
<TABLE>
<S> <C> <C> <C>
Fiscal Year Advisory Fee Payable Advisory Fee Waived Advisory Fee Retained
Year Ended March 31, 1998
$59,250 $0 $59,250
</TABLE>
THE ADMINISTRATOR
Pursuant to an Administration Agreement, Forum Administrative Services, LLC
("FAdS") acts as administrator to the Trust on behalf of the Fund. As
administrator, FAdS provides management and administrative services necessary to
the operation of the Trust (which include, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of the Trust) and provides the Trust with general office
facilities. At the request of the Board, FAdS provides persons satisfactory to
the Board to serve as officers of the Trust. Those officers, as well as certain
other employees and Trustees of the Trust, may be directors, officers or
employees of FAdS, the Adviser or their affiliates.
The Administration Agreement will remain in effect for a period of twelve
months with respect to the Fund and will continue in effect thereafter only if
it is specifically approved at least annually (1) by the Board or by majority
vote of the shareholders and (2) by a majority of the Trustees who are not
parties to the Administration Agreement are not interested persons of any such
party (other than as Trustees of the Trust).The Administration Agreement may be
terminated without penalty with respect to the Fund by the Board or FAdS upon 60
days written notice. The Administration Agreement also provides that FAdS shall
not be liable for any error of judgment or mistake of law or for any act or
omission in the administration or management of the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Administration Agreement.
The following table shows the dollar amount of fees payable to FAdS for services
rendered to the Fund under the Administration Agreement, the amount of fee that
was waived by FAdS, if any, and the actual fee received by FAdS. The data is for
the period of December 12, 1997 (the date the Fund commenced public operations)
through March 31, 1998.
<TABLE>
<S> <C> <C> <C>
Fiscal Year Administration Fee Payable Administration Fee Waived Administration Fee Retained
Year Ended March 31, 1998
$18,231 $18,231 $0
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement, Forum Financial Services, Inc. ("FFSI"),
an affiliate of FAdS, is the Trust's distributor and acts as the agent of the
Trust in connection with the offering of shares of the Fund pursuant to a
Distribution Agreement. The Distributor is under no obligation to sell any
specific amount of Fund shares. All subscriptions of shares obtained by FFSI are
directed to the Trust for acceptance and are not binding on the Trust until
accepted.
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<PAGE>
The Distribution Agreement will continue in effect for twelve months from the
date of its effectiveness and will continue in effect thereafter only if its
continuance is specifically approved at least annually (1) by the Board or by
majority vote of the shareholders and (2) by a majority of the Trustees who are
not parties to the Distribution Agreement are not interested persons of any such
party (other than as Trustees of the Trust).
The Distribution Agreement terminates automatically upon assignment and may be
terminated with respect to the Fund without penalty (1) by the Board or by a
majority vote of outstanding voting securities of the Fund on 60 days' written
notice to FFSI or (2) by FFSI on 60 days' written notice to the Trust. The
Distribution Agreement provides that FFSI shall not be liable for any error of
judgment or mistake of law or in any event whatsoever, except for willful
misfeasance, bad faith or gross negligence in the performance of FFSI's duties
or by reason of reckless disregard of its obligations and duties under the
Distribution Agreement.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
For these services, FFSI receives, and may reallow to certain financial
institutions, the sales charge paid by the purchasers of the Fund's shares. For
the fiscal year ended March 31, 1998, no sales charges were paid to FFSI in
connection with purchases of the Fund.
THE TRANSFER AGENT
Pursuant to a Transfer and Services Agency Agreement dated May 19, 1998, Forum
Shareholder Services, LLC ("FSS") acts as transfer agent of the Trust FSS became
the transfer agent effective January 1, 1998 when it succeeded to the transfer
agency business of Forum Financial Corp. (FSS and Forum Financial Corp. ("FFC")
are commonly controlled entities).
The Transfer Agency and Services Agreement provided, with respect to the Fund,
for an initial term of one year from its effective date and for its continuance
in effect for successive twelve-month periods thereafter, provided that the
agreement is specifically approved at least annually by the Board or, with
respect to either Fund, by a vote of the shareholders of that Fund, and in
either case by a majority of the directors who are not parties to the Transfer
Agency Agreement or interested persons of any such party at a meeting called for
the purpose of voting on the Transfer Agency Agreement. The Transfer Agency and
Services Agreement may also be terminated on 60 days written notice by either
the Board or FSS. The Transfer Agency And Services Agreement also provides that
FSS shall not be liable for any action or inaction taken except for willful
misfeasance, bad faith, and gross negligence in the performance of its duties
under the Transfer Agency and Services Agreement.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Fund may be effected and certain
other matters pertaining to the Fund; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying
14
<PAGE>
shareholder signatures in connection with changes in the registration of
shareholder accounts; (6) furnishing periodic statements and confirmations of
purchases and redemptions; (7) arranging for the transmission of proxy
statements, annual reports, prospectuses and other communications from the Trust
to its shareholders; (8) arranging for the receipt, tabulation and transmission
to the Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation as custodian, investment manager, nominee, agent or fiduciary for
its customers or clients who are shareholders of the Fund with respect to assets
invested in the Fund. FSS or any sub-transfer agent or other processing agent
may elect to credit against the fees payable to it by its clients or customers
all or a portion of any fee received from the Trust or from FSS with respect to
assets of those customers or clients invested in the Fund. FSS, FAdS or
sub-transfer agents or processing agents retained by FFC may be Processing
Organizations (as defined in the Prospectus) and, in the case of sub- transfer
agents or processing agents, may also be affiliated persons of FSS or FAdS.
For its services under the Transfer Agency Agreement, FFS receives: (i) a fee at
an annual rate of 0.25 percent of the average daily net assets of the Fund and
(ii) a fee of $12,000 per year; such amounts to be computed and paid monthly in
arrears by the Fund; and (iii) Annual Shareholder Account Fees of $18.00; such
fees to be computed as of the last business day of the prior month.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation for acting as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Fund with
respect to assets invested in the Fund.
For its services, FSS receives with respect to the Fund an annual fee of $12,000
plus $25 per shareholder account. FFC served as the transfer agent for the Trust
pursuant to similar terms and compensation as FSS. The following table shows the
dollar amount of fees payable to FSS and FFC for services rendered to the Fund
under the Transfer Agency and Services Agreement, the amount of fee that was
waived by either FSS or FFC, if any, and the actual fee received by FSS or FFC.
FFC served as the transfer agent of the Trust pursuant to similar terms and
compensation as FSS. The data is for the period of December 12, 1997 (the date
the Fund commenced public operations) through March 31, 1998.
<TABLE>
<S> <C> <C> <C>
Fiscal Year Transfer Agency Fee Payable Transfer Agency Fee Waived Transfer Agency Fee
Retained
Year Ended March 31, 1998
$26,445.00 $22,744.00 $3,701.00
</TABLE>
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust, Forum Accounting
Services, LLC ("FAcS") performs portfolio accounting services for the Fund
pursuant to the Fund Accounting Agreement with the Trust. Under its agreement,
FAcS prepares and maintains books and records prepares and maintains books and
records of the Fund on behalf of the Trust as required under the 1940 Act,
calculates the net asset value per share of the Fund and dividends and capital
gain distributions and prepares periodic reports to shareholders and the
Securities and Exchange Commission.
The Fund Accounting Agreement will continue in effect for twelve months from the
date of its effectiveness and will continue in effect only if such continuance
is specifically approved at least annually (1) by the Board of Trustees or by a
vote of the shareholders of the Trust and (2)by a majority of the Trustees who
are not parties to the Fund Accounting Agreement or interested persons of any
such party, at a meeting called for the purpose of voting on the Fund Accounting
Agreement. The Fund Accounting Agreement may also be terminated on 60 days
written notice by either the Board or FAcS. The Fund Accounting Agreement also
provides that FAcS shall not be liable for any action of inaction taken except
for willful misfeasance, bad faith or gross negligence in the performance of its
duties under the Fund Accounting Agreement.
15
<PAGE>
For its services, FAcS receives from the Trust with respect to the Fund a fee of
$36,000 subject to adjustments for the number and type of portfolio
transactions. The following table shows the dollar amount of fees payable to
FAcS for services rendered to the Fund under the Administration Agreement, the
amount of fee that was waived by FAcS, if any, and the actual fee received by
FAcS. The data is for the period of December 12, 1997 (the date the Fund
commenced public operations) through March 31, 1998.
<TABLE>
<S> <C> <C> <C>
Fiscal Year Accounting Fee Payable Accounting Fee Waived Accounting Fee Retained
Year Ended March 31, 1998
$10,935 $0 $10,935
</TABLE>
6. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of
4:00 p.m., Eastern Time, on each Fund Business Day as defined in the Prospectus,
by dividing the value of the Fund's net assets (I.E., the value of its portfolio
securities and other assets less its liabilities) by the number of that Fund's
shares outstanding at the time the determination is made. Purchases and sales
are effected at the time of the next determination of net asset value following
the receipt of any purchase or redemption order.
Securities owned by the Fund listed on the recognized stock exchanges are valued
at the last reported trade price, prior to the time when the assets are valued,
on the exchange on which the securities are principally traded. Listed
securities traded on recognized stock exchanges where last trade prices are not
available are valued at mid-market prices. Securities traded in over-the-counter
markets, or listed securities for which no trade is reported on the valuation
date, are valued at the most recent reported mid-market price. Other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using methods approved by the Board.
Trading in securities on European and Far Eastern Securities exchanges and
over-the-counter markets may not take place on every day that the New York Stock
Exchange is open for trading. Furthermore, trading takes place in various
foreign markets on days on which the Fund's NAV is not calculated. If events
materially affecting the value of foreign securities occur between the time when
their price is determined and the time when net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the
Board.
All assets and liabilities of the Fund denominated in foreign currencies are
converted to U.S. dollars at the mid price of such currencies against U.S.
dollars last quoted by a major bank prior to the time when NAV of the Fund is
calculated.
7. PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Fund and for the other investment advisory clients
of the investment advisers are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as is possible, averaged
as to price and allocated between such clients in a manner which in the
investment adviser's opinion is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
16
<PAGE>
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by the Fund usually includes
an undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriter or dealer. For the fiscal year ended March 31, 1998,
the aggregate brokerage commission paid by the Fund was $9,612. For the fiscal
year ended March 31, 1998, $0.00 or 0.0% of aggregate brokerage commissions paid
was paid to an affiliated broker and 0.0% of the total dollar amount of
transactions involving payment of commissions was effected through an affiliated
broker.
The Investment Advisory Agreement authorizes and directs the investment adviser
to place orders for the purchase and sale of assets with brokers or dealers
selected by the investment advisers in their discretion and to seek "best
execution" of such portfolio transactions. An investment adviser places all such
orders for the purchase and sale of portfolio securities and buys and sells
securities for the Fund through a substantial number of brokers and dealers. In
so doing, the investment adviser uses its best efforts to obtain for the Fund
the most favorable price and execution available. The Fund may, however, pay
higher than the lowest available commission rates when the investment adviser
believes it is reasonable to do so in light of the value of the brokerage and
research services provided by the broker effecting the transaction. In seeking
the most favorable price and execution, the investment adviser, having in mind
the Fund's best interests, considers all factors it deems relevant, including,
by way of illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealers involved and the
quality of service rendered by the broker-dealers in other transactions.
It has for many years been a common practice in the investment advisory business
as conducted in certain countries, including the United States, for advisers of
investment companies and other institutional investors to receive research
services from broker-dealers which execute portfolio transactions for the
clients of such advisers. Consistent with this practice, an investment adviser
may receive research services from broker-dealers with which it places the
Fund's portfolio transactions. These services, which in some cases may also be
purchased for cash, include such items as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to the investment adviser in advising various of its
clients (including the Fund), although not all of these services are necessarily
useful and of value in managing the Fund. The investment advisory fee paid by
the Fund is not reduced because the investment adviser and its affiliates
receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), an investment adviser may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the Act) to it an
amount of disclosed commission for effecting a securities transaction in excess
of the commission which another broker-dealer would have charged for effecting
that transaction.
The annual portfolio turnover rate of the Fund may exceed 50% but will not
ordinarily exceed 100%.
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Detailed information pertaining to the purchase of shares of the Fund,
redemption of shares and the determination of the net asset value of Fund shares
is set forth in the Prospectus under "Purchases and Redemptions of Shares".
Shares of the Fund are sold on a continuous basis by the distributor.
17
<PAGE>
Set forth below is an example of the method of computing the offering price of
the Fund's shares. The example assumes a purchase of shares of beneficial
interest aggregating less than $100,000 subject to the schedule of sales charges
set forth in the Prospectus at a price based on the net asset value per share of
the Fund on March 31, 1998.
Net Asset Value Per Share $ 11.35
Sales Charge, 4.00% of offering
price (4.17% of net asset value
per share) $ 0.47
Offering to Public $ 11.82
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse 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.
The Trust has filed a formal election with the Securities and Exchange
Commission pursuant to which the Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.
REDEMPTION IN KIND
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the shareholder in
converting the securities to cash. An in kind distribution of portfolio
securities will be less liquid than cash. The shareholder may have difficulty in
finding a buyer for portfolio securities received in payment for redeemed
shares. Portfolio securities may decline in value between the time of receipt by
the shareholder and conversion to cash. A redemption in kind of the Fund's
portfolio securities could result in a less diversified portfolio of investments
for the Fund and could affect adversely the liquidity of the Fund's portfolio.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Fund to exchange their shares
for shares of any other fund of the Trust or shares of certain other portfolios
of investment companies which retain FAdS or its affiliates as investment
adviser or distributor and which participate in the Trust's exchange privilege
program ("Participating Fund"). For Federal income tax purposes, exchange
transactions are treated as sales on which a purchaser will realize a capital
gain or loss depending on whether the value of the shares redeemed is more or
less than his basis in such shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FSS to be genuine.
The records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge may
be redeemed and the proceeds used to purchase, without a sales charge, shares of
any other Participating Fund otherwise sold with the same sales charge. If the
Participating Fund purchased in the exchange transaction imposes a higher sales
charge than was paid originally on the exchanged shares, the shareholder will be
responsible for the difference between the two sales charges. Shares acquired
through the reinvestment of dividends
18
<PAGE>
and distributions are deemed to have been acquired with a sales charge rate
equal to that paid on the shares on which the dividend or distribution was paid.
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
9. TAX MATTERS
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company the Fund intends to distribute to shareholders at
least 90% of its net investment income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net
long-term capital losses), and to meet certain diversification of assets, source
of income, and other requirements of the Code. By so doing, the Fund will not be
subject to Federal income tax on its net investment income and net realized
capital gains (the excess of net long-term capital gains over net short-term
capital losses) distributed to shareholders. If the Fund does not meet all of
these Code requirements, it will be taxed as an ordinary corporation, and its
distributions will be taxable to shareholders as ordinary income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a 4% nondeductible excise tax. To
prevent imposition of the excise tax, the Fund must distribute for each calendar
year an amount equal to the sum of (1) at least 98% its ordinary income
(excluding any capital gains or losses) for the calendar year, (2) at least 98%
of the excess of its capital gains over capital losses realized during the
one-year period ending October 31 of such year, and (3) all such ordinary
income and capital gains for previous years that were not distributed during
such years. A distribution will be treated as paid during the calendar year if
it is declared by the Fund in October, November or December of the year with a
record date in such month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received.
In addition to satisfying the distribution requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies and other income
(including but not limited to gain from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies.
Distributions of net investment income (including realized net short-term
capital gain) are taxable to shareholders as ordinary income. It is expected
that a portion of such distributions will be eligible for the dividends received
deduction available to corporations.
Distributions of net capital gain (i.e., the excess of net gain from capital
assets held for more than one year over net loss from capital assets held for
not more than one year) will be treated in the hands of shareholders as
long-term capital gain, regardless of how long a shareholder has held shares in
the Fund. Distributions of net capital gain are not eligible for the dividends
received deduction. A loss realized by a shareholder on the sale of shares of
the Fund with respect to which distributions of net capital gain have been paid
will, to the extent of such distributions, be treated as long-term capital loss
although such shares may have been held by the shareholder for one year or less.
Further, a loss realized on a disposition will be disallowed to the extent the
shares disposed of are replaced (whether by reinvestment of distributions or
otherwise) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
All distributions are taxable to the shareholder whether reinvested in
additional shares or received in cash. Shareholders receiving distributions in
the form of additional shares will have a cost basis for Federal income tax
purposes in each share received equal to the net asset value of a share of the
Fund on the reinvestment date. Shareholders will be notified annually as to the
Federal tax status of distributions.
19
<PAGE>
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will receive a distribution which will nevertheless
be taxable to them.
Upon redemption or sale of his shares, a shareholder will realize a taxable gain
or loss depending upon his basis in his shares. Such gain or loss generally will
be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. Such gain or loss generally will be long-term or short-term
depending upon the shareholder's holding period for the shares.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all distributions as well as gross proceeds from the redemption of the Fund
shares, except in the case of certain exempt shareholders. All such
distributions and proceeds generally will be subject to withholding of Federal
income tax at a rate of 31% ("backup withholding") in the case of nonexempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions or proceeds,
whether reinvested in additional shares or taken in cash, will be reduced by the
amount required to be withheld. Any amounts withheld may be credited against the
shareholder's Federal income tax liability. Investors may wish to consult their
tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and their treatment under state and local income tax
laws may differ from the Federal income tax treatment. Shareholders should
consult their tax advisors with respect to particular questions of Federal,
state and local taxation. Shareholders who are not U.S. persons should consult
their tax advisors regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that distributions to them would be
subject to withholding of U.S. tax at a rate of 30% (or a lower rate under a tax
treaty).
10. OTHER INFORMATION
COUNSEL
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, 1200 G Street,
N.W. Washington, D.C. 20005.
20
<PAGE>
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, N.A. ,100 Federal Street, Boston,
MA 02106, acts as the custodian of the Fund's assets. The custodian's
responsibilities include safeguarding and controlling the Fund's cash and
securities, determining income and collecting interest on Fund investments.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, act as auditors for the Trust.
FINANCIAL STATEMENTS
The financial statements of Investors Growth Fund for the year ended March 31,
1998, which are included in the Annual Report to Shareholders of the Trust and
delivered along with this Statement of Additional Information, are incorporated
herein by reference.
21
<PAGE>
APPENDIX A
----------
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
---------------------------------------------------
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
OAK HALL SMALL CAP CONTRARIAN FUND
- ----------------------------------
Maryann Wolf 13.30% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 9.05% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.73% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.70% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 5.48% 16,870.661
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
A-1
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS GOVERNMENT FUND ------------ -------------
INSTITUTIONAL SHARES
- ---------------------
H M Payson & Co. Custody Account 56.56% 18,033,015.150
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 43.44% 13,850,465.390
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 16.52% 826,387.330
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 15.90% 795,276.550
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Lansdowne Parking Associates LP 9.99% 499,939.120
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.920
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
- --------------------
Allagash & Co. 46.30% 12,236,932.890
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
A-2
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS CASH FUND ------------ -------------
INSTITUTIONAL SHARES CON'T
H M Payson & Co. Custody Account 34.44% 9.101,914.440
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 19.27% 5,092,100.590
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
Cutler Approved List Equity Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 18.12% 951,550.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM All Cap Value Fund 9.45% 496,164.720
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Mid Cap Value Fund 5.70% 299,263.830
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-3
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS CASH FUND
INVESTORS SHARES
Forum Administrative Services, Inc. 100% 101.200
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
Allagash & Co. 72.89% 11,915,149.240
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 26.73% 4,368,592.160
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Dirigo Drywall Assoc. 22.89% 682,716.350
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc./
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 19.58% 583,950,000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-4
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND ------------ ------------
INSTITUTIONAL SERVICE SHARES-CON'T
Cutler Equity Income Fund 9.05% 269,894.440
C/O Forum Financial Services, Inc.
Two Portland Square
CRM All Cap Value Fund 6.23% 185,729.030
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.900
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 46.72% 9,494,221.860
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 25.38% 5,157,680.310
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.96% 4,868,005.220
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financing 100% 5.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
A-5
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS MUNICIPAL FUND ------------ ------------
INVESTOR SHARES
Forum Administrative Services, LLC 100% 100.060
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 65.16% 62,106,021.450
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 34.84% 33,201,966.980
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE
Allagash & Co. 99.10% 1,657,595.720
c/o Bank of New Hampshire
P.O. Box 477
CONCORD, NH 03302-0477
INVESTORS BOND FUND
Firstrust Co. 72.38% 5,714,958.415
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.10% 876,782.753
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
A-6
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
FORUM TAXSAVER BOND FUND
First Trust Co. 49.33% 1,717,000.264
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 21.80% 758,668.285
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 6.03% 209,963.557
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.41% 188,185.433
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.76% 3.451,019.518
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
A-7
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
PAYSON BALANCED FUND
ALA & Co. 15.49% 258,329.088
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.98% 249,788.506
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
Payse & Co. 21.90% 208,621.301
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.09% 172,271.808
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
Babb & Co. #02-6004105 94.40% 2,383,117.225
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.18% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
A-8
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
INTERNATIONAL EQUITY FUND
Forum Financing 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. 99.95% 3,013,520.631
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
Allagash & Co. 99.27% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 100% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
A-9
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
QUADRA VALUE EQUITY FUND
Holly Melosi & Arturo R. Melosi TTEE 80.77% 406,724.176
FBO Atrgur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.41%% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
QUADRA GROWTH FUND
Holly Melosi & Arturo R. Melosi TTEE 77.64% 454,757.022
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.52 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
David Solomont 11.39% 271,791.712
c/o Utopia Inc.
200 Fifth Avenue
Waltham, MA 02154
DCGT TR 5.35% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
</TABLE>
A-10
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
1. PREFERRED STOCK
(A) MOODY'S
Moody's rates preferred stock issues as follows:
An issue which is rated aaa is a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
An issue which is rated "aa" is a high-grade preferred stock. This
rating indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "a" is an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated "baa" is a medium-grade preferred stock,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
An issue which is rated "ba" has speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
An issue which is rated "c" can be regarded as having extremely poor
prospects of ever attaining any real investment standing. This is the lowest
rated class of preferred or preference stock.
(B) STANDARD & POOR'S
Standard & Poor's rates preferred stock issues as follows:
"AAA" is the highest rating that is assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
B-1
<PAGE>
An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. While it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
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
2. 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.
B-2
<PAGE>
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1, and B1.
(B) STANDARD & POOR'S CORPORATION ("S&P")
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
B-3
<PAGE>
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.
3. COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION ("S&P")
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC.("FITCH")
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
B-4
<PAGE>
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.
