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As filed with the Securities and Exchange Commission
on May 5, 1998
Securities Act File No. 333-49565
_______________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /____/
Pre-Effective Amendment No. /__1__/
Post-Effective Amendment No. /_____/
FORUM FUNDS
(Exact Name of Registrant as Specified in Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Offices) (Zip Code)
(207) 879-1900
(Registrant's Area Code and Telephone Number)
David I. Goldstein, Esq.
Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
Approximate Date of Proposed Public Offering:
As soon as practicable after this
Registration Statement becomes effective.
________________________________________________________________
It is proposed that this filing will become effective on May 7,
1998 pursuant to Rules 488 and 461 under the Securities Act of
<PAGE>
1933, or as soon thereafter as practicable.
________________________________________________________________
No filing fee is required because the Registrant has previously
registered an indefinite number of its Shares under the
Securities Act of 1933, as amended, pursuant to Rule 24f-2 under
the Investment Company Act of 1940, as amended.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) Under the Securities Act of 1933
Item of Form N-14 Location in the Prospectus
PART A
1. Beginning of Registration
Statement and Outside Front
Cover Page of Prospectus Cross Reference Sheet and
Cover Page
2. Beginning and Outside Back
Cover Page of Prospectus Table of Contents
3. Fee Table, Synopsis
Information, and Risk Factors Synopsis; Risk Factors;
Advisory Fees and Other
Expenses
4. Information About the
Transaction Synopsis; Risk Factors; The
Conversion; The Proposals;
Securities To Be Issued;
Advantages to Fund
Shareholders; Federal Income
Tax Consequences of the
Conversion; ERISA
Considerations; Comparison of
the Partnership to the Fund;
Capitalization; Expenses of
the Exchange; Initial
Approvals; Financial
Statements
5. Information About the
Registrant General Information About the
Partnership and the Fund;
Regulatory Matters
6. Information About the Company
Being Acquired Risk Factors; General
Information About the
Partnership and the Fund;
Comparison of the Partnership
to the Fund
7. Voting Information Voting Information
8. Interest of Certain Persons
and Experts Interest of Mr. Keffer
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9. Additional Information
Required for Reoffering by
Persons Deemed to be
Underwriters Not Applicable
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About
the Registrant The Trust
13. Additional Information About
the Company Being Acquired Not Applicable
14. Financial Statements Financial Statements
PART C
15. Indemnification Item 15 - Indemnification
16. Exhibits Item 16 - Exhibits
17. Undertakings Item 17 - Undertakings
<PAGE>
PART A
PROXY STATEMENT/PROSPECTUS
May __, 1998
FORUM FUNDS
Two Portland Square
Portland, Maine 04101
(207) 879-1900
This Proxy Statement/Prospectus is furnished to the
limited partners (the "Limited Partners") of Global Value
Limited Partnership (the "Partnership") in connection with
the solicitation by Polaris Capital Management, Inc. (the
"General Partner") of the Limited Partners' written consent
to two proposals in connection with the proposed conversion
of the Partnership into a series of a registered open-end
management investment company.
The Partnership has entered into an Agreement and
Plan of Reorganization (the "Plan") with Forum Funds (the
"Trust"), a registered open-end management investment
company. In accordance with the Plan, the Trust has
established Polaris Global Value Fund (the "Fund") as a
newly-created separate series of the Trust. The investment
objective of the Fund is to seek capital appreciation. The
Fund seeks its investment objective by investing primarily
in a diversified portfolio of equity securities of issuers
worldwide. The investment objectives and policies of the
Fund are substantially similar to those of the Partnership.
Pursuant to the Plan, substantially all of the
Partnership's assets will be transferred to the Fund in
exchange for shares of beneficial interest of the Fund (the
"Exchange"). Immediately after the Exchange, those shares of
beneficial interest will be distributed to the General
Partner and the Limited Partners of record as of the
business day immediately preceding the consummation of the
Exchange that have not made a complete withdrawal on that
day. Those shares of beneficial interest will be
distributed to those partners ("Participating Partners") in
proportion to their positive capital accounts (the "Share
Distribution"), followed as soon as practicable by the
dissolution, liquidation and termination of the Partnership
(the "Liquidation"). Together, the Exchange, the Share
Distribution and the Liquidation are referred to herein as
the "Conversion."