B-5
<PAGE>
APPENDIX C
ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which is currently in use is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 120
mutual funds for 17 different fund managers, with more than $30 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 230 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
C-1
<PAGE>
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has 8 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals with decades of experience with some of the country's major
financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over $175 billion as of September 30, 1997.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.4 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
C-2
<PAGE>
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
C-3
<PAGE>
PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 146 funds with
more than $36 billion in assets. Forum manages mutual funds for independent
investment advisors such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment advisor with approximately
$1.7 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1 billion in assets under management and $300 million in
non-managed custodial accounts. The Payson Value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment advisor, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
C-4
<PAGE>
FORUM FINANCIAL GROUP:
- ---------------------
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisors and banks
*Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*ADMINISTRATION AND DISTRIBUTION SERVICES: Regulatory, compliance,
expense accounting, budgeting for all funds
*FUND ACCOUNTING SERVICES: Portfolio valuation, accounting, dividend
declaration, and tax advice
*SHAREHOLDER SERVICES: Preparation of statements, distribution support,
inquiries and processing of trades
*CLIENT ASSETS UNDER ADMINISTRATION AND DISTRIBUTION: $36.9 billion
*CLIENT ASSETS PROCESSED BY FUND ACCOUNTING: $47.6 billion
*CLIENT FUNDS UNDER ADMINISTRATION AND DISTRIBUTION: 146 mutual funds with 219
share classes
*INTERNATIONAL VENTURES:
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*FORUM EMPLOYEES: United States -198, Poland - 61, Bermuda - 3
FORUM CONTACTS:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment
Advisors, LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
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<PAGE>
H.M. PAYSON & CO.:
- -----------------
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.5 Billion
*Non-managed Custody Assets: $388 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 12 shareholders; 12 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
C-6
<PAGE>
THE QUADRA FUNDS
QUADRA VALUE EQUITY FUND
QUADRA GROWTH FUND
INVESTMENT ADVISER, ACCOUNT INFORMATION
AND SHAREHOLDER SERVICES
Quadra Capital Partners, LLC
270 Congress Street
Boston, Massachusetts 02210
800.595.9291
617.426.0900
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
This Statement of Additional Information ("SAI") supplements the Prospectus
dated August 1, 1998, offering shares of Quadra Value Equity Fund and Quadra
Growth Fund (each a "Fund" and collectively the "Funds"). The Funds are each
diversified portfolios of Forum Funds (the "Trust"), a registered open-end,
management investment company. This SAI should be read only in conjunction with
the Prospectus, which you may obtain without charge by contacting the Trust's
Distributor, Forum Financial Services, Inc., Two Portland Square, Portland,
Maine 04101.
TABLE OF CONTENTS
PAGE
1. General..................................
2. Investment Policies.....................3
3. Additional Investment Policies.........15
4. Performance Data.......................17
5. Management.............................19
6. Determination of Net Asset Value.......24
7. Portfolio Transactions.................24
8. Additional Purchase and................25
Redemption Information..............26
9. Tax Matters............................26
10. Other Information......................28
Appendix A - Control Persons
Principal Holders of Securities........B-1
Appendix B - Description of
Securities Ratings................A-1
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.
As used in this SAI, the following terms shall have the meanings listed: (See
below)
"Adviser" shall mean Quadra Capital Partners, LLC. "Advisers" shall mean
Quadra and each of the investment subadvisers that provide investment
advice and portfolio management for one or more of the Funds pursuant to
an investment subadvisory agreement with Quadra Capital Partners, LLC.
<PAGE>
"Board" shall mean the Board of Trustees of the Trust.
"CFTC" shall mean the U.S. Commodities Futures Trading Commission.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Custodian" shall mean First National Bank of Boston, or its successor,
acting in its capacity as custodian of a Fund.
"FFC" shall mean Forum Financial Corp., the Trust's fund accountant.
"Fitch" shall mean Fitch IBCA
"FFSI" shall mean Forum Financial Services, Inc., the distributor of the
Trust's shares.
"FAdS" shall mean Forum Administrative Services, LLC, the Trust's
administrator.
"Fund" shall mean each of the separate portfolios of the Trust to which
this Statement of Additional Information relates as identified on the
cover page.
"Moody's" shall mean Moody's Investors Service, Inc.
"NRSRO" shall mean a nationally recognized statistical rating
organization.
"Quadra" or "Adviser" shall mean Quadra Capital Partners, LLC, the
investment adviser to the Funds.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"S&P" shall mean Standard & Poor's Rating Group.
"Subadviser" shall mean each of the investment advisers that provide
investment advice and portfolio management for the Funds pursuant to an
investment subadvisory agreements with Quadra.
"FSS" shall mean Forum Shareholder Services, LLC. acting in its capacity
as transfer and dividend disbursing agent of the a Fund.
"Trust" shall mean Forum Funds, an open-end management investment company
registered under the 1940 Act.
"U.S. Government Securities" shall mean obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
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<PAGE>
1. GENERAL
The Trust is registered with the SEC as an open-end, management investment
company and was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996, the Trust succeeded to the
assets and liabilities of Forum Funds, Inc.. Forum Funds, Inc. was incorporated
on March 24, 1980 and assumed the name of Forum Funds, Inc. on March 16, 1987.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board, without shareholder approval, has the authority to issues an
unlimited number of shares of beneficial interest of separate series with no par
value per share and to create separate classes of shares within each series
(such as Investor and Institutional Shares). The Trust currently offers shares
of 23 separate series. The series of the Trust are as follows:
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Austin Global Equity Fund
High Grade Bond Fund Quadra Value Equity Fund
Maine Municipal Bond Fund Quadra Growth Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Treasury Obligations Fund Equity Index Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Government Obligations Fund International Equities Fund
Daily Assets Municipal Fund Emerging Markets Fund
Payson Value Fund Investors Growth Fund
Payson Balanced Fund
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when specifically required by Federal or state law. Shareholders
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As noted, certain of these
shareholders are known to the Trust to hold their shares of record only and have
no beneficial interest, including the right to vote, in the shares.
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Funds. Also as of that date, Appendix A
identifies all shareholders who own of record 5% or more of the outstanding
shares of any of the Registrant's series.
3
<PAGE>
2. INVESTMENT POLICIES
The following discussion is intended to supplement the disclosure in the
Prospectus concerning each Fund's investments, investment techniques and
strategies and the risks associated therewith. No Fund may make any investment
or employ any investment technique or strategy not referenced in the Prospectus
which relates to that Fund. For example, while the SAI describes "swap"
transactions below, only those Funds whose investment policies, as described in
the Prospectus, allow the Fund to invest in swap transactions may do so.
SECURITY RATINGS INFORMATION
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations. A description of the range of ratings
assigned to various types of bonds and other securities by several NRSROs is
included in Appendix B to this SAI. The Funds may use these ratings to determine
whether to purchase, sell or hold a security. It should be emphasized, however,
that ratings are general and are not absolute standards of quality.
Consequently, securities with the same maturity, interest rate and rating may
have different market prices. If an issue of securities ceases to be rated or if
its rating is reduced after it is purchased by a Fund (neither event requiring
sale of such security by a Fund), the Subadviser of the Fund will determine
whether the Fund should continue to hold the obligation. To the extent that the
ratings given by a NRSRO may change as a result of changes in such organizations
or their rating systems, the Subadviser will attempt to substitute comparable
ratings. Credit ratings attempt to evaluate the safety of principal and interest
payments and do not evaluate the risks of fluctuations in market value. Also,
rating agencies may fail to make timely changes in credit ratings. An issuer's
current financial condition may be better or worse than a rating indicates.
A Fund may purchase unrated securities if its Subadviser determines the security
to be of comparable quality to a rated security that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by its Subadviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Subadviser determines that retaining such
security is in the best interests of the Fund.
To limit credit risks, the Funds may only invest in securities that are
investment grade (rated in the top four long-term investment grades by an NRSRO
or in the top two short-term investment grades by an NRSRO.) Accordingly, the
lowest permissible long-term investment grades for corporate bonds, including
convertible bonds, are Baa in the case of Moody's and BBB in the case of S&P and
Fitch IBCA ("Fitch") ; the lowest permissible long-term investment grades for
preferred stock are baa in the case of Moody's and BBB in the case of S&P and
Fitch; and the lowest permissible short-term investment grades for short-term
debt, including commercial paper, are Prime-2 (P-2) in the case of Moody's, A-2
in the case of S&P and F-2 in the case of Fitch. All these ratings are generally
considered to be investment grade ratings, although Moody's indicates that
securities with long-term ratings of Baa have speculative characteristics.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
4
<PAGE>
The use of when-issued transactions and forward commitments enables the Funds to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, a Fund might sell
securities which it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices, a
Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Fund's Subadviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued or forward commitment transactions at prices
inferior to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Funds enter into when-issued and forward commitment
transactions only with the intention of actually receiving or delivering the
securities, as the case may be. If a Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or to dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss. When-issued securities may include bonds purchased on a "when, as
and if issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Any significant commitment of a Fund's assets
to the purchase of securities on a "when, as and if issued" basis may increase
the volatility of its net asset value.
Each Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities (as defined in the Prospectus) and other liquid
high-grade debt securities in an amount at least equal to its commitments to
purchase securities on a when-issued or delayed delivery basis.
ILLIQUID SECURITIES
Each Fund may invest up to 15% of its net assets in illiquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
includes, among other things, purchased over-the-counter (OTC) options and
repurchase agreements maturing in more than seven days.
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid. The Board has delegated the function of
making day-to-day determinations of liquidity to the Advisers, pursuant to
guidelines approved by the Board. The Advisers take into account a number of
factors in reaching liquidity decisions, including but not limited to: (1) the
frequency of trades and quotations for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) the willingness of dealers to undertake to make a market in the
security; and (4) the nature of the marketplace trades, including the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. A Fund's Subadviser monitors the liquidity of the
securities in the Fund's portfolio and reports periodically on such decisions to
the Board.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Although no securities investment is without some risk, investment
in convertible securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to
5
<PAGE>
fluctuation in value than the underlying stocks since they have fixed income
characteristics and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion value
determined by the extent to which investors place value on the right to acquire
the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security held by a Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
TEMPORARY DEFENSIVE POSITION.
When a Fund assumes a temporary defensive position it may invest without limit
in (1) short-term U.S. Government Securities, (2) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of commercial banks
doing business in the United States that have, at the time of investment, total
assets in excess of one billion dollars and that are insured by the Federal
Deposit Insurance Corporation, (3) commercial paper of prime quality rated
Prime-2 or higher by Moody's or A-2 or higher by S&P or, if not rated,
determined by the Fund's Subadviser to be of comparable quality, (4) repurchase
agreements covering any of the securities in which the Fund may invest directly
and (5) money market mutual funds.
The Funds may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. In addition to the Fund's expenses (including
the various fees), as a shareholder in another investment company, a Fund would
bear its pro rata portion of the other investment company's expenses (including
fees).
FUTURES CONTRACTS AND OPTIONS
Each Fund may in the future seek to hedge against a decline in the value of
securities it owns or an increase in the price of securities which it plans to
purchase through the writing and purchase of exchange-traded and over-the-
counter options and the purchase and sale of futures contracts and options on
those futures contracts. Each Fund may buy or sell stock index futures
contracts, such as contracts on the S&P 500 stock index. In addition, each Fund
may buy or sell futures contracts on Treasury bills, Treasury bonds and other
financial instruments. The Funds may write covered options and buy options on
the futures contracts in which they may invest.
In addition, the Funds may write (sell) covered put and call options and may buy
put and call options on debt securities and bond indices. An option is covered
if, so long as the Fund is obligated under the option, it owns an offsetting
position in the underlying security, currency or futures contract or maintains
cash, U.S. Government Securities or other liquid, assets in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option.
The Funds' use of options and futures contracts would subject the Funds to
certain investment risks and transaction costs to which they might not otherwise
be subject. These risks include: (1) dependence on the Subadviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2)
6
<PAGE>
imperfect correlation between movements in the prices of options, futures
contracts or related options and movements in the price of the securities hedged
or used for cover; (3) the fact that skills and techniques needed to trade these
instruments are different from those needed to select the other securities in
which the Funds invest; (4) lack of assurance that a liquid secondary market
will exist for any particular instrument at any particular time; and (5) the
possible need to defer closing out of certain options, futures contracts and
related options to avoid adverse tax consequences. Other risks include the
inability of the Fund, as the writer of covered call options, to benefit from
the appreciation of the underlying securities above the exercise price and the
possible loss of the entire premium paid for options purchased by the Fund.
The Funds have no current intention of investing in futures contracts and
options thereon for purposes other than hedging. No Fund may purchase any call
or put option on a futures contract if the premiums associated with all such
options held by the Fund would exceed 5 percent of the Fund's total assets as of
the date the option is purchased. No Fund may sell a put option if the exercise
value of all put options written by the Fund would exceed 50 percent of the
Fund's total assets or sell a call option if the exercise value of all call
options written by the Fund would exceed the value of the Fund's assets. In
addition, the current market value of all open futures positions held by a Fund
will not exceed 50 percent of its total assets.
A Fund will only invest in futures contracts and options after providing notice
to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain limitations.
HEDGING AND OPTION INCOME STRATEGIES
Each Fund may (1) purchase or sell (write) put and call options on securities to
enhance the Fund's performance and (2) seek to hedge against a decline in the
value of securities owned by it or an increase in the price of securities which
it plans to purchase through the writing and purchase of exchange-traded and
over-the-counter options on individual securities or securities or financial
indices and through the purchase and sale of financial futures contracts and
related options. The Funds currently do no not intend to enter into any such
transactions Whether or not used for hedging purposes, these investments
techniques involve risks that are different in certain respects from the
investment risks associated with the other investments of a Fund. Use of these
instruments is subject to regulation by the SEC, the several options and futures
exchanges upon which options and futures are traded or the CFTC.
No assurance can be given, however, that any hedging or option income strategy
will succeed in achieving its intended result.
Except as otherwise noted in the Prospectus or herein, the Funds will not use
leverage in their option income and hedging strategies. In the case of
transactions entered into as a hedge, a Fund will hold securities, currencies or
other options or futures positions whose values are expected to offset ("cover")
its obligations thereunder. A Fund will not enter into a hedging strategy that
exposes it 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 securities (or other assets as may be permitted by the SEC) with a value
sufficient at all times to cover its potential obligations. When required by
applicable regulatory guidelines, the Funds will set aside cash, U.S. Government
Securities or other liquid securities (or other assets as may be permitted by
the SEC) 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 or option income strategy is outstanding, unless
they are replaced with similar assets. As a result, there is a possibility that
the use of cover or segregation involving a large percentage of a Fund's assets
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
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<PAGE>
OPTIONS STRATEGIES
A Fund may purchase put and call options written by others and sell put and call
options covering specified individual securities, securities or financial
indices 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 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
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.
A Fund may buy or sell both exchange-traded and over-the-counter ("OTC")
options. A Fund will purchase or write an option only if that option is traded
on a recognized U.S. options exchange or if the Subadviser believes that a
liquid secondary market for the option exists. When a Fund purchases an OTC
option, it relies on the dealer from which it has purchased the OTC option to
make or take delivery of the 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
by the Funds.
Upon selling an option, a Fund receives a premium from the purchaser of the
option. Upon purchasing an option the Fund pays a premium to the seller of the
option. The amount of premium received or paid by the Fund is based upon certain
factors, including the market price of the underlying securities, index or
currency, the relationship of the exercise price to the market price, the
historical price volatility of the underlying assets, the option period, supply
and demand and interest rates.
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. A Fund may similarly purchase put options
in order to hedge against a decline in market value of securities held in its
portfolio. The put enables the Fund to sell the underlying security at the
predetermined exercise price; thus the potential for loss to the Fund is limited
to the option premium paid. If the market price of the underlying security is
lower than the exercise price of the put, any profit the Fund realizes on the
sale of the security would be reduced by the premium paid for the put option
less any amount for which the put may be sold.
A Subadviser may write call options when it believes that the market value of
the underlying security will not rise to a value greater than the exercise price
plus the premium received. Call options may also be written to provide limited
protection against a decrease in the market price of a security, in an amount
equal to the call premium received less any transaction costs.
Each Fund may purchase and write put and call options on equity security indexes
in much the same manner as the options discussed above, except that index
options may serve as a hedge against overall fluctuations in the equity
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 index options will depend on the extent to which price
movements in the index selected correlate with price movements of the securities
which are being hedged. Index options are settled exclusively in cash.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
A 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
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<PAGE>
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 Subadviser's ability
to forecast the direction of price fluctuations in the underlying
securities or currency markets, or in the case of an index option,
fluctuations in the market sector represented by the index.
(2) Options normally have expiration dates of up to nine months. Options
that expire unexercised have no value. Unless an option purchased by a
Fund is exercised or unless a closing transaction is effected with
respect to that position, a loss will be realized in the amount of the
premium paid.
(3) A position in an exchange-listed option may be closed out only on an
exchange which provides a market for identical options. Most
exchange-listed options relate to equity securities. Exchange markets for
options on 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, a Fund would have to exercise the option which it purchased
in order to realize any profit. The inability to effect a closing
transaction on an option written by a Fund may result in material losses
to the Fund.
(4) A Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
(5) When a Fund enters into an over-the-counter contract with a
counterparty, the Fund will assume the risk that the counterparty will
fail to perform its obligations in which case the Fund could be worse off
than if the contract had not been entered into.
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, an underlying debt
security or the currency as called for in the contract at a specified future
date and at a specified price. For futures contracts with respect to an index,
delivery is of an amount of cash equal to a specified dollar amount times the
difference between the index value at the time of the contract and the close of
trading of the contract.
A Fund may sell interest rate futures contracts in order to continue to receive
the income from a fixed income security, while endeavoring to avoid part of or
all of a decline in the market value of that security which would accompany an
increase in interest rates.
A Fund may purchase index futures contracts for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading, to reduce transactions costs, or to
seek higher investment returns when a futures contract is priced more
attractively than securities in the index.
A Fund may purchase call options on a futures contract 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 security, in that it
can be used as a temporary substitute for a position in the security itself.
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SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, a Fund is
required to deposit (typically 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.
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 a Fund to close a position,
and in the event of adverse price movements, it would have to make daily cash
payments of variation margin. In addition:
(1) Successful use by a Fund of futures contracts and related options
will depend upon the Subadviser's ability to predict movements in the
direction of the overall securities and currency markets, which requires
different skills and techniques than predicting changes in the prices of
individual securities. Moreover, futures contracts relate not to the
current level of the underlying instrument but to the anticipated levels
at some point in the future; thus, for example, trading of stock index
futures may not reflect the trading of the securities which are used to
formulate an index or even actual fluctuations in the relevant index
itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged currencies due to price distortions
in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying currencies which causes this
situation to occur. As a result, a correct forecast of general market
trends may still not result in successful hedging through the use of
futures contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not
be possible to close a position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash
payments of variation margin.
(4) Like other options, options on futures contracts have a limited life.
A Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in the Subadviser'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) A Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of
added brokerage commissions.
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FINANCIAL FUTURES CONTRACTS AND OPTIONS
A Fund may invest in certain financial futures contracts and options contracts
in accordance with the policies described in the Prospectus and above. A 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 a Fund will not enter into any
futures contract or option on a futures contract if, as a result, the aggregate
initial margins and premiums required to establish such positions would exceed
5% of the Fund's net assets.
3. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of each Fund that are
designated as fundamental may be changed only with the approval of the holders
of a majority of the outstanding voting securities of each Fund. A majority of
outstanding voting securities means the lesser of (i) 67% of the shares present
or represented at a shareholder meeting at which the holders of more than 50% of
the outstanding shares are present or represented, or (ii) more than 50% of
outstanding shares. Unless otherwise indicated, all investment policies are not
fundamental and may be changed by the Board without approval by shareholders of
the Fund.
The Funds have adopted the following fundamental investment policies which are
in addition to those contained in the Funds' Prospectus and which may not be
changed without shareholder approval. No Fund may:
(1) Borrow money from banks or by entering into reverse repurchase
agreements in excess of 33 1/3% of the value of the Fund's total
assets (computed immediately after the borrowing).
(2) Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of
issuers conducting their principal business activity in the same
industry, provided that the Funds may invest, to the extent
permitted by the 1940 Act, all or a portion of its assets in
another diversified, open-end management investment company with
substantially the same investment objective, policies and
restrictions as the Fund.
(3) With respect to 75% of its assets, purchase securities, other
than U.S. Government Securities, of any one issuer, if (a) more
than 5% of the Fund's total assets taken at market value would at
the time of purchase be invested in the securities of that issuer,
or (b) such purchase would at the time of purchase cause the Fund
to hold more than 10% of the outstanding voting securities of that
issuer; however, each Fund may invest all or a portion of its
assets in another diversified, open-end management investment
company with substantially the same investment objective, policies
and restrictions as the Fund.
(4) Act as an underwriter of securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for
purposes of the Securities Act of 1933.
(5) Make loans to other persons except for loans of portfolio
securities and except through the use of repurchase agreements and
through the purchase of commercial paper or debt securities which
are otherwise permissible investments.
(6) Purchase or sell real estate or any interest therein, except
that the Fund may invest in securities issued or guaranteed by
corporate or governmental entities secured by real estate or
interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that
invest in real estate or interests therein.
(7) Purchase or sell physical commodities or contracts relating to
physical commodities, provided that currencies, currency-related
contracts and contracts on indices will not be deemed to be
physical commodities.
11
<PAGE>
(8) Issue senior securities except pursuant to Section 18 of the
Investment Company Act of 1940 ("1940 Act ) and except that the
Fund may borrow money subject to investment limitations specified
in the Fund's Prospectus.
(9) Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
Each Fund has adopted the following nonfundamental investment policies that may
be changed by the Board without shareholder approval. No Fund may:
(a) Borrow for purposes other than meeting redemptions in an amount
exceeding 5% of the value of the Fund's total assets or purchase
securities for investment while any borrowing equaling 5% or more
of the Fund's total assets is outstanding.
(b) Pledge, mortgage or hypothecate its assets, except to secure
permitted indebtedness. The deposit in escrow of securities in
connection with the writing of put and call options, collateralized
loans of securities and collateral arrangements with respect to
margin for futures contracts are not deemed to be pledges or
hypothecations for this purpose.
(c) Invest in securities of another registered investment company,
except in connection with a merger, consolidation, acquisition or
reorganization; and except to the extent permitted by the 1940 Act.
(d) Purchase securities on margin, or make short sales of
securities (except for short sales against the box), except for the
use of short-term credit necessary for the clearance of purchases
and sales of portfolio securities, but the Fund may make margin
deposits in connection with permitted transactions in options,
futures contracts and options on futures contracts.
(e) Acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than (1) 15% of the
Fund's net assets (taken at current value) would be invested in
repurchase agreements not entitling the holder to payment of
principal within seven days and in securities which are not readily
marketable, including securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without
registration under the Securities Act of 1933 ("Restricted
Securities") or (2) 10% of the Fund's total assets would be
invested in Restricted Securities.
(f) Invest in warrants if (1) more than 5% of the value of the
Fund's net assets will be invested in warrants (valued at the lower
of cost or market) or (2) more than 2% of the value of the Fund's
net assets would be invested in warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange. For
purpose of this limitation, warrants acquired by the Fund in units
or attached to securities are deemed to have no value.
Except as required by the 1940 Act, if any percentage restriction on investment
or utilization of assets is adhered to at the time an investment is made, a
later change in percentage resulting from a change in the market values of the
Fund's assets or purchases and redemptions of shares will not be considered a
violation of the limitation.
5. PERFORMANCE DATA
The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
indicate future returns. A Fund's net asset value, yield and total return
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
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<PAGE>
In performance advertising the Funds may compare any of their performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDC/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). In addition, a Fund may compare any of its performance
information with the performance of recognized stock, bond and other indexes,
including but not limited to the Salomon Brothers Bond Index, the Shearson
Lehman Bond Index, the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average, and changes in the Consumer Price Index as
published by the U.S. Department of Commerce. A Fund may refer in such materials
to mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of a Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
For the fiscal year ended March 31, 1998, the one year total return for Quadra
Value Equity Fund was 37.47% while total return since inception (unannualized)
for the Quadra Growth Fund was 14.23%. Quadra Value Equity Fund commenced
operations on April 21, 1997 and Quadra Growth Fund commenced operations on
November 4, 1997.
YIELD CALCULATIONS
Yields for a Fund used in advertising are computed by dividing the Fund's
interest income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. In general, interest income is reduced with
respect to bonds purchased at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds purchased at a discount by adding a portion of the discount to
daily income. Capital gain and loss generally are excluded from these
calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution the Fund paid over the same period or the rate of income reported
in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield for any given
period is not an indication or representation by the Fund of future yields or
rates of return on the Fund's shares. Also, Processing Organizations may charge
their customers direct fees in connection with an investment in a Fund, which
will have the effect of reducing the Fund's net yield to those shareholders. The
yields of each Fund are not fixed or guaranteed, and an investment in a Fund is
not insured or guaranteed. Accordingly, yield information may not necessarily be
used to compare shares of a Fund with investment alternatives which, like money
market instruments or bank accounts, may provide a fixed rate of interest. Also,
it may not be appropriate to compare a Fund's yield information directly to
similar information regarding investment alternatives which are insured or
guaranteed.
TOTAL RETURN CALCULATIONS
Each of the Funds may advertise total return. Total returns quoted in
advertising reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the performance is not constant over
time but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the Funds.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment over a given period
according to the following formula:
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n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value.
ERV is the value, at the end of the applicable period, of a hypothetical $1,000
payment made at the beginning of the applicable period.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments and/or a series of redemptions over any
period of time. Total returns may be broken down into their components of income
and capital (including capital gain and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields and other performance information may be quoted
numerically or in a table, graph or similar illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return. The other definitions
are the same as in average annual total return
above.
Investors who purchase and redeem shares of a Fund through a customer account
maintained at a Processing Organization may be charged one or more of the
following types of fees as agreed upon by the Processing Organization and the
investor, with respect to the customer services provided by the Processing
Organization: account fees (a fixed amount per month or per year); transaction
fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
these assets). Such fees will have the effect of reducing the average annual
total return of the Fund for those investors.
OTHER ADVERTISING MATTERS
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Funds' Adviser and biographical descriptions of the management staff of the
Adviser; (7) summaries of the views of the Adviser with respect to the financial
markets; (8) background information regarding the Trust; (9) the results of a
hypothetical investment in a fund over a given number of years,
14
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including the amount that the investment would be at the end of the period; (10)
the effects of investing in a tax-deferred account, such as an individual
retirement account or Section 401(k) pension plan; and (11) the net asset value,
net assets or number of shareholders of the Funds as of one or more dates.
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 56)
President, Forum Financial Group, LLC, (mutual fund services company
holding company). Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
Costas Azariadis, Trustee (age 55)
Professor of Economics, University of California, Los Angeles, since
July 1992. 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 56)
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 54)
Partner at the law firm of Reid & Priest L.L.P. since 1995. From 1989
to 1995, he was a partner at the law firm of Winthrop, Stimson, Putnam
& Roberts. 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 West 57th Street, New York, New York 10019.
Mark D. Kaplan, Vice President (age 42)
Director, Investments, Forum Financial Group, LLC, with which he has
been associated since September 1995. Prior thereto, Mr. Kaplan was
Managing Director and Director of Research at H.M. Payson & Co. His
address is Two Portland Square, Portland, Maine 04101.
Stacey Hong, Treasurer (age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Prior thereto, Mr. Hong was a
Senior Accountant with Ernst & Young, LLP. His address is Two Portland
Square, Portland, Maine 04101.
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<PAGE>
Max Berueffy, Secretary (age 46)
Senior Counsel, Forum Financial Group, LLC, 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 also
serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provided
services. His address is Two Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary (age 33)
Assistant Counsel, Forum Financial Group, LLC, with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms. Klenk
also serves as an officer of other registered investment companies for
which the various Forum Financial Group of Companies provided
services. Her address is Two Portland Square, Portland, Maine 04101.
Pamela Stutch, Assistant Secretary (age 31)
Fund Administrator, Forum Financial Group, LLC, with which she has
been associated since May 1998. Prior thereto, Ms. Stutch attended
Temple University School of Law and graduated in 1997. Ms. Stutch also
was a legal intern for the Maine Department of the Attorney General.
Ms. Stutch also serves as an officer of other registered investment
companies for which the various Forum Financial Group of Companies
provided services. Her address is Two Portland Square, Portland, Maine
04101.
John Y. Keffer is an interested person of the Trust as that term is defined in
the 1940 Act.
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 a 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 meeting 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, 1998.
<TABLE>
<S> <C> <C> <C> <C>
ACCRUED ANNUAL
AGGREGATE PENSION BENEFITS UPON TOTAL
TRUSTEE COMPENSATION BENEFITS RETIREMENT COMPENSATION
- ------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $9,718.64 None None $9,718.64
Mr. Cheng $9,718.64 None None $9,718.64
Mr. Parish $9,718.64 None None $9,718.64
</TABLE>
TRUSTEE COMPENSATION FOR CORE TRUST (DELAWARE)
Each of the Trustees of the Trust is also a Trustee of Core Trust (Delaware), a
registered, open-end management investment company ("Core Trust"). Each Trustee
of Core Trust (other than John Y. Keffer, who is an interested person of Core
Trust) is paid $1,000 for each Core Trust Board meeting attended (whether in
person or by electronic communication) plus $100 per active portfolio of Core
Trust and is paid $1,000 for each committee meeting attended on a date when a
Core Trust Board meeting is not held. To the extent a meeting relates to only
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<PAGE>
certain portfolios of Core Trust, trustees are paid the $100 fee only with
respect to those portfolios. Core Trust trustees are also reimbursed for travel
and related expenses incurred in attending meetings of the Core Trust Board.
THE ADVISERS
Quadra Capital Partners, LLC ("Quadra"), 270 Congress Street, Boston,
Massachusetts 02210, serves as investment adviser to the Funds pursuant to an
investment advisory agreement with the Trust (the "Advisory Agreement"). The
business address of Quadra is 270 Congress Street, Boston, Massachusetts 02210.
As a new entity, Quadra has no previous experience managing an investment
company. The officers of Quadra have significant experience, however, in the
formation and management of trust and investment management entities including
registered investment companies, registered investment advisers, and a
commingled fund of funds.
Ms. Eileen Delasandro is founder and Chief Executive Officer of Quadra. She has
over twenty years of experience in the institutional investment management
industry. Prior to founding Quadra, she was Partner and Chief Operating Officer
at Nicholas-Applegate Capital Management, L.P. Mr. Donald Levi is founder and
Chief Operating Officer of Quadra. He has over thirty years of experience in the
banking and trust industries. Prior founding Quadra, he was founder and Chief
Executive Officer of Western Trust Services. Mr. Howard Stevenson is founder and
Chairman of Quadra. He is also the Sarafin-Rock Professor at Harvard Business
School, were he has taught for over twenty-five years, and was co-chairman of
the Baupost Group, a private registered investment adviser, which he co-founded.
Mr. Philip Hamilton is Senior Voce President at Quadra. Prior to joining Quadra,
he was Senior Researcher in Finance at Harvard Business School. He serves as
compliance officer for the firm.
To assist it in carrying out its responsibility, the Adviser has retained the
Subadvisers to render advisory services and make daily investment decisions for
each Fund pursuant to an investment subadvisory agreements with Quadra (the
"Subadvisory Agreements"). Quadra has retained the following Subadvisers:
CARL DOMINO ASSOCIATES, L.P., ("CDA") founded in 1987 by Mr. Carl Domino, CFA,
who is presently Managing Partner and Senior Portfolio Manager of CDA.
SMITH ASSET MANAGEMENT GROUP, L.P. ("Smith Group"), founded in 1995 by Stephen
S. Smith, CFA, who is the Chief Investment Officer of Smith Group.
The amount of the fees paid by Quadra to each Subadviser may vary from time to
time as a result of periodic negotiations with the Subadviser regarding such
matters as the nature and extent of the services (other than investment
selection and order placement activities) provided by the Subadviser to the
Fund, the increased cost and complexity of providing services to the Fund, the
investment record of the Subadviser in managing the Fund and the nature and
magnitude of the expenses incurred by the Subadviser in managing the Fund's
assets and by the Adviser in overseeing and administering management of the
Fund. However, the contractual fee payable to each Fund by Quadra for investment
advisory services that is set forth in the Prospectus will not vary as a result
of those negotiations.
The Advisers furnish at their own expense all services, facilities and personnel
necessary to perform their duties under the Advisory or Subadvisory Agreements.
The Advisory and Subadvisory Agreements provide, with respect to each Fund, for
an initial term of two years from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided the agreement is
specifically approved at least annually by the Board or, with respect to each
Fund, by vote of the shareholders of that Fund, and in either case by a majority
of the directors who are not parties to the Advisory Agreement or interested
persons of any such party.
The Advisory and Subadvisory Agreements are terminable without penalty by the
Trust and by the Adviser, respectively, with respect to a Fund on 30 days'
written notice when authorized either by vote of the Fund's shareholders or by a
vote of a majority of the Board, or by the Adviser and the Subadviser,
respectively, on not less than 90 days' written notice, and will automatically
terminate in the event of its assignment. The Agreements also provide that, with
respect to each Fund, the Adviser shall not be liable for any error of judgment
or mistake of law or for any act or omission in the performance of its duties to
the Fund, except for willful misfeasance, bad faith or
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<PAGE>
gross negligence in the performance of the Adviser's duties or by reason of
reckless disregard of its obligations and duties under the Agreements. In
addition, under the Advisory Agreement, if the Adviser ceases to act as a Fund's
investment advisor, or in the event the Adviser so requests in writing, the
Trust will change a Fund's name so as not to include the word "Quadra." The
Advisory and Subadvisory Agreements provide that the Advisers may render
services to others.
In addition to receiving its advisory fee from the Funds, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets which are invested in a Fund. In some instances the Adviser may elect to
credit against any investment management fee received from a client who is also
a shareholder in a Fund an amount equal to all or a portion of the fees received
by the Adviser or any affiliate of the Adviser from a Fund with respect to the
client's assets invested in that Fund.
The following table shows the dollar amount of fees payable under the Advisory
and Subadvisory Agreements for the Quadra Value Equity Fund and the Quadra
Growth Fund, the amount of fees that was waived by the Advisers and/or
Subadvisers, if any, and the actual fee received by the Advisers/Subadvisers.
<TABLE>
QUADRA VALUE EQUITY FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31 ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
1998 $8,367 $8,367 $0
</TABLE>
18
<PAGE>
<TABLE>
QUADRA GROWTH FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31 ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
1998 $5,793 $5,793 $0
</TABLE>
THE ADMINISTRATOR
Pursuant to an Administration Agreement approved by the Trust on June 19, 1997,
Forum Administrative Services, LLC ("FAdS") acts as administrator to the Trust
on behalf of the Funds.. As administrator, FAdS provides management and
administrative services necessary to the operation of the Trust (which include,
among other responsibilities, negotiation of contracts and fees with, and
monitoring of performance and billing of, the transfer agent and custodian and
arranging for maintenance of books and records of the Trust), and provides the
Trust with general office facilities. At the request of the Board, FAdS provides
persons satisfactory to the Board to serve as officers of the Trust. Those
officers, as well as certain other employees and Trustees of the Trust, may be
directors, officers or employees of FAdS or its affiliates. Prior to June 19,
1997, administrative services were provided to the Trust by Forum Financial
Services, Inc. ("FFSI") pursuant to a Management Agreement.
The Administration Agreement will remain in effect, with respect to each Fund,
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 (1) by the Board or by majority vote of shareholders of a Fund
and (2) by a majority of the Trustees who are not parties to the agreement or
interested persons of any such party (other than as Trustees of the Trust). The
Administration Agreement may be terminated with respect to a Fund, without
penalty, by the Board or FAdS on 60 days' written notice. The Administration
Agreement provides that FAdS shall not be liable for any action or inaction
taken in the administration or management of the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its duties
under the Administration Agreement.
For administrative services performed on behalf of the Funds, FAdS receives a
fee at an annual rate of 0.10% of the first $50 million of the average daily net
assets of each Fund and 0.05% over $50 million. Prior to June 19, 1997, FSS
served as the administrator for the Trust pursuant to similar terms and
compensation as FFSI. The following table shows the dollar amount of fees
payable, the amount of fees that was waived, if any, and the actual fees
received with respect to the Funds under the Administration and Management
Agreements. The data is for the Funds' initial fiscal year ended March 31, 1998.
19
<PAGE>
<TABLE>
QUADRA VALUE EQUITY FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31 ADMINISTRATION FEE PAYABLE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE RETAINED
1998 $39,889 $39,889 $0
</TABLE>
<TABLE>
QUADRA GROWTH FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31 ADMINISTRATION FEE PAYABLE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE RETAINED
1998 $16,333 $6,333 $10,000
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement, Forum Financial Services, Inc. ("FFSI"),
an affiliate of FAdS, is the Trust's distributor and acts as the agent of the
Trust in connection with the offering of shares of the Fund pursuant to a
Distribution Agreement. All subscriptions for shares obtained by Forum are
directed to the Trust for acceptance and are not binding on the Trust until
accepted by it. Forum receives no compensation or reimbursement of expenses for
the distribution services provided the Funds pursuant to the Distribution
Agreement and is under no obligation to sell any specific amount of Fund shares.
The Distribution Agreement will continue in effect, with respect to each Fund,
for twelve months and will continue in effect thereafter only if its continuance
is specifically approved at least annually by the Board or by majority vote of
the shareholders of a Fund, and in either case, by a majority of the Trustees
who (1) are not parties to the Distribution Agreement and are not interested
persons of any such party (other than as Trustees of the Trust..
The Distribution Agreement terminates automatically if assigned and may be
terminated without penalty by is the Board or by majority vote of the
shareholders of each Fund on 60 days' written to FFSI by FFSI on 60 days'
written notice to the Board. The Distribution Agreement provides that FFSI shall
not be liable for any error of judgment or mistake of law or in any event
whatsoever, except for willful misfeasance, bad faith or gross negligence in the
performance of FFSI's duties or by reason of reckless disregard of its
obligations and duties under the Distribution Agreement.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of a Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
20
<PAGE>
THE TRANSFER AGENT
Pursuant to a Transfer Agency and Services Agreement with the Trust dated May
19, 1998, Forum Shareholder Services, LLC ("FSS") acts as transfer agent of the
Trust. FSS became the transfer agent effective January 1, 1998 when it succeeded
to the transfer agency business of Forum Financial Corp.
(FSS and Forum Financial Corp. ("FFC")) are commonly controlled entities.
The Transfer Agency Agreement provides, with respect to each Fund, for an
initial term of one year from its effective date and for its continuance in
effect for successive twelve-month periods thereafter, provided that the
Transfer Agency and Services Agreement is specifically approved at least
annually (1) by the Board or by a majority vote of the shareholders of a Fund,
and in either case by a majority of the directors who are not parties to the
Transfer Agency and Services Agreement or interested persons of any such party..
The Transfer Agency and Services Agreement may also be terminated by the Trust
or the Board on 60 days written notice. The Transfer Agency and Services
Agreement also provides that FSS shall not be liable for any action or inaction
taken except for willful misfeasance, bad faith, and gross negligence in the
performance of its duties under the Transfer Agency and Services Agreement.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Funds may be effected and certain
other matters pertaining to the Funds; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the Trust to its
shareholders; (8) arranging for the receipt, tabulation and transmission to the
Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation as custodian, investment manager, nominee, agent or fiduciary for
its customers or clients who are shareholders of the Funds with respect to
assets invested in the Funds. FSS or any sub-transfer agent or other processing
agent may elect to credit against the fees payable to it by its clients or
customers all or a portion of any fee received from the Trust or from FSS with
respect to assets of those customers or clients invested in the Funds. FSS,
Forum or sub-transfer agents or processing agents retained by FSS may be
Processing Organizations (as defined in the Prospectus) and, in the case of sub-
transfer agents or processing agents, may also be affiliated persons of FSS or
Forum.
For its services, FSS receives with respect to each Fund an annual fee of
$24,000 per year plus shareholder account fees of $25.00 per retail account and
$125.00 per institutional. Prior to June 19, 1997, FFC served as the transfer
agent for the Trust pursuant to similar terms and compensation as FSS. The
following table shows the dollar amount of fees payable, the amount of fees that
was waived by FSS, if any, and the actual fee received by FSS with respect to
the Funds under the Transfer Agency and Services Agreement.
<TABLE>
QUADRA VALUE EQUITY FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31 TRANSFER AGENCY FEE PAYABLE TRANSFER AGENCY FEE WAIVED TRANSFER AGENCY FEE
RETAINED
1998 $24,310 $0 $24,310
</TABLE>
<TABLE>
QUADRA GROWTH FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31 TRANSFER AGENCY FEE PAYABLE TRANSFER AGENCY FEE WAIVED TRANSFER AGENCY FEE
RETAINED
1998 $9,883 $0 $9,883
</TABLE>
21
<PAGE>
FSS or any sub-transfer agent or processing agent may also act and receive
compensation for acting as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of a Fund with
respect to assets invested in the Fund.
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust dated June 19, 1997,
Forum Accounting Services, LLC ("FAcS"), provides the Funds with portfolio
accounting. Under the Fund Accounting Agreement, FAcS prepares and maintains
books and records of each Fund on behalf of the Trust as required under the 1940
Act, calculates the net asset value per share of each Fund and dividends and
capital gain distributions and prepares periodic reports to shareholders and the
Securities and Exchange Commission. Prior to June 19, 1997, accounting services
were provided to the Trust by FFC.
The Fund Accounting Agreement provides, with respect to each Fund, for an
initial period of one year from the date of its effectiveness and will continue
in effect only if such continuance is specifically approved at least annually by
(1) the Board or by majority vote of the shareholders of a Fund and (2) by a
majority of the Trustees who are not parties to the Fund Accounting Agreement or
interested persons of any such party. The Fund Accounting Agreement may also be
terminated on 60 days written notice by either the Board or FAcS.
For its services, FAcS receives, with respect to each Fund, a fee of $36,000 per
year plus certain surcharges depending upon the amount and type of the Fund's
portfolio transactions and positions. Prior to June 19, 1997, FFSI provided
accounting services to the Trust for a similar fee. The following table shows
the dollar amount of fees payable to FAcS for services rendered to the Funds
under the Fund Accounting Agreement, the amount of fee that was waived by FAcS,
if any, and the actual fee received by FAcS. The data is for the initial fiscal
year of operations ended March 31, 1998 for each Fund.
<TABLE>
QUADRA VALUE EQUITY FUND
<S> <C> <C> <C>
Fiscal Year
Year Ended March 31, Accounting Fee Payable Accounting Fee Waived Accounting Fee Retained
1998 $36,900 $27,900 $9,000
QUADRA GROWTH FUND
Fiscal Year
Year Ended March 31, Accounting Fee Payable Accounting Fee Waived Accounting Fee Retained
1998 $14,700 $5,700 $9,000
</TABLE>
EXPENSES
Under the Advisory Agreement, the Trust has confirmed its obligation to pay all
its expenses subject to the obligation of the Adviser to reimburse the Trust for
its excess expenses as described in the Prospectus. The Trust believes that
currently the most restrictive expense ratio limitation imposed by any state is
2-1/2% of the first $30 million of the Fund's average net assets, 2% of the next
$70 million of its average net assets and 1-1/2% of its average net assets in
excess of $100 million.
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<PAGE>
The Trust's expenses include: interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the Trust's custodian and transfer agent; fees of pricing, interest, dividend,
credit and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining corporate
existence; costs of preparing and printing the Trust's prospectuses, statements
of additional information and shareholder reports and delivering them to
existing shareholders; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; compensation of the Trust's Trustees;
compensation of the Trust's officers and employees who are not employees of the
Adviser, Forum or their respective affiliates and costs of other personnel
performing services for the Trust; costs of corporate meetings; Securities and
Exchange Commission registration fees and related expenses; expenses associated
with state securities laws; the fees payable under the Advisory Agreement, and
the Administration and Distribution Agreement.
6. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the each Fund as of 4:00
p.m., Eastern Time, on each Fund Business Day as defined in the Prospectus by
dividing the value of the Fund's net assets (i.e., the value of its portfolio
securities and other assets less its liabilities) by the number of that Fund's
shares outstanding at the time the determination is made. Securities owned by a
Fund for which market quotations are readily available are valued at current
market value, or, in their absence, at fair value as determined by the Board.
Purchases and redemptions are effected at the time of the next determination of
net asset value following the receipt in proper form of any purchase or
redemption order.
7. PORTFOLIO TRANSACTIONS
Each Fund will effect purchases and sales through brokers who charge
commissions. Allocations of transactions to brokers and dealers and the
frequency of transactions are determined by the Subadviser to the Fund in its
best judgment and in a manner deemed to be in the best interest of shareholders
of the Fund rather than by any formula. The primary consideration is prompt
execution of orders in an effective manner and at the most favorable price
available to the Fund.
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commission, including certain dealer spreads, paid in
connection with Fund transactions, the Subadviser 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 Subadviser may also take into account
payments made by brokers effecting transactions for a Fund (1) to the Fund or
(2) to other persons on behalf of the Fund for services provided to it for which
it would be obligated to pay.
In addition, each Subadviser may give consideration to research and investment
analysis services furnished by brokers or dealers to the Subadviser for its use
and may cause the Fund to pay these brokers a higher amount of commission than
may be charged by other brokers. Such research and analysis is of the types
described in Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended, and is designed to augment the Subadviser's own internal research and
investment strategy capabilities. The Subadviser may use the research and
analysis in connection with services to clients other than the Fund, and the
Subadviser's fee is not reduced by reason of the Subadviser's receipt of the
research services.
Investment decisions for the Funds will be made independently from those for any
other account or investment company that is or may in the future become managed
by the Advisers or their affiliates. If, however, a Fund and other investment
companies or accounts managed by one of the Advisers are contemporaneously
engaged in the purchase or sale of the same security, the transactions may be
averaged as to price and allocated equitably to each account. In some cases,
this policy might adversely affect the price paid or received by a Fund or the
size of the position obtainable for the Fund. In addition, when purchases or
sales of the same security for a Fund and for other investment companies and
accounts managed by one of the Advisers occur contemporaneously, the purchase or
sale
23
<PAGE>
orders may be aggregated in order to obtain any price advantages available to
large denomination purchases or sales.
In the future the Funds, consistent with the policy of obtaining best net
results, may conduct brokerage transactions through the Advisers' affiliates,
affiliates of those persons or Forum. If a Fund anticipates conducting brokerage
transactions through these persons, the Board will adopt procedures in
conformity with applicable rules under the 1940 Act to ensure that all brokerage
commissions paid to these persons are reasonable and fair. For the fiscal year
ended March 31, 1998, the aggregate brokerage commissions incurred by the Quadra
Value Equity Fund and the Quadra Growth Fund were $5,410 and $4,896,
respectively. For fiscal year ended March 31, 1998, $0.00 or 0.00% of aggregate
brokerage commissions was paid to an affiliate of the Advisers.
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor. As of
March 31, 1998, the net assets value of the Quadra Value Equity Fund and the
Quadra Growth Fund was $12.80 and $11.42, respectively.
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse a Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to a Fund's shares as provided in the
Prospectus.