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You are being asked to give your consent to two
matters with respect to the Conversion:
1. Proposal 1 is to make certain amendments (the
"Amendments") to the Partnership's current Partnership
Agreement (the "Partnership Agreement") expressly
authorizing the General Partner, subject to Limited Partner
approval, to effectuate the transactions comprising the
Conversion and, to the extent required by applicable law, to
permit certain dissenting Limited Partners to withdraw their
Partnership interests.
2. Proposal 2 is to approve the Conversion
pursuant to the Partnership Agreement as amended by Proposal
1 (the "New Partnership Agreement"). The General Partner
intends to give its written consent to the Conversion.
The General Partner believes the Conversion is in
the best interests of the Limited Partners. As shareholders
of an open-end management investment company, former Limited
Partners will have increased flexibility and liquidity due
to their ability to redeem shares of beneficial interest
each business day and to purchase additional shares daily
and in smaller amounts. They will also receive simplified
tax reports (Form 1099s for dividends rather than Schedule
K-1s).
A consent form that requests your vote on each of
the two proposals is enclosed with this mailing. After
carefully reviewing the Proxy Statement/Prospectus and
considering the effects of the proposed Conversion, please
complete and return the consent form in the enclosed
postage-paid return envelope. If your consent form or a
suitable alternative written instrument is not received by
the Partnership prior to May 29, 1998, you will be treated
as not having consented to both the Amendments and the
Conversion. If the Amendments and the Conversion are
approved, you will, at the discretion of the General
Partner, either be treated as a Participating Partner or be
permitted to make a complete withdrawal from the Partnership
on the business day immediately preceding the Exchange. It
is anticipated that the General Partner will permit such
complete withdrawals only when required by applicable law.
The Partnership and the Fund (the "Parties" and
each, a "Party") will pay their own costs in connection with
the Conversion.
This Proxy Statement/Prospectus sets forth
concisely information about the Fund and the Conversion that
Limited Partners should consider carefully in deciding
2
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whether to approve the Conversion and the Amendments. This
Proxy Statement/Prospectus should be retained for future
reference. Additional information about the Fund and the
Conversion has been filed with the Securities and Exchange
Commission as a separate statement of additional information
dated May ___, 1998 (the "Statement") and is incorporated by
reference in this Proxy Statement/Prospectus. The Statement
can be obtained without charge by calling or writing to:
Forum Financial Corporation, Two Portland Square, Portland,
ME 04101, (888) 263-5594.
In addition, the Partnership can be reached by
calling or writing to: Global Value Limited Partnership,
Polaris Capital Management, Inc., General Partner, 125
Summer Street, 14th Floor, Boston, MA 02110, (617) 951-1365.
____________________________________________________________
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.
____________________________________________________________
3
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TABLE OF CONTENTS
Page
SYNOPSIS
RISK FACTORS
GENERAL INFORMATION ABOUT THE PARTNERSHIP AND THE FUND
THE CONVERSION
THE PROPOSALS
SECURITIES TO BE ISSUED
ADVANTAGES TO FUND SHAREHOLDERS
FEDERAL INCOME TAX CONSEQUENCES OF THE CONVERSION
ERISA CONSIDERATIONS
COMPARISON OF THE PARTNERSHIP TO THE FUND
CAPITALIZATION
FINANCIAL INFORMATION
ADVISORY FEES AND OTHER EXPENSES
EXPENSES OF THE CONVERSION
VOTING INFORMATION
INTEREST OF MR. KEFFER
LEGAL MATTERS RELATING TO THE CONVERSION
FINANCIAL STATEMENTS
4
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SYNOPSIS
The following Synopsis is qualified by reference to
the more detailed information contained elsewhere in this
Proxy Statement/Prospectus or attached as an appendix.
The Conversion. Polaris Capital Management, Inc.
(the "General Partner"), as the general partner of Global
Value Limited Partnership (the "Partnership"), proposes to
convert the Partnership into mutual fund form. Assuming the
approval of the limited partners of the Partnership (the
"Limited Partners"), the conversion of the Partnership will
be accomplished by a transfer of substantially all of the
Partnership assets to a newly-created series of a registered
open-end management investment company, Polaris Global Value
Fund (the "Fund"), in exchange for shares of the Fund (the
"Exchange"). Immediately following the Exchange, the
Partnership will distribute those shares to the General
Partner and those Limited Partners that are partners of
record on the Valuation Date (defined below) and have not
withdrawn their Partnership interest in lieu of
participating in the Conversion (together, the
"Participating Partners") in proportion to their positive
capital accounts. That distribution (the "Share
Distribution") will be followed as soon as practicable by
the dissolution, termination and liquidation of the
Partnership (the "Liquidation"). Throughout this
Proxy Statement/Prospectus, the transactions consisting of
the Exchange, the Share Distribution and the Liquidation are
referred to as the "Conversion." See "The Conversion."