The Trust has filed a formal election with the Securities and Exchange
Commission pursuant to which a Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Funds to exchange their
shares for shares of any other Fund or Investors shares of Daily Assets
Government Fund, a money market fund of Forum Funds (each, a "Participating
Fund"). For Federal income tax purposes, exchange transactions are treated as
sales on which a purchaser will realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than his basis in such
shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon any
instruction believed by FSS to be genuine of any person representing himself to
either be, or to have the authority to act on behalf of, the shareholder. The
records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction. Shares of any Participating Fund
may be redeemed and the proceeds used to purchase, without a sales charge,
shares of any other Participating Fund. The terms of the exchange privilege are
subject to change, and the privilege may be terminated by the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The Funds offer an individual retirement plan (the "IRA") for individuals who
wish to use shares of the Funds as a medium for funding individual retirement
savings. Under the IRA, distributions of net investment income and capital gain
will be automatically reinvested in the IRA established for the investor. The
Funds' custodian furnishes custodial services to the IRAs for a service fee.
Shareholders wishing to use a Fund's IRA should contact FSS for further details
and information.
24
<PAGE>
9. TAX MATTERS
Each Fund intends, for each taxable year, to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code").
Qualification as a regulated investment company under the Code does not involve
governmental supervision of management or investment practices or policies.
Investors should consult their own counsel for a complete understanding of the
requirements the Funds must meet to qualify for such treatment. The information
set forth in the Prospectus and the following discussion relate solely to
Federal income taxes on dividends and distributions by a Fund and assume that
each Fund qualifies as a regulated investment company. Investors should consult
their own counsel for further details and for the application of state and local
tax laws to the investor's particular situation.
The Funds expect to derive a substantial amount of their gross income (exclusive
of capital gain) from dividends. Accordingly, that portion of the Funds'
dividends so derived will qualify for the dividends-received deduction for
corporations to the extent attributable to certain qualifying dividends received
by the Fund from domestic corporations. Capital gain distributions are not
eligible for the dividends received deduction for corporations.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains -- that is, the excess of net gains from capital assets held
for more than one year over net losses from capital assets held for not more
than one year. One rate (generally 28%) applies to net gains on capital assets
held for more than one year but not more than 18 months ("mid-term gains"), and
a second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Except as noted below, distributions of net
capital gains will be treated in the hands of shareholders a mid-term gains to
the extent designated by a Fund as deriving from net gains from assets held for
more than one year but not more than 18 months, and the balance will be treated
as adjusted net capital gains. Gains derived from assets sold after May 7, 1997
and held for more than 18 months will be treated as mid-term gains. Gains
derived from assets sold after May 6, 1997 and before July 29, 1997 and held for
more than one year will be treated as adjusted net capital gains. Distributions
of mid-term gains and adjusted net capital gains will be taxable to shareholders
as such, regardless of how long a shareholder has held shares in a Fund.
Under the Code, gains or losses from the disposition of (1) foreign currencies,
(2) debt securities denominated in a foreign currency, (3) certain options on
foreign currencies or (4) certain forward contracts denominated in a foreign
currency, that are attributed to fluctuations in the value of the foreign
currency between the date of acquisition of the asset and the date of its
disposition are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, increase or
decrease the amount of a Fund's investment company taxable income available to
be distributed to shareholders as ordinary income, rather than affecting the
amount of the Fund's net capital gain. Because section 988 losses reduce the
amount of ordinary dividends a Fund will be allowed to distribute for a taxable
year, such losses may result in all or a portion of prior dividend distributions
for such year being recharacterized as non-taxable return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his or her shares. To the extent that such distributions exceed a
shareholder's basis, each distribution will be treated as a gain from the sale
of shares. Under certain conditions, a Fund may elect to except from Section 988
any foreign currency gain or loss realized by a Fund on any regulated forward
contract, option or futures contract which would be "marked to market" under
Section 1256 of the Code if held on the last day of taxable year, as described
immediately below.
Certain listed options, regulated futures contracts and foreign exchange
contracts are considered "section 1256 contracts" for Federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each taxable year
will be "marked to market" and treated for Federal income tax purposes as though
sold for fair market value on the last business day of such taxable year. Gain
or loss realized by a Fund on section 1256 contracts generally will be
considered 60% long-term and 40% short-term capital gain or loss. A Fund can
elect to exempt its section 1256 contracts which are part of a "mixed straddle"
from the application of section 1256.
With respect to equity or over-the-counter put and call options, gain or loss
realized by a Fund upon the lapse or sale of such options held by the Fund will
be either long-term or short-term capital gain or loss depending upon the
respective Fund's holding period with respect to such option. However, gain or
loss realized upon the lapse or closing out of such options that are written by
a Fund will be treated as short-term capital gain or loss. In general, if
25
<PAGE>
a Fund exercises an option, or if an option that a Fund has written is
exercised, gain or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of gain or loss
upon disposition of the property underlying the option.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by such Fund may constitute a
"straddle" for Federal income tax purposes. A straddle of which at least one,
but not all, the positions are section 1256 contracts may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that (1) loss realized on
disposition of one position of a straddle not be recognized to the extent that a
Fund has unrealized gains with respect to the other position in such straddle;
(2) a Fund's holding period in straddle positions be suspended while the
straddle exists (possibly resulting in gain being treated as short-term capital
gain rather than long-term capital gain); (3) losses recognized with respect to
certain straddle positions which are part of a mixed straddle and which are
non-section 1256 positions be treated as 60% long-term and 40% short-term
capital loss; (4) losses recognized with respect to certain straddle positions
which would otherwise constitute short-term capital losses be treated as long-
term capital losses; and (5) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred. Various elections
are available to a Fund which may mitigate the effects of the straddle rules,
particularly with respect to mixed straddles. In general, the straddle rules
described above do not apply to any straddles held by a Fund all of the
offsetting positions of which consist of section 1256 contracts.
Pursuant to the Taxpayer Relief Act of 1997, if a Fund has unrealized gain with
respect to a security and enters into a short sale with respect to such
security, the Fund, generally, will be deemed to have sold the appreciated
security and, thus, will recognize gain for tax purposes.
A Fund's investment in zero coupon securities will be subject to special
provisions of the Code which may cause the Fund to recognize income without
receiving cash necessary to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding federal income
and excise taxes. In order to satisfy those distribution requirements the Fund
may be forced to sell other portfolio securities.
If a Fund owns shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax purposes and the
Fund does not elect to treat the foreign corporation as a "qualified electing
fund" within the meaning of the Code, the Fund may be subject to United States
federal income taxation on a portion of any "excess distribution" it receives
from the PFIC or any gain it derives from the disposition of such shares, even
if such income is distributed as a taxable dividend by the Fund to its
shareholders. A Fund may also be subject to additional interest charges in
respect of deferred taxes arising from such distributions or gains. Any tax paid
by a Fund as a result of its ownership of shares in a PFIC will not give rise to
any deduction or credit to the Fund or to any shareholder. A PFIC means any
foreign corporation if, for the taxable year involved, either (1) it derives at
least 75% of its gross income from "passive income" (including, but not limited
to, interest, dividends, royalties, rents and annuities), or (2) on average, at
least 50% of the value (or adjusted tax basis, if elected) of the assets held by
the corporation produce "passive income." Under recently enacted legislation, a
Fund could elect for taxable years beginning after 1997 to "mark-to-market"
stock in a PFIC. Under such an election, a Fund would include in income each
year an amount equal to the excess, if any, of the fair market value of the PFIC
stock as of the close of the taxable year over the Fund's adjusted basis in the
PFIC stock. A Fund would be allowed a deduction for the excess, if any, of the
adjusted basis of the PFIC stock over the fair market value of the PFIC stock as
of the close of the taxable year, but only to the extent of any net
mark-to-market gains included by the Fund for prior taxable years. A Fund's
adjusted basis in the PFIC stock would be adjusted to reflect the amounts
included in, or deducted from, income under this election. Amounts included in
income pursuant to this election, as well as gain realized on the sale or other
disposition of the PFIC stock, would be treated as ordinary income. The
deductible portion of any mark-to-market loss, as well as loss realized on the
sale or other disposition of the PFIC stock to the extent that such loss does
not exceed the net mark-to-market gains previously included by a Fund, would be
treated as ordinary loss. A Fund generally would not be subject to the deferred
tax and interest charge provisions discussed above with respect to PFIC stock
for which a mark-to-market election has been made. If a Fund purchases shares in
a PFIC and the Fund does elect to treat the foreign corporation as a "qualified
electing fund" under the Code, the
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<PAGE>
Fund may be required to include in its income each year a portion of the
ordinary income and net capital gains of the foreign corporation, even if this
income is not distributed to the Fund.
9. OTHER INFORMATION
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, 100 Federal Street, Boston, MA
02106, acts as the custodian of the Funds' assets. The custodian's
responsibilities include safeguarding and controlling the Funds' cash and
securities, determining income and collecting interest on Fund investments.
COUNSEL
Legal matters in connection with the issuance of shares of beneficial interest
of the Trust are passed upon by the law firm of Seward & Kissel, 1200 G. Street,
N.W., Washington, DC 20005.
INDEPENDENT ACCOUNTANTS
Wolf & Company, P.C., One International Place, Boston, Massachusetts 02110-9801,
act as independent accountants for the Funds.
27
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Funds for the fiscal year ended March 31, 1998,
which are included in the Annual Report to Shareholders of the Trust and
delivered along with this Statement of Additional Information, are incorporated
herein by reference.
28
<PAGE>
APPENDIX A
----------
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
---------------------------------------------------
As of July 1, 1998, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
OAK HALL SMALL CAP CONTRARIAN FUND
Maryann Wolf 13.30% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 9.05% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.73% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.70% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 5.48% 16,870.661
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
A-1
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS GOVERNMENT FUND ------------ -------------
INSTITUTIONAL SHARES
H M Payson & Co. Custody Account 56.56% 18,033,015.150
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 43.44% 13,850,465.390
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 16.52% 826,387.330
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 15.90% 795,276.550
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Lansdowne Parking Associates LP 9.99% 499,939.120
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.920
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
Allagash & Co. 46.30% 12,236,932.890
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
A-2
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
DAILY ASSETS CASH FUND ------------ -------------
INSTITUTIONAL SHARES CON'T
H M Payson & Co. Custody Account 34.44% 9.101,914.440
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 19.27% 5,092,100.590
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
Cutler Approved List Equity Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.73% 983,490.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 18.12% 951,550.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM All Cap Value Fund 9.45% 496,164.720
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Mid Cap Value Fund 5.70% 299,263.830
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-3
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS CASH FUND
INVESTORS SHARES
Forum Administrative Services, Inc. 100% 101.200
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
Allagash & Co. 72.89% 11,915,149.240
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 26.73% 4,368,592.160
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Dirigo Drywall Assoc. 22.89% 682,716.350
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 19.58% 583,950.000
c/o Forum Financial Services, Inc./
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 19.58% 583,950,000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
A-4
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND ------------ ------------
INSTITUTIONAL SERVICE SHARES-CON'T
Cutler Equity Income Fund 9.05% 269,894.440
C/O Forum Financial Services, Inc.
Two Portland Square
CRM All Cap Value Fund 6.23% 185,729.030
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 100.900
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 46.72% 9,494,221.860
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 25.38% 5,157,680.310
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.96% 4,868,005.220
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financing 100% 5.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
A-5
<PAGE>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS MUNICIPAL FUND ------------ ------------
INVESTOR SHARES
Forum Administrative Services, LLC 100% 100.060
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 65.16% 62,106,021.450
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 34.84% 33,201,966.980
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE
Allagash & Co. 99.10% 1,657,595.720
c/o Bank of New Hampshire
P.O. Box 477
CONCORD, NH 03302-0477
INVESTORS BOND FUND
Firstrust Co. 72.38% 5,714,958.415
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.10% 876,782.753
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
A-6
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
FORUM TAXSAVER BOND FUND
First Trust Co. 49.33% 1,717,000.264
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 21.80% 758,668.285
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 6.03% 209,963.557
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.41% 188,185.433
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.76% 3.451,019.518
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
A-7
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
PAYSON BALANCED FUND
ALA & Co. 15.49% 258,329.088
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.98% 249,788.506
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
Payse & Co. 21.90% 208,621.301
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.09% 172,271.808
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
Babb & Co. #02-6004105 94.40% 2,383,117.225
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.18% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
A-8
<PAGE>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
INTERNATIONAL EQUITY FUND
Forum Financing 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. 99.95% 3,013,520.631
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
Allagash & Co. 99.27% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 100% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
A-9
<PAGE>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
QUADRA VALUE EQUITY FUND
Holly Melosi & Arturo R. Melosi TTEE 80.77% 406,724.176
FBO Atrgur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.41%% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
QUADRA GROWTH FUND
Holly Melosi & Arturo R. Melosi TTEE 77.64% 454,757.022
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.52 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
David Solomont 11.39% 271,791.712
c/o Utopia Inc.
200 Fifth Avenue
Waltham, MA 02154
DCGT TR 5.35% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
</TABLE>
A-10
<PAGE>
THE QUADRA FUNDS
APPENDIX B - DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues, as
follows:
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payment and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Those bonds in the Aa, A, Baa, Ba or B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1, and B1.
B-1
<PAGE>
STANDARD AND POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as follows:
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.
Bonds rated BB, B, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
Bonds rated CCC have currently identifiable vulnerability to default, and are
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
Bonds rated CC typically are debt subordinated to senior debt which is assigned
an actual or implied CCC debt rating. This rating may also be used to indicate
imminent default.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued. The rating Cl is reserved
for income bonds on which no interest is being paid.
Bonds are rated D when the issue is in payment default, or the obligor has filed
for bankruptcy. Bonds rated D are in payment default or the obligor has filed
for bankruptcy. The D rating category is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will made during
such grace period.
Note: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show the relative standing within the rating category.
B-2
<PAGE>
FITCH IBCA, INC. ("FITCH")
Fitch rates corporate bond issues, including convertible debt issues, as
follows:
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA, DDD, DD, or D categories.
2. PREFERRED STOCK
MOODY'S INVESTORS SERVICE, INC.
Moody's rates preferred stock as follows:
An issue rated aaa is considered to be a top-quality preferred stock. This
rating indicates good asset protection and the least risk of dividend impairment
among preferred stock issues.
B-3
<PAGE>
An issue rated aa is considered a high-grade preferred stock. This rating
indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue rated a is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the aaa and aa
classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue rated baa is considered to be a medium-grade, neither highly protected
nor poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time.
An issue rated ba is considered to have speculative elements and its future
cannot be considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
An issue which is rated b generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated caa is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments.
An issue which is rated ca is speculative in a high degree and is likely to be
in arrears on dividends with little likelihood of eventual payment.
An issue which is rated c can be regarded as having extremely poor prospects of
ever attaining any real investment standing. This is the lowest rated class of
preferred or preference stock.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from aa through b in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issuer ranks in the lower end of its generic rating
category.
STANDARD & POOR'S CORPORATION
S&P rates preferred stock as follows:
AAA is the highest rating that is assigned by S&P to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock obligations.
A preferred stock issue rated AA also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated AAA.
An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated BBB is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the A category.
Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. BB indicates the lowest degree of speculation and CCC the highest
degree of speculation. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
B-4
<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 CCC may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
3. SHORT-TERM DEBT (COMMERCIAL PAPER)
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2, both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
--- Leading market positions in well-established industries.
--- High rates of return on funds employed.
--- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
--- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
--- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC.
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
B-5
<PAGE>
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.
F-3. Issues assigned this rating have characteristics suggesting that the degree
of assurance for timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S. Issues assigned this rating have characteristics suggesting a minimal
degree of assurance for timely payment and are vulnerable to near-term adverse
changes in financial and economic conditions.
D.. Issues assigned this rating are in actual or imminent payment default.
B-6
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements
Prospectuses: Financial Highlights.
Statement of Additional Information: Not Applicable
(b) Exhibits
(1) Trust Instrument of Registrant dated August 29, 1995
(see note 1).
(2) By-Laws of Registrant (see note 2).
(3) None.
(4) See the following Sections in the Trust Instrument
filed as Exhibit(1): Sections 2.04 and 2.06.
(5)(a) Investment Advisory Agreement between Registrant and
H.M. Payson & Co. relating to Payson Value Fund and
Payson Balanced Fund dated December 18, 1995 (see note
3).
(b) Investment Advisory Agreement between Registrant and
Quadra Capital Partners, L.P. relating to Quadra Value
Equity Fund and Quadra Growth Fund dated as of December
20, 1996 (see note 4).
(c) Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and Carl Domino Associates, L.P.
relating to Quadra Value Equity Fund dated as of
October 18, 1996 (see note 4).
(d) Investment Advisory Agreement between Registrant and
Austin Investment Management, Inc. relating to Austin
Global Equity Fund dated as of June 14, 1996 (see note
3).
(e) Investment Advisory Agreement between Registrant and
Oak Hall Capital Advisors, Inc. relating to Oak Hall
Equity Fund dated as of June 14, 1996 (see note 3).
(f) Investment Advisory Agreement between Registrant and
Forum Investment Advisors, LLC relating to Investors
Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond
Fund, Investors High Grade Bond Fund and Investors
Growth Fund dated as of January 2, 1998 (see note 5).
(g) Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and Smith Asset Management Group, L.P.
relating to Quadra Growth Fund dated as of November 1,
1997 (see note 6).
(h) Investment Advisory Agreement between Registrant and
Polaris Capital Management, Inc. (see note 11).
(i) Investment Subadvisory Agreement between H.M. Payson &
Co. relating to the Investors Equity Fund dated as of
December 5, 1997 (filed herewith).
<PAGE>
(6)(a) Selected Dealer Agreement between Forum Financial
Services, Inc. and securities brokers (see note 3).
(b) Bank Affiliated Selected Dealer Agreement between Forum
Financial Services, Inc. and bank affiliates (see note
3).
(c) Distribution Agreement between Registrant and Forum
Financial Services, Inc. relating to Quadra Value
Equity Fund, Quadra Growth Fund, Investors Bond Fund,
TaxSaver Bond Fund, Investors High Grade Bond Fund,
Maine Municipal Bond Fund, New Hampshire Bond Fund,
Equity Index Fund, Small Companies Opportunities Fund,
International Equity Fund, Investors Equity Fund,
Emerging Markets Fund, Investors Growth Fund, Payson
Balanced Fund, Payson Value Fund, Oak Hall Small Cap
Contrarian Fund, Austin Global Equity Fund, Polaris
Global Value Fund and Investor Shares, Institutional
Shares and Institutional Service Shares of Daily Assets
Government Fund, Daily Assets Treasury Obligations
Fund, Daily Assets Government Obligations Fund, Daily
Assets Cash Fund and Daily Assets Municipal Fund dated
as of June 19, 1997 (see note 3).
(7) None.
(8)(a) Transfer Agency and Services Agreement between
Registrant and Forum Shareholder Services, LLC relating
to TaxSaver Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Investors Bond Fund, Investors
High Grade Bond Fund, Investors Growth Fund, Payson
Balanced Fund, Payson Value Fund, Investors Equity
Fund, Equity Index Fund, Small Company Opportunities
Fund, International Equity Fund, Emerging Markets Fund,
Institutional Shares, Institutional Service Shares and
Investor Shares of Daily Assets Treasury Obligations
Fund, Daily Assets Government Fund, Daily Assets
Government Obligations Fund, Daily Assets Cash Fund,
Daily Assets Municipal Fund and Shares of Austin Global
Equity Fund, Oak Hall Small Cap Contrarian Fund, Quadra
Value Equity Fund, Quadra Growth Fund and Polaris
Global Value Fund dated May 19, 1998 (see note 3).
(b) Custodian Agreement between Registrant and BankBoston
N.A., relating to, Daily Assets Treasury Obligations
Fund, Daily Assets Government Fund, Daily Assets
Government Obligations Fund, Daily Assets Cash Fund,
Daily Assets Municipal Fund, Investors High Grade Bond
Fund, Investors Bond Fund, TaxSaver Bond Fund, Maine
Municipal Bond Fund, New Hampshire Bond Fund, Payson
Balanced Fund, Equity Index Fund, Investors Equity
Fund, Payson Value Fund, Investors Growth Fund,
International Equity Fund, Emerging Markets Fund, Small
Company Opportunities Fund, Quadra Value Equity Fund,
Quadra Growth Fund, Oak Hall Small Cap Contrarian Fund,
Austin Global Equity Fund and Polaris Global Value Fund
dated as of May 19, 1998 (filed herewith).
(9)(a) Administration Agreement between Registrant and Forum
Administrative Services, LLC relating to Investors High
Grade Bond Fund, Investors Bond Fund, TaxSaver Bond
Fund, Maine Municipal Bond Fund, New Hampshire Bond
Fund, Payson Balanced Fund, Payson Value Fund, Equity
Index Fund, Small Company Opportunities Fund,
International Equity Fund, Emerging Markets Fund,
Investors Equity Fund, Investors Growth Fund, Daily
Assets Cash Fund, Daily Assets Government Fund, Daily
Assets Government Obligations Fund, Daily Assets
Municipal Fund, Daily Assets Treasury Obligations Fund,
<PAGE>
Austin Global Equity Fund, Oak Hall Small Cap
Contrarian Fund, Polaris Global Value Fund, Quadra
Value Equity Fund, and Quadra Growth Fund dated as of
June 19, 1997 and amended as of December 5, 1997 (see
note 3).
(b) Shareholder Service Plan of Registrant relating to
Quadra Funds dated June 19, 1997, amended September 22,
1997 and Form of Shareholder Service Agreement relating
to Quadra Funds (see note 7).
(c) Form of Shareholder Service Plan of Registrant dated
September 22, 1997 and Form of Shareholder Service
Agreement dated December 5, 1997 relating to the Daily
Assets Treasury Fund, Daily Assets Cash Fund, Daily
Assets Government Fund, Daily Assets Municipal Fund and
Daily Assets Treasury Obligations Fund (see note 8).
(10) Opinion of Seward & Kissel dated January 5, 1996 (see
note 3)
(11)(a) Consent of Independent Auditors (filed herewith).
(11)(b) Consent of Independent Auditors (filed herewith).
(12) None.
(13) Investment Representation letter of Reich & Tang, Inc.
as original purchaser of shares of Registrant (see
note 3).
(14) Form of Disclosure Statement and Custodial Account
Agreement applicable to individual retirement
accounts (see note 3)
(15) Form of Rule 12b-1 Plan adopted by Registrant (see
note 3)
(16) Schedule of Sample Performance Calculations (see note
10) relating to:
<TABLE>
<S><C> <C>
Investors High Grade Bond Fund Payson Balanced Fund
Investors Bond Fund Austin Global Equity Fund
TaxSaver Bond Fund Oak Hall Small Cap Contrarian Fund
Maine Municipal Bond Fund Quadra Value Equity Fund
New Hampshire Bond Fund Quadra Growth Fund
Daily Assets Treasury Obligations Fund Equity Index Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Government Obligations Fund Investors Growth Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Municipal Fund International Equity Fund
Payson Value Fund Emerging Markets Fund
</TABLE>
(17) Financial Data Schedules (filed herewith)
(18) 18f-3 plan adopted by Registrant (see note 3).
Other Exhibits:
Powers of Attorney (see note 1).
Power of Attorney for John Y. Keffer (filed herewith).
---------------
<PAGE>
Note (1) Exhibit incorporated by reference as filed on PEA No. 34 via
EDGAR on May 9, 1996, accession number 0000912057-96-008780.
(2) Exhibit incorporated by reference as filed on PEA No. 43 via
EDGAR on July 31, 1997, accession number 0000912057-97-025707.
(3) Exhibit incorporated by reference as filed on PEA No. 62 via
EDGAR on May 26, 1998, accession number 0001004402-98-000307.
(4) Exhibit incorporated by reference as filed on PEA No. 41 via
EDGAR on December 31, 1996, accession number
0000912057-96-030646.
(5) Exhibit incorporated by reference as filed on PEA 56 via EDGAR on
December 31, 1997, accession number 0001004402-97-000281.
(6) Exhibit incorporated by reference as filed on PEA No. 48 via
EDGAR on October 31, 1997, accession number 0001004402-97-000152.
(7) Exhibit incorporated by reference as filed on PEA No. 49 via
EDGAR on November 5, 1997, accession number 0001004402-97-000163.
(8) Exhibit incorporated by reference as filed on PEA No. 50 via
EDGAR on November 12, 1997, accession no. 0001004402-97-000189.
(9) Exhibit incorporated by reference as filed on PEA No. 33 via
EDGAR on January 5, 1996, accession number 0000912057-96-000216.
(10) Exhibit incorporated by reference as filed on PEA No. 61 via
EDGAR on May 8, 1998, accession number 0001004402-98-000295.
(11) Exhibit incorporated by reference as file on PEA No. 62 via EDGAR
on June 8, 1998, accession number 0001004402-98-000339.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<S> <C>
------------------------------------------------------------------------- --------------------------------
Title of Class Number of Recordholders
as of July 1, 1998
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Investors High Grade Bond Fund 2
------------------------------------------------------------------------- --------------------------------
Investors Bond Fund 57
------------------------------------------------------------------------- --------------------------------
TaxSaver Bond Fund 41
------------------------------------------------------------------------- --------------------------------
Maine Municipal Bond Fund 389
------------------------------------------------------------------------- --------------------------------
New Hampshire Bond Fund 74
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Daily Assets Treasury Obligations Fund
------------------------------------------------------------------------- --------------------------------
Institutional Services 3
------------------------------------------------------------------------- --------------------------------
Institutional 5
------------------------------------------------------------------------- --------------------------------
Investor Shares 1
------------------------------------------------------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
------------------------------------------------------------------------- --------------------------------
Title of Class Number of Recordholders
as of July 1, 1998
------------------------------------------------------------------------- --------------------------------
Daily Assets Government Fund
------------------------------------------------------------------------- --------------------------------
Institutional Services 102
------------------------------------------------------------------------- --------------------------------
Institutional 3
------------------------------------------------------------------------- --------------------------------
Investor Shares 1
------------------------------------------------------------------------- --------------------------------
Daily Assets Government Obligations Fund
------------------------------------------------------------------------- --------------------------------
Institutional Services 9
------------------------------------------------------------------------- --------------------------------
Institutional 5
------------------------------------------------------------------------- --------------------------------
Investor Shares 1
------------------------------------------------------------------------- --------------------------------
Daily Assets Cash Fund
------------------------------------------------------------------------- --------------------------------
Institutional Services 26
------------------------------------------------------------------------- --------------------------------
Institutional 4
------------------------------------------------------------------------- --------------------------------
Investor Shares 1
------------------------------------------------------------------------- --------------------------------
Daily Assets Municipal Fund
------------------------------------------------------------------------- --------------------------------
Institutional Services 5
------------------------------------------------------------------------- --------------------------------
Institutional 1
------------------------------------------------------------------------- --------------------------------
Investor Shares 1
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Payson Value Fund 361
------------------------------------------------------------------------- --------------------------------
Payson Balanced Fund 387
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Austin Global Equity Fund 13
------------------------------------------------------------------------- --------------------------------
Oak Hall Small Cap Contrarian Fund 163
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Quadra Value Equity Fund 17
------------------------------------------------------------------------- --------------------------------
Quadra Growth Fund 14
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Polaris Global Value Fund 125
------------------------------------------------------------------------- --------------------------------
Equity Index Fund 3
------------------------------------------------------------------------- --------------------------------
Investors Equity Fund 7
------------------------------------------------------------------------- --------------------------------
Investors Growth Fund 3
------------------------------------------------------------------------- --------------------------------
Small Company Opportunities Fund 1
------------------------------------------------------------------------- --------------------------------
International Equity Fund 2
------------------------------------------------------------------------- --------------------------------
Emerging Markets Fund 2
------------------------------------------------------------------------- --------------------------------
</TABLE>
ITEM 27. INDEMNIFICATION
In accordance with Section 3803 of the Delaware Business Trust Act,
Section 5.2 of Registrant's Trust Instrument provides as follows:
"5.2. INDEMNIFICATION.
"(a) Subject to the exceptions and limitations contained in Section
(b) below:
"(i) Every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action,
<PAGE>
suit or proceeding in which he becomes involved as a party or
otherwise by virtue of being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement thereof;
"(ii) The words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
"(b) No indemnification shall be provided hereunder to a Covere
Person:
"(i) Who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Holders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of the
Covered Person's office or (B) not to have acted in good faith in the
reasonable belief that Covered Person's action was in the best interest
of the Trust; or
"(ii) In the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the Trustee's or officer's office,
"(A) By the court or other body approving the
settlement;
"(B) By at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or
"(C) By written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full
trial-type inquiry);
provided, however, that any Holder may, by appropriate legal
proceedings, challenge any such determination by the Trustees or by
independent counsel.
"(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other persons may be
entitled by contract or otherwise under law.
"(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 5.2 may be paid by the Trust
or Series from time to time prior to final disposition thereof upon
receipt of an undertaking by or on behalf of such Covered Person that
such amount will be paid over by him to the Trust or Series if it is
ultimately determined that he is not entitled to indemnification under
this Section 5.2; provided, however, that either (a) such Covered
Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance
payments or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Section 5.2.
"(e) Conditional advancing of indemnification monies under this Section
5.2 for actions based upon the 1940 Act may be made only on the
following conditions: (i) the advances must be limited to amounts used,
or to be used, for the preparation or presentation of a defense to the
action, including costs connected
<PAGE>
with the preparation of a settlement; (ii) advances may be made only
upon receipt of a written promise by, or on behalf of, the recipient
to repay that amount of the advance which exceeds that amount which it
is ultimately determined that he is entitled to receive from the Trust
by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent
form of security which assures that any repayments may be obtained by
the Trust without delay or litigation, which bond, insurance or other
form of security must be provided by the recipient of the advance, or
(b) a majority of a quorum of the Trust's disinterested, non-party
Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the
recipient of the advance ultimately will be found entitled to
indemnification.
"(f) In case any Holder or former Holder of any Series shall be held to
be personally liable solely by reason of the Holder or former Holder
being or having been a Holder of that Series and not because of the
Holder or former Holder acts or omissions or for some other reason, the
Holder or former Holder (or the Holder or former Holder's heirs,
executors, administrators or other legal representatives, or, in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, on behalf of
the affected Series, shall, upon request by the Holder, assume the
defense of any claim made against the Holder for any act or obligation
of the Series and satisfy any judgment thereon from the assets of the
Series."
Paragraph 4 of each Investment Advisory Agreement provides in substance
as follows:
"4. We shall expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we
agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or and to our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Section 8 of the Distribution Agreement provides:
(a) The Trust will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls
the Distributor within the meaning of section 15 of the Securities Act
or section 20 of the 1934 Act ("Distributor Indemnitees") free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character
(including the cost of investigating or defending such claims, demands,
actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out
of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectuses or arising
out of or based upon any alleged omission to state a material fact
required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished in writing to the Trust in connection with the preparation of
the Registration Statement or exhibits to the Registration Statement by
or on behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Trust shall indemnify and hold each Distributor Indemnitee
free and harmless from and against any Distributor Claim; provided,
that the term Distributor Claim for purposes of this sentence shall
mean any Distributor Claim related to the matters for which the
Distributor has requested amendment to the Registration Statement and
for which the Trust has not filed a Required Amendment, regardless of
with respect to such matters whether any statement in or omission from
the Registration Statement was made in reliance upon, or in conformity
with, information furnished to the Trust by or on behalf of the
Distributor.
<PAGE>
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the
Trust and approved by the Distributor, which approval shall not be
withheld unreasonably. The Trust shall advise the Distributor that it
will assume the defense of the suit and retain counsel within ten (10)
days of receipt of the notice of the claim. If the Trust assumes the
defense of any such suit and retains counsel, the defendants shall bear
the fees and expenses of any additional counsel that they retain. If
the Trust does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Trust or has been
advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust
will reimburse any Distributor Indemnitee named as defendant in such
suit for the reasonable fees and expenses of any counsel that person
retains. A Distributor Indemnitee shall not settle or confess any claim
without the prior written consent of the Trust, which consent shall not
be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its
several officers and trustees (collectively, the "Trust Indemnitees"),
free and harmless from and against any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent
that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other
expenses result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus or any alleged omission of a
material fact required to be stated or necessary to make the statements
therein not misleading, if such statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust in writing in connection with the preparation of the Registration
Statement or Prospectus by or on behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement ("Trust Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Trust Claim and may retain counsel of good standing chosen
by the Distributor and approved by the Trust, which approval shall not
be withheld unreasonably. The Distributor shall advise the Trust that
it will assume the defense of the suit and retain counsel within ten
(10) days of receipt of the notice of the claim. If the Distributor
assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel
that they retain. If the Distributor does not assume the defense of any
such suit, or if Trust does not approve of counsel chosen by the
Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to
the Distributor, the Distributor will reimburse any Trust Indemnitee
named as defendant in such suit for the reasonable fees and expenses of
any counsel that person retains. A Trust Indemnitee shall not settle or
confess any claim without the prior written consent of the Distributor,
which consent shall not be unreasonably withheld or delayed.
(e) The Trust's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Trust or the
Distributor receiving notice of any action brought against a
Distributor Indemnitee or Trust Indemnitee, respectively, by the person
against whom such action is brought within twenty (20) days after the
summons or other first legal process is served. Such notice shall refer
to the person or persons against whom the action is brought. The
failure to provide such notice shall not relieve the party entitled to
such notice of any liability that it may have to any Distributor
Indemnitee or Trust Indemnitee except to the extent that the ability of
the party entitled to such notice to defend such action has been
materially adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
<PAGE>
Distributor Indemnitee or Trust Indemnitee and shall survive the sale
and redemption of any Shares made pursuant to subscriptions obtained by
the Distributor. The indemnification provisions of this Section will
inure exclusively to the benefit of each person that may be a
Distributor Indemnitee or Trust Indemnitee at any time and their
respective successors and assigns (it being intended that such persons
be deemed to be third party beneficiaries under this Agreement).
(g) Each party agrees promptly to notify the other party of the
commencement of any litigation or proceeding of which it becomes aware
arising out of or in any way connected with the issuance or sale of
Shares.
(h) Nothing contained herein shall require the Trust to take any action
contrary to any provision of its Organic Documents or any applicable
statute or regulation or shall require the Distributor to take any
action contrary to any provision of its Articles of Incorporation or
Bylaws or any applicable statute or regulation; provided, however, that
neither the Trust nor the Distributor may amend their Organic Documents
or Articles of Incorporation and Bylaws, respectively, in any manner
that would result in a violation of a representation or warranty made
in this Agreement.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or its security holders
to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Forum Investment Advisors, LLC
The description of Forum Investment Advisors, LLC
(investment adviser to each of Daily Assets Treasury
Obligations Fund, Daily Assets Government Fund, Daily Assets
Government Obligations Fund, Daily Assets Cash Fund, Daily
Assets Municipal Fund, Investors High Grade Bond Fund,
Investors Bond Fund, TaxSaver Bond Fund, Maine Municipal
Bond Fund, New Hampshire Bond Fund and Investors Growth
Fund) in the Prospectuses and Statements of Additional
Information, constituting certain of Parts A and B,
respectively, of this Registration Statement, are
incorporated by reference herein.
The following are the members of Forum Investment Advisors,
LLC, Two Portland Square, Portland, Maine 04101, including
their business connections which are of a substantial
nature.
Forum Holdings Corp. I., Member.
Forum Trust, LLC., Member.
Both Forum Holdings Corp. and Forum Financial Group, LLC are
controlled by John Y. Keffer, Chairman and President of the
Registrant. Mr. Keffer is President of Forum Financial
Group, LLC. Mr. Keffer is also a director and/or officer of
various registered investment companies for which the
various Forum Financial Group of Companies provides
services.
The following are the officers of Forum Investment Advisors,
LLC, including their business connections which are of a
substantial nature. Each officer may serve as an officer of
various registered investment companies for which the Forum
Financial Group of Companies provides services.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
William J. Lewis Director Forum Investment Advisors, LLC.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Sara M. Morris Treasurer Forum Investment Advisors, LLC.
------------------------------------ ----------------------------------
Chief Financial Officer Forum Financial Group, LLC.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Other Forum affiliated companies
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David I. Goldstein Secretary Forum Investment Advisors, LLC.
------------------------------------ ----------------------------------
General Counsel Forum Financial Group, LLC.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Other Forum affiliated companies
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Dana A. Lukens Assistant Secretary Forum Investment Advisors, LLC.
------------------------------------ ----------------------------------
Corporate Counsel Forum Financial Group, LLC.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Other Forum affiliated companies
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Margaret J. Fenderson Assistant Treasurer Forum Investment Advisors, LLC.
------------------------------------ ----------------------------------
Corporate Accounting Manager Forum Financial Group, LLC.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Other Forum affiliated companies
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(b) H.M. Payson & Co.
The description of H.M. Payson & Co. in the Prospectuses and
Statements of Additional Information, with respect to the
Payson Value Fund, Payson Balanced Fund and Investors Equity
Fund, constituting certain of Parts A and B, respectively,
of this Registration Statement, are incorporated by
reference herein.
The following are the directors and principal executive
officers of H.M. Payson & Co., including their business
connections which are of a substantial nature. The address
of H.M. Payson & Co. is One Portland Square, Portland, Maine
04101.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Adrian L. Asherman Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John C. Downing Managing Director, Treasurer H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
William A. Macleod Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Thomas M. Pierce Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Peter E. Robbins Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John H. Walker Managing Director, President H.M. Payson & Co.
------------------------------------ ----------------------------------
Director York Holding Company
------------------------------------ ----------------------------------
Director York Insurance Company
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Teresa M. Esposito Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John C. Knox Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Harold J Dixon Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Laura McDill Managing Director H.M. Payson & Co.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(c) Austin Investment Management, Inc.
The description of Austin Investment Management, Inc. in the
Prospectus and Statement of Additional Information with
respect to the Austin Global Equity Fund, constituting certain
of Parts A and B, respectively, of this Registration
Statement, are incorporated by reference herein.
The following is the director and principal executive officer
of Austin Investment Management, Inc. 375 Park Avenue, New
York, New York 10152, including his business connections which
are of a substantial nature.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Peter Vlachos Director, President, Treasurer, Austin Investment Management Inc.
Secretary
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(d) Oak Hall Capital Advisors, LLP
The description of Oak Hall Capital Advisors, LLP in the
Prospectus and Statement of Additional Information with
respect to Oak Hall Small Cap Contrarian Fund, constituting
part of Parts A and B, respectively, of this Registration
Statement are incorporated by reference herein.
The following are the directors and principal executive
officers of, Oak Hall Capital Advisors, Inc. 122 East 42nd
Street, New York, New York 10168, including their business
connections which are of a substantial nature.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Alexander G. Anagnos Director, Portfolio Manager Oak Hall Capital Advisors, LLP
------------------------------------ ----------------------------------
Consultant American Services Corporation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Financial Advisor WR Family Associates
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Lewis G. Cole Director Oak Hall Capital Advisors, LLP
------------------------------------ ----------------------------------
Partner The Law Firm of Strook, Strook &
Lavan
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John J. Hock Executive Vice President Oak Hall Capital Advisors, LLP
---------------------------------- ------------------------------------ ----------------------------------
<PAGE>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Charles D. Klein Portfolio Manager Oak Hall Capital Advisors, LLP
------------------------------------ ----------------------------------
Director American Services Corporation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Financial Advisor WR Family Associates
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David P. Steinmann Executive Vice President Oak Hall Capital Advisors, LLP
------------------------------------ ----------------------------------
Secretary, Treasurer American Securities Corporation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Administrator WR Family Associates
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(e) Carl Domino Associates, L.P.
The description of Carl Domino Associates, L.P. in the
Prospectus and Statement of Additional Information with
respect to the Quadra Value Equity Fund, constituting certain
of Parts A and B, respectively, of this Registration
Statement, are incorporated by reference herein.
The following are the directors and principal executive
officers of, Carl Domino Associates, L.P., 580 Village Blvd.,
West Palm Beach, FL 33409 including their business connections
which are of a substantial nature.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Carl J. Domino Managing Partner, Portfolio Manager Carl Domino Associates, L.P.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul Scoville, Jr. Senior Portfolio Manager Carl Domino Associates, L.P.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ann Fritts Syring Senior Portfolio Manager Carl Domino Associates, L.P.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John Wagstaff-Callahan Senior Portfolio Manager Carl Domino Associates, L.P.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee formerly of Batterymarch
Financial Management
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen Krider Kent, Jr. Senior Portfolio Manager Carl Domino Associates, L.P.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Portfolio Manager formerly of Gamble, Jones
Holbrook & Brent
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(f) Smith Asset Management Group, L.P.
The description of Smith Asset Management Group, L.P. in the
Prospectus and Statement of Additional Information with
respect to the Quadra Growth Fund, constituting certain of
Parts A and B, respectively, of this Registration Statement,
are incorporated by reference herein.
The following are the directors and principal executive
officers of Smith Asset Management Group, L.P., including
their business connections which are of a substantial nature.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen S. Smith President, Chief Executive Officer Smith Asset Management Group
------------------------------------ ----------------------------------
Partner Discovery Management
---------------------------------- ------------------------------------ ----------------------------------
<PAGE>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen J. Summers Chief Operating Officer Smith Asset Management Group
------------------------------------ ----------------------------------
Partner Discovery Management
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Sarah C. Castleman Vice President Smith Asset Management Group
------------------------------------ ----------------------------------
Partner Discovery Management
------------------------------------ ----------------------------------
Assistant Vice President NationsBank (formerly)
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(g) Norwest Investment Management, Inc.
The description of Norwest Investment Management, Inc. ("NIM")
in the Prospectus and Statement of Additional Information for
Equity Index Fund, constituting certain of Parts A and B,
respectively, of this Registration Statement, are incorporated
by reference herein.
The following are the directors and principal executive
officers of NIM, including their business connections which
are of a substantial nature. The address of Norwest
Corporation, the parent of Norwest Bank Minnesota, N.A.
("Norwest Bank"), which is the parent of NIM, is Norwest
Center, Sixth Street and Marquette Avenue, Minneapolis, MN
55479. Unless otherwise indicated below, the principal
business address of any company with which the directors and
principal executive officers are connected is also Sixth
Street and Marquette Avenue, Minneapolis, MN 55479.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
P. Jay Kiedrowski Chairman, Chief Executive Officer, Norwest Investment Management,
President Inc.
------------------------------------ ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------ ----------------------------------
Chairman Galliard Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen P. Gianoli Senior Vice President, Chief Norwest Investment Management,
Executive Officer Inc.
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David S. Lunt Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard C. Villars Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Lee K. Chase Senior Vice President Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
James W. Paulsen Vice President Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Andrew Owen Vice President Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(h) Schroder Capital Management International Inc.
The description of Schroder Capital Management International
Inc. ("Schroder") in the Prospectus Statement of Additional
Information relating to International Equity Fund and Emerging
Markets Fund, constituting certain of Parts A and B,
respectively, of this Registration Statement, are incorporated
by reference herein.
The following are the directors and principal officers of
Schroder, including their business connections of a
substantial nature. The address of each company listed, unless
otherwise noted, is 33 Gutter Lane, London EC2V 8AS, United
Kingdom. Schroder Capital Management International Limited
("Schroder Ltd.") is a United Kingdom affiliate of Schroder
which provides investment management services international
clients located principally in the United States.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David M. Salisbury Chairman, Director SCMI
------------------------------------ ----------------------------------
Chief Executive, Director Schroder Ltd.
------------------------------------ ----------------------------------
Director Schroders plc.
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SCMI
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SCMI
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc
------------------------------------ ----------------------------------
Director Schroder Ltd.
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.*
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
------------------------------------ ----------------------------------
Director Schroder Ltd.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Ltd.
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.*
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SCMI
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc..
------------------------------------ ----------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Michael M. Perlstein Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroders Ltd.
------------------------------------ ----------------------------------
Managing Director MacKay Shields Financial
Corporation
resigned 11/96
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Louise Croset First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Abdallah Nauphal Group Vice President, Director SCMI
------------------------------------ ----------------------------------
Group Vice President, Director Schroder Capital Management Inc.*
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.*
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SCMI
------------------------------------ ----------------------------------
President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.*
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for
which SCMI and/or its
affiliates provide investment
services.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Heather Crighton First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Fariba Talebi Group Vice President SCMI
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.*
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for
which SCMI and/or its
affiliates provide investment
services.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President SCMI
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for
which SCMI and/or its
affiliates provide
investment services.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SCMI
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.*
------------------------------------ ----------------------------------
Principal, Senior Portfolio Manager Weiss, Peck & Greer LLC
resigned 12/96
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
*Schroder Capital Management Inc. is located at 787 Seventh
Avenue, 34th Floor, New York, NY 10019.
(i) Polaris Capital Management, Inc.
The description of Polaris Capital Management, Inc.
("Polaris") under the caption "Management - Investment Adviser
and Portfolio Manager." in the Prospectus for Polaris Global
Value Fund and "Management - Investment Adviser and Portfolio
Manager" in the Statement of Additional Information relating
to that fund, constituting certain of Parts A and B,
respectively, of the Registration Statement, are incorporated
by reference herein.
The following are the directors and principal officers of
Polaris, including their business connections of a substantial
nature. The address of the company is 125 Summer Street,
Boston, Massachusetts 02110.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Bernard R. Horn, Jr. President, Portfolio Manager Polaris Capital Management, Inc.
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
(j) Quadra Capital Partners, L.P.
The description of Quadra Capital Partners, L.P. ("Quadra")
under the caption "Management - The Adviser" in the Prospectus
for Quadra Value Equity Fund and Quadra Growth Fund and
"Management - Advisers" in the Statement of Additional
Information relating to those funds, constituting certain of
Parts A and B, respectively, of the Registration Statement,
are incorporated by reference herein.
The following are the principals of Quadra, including their
business connections of a substantial nature. The address of
the company is 270 Congress Street, Boston, MA 02210.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Eileen Delasandro Chief Executive Officer Quadra Capital Partners, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Donald Levi Chief Operating Officer Quadra Capital Partners, Inc.
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Howard Stevenson Chairman Quadra Capital Partners, Inc.
------------------------------------ ----------------------------------
Sarofim-Rock Professor Harvard Business School
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Philip Hamilton Director of Strategic Planning, Quadra Capital Partners, Inc.
Compliance Officer
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
(k) Peoples Heritage Bank
The description of Peoples Heritage Bank ("Peoples") in the
Prospectus and Statement of Additional Information, with
respect to the Investors Equity Fund, constituting certain of
Parts A and B, respectively, of this Registration Statement,
are incorporated by reference herein.