The Proposals. In order to effectuate the
Conversion, the General Partner is soliciting the Limited
Partners' written consent to two proposals: Proposal 1 is to
make certain amendments to the Partnership's current
Partnership Agreement (defined below) expressly authorizing
the General Partner, subject to Limited Partner approval, to
effectuate the transactions comprising the Conversion and,
to the extent required by applicable law, to permit
dissenting Limited Partners to withdraw their Partnership
interests. Proposal 2 is to approve the Conversion pursuant
to the Partnership Agreement as amended by Proposal 1 (the
"New Partnership Agreement").
The Fund and the Trust. The Fund is a series of
Forum Funds (the "Trust"), an open-end management investment
company organized as a Delaware business trust. Currently,
there are 23 separate series of the Trust. The shares of
beneficial interest of the Fund are referred to herein as
the "Shares."
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Tax Matters. The Fund intends to elect and qualify
annually as a "regulated investment company" for federal
income tax purposes. As such, the Fund generally can avoid
federal income taxation at the Fund level to the extent that
it distributes its earnings to its shareholders
("Shareholders" and each, a "Shareholder") as a dividend.
Moreover, the Exchange should be tax-free to the Partnership
and the Fund (the "Parties" and each, a "Party"). See
"Federal Income Tax Consequences of the Conversion," and
"Comparison of the Partnership to the Fund - Federal Income
Tax Status."
Advisory Fees. Although the Fund's advisory fees
will not exceed those of the Partnership, other fees and
expenses paid by the Fund initially will be higher than
those currently paid by the Partnership. See "Advisory Fees
and Other Expenses."
Advantages. The General Partner believes the
Conversion is in the best interests of the Limited Partners.
The primary advantages of converting the Partnership into a
series of a registered investment company include:
increased flexibility and liquidity due to the ability to
redeem daily rather than quarterly, the lack of redemption
fees, the ability to purchase Shares daily, the reduced
minimum purchase amounts, and the ability to exchange Shares
for shares in a money market fund that is also a series of
the Trust; simplified tax reporting and investor accounting
associated with mutual funds; and, if the Fund attracts a
substantial amount of assets from new investors, the
possible realization by the Fund of economies of scale due
to a larger asset base. See "Advantages to Fund
Shareholders."
Differences. The Limited Partners should read
carefully the parts of this Proxy Statement/Prospectus that
compare the Fund and the Partnership and should carefully
consider differences between the Fund and the Partnership in
deciding whether or not to approve the Conversion and the
Amendments. In particular, Limited Partners should consider
differences between the Partnership and the Fund as to
minimum investments, how often redemptions are permitted,
the fees or anticipated fees, the rights of holders of
interests in the entity and investment policies regarding
diversification, concentration of investments in an
industry, borrowing and leverage. For descriptions of the
differences between the Fund and the Partnership, see
"Synopsis - Comparison of Investment Objectives and
Policies," "- Comparison of Distribution and Purchase
Procedures" and "- Comparison of Redemption and Exchange
Procedures" and "Comparison of the Partnership to the Fund."
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Timing. The Partnership and the Trust intend to
consummate the Exchange on or about June 1, 1998. The
Exchange could, however, be delayed for regulatory or other
reasons.
Comparison of Investment Objectives and Policies.
The Partnership seeks capital appreciation and seeks to
achieve its investment objective through highly speculative
investments in a portfolio of equity securities of issuers
worldwide, including without limitation active trading in
such securities on the basis of both long and short
positions, covering short sales, purchasing and writing
options, and trading on margin by borrowing and placing
securities as collateral. In the past, the Partnership's
portfolio turnover has averaged between 20 and 40 percent
each year and the General Partner believes this practice
would continue for the Partnership. The Fund also will seek
capital appreciation and will seek to achieve this
investment objective by investing primarily in a diversified
portfolio of equity securities of issuers worldwide. The
General Partner, as investment adviser to both the
Partnership and the Fund, intends to apply substantially the
same basic investment strategy to the Fund as is applied on
behalf of the Partnership. There are, however, certain
differences between an investment in the Partnership and an
investment in the Fund. See "Risk Factors."