The following are the directors and principal executive
officers of Peoples, including their business connections
which are of a substantial nature who provide investment
advisory related services. Unless otherwise indicated below,
the principal business address of Peoples with which the
directors and principal executive officers are connected is
One Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
---------------------------------- ------------------------------------ ----------------------------------
Name Title Business Connection
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Gary L. Robinson Senior Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Dorothy M. Wentworth Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Stephen L. Eddy Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Dana R. Mitiguy Chief Investment Officer Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Larry D. Pelletier Vice President Peoples
217 Main Street
Lewiston, Maine 04240
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Carolyn B. May Vice President Peoples
217 Main Street
Lewiston, Maine 04240
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Kevin K. Brown Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Donald W. Smith Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
John W. Gibbons Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Joseph M. Pratt Vice President Peoples
74 Hammond Street
Bangor, Maine 04401
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Lucy L. Tucker Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Nancy W. Bard Assistant Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Douglas P. Adams Trust Officer Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Melanie L. Bishop Trust Officer Peoples
---------------------------------- ------------------------------------ ----------------------------------
---------------------------------- ------------------------------------ ----------------------------------
Jeffrey Oldfield Vice President Peoples
---------------------------------- ------------------------------------ ----------------------------------
</TABLE>
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Forum Financial Services, Inc., Registrant's underwriter,
serves as underwriter for the following investment companies
registered under the Investment Company Act of 1940, as
amended:
<TABLE>
<S><C> <C>
The CRM Funds BT Alex. Brown Cash Reserve Fund, Inc
The Cutler Trust Flag Investors Telephone Fund, Inc.
Forum Funds Flag Investors International Fund, Inc.
Flag Investor Family of Funds Flag Investors Emerging Growth Fund, Inc.
<PAGE>
The Glenmede Fund, Inc. Total Return U.S. Treasury Fund, Inc.
The Glenmede Portfolios Managed Municipal Fund, Inc.
Memorial Funds Flag Investors Value Builder Fund, Inc.
Monarch Funds Flag Investors Real Estate Securities Fund, Inc.
Norwest Advantage Funds Flag Investors Equity Partners Fund, Inc.
Norwest Select Funds Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.
Sound Shore Fund, Inc. Flag Investors Short-Intermediate Income Fund, Inc.
</TABLE>
(b) The following directors and officers of Forum Financial
Services, Inc. hold the following positions with Registrant.
Their business address is Two Portland Square, Portland, Maine
04101.
<TABLE>
<S> <C> <C>
--------------------------- ------------------------------- -----------------------------
Name Position with Underwriter Position with Registrant
--------------------------- ------------------------------- -----------------------------
--------------------------- ------------------------------- -----------------------------
John Y. Keffer President Chairman, President
--------------------------- ------------------------------- -----------------------------
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained at the offices of Forum
Administrative Services, LLC and Forum Financial Corp., Two Portland
Square, Portland, Maine 04101. The records required to be maintained
under Rule 31a-1(b)(1) with respect to journals of receipts and
deliveries of securities and receipts and disbursements of cash are
maintained at the offices of the Registrant's custodian, BankBoston,
100 Federal Street, Boston, Massachusetts 02106. The records required
to be maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at
the offices of the Registrant's adviser or subadviser, as listed in
Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to rule
485(a) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Portland, and State of Maine on the 31st day of July,
1998.
FORUM FUNDS
By: /s/ John Y. Keffer
------------------------------
John Y. Keffer, President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registrant's Registration Statement has been signed below by the following
persons on the 31st day of July, 1998.
Signatures Title
---------- -----
(a) Principal Executive Officer
/s/ John Y. Keffer President
----------------------- and Chairman
John Y. Keffer
(b) Principal Financial and Accounting Officer
/s/ Stacey Hong Treasurer
-----------------------
Stacey Hong
(c) A majority of the Trustees
/s/ John Y. Keffer Trustee
-----------------------
John Y. Keffer
James C. Cheng* Trustee
J. Michael Parish* Trustee
Costas Azariadis* Trustee
*By: /s/ John Y. Keffer
-----------------------
John Y. Keffer
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
(5)(i) Investment Subadvisory Agreement
(8)(b) Custodian Agreement between registrant and BankBoston, N.A. dated as of
May 1, 1998.
(11)(a) Consent of Independent Auditors.
(11)(b) Consent of Independent Auditors.
(17) Financial Data Schedules.
Other exhibits:
Power of Attorney for John Y. Keffer.
EXHIBIT (5)(I)
SUBADVISORY AGREEMENT
BETWEEN
H.M. PAYSON & CO. AND
PEOPLES HERITAGE BANK
AGREEMENT made as of the 5th day of December, 1997, between H.M. Payson
& Co. ("Payson"), a corporation organized under the law of the State of Maine
with its principal place of business at One Portland Square, Portland, Maine,
and Peoples Heritage Bank, (the "Subadviser"), a bank organized under the law of
the State of Maine with its principal place of business at One Portland Square,
Portland, Maine.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue its shares in separate series and classes; and
WHEREAS, Payson has entered into an investment advisory agreement dated
as of the 5th day of December 1997 ("Advisory Agreement") with Forum Funds (the
"Trust"), a business trust organized under the law of the State of Delaware with
its principal place of business at Two Portland Square, Portland, Maine 04101;
WHEREAS, under the Advisory Agreement, and subject to the direction and
control of the Board of Trustees of the Trust ("Board"), Payson has agreed to
provide investment advisory and other services specified in the Advisory
Agreement for the investment portfolio or portfolios of the Trust listed on
Schedule A hereto (the "Fund" or "Funds"), each a separate series of the Trust;
WHEREAS, the Subadviser is engaged in the business of rendering
investment advice, and, as a bank, is exempt from registration as an investment
adviser under the Investment Advisers Act of 1940, as amended ("Adviser Act");
and
WHEREAS, Payson is authorized by the Advisory Agreement to select the
Fund subadviser and desires to retain the Subadviser to perform investment
advisory and other services for the Fund, and the Subadviser is willing to
provide those services on the terms and conditions set forth in this Agreement.
NOW THEREFORE, Payson and the Subadviser agree as follows:
SECTION 1. APPOINTMENT AND DELIVERY OF DOCUMENTS
(a) Payson hereby appoints the Subadviser as investment subadviser for
the Fund(s) for the period and on the terms set forth in this Agreement. The
Subadviser accepts this
<PAGE>
appointment and agrees to render its services as investment subadviser for the
compensation set forth herein.
(b) Payson has delivered copies of each of the following documents,
which it has received from the Trust, and will from time to time furnish the
Subadviser with any supplements or amendments to such documents that it receives
from the Trust:
(1) the Trust Instrument of the Trust, as in effect on the
date hereof and as amended from time to time ("Trust Instrument");
(2) the Bylaws of the Trust as in effect on the date hereof
and as amended from time to time ("Bylaws");
(3) the Registration Statement under the Act and the
Securities Act of 1933 (the "Securities Act"), as filed with the Securities and
Exchange Commission (the "Commission"), relating to the Fund and its shares and
all amendments thereto ("Registration Statement");
(4) the prospectus(es) and statement(s) of additional
information relating to the Fund(s) ("Prospectus"); and,
(5) all proxy statements, reports to shareholders, advertising
or other materials prepared for distribution to Fund shareholders or the public,
that refer to the Subadviser or its clients.
Payson shall furnish the Subadviser with any further documents,
materials or information that the Subadviser may reasonably request and that
Payson is able to obtain from the Trust to enable Subadviser to perform its
duties under this Agreement.
SECTION 2. DUTIES OF THE SUBADVISER
(a) Subject to the direction, control and supervision of the Board and
Payson, the Subadviser shall assist in directing the investments of the Fund and
shall assist in making decisions with respect to all purchases and sales of
securities and other investment assets in the Fund. To carry out such decisions,
the Subadviser is hereby authorized, as agent and attorney-in-fact for Payson,
for the account of, and in the name of the Trust, to place orders and issue
instructions with respect to those transactions of the Fund. In all purchases,
sales and other transactions in securities for the Fund, the Subadviser is
authorized to exercise full discretion and act for the Trust in the same manner
and with the same force and effect as Payson could do with respect to such
purchases, sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of such purchases,
sales or other transactions.
(b) The Subadviser will provide to the Board and Payson such
information, reports, evaluations, analyses and opinions prior to or at each
meeting of the Board as the Board or
<PAGE>
Payson may reasonably request. On its own initiative, the Subadviser shall
provide the Board andPayson from time to time information that the Subadviser
believes appropriate, including, but not limited to, information concerning the
individual companies whose securities are included in the Fund's holdings, the
industries in which they engage, or the economic, social or political conditions
prevailing in each country in which the Fund maintains investments. The
Subadviser shall also advise the Board and Payson of important developments
affecting the Trust, the Fund and the Subadviser.
(c) In assisting in making purchases and sales of securities for the
Fund , and otherwise performing its duties hereunder, the Subadviser will comply
with the Act and the rules and regulations thereunder, all other applicable
federal and state laws and regulations, the policies set from time to time by
the Board or Payson as well as the limitations imposed by the Trust Instrument,
Bylaws, Registration Statement, prospectus, and the Internal Revenue Code of
1986, as amended, in respect of regulated investment companies and the
investment objective, policies and restrictions of the Fund. Without limiting
the foregoing, the Subadviser agrees that, in placing orders with broker-dealers
for the purchase or sales of portfolio securities, it shall attempt to obtain
quality execution at favorable security prices; provided that, consistent with
section 28(e) of the Securities and Exchange Act of 1934 (the "Exchange Act"),
the exercise of the Subadviser's fiduciary duties under this Subadvisory
Agreement, and any other applicable law, the Subadviser may allocate brokerage
on behalf of the Fund to broker-dealers who provide research services and may
cause the Fund to pay these broker-dealers a higher amount of commission than
may be charged by other broker-dealers, subject to the Subadviser's determining
in good faith that such commission is reasonable in terms either of the
particular transaction or of the overall responsibility of the Subadviser to the
Fund and its other clients and that the total commissions paid by the Fund will
be reasonable in relation to the benefits to the Fund over the long term. In no
instance will portfolio securities be purchased from or sold to the Subadviser,
or any affiliated person thereof, except in accordance with the federal
securities laws and the rules and regulations thereunder. The Subadviser may
aggregate sales and purchase orders of the assets of the Fund with similar
orders being made simultaneously for other accounts advised by the Subadviser or
its affiliates. Whenever the Subadviser simultaneously places orders to purchase
or sell the same security on behalf of the Fund and one or more other accounts
advised by the Subadviser, the orders will be allocated as to price and amount
among all such accounts in a manner believed to be equitable over time to each
account.
(d) The Subadviser may from time to time employ or associate with such
persons as the Subadviser believes to be particularly fitted to assist in the
execution of the Subadviser's duties under this Agreement, the cost of
performance of such duties to be borne and paid by the Subadviser, provided that
absent preapproval by Payson, the Subadviser shall not delegate its duties under
this Agreement to another subadviser. No obligation may be incurred on behalf of
either Payson or the Trust in any such respect.
(e) The Subadviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust or Payson under the Act. The Subadviser shall prepare
and maintain, assist in preparing and maintaining, or cause to be prepared and
maintained, in such form, for such periods and in such
<PAGE>
locations as may be required by applicable law, all documents and records
relating to the services provided by the Subadviser required to be prepared and
maintained by the Trust or Payson under the Act and the rules and regulations
thereunder, the rules and regulations of any national, state, or local
government entity with jurisdiction over the Trust, including the Commission and
the Internal Revenue Service, including but not limited to, records relating to
Fund transactions and the placing and allocation of brokerage orders. The books
and records pertaining to the Trust that are in possession of the Subadviser
shall be the property of the Trust. The Trust or Payson, or their authorized
representatives, shall have access to such books and records at all times during
the Subadviser's normal business hours. Upon the reasonable request of the Trust
or Payson, copies of any such books and records shall be provided promptly by
the Subadviser to the Trust and Payson or their authorized representatives.
(f) The Subadviser shall provide the Trust's custodian and fund
accountant on each business day with such information relating to all
transactions effected by the Subadviser concerning the Fund's assets as the
custodian and fund accountant may reasonably require. In accordance with
procedures adopted by the Board, as amended from time to time, the Subadviser is
responsible for assisting in the fair valuation of all portfolio securities and
will use its reasonable efforts to assist in arranging for the provision of a
price(s) from a party(ies) independent of Payson and the Subadviser for each
portfolio security for which the custodian does not obtain prices in the
ordinary course of business from an automated pricing service.
(g) To the extent consistent with all applicable federal and/or state
laws and regulations, the Subadviser shall authorize and permit any of
itsdirectors and officers who may be elected as trustees or officers of the
Trust to serve in the capacities in which they are elected.
SECTION 3. EXPENSES
(a) The Subadviser shall waive its fee, where required, to ensure that
the Fund's expense ratio does not exceed any expense limit described in the
prospectus or applicable to the Fund under the laws or regulations of any state
in which Fund shares are qualified for sale (reduced pro rata for any portion of
less than a year). In the event that the Subadviser is required to waive its fee
hereunder with respect to the Fund, and Payson is required to waive its fee
under the Advisory Agreement with respect to such Fund, the amount of the fee to
be waived by each party shall be proportionate to the fees otherwise payable to
each party with respect to such Fund.
(b) If the Fund's expense ratio exceeds the expense limits described in
subsection (a) above after the Subadviser has waived its fees, the Subadviser
shall be responsible for that portion of the Fund's net expenses that exceed any
expense limit described in the prospectus and the Fund's net expenses (except
interest, taxes, brokerage, fees and other expenses paid by the Fund in
accordance with an effective plan under Rule 12b-1 under the Act and
organization expenses, all to the extent such exceptions are permitted by
applicable state law and regulation) incurred by the Fund during each of the
Fund's fiscal years or portion thereof that this Agreement is in effect which,
as to the Fund, in any such year exceeds any expense limits applicable to the
Fund under the laws or regulations of any state in which Fund shares are
<PAGE>
qualified for sale (reduced pro rata for any portion of less than a year). In
the event that the Subadviser is responsible for a portion of the Fund's net
expenses as described above, and Payson is responsible for a portion of such
Fund's net expenses under the Advisory Agreement, the Subadviser shall be solely
responsible for the payment of such expenses and shall promptly reimburse Payson
for any share of such expenses paid by it.
SECTION 4. STANDARD OF CARE
The Subadviser shall use its best judgment and efforts in rendering the
services described in this Agreement. The Subadviser shall not be liable to or
Payson for any action or inaction of the Subadviser in the absence of bad faith,
willful misconduct or gross negligence or based upon information, instructions
or requests with respect to the Fund made to the Subadviser by a duly authorized
officer of the Trust or Payson. The Subadviser shall not be responsible or
liable for any failure or delay in performance of its obligations under this
Agreement caused by circumstances beyond its reasonable control. Payson shall
not be liable to the Subadviser for any action or inaction of Payson in the
absence of bad faith, willful misconduct or gross negligence or based upon
information, instructions or requests with respect to the Fund made to Payson by
a duly authorized officer of the Subadviser. Payson shall not be responsible or
liable for any failure or delay in performance of its obligations under this
Agreement caused by circumstances beyond its reasonable control.
Each party hereto (the "indemnifying party") agrees to indemnify,
defend and hold harmless the other party hereto, and each of its officers,
employees, managing directors, directors and agents (collectively the
"indemnified party"), from and against any and all costs, damages, liabilities
and expenses incurred by or imposed upon the indemnified party in connection
with any pending or threatened action, suit or proceeding, whether civil,
criminal, administrative, or investigative (including any arbitration or other
dispute resolution proceeding), in which the indemnified party may be involved
resulting from, caused by or by reason of any action or inaction of the
indemnifying party in breach of the standard of care described in the proceeding
paragraph. Indemnified expenses include, without limitation, attorneys' fees,
costs of investigation, expert witness fees, judgments, fines, amounts paid in
settlement, and other similar or related expenses reasonably incurred by the
indemnified party in connection with the action, suit or proceeding.
SECTION 5. COMPENSATION
In consideration of the foregoing, Payson shall pay the Subadviser,
with respect to the Fund, a fee at an annual rate as listed in Schedule A to
this Agreement. These fees shall be accrued daily and payable monthly in arrears
on the first (1st) business day of each calendar month for services performed
hereunder during the prior calendar month. The Subadviser's reimbursement, if
any, of the Fund's expenses as provided in Section 3 hereof, shall be estimated
and accrued daily and paid to the Trust monthly, in arrears, at the same time as
Payson's payment to the Subadviser for such month. The obligation of Payson to
pay the Subadviser
<PAGE>
hereunder with respect to the Fund shall be dependent on Payson being paid by
the Trust the fee that it is entitled to under the Advisory Agreement with
respect to such Fund.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) With respect to the Fund, this Agreement shall become effective
upon the date first written above; provided that it shall not take effect until
approved by: (1) a majority of the Trust's Trustees, including a majority of the
Trustees who are not interested persons of the Trust; and (2) to the extent
required under section 15(a) of the Act, a majority of the outstanding voting
securities of the Fund to which this Agreement pertains, voting separately by
Fund.
(b) This Agreement shall remain in effect for a period of twenty-four
(24) months from the date of its effectiveness and shall continue in effect for
successive twelve (12) month periods (computed from each anniversary date of
approval) or for such shorter period as may be specified by the Board in giving
its approval as provided below; provided that such continuance is specifically
approved at least annually: (1) by the Board or by the vote of a majority of the
outstanding voting securities of the Fund; and, in either case, (2) by a
majority of the Trust's Trustees who are not parties to this Agreement or
interested persons of any such party (other than as Trustees of the Trust);
provided further, however, that if the continuation of this Agreement is not
approved, the Subadviser may continue to render the services described herein in
the manner and to the extent permitted by the Act and the rules and regulations
thereunder. The annual approvals provided for herein shall be effective to
continue this Agreement from year to year (or such shorter period referred to
above) if given within a period beginning not more than sixty (60) days prior to
such anniversary, notwithstanding the fact that more than three hundred
sixty-five (365) days may have elapsed since the date on which such approval was
last given.
(c) This Agreement may be terminated at any time, without the payment
of any penalty: (1) by Payson, upon approval of the Board, by the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, in each
case on sixty (60) days' written notice to Subadviser; or (2) by the Subadviser
on sixty (60) days' written notice to the Trust, with copies to Payson and each
of the Trust's Trustees at their respective addresses set forth in the Trust's
Registration Statement or at such other address as such persons may specify to
the Subadviser and to legal counsel to the Trust. This Agreement shall terminate
automatically and immediately upon assignment or upon termination of the
Advisory Agreement.
SECTION 7. ACTIVITIES OF SUBADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Subadviser's right, or
the right of any of the Subadviser's officers, directors or employees who may
also be a Trustee, officer or employee of the Trust, or persons otherwise
affiliated with the Trust to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
<PAGE>
SECTION 8. REPRESENTATIONS OF SUBADVISER.
The Subadviser represents, warrants and agrees as follows:
(a) The Subadviser: (1) is (A) registered as an investment adviser
under the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect or (B) exempt from registration as an investment
adviser under the Advisers Act; (2) is not prohibited by the Act or the Advisers
Act or otherwise from performing the services contemplated by this Agreement;
(3) has met, and will seek to continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory agency,
necessary to be met in order to perform the services contemplated by this
Agreement; (4) has the authority to enter into and perform the services
contemplated by this Agreement; and (5) will promptly notify Payson of the
occurrence of any event that would disqualify the Subadviser from serving or
adversely affect the ability of the Subadviser to serve as an investment adviser
of an investment company under Section 9(a) of the Act or otherwise.
(b) The Subadviser will adopt within forty-five (45) days a written
code of ethics complying with the requirements of Rule 17j-1 under the Act and
will provide Payson and the Board with a copy of such code of ethics, together
with evidence of its adoption. Within fifteen days (15) of the end of the last
calendar quarter of each year that this Agreement is in effect, the president or
a vice-president of the Subadviser shall certify to the Board and Payson that
the Subadviser has complied with the requirements of Rule 17j-1 during the
previous year and that there has been no violation of the Subadviser's code of
ethics or, if such a violation occurred, that appropriate action was taken in
response to such violation. Upon the written request of Payson, the Subadviser
shall permit Payson, its employees or its agents or the appropriate regulatory
authority to examine any reports required to be made by the Subadviser by Rule
17j-1 (c) (1) and all other records relevant to the Subadviser's code of ethics.
(c) The Subadviser will notify Payson and the Trust of any change of
control of the Subadviser, including of twenty-five percent (25%) of its
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Fund or senior management of the Subadviser, in
each case prior to or promptly after such change.
SECTION 9. NOTICES
Any notice or other communication required to be given under this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to Payson, at:
<PAGE>
H.M. Payson & Co.
One Portland Square
P.O. Box 31
Portland, ME 04112
Attention: John C. Downing
and if to Subadviser, at:
Peoples Heritage Bank
One Portland Square
Portland, ME 04101
Attention:
and if to the Trust, at:
Forum Funds
Two Portland Square
Portland, ME 04101
Attn: Secretary
SECTION 10. MISCELLANEOUS
(a) No provisions of this Agreement with respect to the Fund may be
amended or modified in any manner except by a written agreement properly
authorized and executed by both parties hereto and, if required by the Act, by a
vote of a majority of the outstanding voting securities of the Fund.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware.
(d) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
(e) For purposes of this Agreement, any notices, documents, books,
records, reports, evaluations, analyses, opinions or other information of any
kind that is disclosed or furnished by the Subadviser to the Board or the Trust
shall be disclosed or furnished to Payson as well.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
H.M. PAYSON & CO.
by: /s/ John C. Downing
------------------------
John C. Downing
Managing Director
PEOPLES HERITAGE BANK
by:/s/ Dorothy M. Wentworth
-------------------------
Vice President
Approved by the Trust.
<PAGE>
SUBADVISORY AGREEMENT
BETWEEN
H.M. PAYSON & CO. AND
PEOPLES HERITAGE BANK
SCHEDULE A
AS OF DECEMBER 5, 1997
Fee as a % of the
Annual Average Daily Net Assets
FUNDS of the Fund
----- -----------
Investors Equity Fund 0.25%
EXHIBIT 8(B)
CUSTODIAN AGREEMENT
FORUM FUNDS
THIS AGREEMENT made as of this 19th day of May, 1998, between, Forum
Funds, a Delaware business trust, with its principal place of business at Two
Portland Square, Portland, Maine 04101 (hereinafter called the "Trust"), and
BankBoston, N.A., a national banking association with its principal place of
business in Boston, Massachusetts (hereinafter called the "Custodian").
WHEREAS, the Trust desires that the securities and cash of certain of
its separate series shall be hereafter held and administered by Custodian as the
Trust's agent pursuant to the terms of this Agreement; and
WHEREAS, the Custodian provides services in the ordinary course of its
business which will meet the Trust's needs as provided for hereinafter;
NOW, THEREFORE, in consideration of the mutual promises herein made,
the Trust and the Custodian agree as follows:
SECTION 1. DEFINITIONS
(a) "Account" shall mean the applicable custodial account maintained by
the Custodian on behalf of the Trust for each Fund. The Account of each Fund
shall be separate from the Account of each other Fund and the assets of a Fund's
Account shall not in any way be charged with the liabilities of any other Fund's
Account.
(b) "Bank" shall mean a bank as defined in Section 2(a)(5) of the 1940
Act.
(c) "Fund" shall mean each of the separate series of the Trust as
listed in Appendix A hereto and each other series of the Trust as may be made
subject to this Agreement by a writing between the Trust and the Custodian.
(d) "Securities" shall mean and include stocks, shares, bonds,
debentures, notes, money market instruments, "foreign securities," as that term
is defined in Rule 17f-5 under the 1940 Act, and other obligations and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, or subscribe for the same, or evidencing or representing any
other rights or interests therein, or in any property or assets.
(e) "Officers' Certificate" shall mean a request or direction in
writing or a written confirmation of an oral request or direction signed in the
name of the Trust by any two of the Officers of the Trust, the Chariman or any
other persons duly authorized to sign by the Board of Trustees of the Trust.
<PAGE>
(f) "1940 Act" shall mean the United States Investment Company Act of
1940, as amended.
(g) "Officer of the Trust" shall mean any President, Vice-President,
Treasurer, Assistant Treasurer, Secretary of Assistant Secretary of the Trust.
(h) "Securities Depository" means a clearing corporation registered
under Section 17A of the Securities Exchange Act of 1934 which maintains a
system for the central handling of securities in which all securities of any
particular class or series of any issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the securities.
(i) "Book-Entry securities" means securities issued by the Treasury of
the United States of America and Federal agencies and instrumentalities of the
United States of America that are maintained in the book-entry system provided
by the Federal Reserve Banks.
(j) "Book-Entry Account" means an account maintained by a Federal
Reserve Bank.
SECTION 2. CUSTODIAN AS AGENT
The Custodian is authorized to act under the terms of this Agreement as
the Trust's agent and to represent the Trust and a particular Fund of the Trust
whenever acting within the scope of the Agreement.
SECTION 3. NAMES, TITLES AND SIGNATURE OF FUND'S OFFICERS
(a) An Officer of the Trust will certify to the Custodian the names,
titles, and signatures of those persons authorized to sign the Officers'
Certificates, as well as names of the Board of Trustees and the Executive
Committee. Said Officer, or his or her successor, will provide the Custodian
with any changes which may occur from time to time.
(b) The Custodian is authorized to rely and act upon written and
manually signed instructions of any person or persons (if Custodain has been
directed to act on the instructions of more than one person) identified on a
separate list ("Authorized Persons") of those persons who may authorize the
withdrawal of any portion of the cash or Securities contained in an Account
furnished to the Custodian from time to time and signed by an Officer of the
Trust and certified by its Secretary or an Assistant Secretary. The Trust will
provide the Custodian with authenticated specimen signatures of all Authorized
Persons.
(c) The Custodian is further authorized to rely upon any instructions
received by any other means and identified as having been given or authorized by
any Authorized Person; regardless of whether such instructions shall in fact
have been authorized or given by any such persons; provided, that,
<PAGE>
(i) the Custodian and the Trust shall have previously agreed in writing
upon the means of transmission and the method of identification for
such instructions;
(ii) the Custodian has not been notified by the Trust to cease to
recognize such means and methods; and
(iii) such means and methods have in fact been used.
(d) If the Trust should choose to have dial-up or other means of direct
access to the Custodian's accounting system for Securities in custodial
accounts, the Custodian is also authorized to rely and act upon any instructions
received by the Custodian through the terminal device, regardless of whether
such instructions shall in fact have been given or authorized by the Trust,
provided that such instructions are accompanied by passwords which have been
mutually agreed to in writing by the Custodian and the Trust and the Custodian
has not been notified by the Trust to cease recognizing such passwords.
When dial-up or other direct means of access to the Custodian's
accounting system for cash or Securities is utilized, the Trust agrees to
indemnify the Custodian and hold it harmless from and against any and all
liabilities, losses, damages, costs, reasonable counsel fees, and other
reasonable expenses of every nature suffered or incurred by the Custodian by
reason of or in connection with the improper use, unauthorized use and misuse by
the Trust or its employees of any terminal device with access to the Custodian's
accounting system for cash or Securities in custodial accounts, unless such
losses, damages, etc., result from negligent or wrongful acts of the Custodian,
its employees or agents.
SECTION 4. RECEIPT AND DISBURSEMENT OF MONEY
(a) The Custodian shall open and maintain a separate Account with
respect to each Fund, subject to debit only by a draft or order by the Custodian
acting pursuant to the terms of this Agreement. The Custodian shall hold in each
Account, subject to the provisions hereof, all cash received by it from or for
the Account of the applicable Fund.
(b) With respect to the Account of each Fund, the Custodian shall make
payment of cash to the Account or shall debit the Account only:
(i) for the purchase of Securities for the portfolio of the Fund
upon the delivery of such Securities to the Custodian;
(ii) for payments in connection with the conversion, exchange or
surrender of Securities owned or subscribed to by the Fund held by or
to be delivered to the Custodian;
(iii) for payments in connection with the return of the cash collateral
received in connection with Securities loaned by the Fund;
<PAGE>
(iv) for payments in connection with futures contracts positions
held by the Fund;
(v) for payments of interest, dividends, taxes and in connection
with rights offerings; or
(vi) for other proper Fund purposes.
All Securities accepted in connection with the purchase of such
Securities, if (a) usual in the course of local market practice or (b)
specifically required in instructions from the Fund, shall be accompanied by
payment of, or a "due bill" for, any dividends, interest or other distributions
of the issue due the purchaser.
(c) Except as hereinafter provided, the Custodian shall make any
payment for which it receives direction from an Authorized Person so long as
such direction is (A) in writing (or is a facsimile transmission of a written
direction), (B) electronically transmitted to the Custodian as provided in
Section 3 or (C) orally when written or electronic directions cannot reasonably
be given within the relevant time period, when the person giving the direction
is known to the Custodian's employee and when the person giving such direction
(i) assures the Custodian that the directions will be confirmed in writing by an
Authorized Person within twenty-four (24) hours and (ii) states that such
payment is for a purpose permitted under the terms of this subsection.
(d) All funds received by the Custodian in connection with the sale,
transfer, exchange or loan of Securities will be credited to the applicable
Account in immediately available funds as soon as reasonably possible on the
date such received funds are immediately available. Payments for purchase of
Securities for an Account made in immediately available funds will be charged
against the Account on the day of delivery of such Securities and all other
payments will be charged on the business day after the day of delivery.
(i) The Custodian is hereby authorized and required to (A) collect on a
timely basis all income and other payments with respect to Securities
held hereunder to which a Fund shall be entitled either by law or
pursuant to custom in the securities business, and to credit such
income to the Account, (B) detach and present for payment all coupons
and other income items requiring presentation as and when they become
due, (C) collect interest when due on Securities held hereunder, and
(D) endorse and collect all checks, drafts or other orders for the
payment of money received by the Custodian for the account of the Fund.
(ii) If the Custodian agrees to advance cash or Securities of the
Custodian for delivery on behalf of a Fund to a third party, any
property received by the Custodian on behalf of the Fund in respect of
such delivery shall serve as security for the Fund's obligation to
repay such advance until such time as such advance is repaid, and, in
the case where such advance is extended for the purchase of Securities
which constitute "margin stock" under Regulation U of the Board of
Governors of the Federal Reserve System, such additional Securities of
the Fund, as shall be necessary for the Custodian, in the Custodian's
<PAGE>
reasonable determination, to be in compliance with such Regulation U
also shall constitute security for the Fund's obligation to repay such
advance. Each Fund hereby grants the Custodian a security interest in
such property of the Fund to secure such advance and agrees to repay
such advance promptly without demand from the Custodian (and in any
event, as soon as reasonably practicable following any demand by the
Custodian), unless otherwise agreed by both parties. Should a Fund fail
to repay such advance as required, the Custodian shall be entitled
immediately to apply such security to the extent necessary to obtain
repayment of the advance, subject, in the case of a Fund's failure to
make prompt repayment without demand, to prior notice to the Fund.
SECTION 5. RECEIPT OF SECURITIES
(a) The Custodian shall hold in each Fund's Account, segregated at all
times from those of any other persons, firms or corporations (including the
Accounts of other Funds), pursuant to the provisions hereof, all Securities
received by it from or for the account of the applicable Fund. All such
Securities are to be held or disposed of by the Custodian for, and subject at
all times to the instructions of, the applicable Fund pursuant to the terms of
this Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any of the Securities and cash,
except pursuant to the directive of the applicable Fund and only for the account
of the Fund as set forth in Section 7 of this Agreement.
(b) The Trust hereby authorizes the Custodian to deposit assets of the
Funds of the Trust as follows:
(i) deposit with the Custodian or any opther bank licensed and
examined by the United States or any state thereof;
(ii) deposit in the Custodian's account(s) with any Securities
Depository all or any part of the Securities as may from time to time
be held for the Trust; and
(iii) deposit Book-Entry Securities belonging to the Funds in a
Book-Entry Account maintained for the Custodian by a Federal Reserve
Bank.
So long as any deposit referred to in (ii) or (iii) above is maintained for the
Trust, the Custodian shall:
(A) deposit the Securities in an account that includes only assets
held by it for customers;
(B) with respect to Securities of the Trust transferred to the account,
identify as belonging to the Trust a quantity of securities in a
fungible bulk of securities that are registered in the name of the
Custodian or its nominee, or shown on the Custodian's account on the
books of the Securities Depository, the Book-Entry System, or the
Custodian's agent;
<PAGE>
(C) promptly send to the Trust all reports the Custodian receives from
the appropriate Federal Reserve Bank or Securities Depository on its
respective system of internal accounting control; and
(D) send to the Trust such reports of the systems of internal
accounting control of the Custodian and its agents through which such
Securities are deposited as are available and as the Trust may
reasonably request from time to time.
The Custodian shall not waive any rights it may have against a Securities
Depository or Federal Reserve Bank. The Trust may elect to be subrogated to the
rights of the Custodian against the Securities Depository or Federal Reserve
Bank or any other person with respect to any claim that the Custodian may have
as a consequence of any loss or damage suffered by the Trust as a result of the
Custodian's use of the Securities Depository or Book-Entry account if and to the
extent that the Trust has not been made whole for any such loss or damage.
SECTION 6. FOREIGN SUBCUSTODIANS AND OTHER AGENTS
(a) In the event the Custodian places Securities, pursuant to this
Agreement, with any foreign subcustodian, the Custodian agrees that it shall
place such Securities only with those foreign subcustodians which either are
"eligible foreign custodians" as defined in Rule 17f-5 under the 1940 Act, or
with respect to which exemptive relief has been granted by the U. S. Securities
and Exchange Commission from the requirements of Section 17(f).
The Custodian agrees further that in placing Securities with any such
foreign subcustodian, it will enter into a written subcustodian agreement which
shall provide that: (i) the Custodian will be adequately indemnified and the
Securities so placed adequately insured in the event of loss, as provided in
subsection 6(b); (ii) the Securities will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign
subcustodian or its creditors (except any claim for payment for the services
provided by such subcustodian and any related expenses; provided, however that
the Custodian shall use its best efforts promptly to release any such right,
charge, security interest, lien or claim on the assets, except to the extent
such right, charge, security interest, lien or claim arises with respect to a
special request or requirement by the Fund for services the cost of which and
the expenses incurred in connection with which the Fund has not paid or has
declined to pay, it being agreed and understood that, in the ordinary course,
all payments for usual and routine services rendered and expenses incurred by a
subcustodian shall be the obligation of the Custodian); (iii) beneficial
ownership of the Securities will be freely transferable without payment of money
or value other than for safe custody or administration; (iv) adequate records
will be maintained identifying the Securities as belonging to the Funds of the
Trust; (v) the Custodian's independent public accountants will be given access
to those records or the confirmation of the contents of those records; and (vi)
the Custodian will receive periodic reports with respect to the safekeeping of
the Securities, including, but not necessarily limited to, notification of any
transfer to or from the Accounts.
(b) In addition to the indemnities included in Section 13 hereof, the
Custodian agrees that the Custodian shall be liable to the Trust for any loss
which shall occur as a result of the
<PAGE>
failure of a subcustodian as listed in exhibit B hereto to exercise reasonable
care with respect to the safekeeping of the Securities and cash of the Trust to
the same extent that the Custodian would be liable to the Trust if the Custodian
were holding such Securities or cash in NewYork.
(c) With respect to any Securities to be placed with foreign
subcustodians pursuant to this section, the Custodian represents and warrants
that during the term of this Agreement it will carry a Bankers Blanket Bond or
similar insurance for losses incurred as a result of such sub-custodial
arrangements.
(d) The Trust authorizes the Custodian to release any and all
information regarding Securities placed with foreign subcustodians hereunder as
may be required by court order of a court of competent jurisdiction.
(e) So long as Rule 17f-5 under the 1940 Act so requires the Trust's
Board of Trustees or Funds's investment adviser to review or monitor the
Custodian's global custody network, the Custodian shall (a) furnish annually to
the Trust information concerning the foreign sub-custodians employed by the
Custodian similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Agreement; (b) promptly inform the Trust in
the event that the custodian learns of (i) a material adverse change in the
financial condition of a foreign sub-custodian, (ii) any material loss of the
assets of a Fund or (iii) a foreign sub-custodian not the subject of an
exemptive order from the U.S. Securities and Exchange Commission ceasing, or
becoming likely to cease, to meet applicable minimum shareholders' equity
requirements.
SECTION 7. TRANSFER, EXCHANGE AND REDELIVERY OF SECURITIES
The Custodian (or a subcustodian or any other agent of the Custodian)
shall have sole power to release or deliver any Securities of a Fund held by the
Custodian (or such subcustodian or agent) pursuant to this Agreement. The
Custodian agrees (and will obtain an undertaking from each subcustodian or other
agent) that Securities held by the Custodian (or by a subcustodian or other
agent of the Custodian) will be transferred, exchanged or delivered only:
(i) for sales of Securities for the account of the Fund in accordance
with (A) "New York Street Practice", (B) predominant established
practice in the relevant local market, or (C) specific instructions
from the Fund;
(ii) when Securities are called, redeemed or retired or otherwise
become payable;
(iii) for examination by any broker selling any such Securities in
accordance with "street delivery" custom or other relevant local market
practice;
(iv) in exchange for or upon conversion into other Securities whether
pursuant to any plan of merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise;
<PAGE>
(v) upon conversion of such Securities pursuant to their terms
into other Securities;
(vi) upon exercise of subscription, purchase or other similar rights
represented by such Securities pursuant to their terms;
(vii) for the purpose of exchanging interim receipts or temporary
Securities for definitive Securities;
(viii) for the purpose of tendering Securities;
(ix) for the purpose of delivering Securities lent by the Fund;
(x) for purposes of delivering collateral upon redelivery of
Securities lent or for purposes of delivering excess collateral; or
(xi) for other proper Fund purposes.
As to any deliveries made by the Custodian pursuant to items (ii), (iv), (v),
(vi), (vii), (ix), (x) and (xi), Securities in exchange therefor shall be
deliverable to the Custodian (or a subcustodian or other agent of the
Custodian). The Custodian may rely upon any written, electronic or oral
instructions or an Officers' Certificate relating thereto as provided for in
Sections 3 and 4 hereof.
SECTION 8. THE CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until the Custodian receives instructions to the contrary,
the Custodian (or a subcustodian or other agent of the Custodian) shall:
(i) present for payment all coupons and other income items held by it
for the account of each Fund which call for payment upon presentation
and hold the cash received by it upon such payment in the applicable
Account;
(ii) collect interest and cash dividends and other distributions,
provide notice to the Fund of receipts, and deposit to the Account;
(iii) hold for the account of the Fund all stock dividends, rights and
similar Securities issued with respect to any Securities held by the
Custodian under the terms of this Agreement;
(iv) execute as agent on behalf of the Fund all necessary ownership
certificates required by the United States Internal Revenue Code of
1986, as amended, the Income Tax Regulations of the United States
Treasury Department, the laws of any State or territory of the United
States, or, in the case of Securities held through foreign
subcustodians, the laws of the jurisdiction in which such Securities
are held, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the Securities covered thereby, to the
extent it may lawfully do so;
<PAGE>
(v) use its best efforts, in cooperation with the Fund, to file such
forms, certificates and other documents as may be required to comply
with all applicable laws and regulations relating to withholding
taxation applicable to the Securities; and
(vi) use its best efforts to assist the Fund in obtaining any refund of
local taxes to which the Fund may have a reasonable claim.
The Trust agrees to furnish to the Custodian such information and to execute
such forms and other documents as the Custodian may reasonably request or as
otherwise may be reasonably necessary in connection with the Custodian's
performance of its obligations under clauses (v) and (vi).
SECTION 9. REGISTRATION OF SECURITIES
(a) Except as otherwise directed by an Officers' Certificate, the
Custodian shall register all Securities, except such as are in bearer form, in
the name of the Trust or the applicable Fund or a registered nominee of the
Trust or the Fund or a registered nominee of the Custodian or a subcustodian.
Securities deposited with a Securities Depository or with a foreign subcustodian
permitted under Section 6 may be registered in the nominee name of the
Securities Depository or such foreign subcustodian. The Custodian shall execute
and deliver all such certificates in connection therewith as may be required by
the applicable provisions of the United States Internal Revenue Code fo 1986, as
amended, the Income Tax Regulations of the United States Treasury Department,
the laws of any State or territory of the United States, or, in the case of
Securities placed with foreign subcustodians, the laws of the jurisdiction in
which such Securities are held. The Custodian shall maintain such books and
records as may be necessary to identify the specific Securities held by it
hereunder at all times.
(b) The Trust shall from time to time furnish the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee, any Securities
which it may hold for the account of a Fund and which may from time to time be
registered in the name of a Fund.
SECTION 10. VOTING AND OTHER ACTION
Neither the Custodian nor any nominee of the Custodian or of DTC shall
vote any of the Securities held hereunder by or for the account of a Fund except
in accordance with the instructions contained in an Officers' Certificate.
The Custodian shall deliver or have delivered to the Trust all notices,
proxies and proxy soliciting materials with relation to such Securities, such
proxies to be executed by the registered holder of such Securities (if
registered otherwise than in the name of a Fund), but without indicating the
manner in which such proxies are to be voted.
<PAGE>
With respect to Securities deposited with a Securities Depository or a
foreign subcustodian, as provided for in Section 6 hereof, that may be
registered in the nominee name of the Securities Depository or the foreign
subcustodian, the Custodian shall request that the nominee shall not vote any of
such deposited Securities or execute any proxy to vote thereon or give any
consent or take any other action with respect thereto unless instructed to do so
by the Custodian following receipt by the Custodian of an Officers' Certificate.
SECTION 11. TRANSFER TAX AND OTHER DISBURSEMENTS
The Trust, on behalf of each Fund, shall pay or reimburse the Custodian
from time to time for any transfer taxes payable upon transfers of Securities
made hereunder and for all other necessary and proper disbursements and expenses
made or incurred by the Custodian in the performance of this Agreement, as
required by U.S. law or the laws of the jurisdiction in which the Securities are
held, as the case may be.
The Custodian shall execute and deliver such certificates in connection
with Securities delivered to it or by it under this Agreement as may be required
under the laws of any jurisdiction to exempt from taxation any exemptible
transfers and/or deliveries of any such Securities.
SECTION 12. COMPENSATION AND THE CUSTODIAN'S EXPENSES
The Custodian shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties.
SECTION 13. INDEMNIFICATION
The Trust, on behalf of each Fund, agrees to indemnify and hold
harmless the Custodian and its employees, agents and nominee from all taxes,
charges, expenses, assessments, claims and liabilities (including attorneys'
fees) incurred or assessed against them in connection with the performance of
the Agreement, except such as may arise from their own negligent action,
negligent failure to act or willful misconduct. The Custodian agrees to
indemnify and hold harmless the Trust and its trustees, officers, employees, and
agents from all taxes, charges, expenses, assessments, claims and liabilities
(including attorneys fees) incurred or assessed against the Trust in connection
with the performance of the Agreement, which may arise from negligent action,
negligent failure to act or willful misconduct on the part of the Custodian. In
the event of any advance of cash for any purpose made by the Custodian resulting
from orders or instructions of a Fund, or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Agreement,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor.
Within a reasonable time after receipt by an indemnified party of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be
<PAGE>
made against any indemnifying party, notify in writing the indemnifying party of
the commencement thereof; and the omission so to notify the indemnifying party
will not relieve it from any liability hereunder as to the particular item for
which indemnification is then being sought, unless such omission is a result of
the failure to exercise reasonable care on the part of the indemnified party. In
case any such action is brought against an indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to assume the defense thereof, with counsel
who shall be to the reasonable satisfaction of such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. Any such indemnifying party shall not be liable to any
such indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party.
SECTION 14. MAINTENANCE OF RECORDS
The Custodian will maintain records with respect to each Fund,
including general ledgers, portfolio ledgers, subsidiary ledgers, if any,
appropriate journals or other records reflecting (i) Securities maintained in
the portfolio of a Fund, (ii) Securities borrowed, loaned or collateralizing
obligations of a Fund, (iii) monies borrowed and monies loaned (together with a
record of the collateral thereto and substitutions of such collateral), (iv)
dividends and interest received, and (v) dividends receivable and interest
accrued, in compliance with the rules and regulations of the 1940 Act, where
applicable.
SECTION 15. REPORTS BY THE CUSTODIAN
The Custodian will furnish to the Trust at the end of every month, and
at the close of each quarter of a Fund's fiscal year, a list of the portfolio
Securities and the aggregate amount of cash in each Account and will assist in
the preparation of the financial data for the N-SAR annual report to be filed on
behalf of a Fund.
The Custodian shall furnish the Trust with such other reports
concerning transactions in the Accounts and/or the Securities as may be agreed
upon from time to time. The books and records of the Custodian pertaining to its
actions under this Agreement shall be kept and preserved by the Custodian in the
manner and, in accordance with applicable rules and regulations under the 1940
Act, and shall be open to inspection and audit at reasonable times and upon
reasonable notice to the Custodian, by officers of any auditors employed by the
Trust (and such other persons as the Trust may designate from time to time). All
such books and records shall be the property of the Trust and the Custodian
shall forthwith upon the Trust's request, turn over to the Trust and cease to
retain in its files, records and documents created and maintained by the
Custodian pursuant to this Agreement, except that the Custodian may maintain
copies of any such files, records and documents to the extent needed for its
protection.
<PAGE>
SECTION 16. FUND VALUATION -- INTENTIONALLY LEFT BLANK
SECTION 17. TERMINATION AND ASSIGNMENT
(a) This agreement may be terminated with respect to one or more Funds
by the Trust or by the Custodian, immediately upon written notice from the Trust
or the Custodian, as applicable, to the other party, if the other party fails
materially to perform its obligations hereunder, and may otherwise be terminated
by the Trust or by the Custodian on sixty (60) days' notice, given in writing
and sent by registered mail to the Custodian or the Trust as the case may be.
Upon termination of this Agreement, the Custodian shall deliver the Securities
and cash in the Account of the Funds for which this Agreement has been
terminated to the Trust as is designated in writing by the Trust and, in the
absence of such a designation may, but shall not be obligated to, deliver them
to a bank or trust company of the Custodian's own selection having an aggregate
capital, surplus and undivided profits as shown by its last published report of
not less than 50 million dollars ($50,000,000), the Securities and cash to be
held by such bank or trust company for the benefit of the Trust under terms
similar to those of this Agreement, and the Trust shall be obligated to pay to
such transferee the then current rates of such transferee for services rendered
by it. The Custodian may decline, however, to transfer such amount of such
Securities equivalent to all fees and other sums owing by the applicable Fund to
the Custodian, and the Custodian shall have a charge against and security
interest in such amount until all monies owing to it have been paid or escrowed
to its satisfaction.
(b) This Agreement may not be assigned by the Custodian without the
consent of the Trust, authorized or approved by a resolution of the Trust's
Board of Trustees.
SECTION 18. FORCE MAJEURE
The Custodian shall not be liable or accountable for any loss or damage
resulting from any condition or event beyond its reasonable control; provided,
however, that the Custodian shall promptly use its best efforts to mitigate any
such loss or damage to the Trust or a Fund as a result of any such condition or
event. For the purposes of the foregoing, the actions or inactions of the
Custodian's subcustodians and other agents shall not be deemed to be beyond the
reasonable control of the Custodian. In connection with the foregoing, the
Custodian agrees (and agrees that it will use its best efforts to obtain the
undertaking of its subcustodians and other agents to the effect) that the
Custodian (and/or such subcustodian or agent) shall maintain such alternate
power sources for computer and related systems and alternate channels for
electronic communication with such computers and related systems that the
failure of the primary power source and/or communications channel of the
Custodian (and/or its subcustodians or other agents) will not foreseeably result
in any loss or damage to the Trust or any Fund.
SECTION 19. THIRD PARTIES
This Agreement shall be binding upon and the benefits hereof shall
inure to the parties hereto and their respective successors and assigns.
However, nothing in this Agreement shall give or be construed to give or confer
upon any third party any rights hereunder.
<PAGE>
SECTION 20. AMENDMENTS
The terms of this Agreement shall not be waived, altered, modified,
amended, supplemented or terminated in any manner whatsoever, except by written
instrument signed by both of the parties hereto.
SECTION 21. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
SECTION 22. COUNTERPARTS
This agreement may be executed in several counterparts, each of which
is an original.
SECTION 23. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof, whether oral or written.
SECTION 24. NOTICES
All notices provided for herein shall be in writing and shall become
effective when deposited in the United States mail, postage prepaid and
certified, addressed
(i) if to the Custodian, at: 150 Royall Street
Canton, MA 02021
Attention: Worldwide Custody - MS:
45-02-90
(ii) if to the Trust, at: Two Portland Square
Portland, Maine 04101
Attention: Secretary
or to such other address as either party may notify the other in writing.
A copy of the Trust Instrument of the Trust has been delivered to the
Custodian is on file with the Secretary of the Trust and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees, and the obligations of this instrument are not binding upon any of the
Trustees, officers, or shareholders of the Trust individually but binding only
upon assets and property of the applicable Fund of the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
FORUM FUNDS
By: /s/ David I. Goldstein
--------------------------------
David I. Goldstein, Secretary
BANKBOSTON, N.A.
By: /s/ Herbert Alleyne, Jr.
--------------------------------
Name: Herbert Alleyne, Jr.
Title: Director and Senior Manager
<PAGE>
CUSTODIAN AGREEMENT
FORUM FUNDS
APPENDIX A
FUNDS OF THE TRUST
MAY 1, 1998
Polaris Global Value Fund
<PAGE>
CUSTODIAN AGREEMENT
FORUM FUNDS
APPENDIX A
FUNDS OF THE TRUST
MAY 19, 1998
(A) MONEY MARKET FUNDS (INSTITUTIONAL, INSTITUTIONAL SERVICE, AND INVESTOR
SHARE CLASS)
Daily Assets Treasury Fund
Daily Assets Treasury Obligations Fund
Daily Assets Government Fund
Daily Assets Cash Fund
Daily Assets Municipal Fund
(B) FORUM FIXED INCOME FUNDS
Investors High Grade Bond Fund
Investors Bond Fund
TaxSaver Bond Fund
Maine Municipal Bond Fund
New Hampshire Bond Fund
(C) FORUM EQUITY FUNDS
Payson Balanced Fund
Equity Index Fund
Investors Equity Fund
Payson Value Fund
Investors Growth Fund
International Equity Fund
Emerging Markets Fund
Small Company Opportunities Fund
(D) QUADRA FUNDS
Quadra Value Equity Fund
Quadra Growth Fund
(E) OTHER FUNDS
Oak Hall Small Cap Contrarian Fund
Austin Global Equity Fund
Polaris Global Value Fund
<PAGE>
CUSTODIAN AGREEMENT
FORUM FUNDS
APPENDIX B
SUBCUSTODIANS FOR WHICH THE CUSTODIAN IS LIABLE
<TABLE>
<S> <C>
COUNTRY SUBCUSTODIAN
Australia Australia & New Zealand Banking Group, Ltd.
Austria Creditanstalt-Bankverein
Belgium Banque Bruxelles Lambert, S.A.
Canada Canadian Imperial Bank of Commerce
Denmark Den Danske Bank
Finland Merita Bank
France Credit Agricole Indosuez
Germany Dresdner Bank AG
Greece Citibank, N.A.
Hong Kong Standard Chartered Bank
Hungary Creditanstalt-Bankverein
Indonesia Standard Chartered Bank
Ireland The Bank of Ireland
Italy Banque Paribas
Japan Bank of Tokyo-Mitsubishi, Ltd.
Korea Standard Chartered Bank
Malaysia Standard Chartered Bank
Mexico Citibank, N.A.
Netherlands Kas-Associatie N.V.
New Zealand Australia & New Zealand Banking Group, Ltd.
Norway Den norske Bank
Portugal Banco Espirito Santo Commercial de Lisboa
Singapore Standard Chartered Bank
South Africa Standard Bank of South Africa Ltd.
Spain Banco Bilboa Vizcaya
Sweden Skandinaviska Enskilda Banken
Switzerland Bank Leu Ltd.
Transitional Cedel, S.A.
United Kingdom Midland Bank plc
First Chicago Clearing Centre
Venezuela Citibank, N.A.
Argentina, Brazil, Chile , Columbia, Panama, Peru, United Bank Boston, N.A.
States and Uruguay
</TABLE>
One International Place
Boston, Massachusetts 02110-9801
617/439-9700 fax 617/439-0476
WOLF
COMPANY,P.C. 1441 Main Street
CERTIFIED PUBLIC ACCOUNTANTS Springfield, Massachusetts 01103
AND BUSINESS CONSULTANTS 413/747-9042 fax 413/733-1990
- --------------------------------------------------------------------------------
Exhibit 11(a)
Consent of Independent Auditors
The Board of Trustees and Shareholders
Forum Funds:
We consent to the use of our report dated May 15, 1998 included in the Annual
Report to Shareholders for Quadra Value Equity Fund and Quadra Growth Fund,
portfolios of the Forum Funds, incorporated herein by reference into the
Statement of Additional Information and to the references to our Firm under the
headings, "Financial Highlights" in the prospectus and "Independent Accountants"
in the Statement of Additional Information.
/s/ Wolf & Company, P.C.
Wolf & Company, P.C.
Boston, Massachusetts
July 27, 1998
Member of Associated Regional Accounting Firms and TGI International
Exhibit 11(b)
Independent Auditors' Consent
We consent to the use of our reports dated May 1, 1998 for Oak Hall Small Cap
Contrarian Fund, Austin Global Equity Fund, Payson Balance Fund, Payson Value
Fund, Investors Growth Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund,
Investors High Grade Bond Fund, Investors Bond Fund, and TaxSaver Bond Fund,
series of Forum Funds, incorporated herein by reference into the statements of
additional information and to the references to us under the headings,
"Financial Highlights" in the prospectuses and "Independent Auditors" in the
statements of additional information.
/s/ Deloitte & Touch LLP
Boston, Massachusetts
July 31, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE AUSTIN
GLOBAL EQUITY FUND ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 017
<NAME> AUSTIN GLOBAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 10,364,626
<INVESTMENTS-AT-VALUE> 15,374,832
<RECEIVABLES> 32,136
<ASSETS-OTHER> 17,785
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,424,753
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,791
<TOTAL-LIABILITIES> 45,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,047,354
<SHARES-COMMON-STOCK> 945,268
<SHARES-COMMON-PRIOR> 801,074
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 321,402
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,010,206
<NET-ASSETS> 15,378,962
<DIVIDEND-INCOME> 216,787
<INTEREST-INCOME> 42,926
<OTHER-INCOME> 0
<EXPENSES-NET> 324,990
<NET-INVESTMENT-INCOME> (65,277)
<REALIZED-GAINS-CURRENT> 1,816,799
<APPREC-INCREASE-CURRENT> 2,479,548
<NET-CHANGE-FROM-OPS> 4,231,070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,232,391
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,230,491
<NUMBER-OF-SHARES-REDEEMED> 371,889
<SHARES-REINVESTED> 1,232,391
<NET-CHANGE-IN-ASSETS> 5,089,672
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (263,006)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 195,053
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 349,453
<AVERAGE-NET-ASSETS> 13,003,515
<PER-SHARE-NAV-BEGIN> 12.84
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> 4.95
<PER-SHARE-DIVIDEND> 1.45
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.27
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 025
<NAME> INVESTORS HIGH GRADE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 33,134,244
<INVESTMENTS-AT-VALUE> 33,629,831
<RECEIVABLES> 500,537
<ASSETS-OTHER> 5,118
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,135,486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98,589
<TOTAL-LIABILITIES> 98,589
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,541,310
<SHARES-COMMON-STOCK> 3,415,730
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 495,587
<NET-ASSETS> 34,036,897
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 93,471
<OTHER-INCOME> 0
<EXPENSES-NET> 10,449
<NET-INVESTMENT-INCOME> 83,022
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (120,183)
<NET-CHANGE-FROM-OPS> (37,161)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 83,022
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,311,467
<NUMBER-OF-SHARES-REDEEMED> 154,387
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 34,036,897
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,970
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44,701
<AVERAGE-NET-ASSETS> 34,046,102
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 024
<NAME> INVESTORS GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 17,996,212
<INVESTMENTS-AT-VALUE> 35,303,400
<RECEIVABLES> 45,658
<ASSETS-OTHER> 14,333
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,363,391
<PAYABLE-FOR-SECURITIES> 1,407,043
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,410
<TOTAL-LIABILITIES> 1,464,453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,503,288
<SHARES-COMMON-STOCK> 2,987,037
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 88,462
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,307,188
<NET-ASSETS> 33,898,938
<DIVIDEND-INCOME> 118,840
<INTEREST-INCOME> 69,128
<OTHER-INCOME> 0
<EXPENSES-NET> 100,136
<NET-INVESTMENT-INCOME> 87,832
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 3,816,203
<NET-CHANGE-FROM-OPS> 3,904,035
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,213,621
<NUMBER-OF-SHARES-REDEEMED> 1,218,718
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,898,938
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,250
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 142,373
<AVERAGE-NET-ASSETS> 30,246,471
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 1.32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.35
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> INVESTORS BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 83,479,363
<INVESTMENTS-AT-VALUE> 84,951,645
<RECEIVABLES> 1,160,195
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,111,840
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 513,809
<TOTAL-LIABILITIES> 513,809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,858,624
<SHARES-COMMON-STOCK> 8,097,617
<SHARES-COMMON-PRIOR> 2,178,639
<ACCUMULATED-NII-CURRENT> (4,904)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 272,029
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,472,282
<NET-ASSETS> 85,598,031
<DIVIDEND-INCOME> 159,141
<INTEREST-INCOME> 2,940,733
<OTHER-INCOME> 0
<EXPENSES-NET> 300,574
<NET-INVESTMENT-INCOME> 2,799,300
<REALIZED-GAINS-CURRENT> 407,860
<APPREC-INCREASE-CURRENT> 619,147
<NET-CHANGE-FROM-OPS> 3,826,307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,799,300
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 70,612,230
<NUMBER-OF-SHARES-REDEEMED> 8,475,106
<SHARES-REINVESTED> 243,656
<NET-CHANGE-IN-ASSETS> 63,407,787
<ACCUMULATED-NII-PRIOR> (2,108)
<ACCUMULATED-GAINS-PRIOR> (138,629)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 171,777
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 525,151
<AVERAGE-NET-ASSETS> 42,944,138
<PER-SHARE-NAV-BEGIN> 10.19
<PER-SHARE-NII> .71
<PER-SHARE-GAIN-APPREC> .38
<PER-SHARE-DIVIDEND> .71
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 008
<NAME> MAINE MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 27,095,843
<INVESTMENTS-AT-VALUE> 28,259,742
<RECEIVABLES> 569,586
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,829,328
<PAYABLE-FOR-SECURITIES> 570,009
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,266
<TOTAL-LIABILITIES> 633,275
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,002,433
<SHARES-COMMON-STOCK> 2,552,646
<SHARES-COMMON-PRIOR> 2,406,727
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 29,721
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,163,899
<NET-ASSETS> 28,196,053
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,410,516
<OTHER-INCOME> 0
<EXPENSES-NET> 161,193
<NET-INVESTMENT-INCOME> 1,249,323
<REALIZED-GAINS-CURRENT> 85,991
<APPREC-INCREASE-CURRENT> 692,888
<NET-CHANGE-FROM-OPS> 2,028,202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,249,323
<DISTRIBUTIONS-OF-GAINS> 15,537
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,686,863
<NUMBER-OF-SHARES-REDEEMED> 4,007,882
<SHARES-REINVESTED> 926,235
<NET-CHANGE-IN-ASSETS> 2,368,558
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (40,733)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 107,471
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 398,596
<AVERAGE-NET-ASSETS> 26,867,624
<PER-SHARE-NAV-BEGIN> 10.73
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .33
<PER-SHARE-DIVIDEND> .51
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.05
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> NEW HAMPSHIRE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 12,255,283
<INVESTMENTS-AT-VALUE> 12,644,231
<RECEIVABLES> 282,145
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,926,376
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,449
<TOTAL-LIABILITIES> 18,449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,506,403
<SHARES-COMMON-STOCK> 1,202,463
<SHARES-COMMON-PRIOR> 843,042
<ACCUMULATED-NII-CURRENT> 489
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,087
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 388,948
<NET-ASSETS> 12,907,927
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 552,456
<OTHER-INCOME> 0
<EXPENSES-NET> 65,665
<NET-INVESTMENT-INCOME> 486,791
<REALIZED-GAINS-CURRENT> 28,990
<APPREC-INCREASE-CURRENT> 381,519
<NET-CHANGE-FROM-OPS> 897,300
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 486,791
<DISTRIBUTIONS-OF-GAINS> 3,158
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,626,698
<NUMBER-OF-SHARES-REDEEMED> 1,266,972
<SHARES-REINVESTED> 450,170
<NET-CHANGE-IN-ASSETS> 4,217,247
<ACCUMULATED-NII-PRIOR> 489
<ACCUMULATED-GAINS-PRIOR> (13,745)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,782
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 197,588
<AVERAGE-NET-ASSETS> 10,945,572
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .43
<PER-SHARE-DIVIDEND> .48
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.73
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
OAK HALL SMALL CAP CONTRARIAN FUND ANNUAL REPORT DATED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT
</LEGEND>
<SERIES>
<NUMBER> 016
<NAME> OAK HALL SMALL CAP CONTRARIAN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 6,008,651
<INVESTMENTS-AT-VALUE> 7,285,006
<RECEIVABLES> 39,898
<ASSETS-OTHER> 19,043
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,343,947
<PAYABLE-FOR-SECURITIES> 98,251
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,771
<TOTAL-LIABILITIES> 136,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,932,162
<SHARES-COMMON-STOCK> 348,816
<SHARES-COMMON-PRIOR> 529,586
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (592)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,276,355
<NET-ASSETS> 7,207,925
<DIVIDEND-INCOME> 35,349
<INTEREST-INCOME> 6,738
<OTHER-INCOME> 0
<EXPENSES-NET> 126,450
<NET-INVESTMENT-INCOME> (84,363)
<REALIZED-GAINS-CURRENT> 1,344,532
<APPREC-INCREASE-CURRENT> 1,304,798
<NET-CHANGE-FROM-OPS> 2,564,967
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,446,775
<NUMBER-OF-SHARES-REDEEMED> 5,114,010
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (102,268)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,345,124)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,135
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194,125
<AVERAGE-NET-ASSETS> 6,551,293
<PER-SHARE-NAV-BEGIN> 13.80
<PER-SHARE-NII> (.24)
<PER-SHARE-GAIN-APPREC> 7.10
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.66
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 007
<NAME> PAYSON BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 20,720,404
<INVESTMENTS-AT-VALUE> 23,918,513
<RECEIVABLES> 618,516
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,537,029
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97,194
<TOTAL-LIABILITIES> 97,194
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,858,219
<SHARES-COMMON-STOCK> 1,652,819
<SHARES-COMMON-PRIOR> 1,375,806
<ACCUMULATED-NII-CURRENT> (3,069)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,386,576
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,198,109
<NET-ASSETS> 24,439,835
<DIVIDEND-INCOME> 353,967
<INTEREST-INCOME> 464,294
<OTHER-INCOME> 0
<EXPENSES-NET> 252,149
<NET-INVESTMENT-INCOME> 566,112
<REALIZED-GAINS-CURRENT> 3,327,732
<APPREC-INCREASE-CURRENT> 1,901,486
<NET-CHANGE-FROM-OPS> 5,795,330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 566,112
<DISTRIBUTIONS-OF-GAINS> 2,798,475
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,548,584
<NUMBER-OF-SHARES-REDEEMED> 1,833,253
<SHARES-REINVESTED> 2,130,618
<NET-CHANGE-IN-ASSETS> 6,276,692
<ACCUMULATED-NII-PRIOR> (1,366)
<ACCUMULATED-GAINS-PRIOR> 854,090
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,512
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 343,586
<AVERAGE-NET-ASSETS> 21,918,721
<PER-SHARE-NAV-BEGIN> 13.20
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> 3.52
<PER-SHARE-DIVIDEND> .37
<PER-SHARE-DISTRIBUTIONS> 1.93
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.79
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUND ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 010
<NAME> PAYSON VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 13,321,844
<INVESTMENTS-AT-VALUE> 20,112,471
<RECEIVABLES> 39,905
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,152,376
<PAYABLE-FOR-SECURITIES> 184,050
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,969
<TOTAL-LIABILITIES> 234,019
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,199,033
<SHARES-COMMON-STOCK> 919,046
<SHARES-COMMON-PRIOR> 814,041
<ACCUMULATED-NII-CURRENT> (15,760)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 944,457
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,790,627
<NET-ASSETS> 19,918,357
<DIVIDEND-INCOME> 309,230
<INTEREST-INCOME> 31,251
<OTHER-INCOME> 0
<EXPENSES-NET> 238,718
<NET-INVESTMENT-INCOME> 101,763
<REALIZED-GAINS-CURRENT> 1,827,572
<APPREC-INCREASE-CURRENT> 4,127,867
<NET-CHANGE-FROM-OPS> 6,057,202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 101,763
<DISTRIBUTIONS-OF-GAINS> 1,140,141
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,200,541
<NUMBER-OF-SHARES-REDEEMED> 1,944,400
<SHARES-REINVESTED> 737,950
<NET-CHANGE-IN-ASSETS> 6,809,389
<ACCUMULATED-NII-PRIOR> (24,390)
<ACCUMULATED-GAINS-PRIOR> 264,765
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 307,364
<AVERAGE-NET-ASSETS> 16,471,177
<PER-SHARE-NAV-BEGIN> 16.10
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 6.93
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> 1.36
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.67
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUADRA
FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> QUADRA GROWTH FUND
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 3,455,475
<INVESTMENTS-AT-VALUE> 3,717,030
<RECEIVABLES> 50,361
<ASSETS-OTHER> 27,550
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,794,941
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 73,044
<TOTAL-LIABILITIES> 73,044
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,464,233
<SHARES-COMMON-STOCK> 325,950
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,599
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,490)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 261,555
<NET-ASSETS> 3,721,897
<DIVIDEND-INCOME> 5,595
<INTEREST-INCOME> 5,008
<OTHER-INCOME> 0
<EXPENSES-NET> 5,785
<NET-INVESTMENT-INCOME> 4,818
<REALIZED-GAINS-CURRENT> (7,490)
<APPREC-INCREASE-CURRENT> 261,555
<NET-CHANGE-FROM-OPS> 258,883
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,219
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,517,545
<NUMBER-OF-SHARES-REDEEMED> 54,541
<SHARES-REINVESTED> 1,219
<NET-CHANGE-IN-ASSETS> 3,721,887
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,793
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 70,427
<AVERAGE-NET-ASSETS> 1,428,646
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.41
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.42
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE QUADRA
FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 020
<NAME> QUADRA VALUE EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 3,332,585
<INVESTMENTS-AT-VALUE> 3,552,799
<RECEIVABLES> 56,470
<ASSETS-OTHER> 24,017
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,633,286
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 75,638
<TOTAL-LIABILITIES> 75,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,314,449
<SHARES-COMMON-STOCK> 277,950
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 14,307
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,678
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 220,214
<NET-ASSETS> 3,557,648
<DIVIDEND-INCOME> 21,506
<INTEREST-INCOME> 8,999
<OTHER-INCOME> 0
<EXPENSES-NET> 8,358
<NET-INVESTMENT-INCOME> 22,147
<REALIZED-GAINS-CURRENT> 40,519
<APPREC-INCREASE-CURRENT> 220,214
<NET-CHANGE-FROM-OPS> 282,880
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,840
<DISTRIBUTIONS-OF-GAINS> 31,841
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,389,076
<NUMBER-OF-SHARES-REDEEMED> 114,318
<SHARES-REINVESTED> 39,681
<NET-CHANGE-IN-ASSETS> 3,557,638
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,367
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 138,615
<AVERAGE-NET-ASSETS> 838,995
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .22
<PER-SHARE-GAIN-APPREC> 3.45
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> .70
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.80
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORUM FUNDS ANNUAL REPORT DATED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 005
<NAME> TAXSAVER BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 37,539,720
<INVESTMENTS-AT-VALUE> 38,740,469
<RECEIVABLES> 628,979
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,369,448
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166,141
<TOTAL-LIABILITIES> 166,141
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,578,093
<SHARES-COMMON-STOCK> 3,645,233
<SHARES-COMMON-PRIOR> 1,693,197
<ACCUMULATED-NII-CURRENT> 8,267
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 416,198
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,200,749
<NET-ASSETS> 39,203,307
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,415,850
<OTHER-INCOME> 0
<EXPENSES-NET> 152,995
<NET-INVESTMENT-INCOME> 1,262,855
<REALIZED-GAINS-CURRENT> 431,531
<APPREC-INCREASE-CURRENT> 12,927
<NET-CHANGE-FROM-OPS> 1,707,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,254,588
<DISTRIBUTIONS-OF-GAINS> 10,731
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,165,062
<NUMBER-OF-SHARES-REDEEMED> 4,512,629
<SHARES-REINVESTED> 351,873
<NET-CHANGE-IN-ASSETS> 21,446,300
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,602)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 102,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 346,511
<AVERAGE-NET-ASSETS> 25,500,766
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> .53
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.75
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
OTHER EXHIBIT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John Y. Keffer constitutes and appoints
David I. Goldstein, Anthony C.J. Nuland, Max Berueffy, Leslie K. Klenk and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement on Form N-1A and any
or all amendments thereto of Forum Funds, and to file the same with the
Securites and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might do or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/John Y. Keffer
----------------------------
John Y. Keffer
Dated: May 19, 1998