Comparison of Distribution and Purchase Procedures.
Interests in the Partnership ("Partnership Interests") are
offered only to certain qualified investors and generally in
minimum subscription amounts of $100,000. Partnership
Interests are purchased directly from the Partnership and
only upon the General Partner's approval. Shares, in
contrast, will be offered to the general public with a
minimum initial investment of $2,500. Shares will be
available for purchase by an investor either directly or
through certain brokers and financial institutions (of which
the investor is a customer) on any day when the New York
Stock Exchange is open (a "Business Day"). See "Comparison
of the Partnership to the Fund -- Purchases and
Redemptions."
Comparison of Redemption and Exchange Procedures.
A Limited Partner may withdraw all or part of its
Partnership capital account, as of the last day of any
fiscal quarter, upon proper notice to the Partnership and
subject to a withdrawal charge, which may be waived at the
discretion of the General Partner, of 1/2 of 1% of the
amount withdrawn. The Fund, in contrast, will redeem Shares
at their net asset value next-determined after receipt of a
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redemption order in proper form on any Business Day. There
will be no redemption charge, no minimum period of
investment, and no limit on the frequency of redemptions.
Normally, redemption proceeds will be paid immediately and,
in any event, within seven days, following receipt of a
redemption order by the Fund's transfer agent. Limited
Partners do not have exchange privileges associated with
their Partnership Interests. In contrast, Shareholders will
be able to exchange their Shares for shares of Daily Assets
Treasury Fund (to be renamed Daily Assets Government Fund
effective May 25, 1998), a series of the Trust that is a
money market fund. See "Comparison of the Partnership to
the Fund - Purchases and Redemptions" and "Advisory Fees and
Other Expenses."
RISK FACTORS
There is no guarantee that the Partnership will
achieve its investment objective, and the value of the
Partnership Interests will fluctuate based upon changes in
the value of the Partnership's portfolio securities.
Similarly, 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. Accordingly, investing in the
Partnership or the Fund presents investment risks.
Because the basic investment strategy of the Fund
is substantially the same as that of the Partnership, an
investment in the Fund involves investment risks that are
similar to those associated with an investment in the
Partnership. The risks are not, however, identical. This
section briefly describes those risks for the Fund and the
Partnership.
The Fund will invest in a diversified portfolio of
the securities of foreign issuers, including issuers located
in countries with emerging capital markets. Investing in
those securities entails certain risks not associated with
investing in domestic securities, such as exchange-rate
fluctuations, political or economic instability of the
foreign country, exchange controls, price volatility,
arbitrage due to the intervals between the times at which
certain foreign portfolio securities are priced and the net
asset value of a Share is calculated ("Arbitrage Risk"), and
lack of liquidity. See "Part I - Investment Objective,
Policies and Risks - Foreign Securities" in Appendix A,
which contains additional information about the Fund. The
Fund also may use leverage, which involves special risks and
may involve speculative investment techniques. See "Part I
- - Additional Investment Policies - Techniques Involving
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Leverage" in Appendix A. In addition, the futures and
options strategies in which the Fund may engage involve
certain risks. See "Part I - Additional Investment Policies
- - Futures and Options" in Appendix A. Additional risks of
an investment in the Fund are described under "Part I -
Investment Objective, Policies and Risks" and under "Part II
- - Investment Policies and Limitations" in Appendix A. The
Fund is not intended to provide a complete or balanced
investment program for all investors.
The Partnership may invest in any of the securities
in which the Fund may invest and may employ any of the
investment techniques that may be employed by the Fund: the
Partnership invests in the securities of foreign issuers, it
may use leverage and it may engage in futures and options
transactions. Although the Partnership invests principally
in equity securities, it, like the Fund, may also invest in
other securities, including equity equivalents, warrants,
convertible and debt securities, options, and foreign
currency forward contracts. Limitations with respect to
each of those investments and investment techniques (and
accordingly the associated risks) may differ between the
Partnership and the Fund. The General Partner currently
does not use foreign currency hedging strategies with
respect to the Partnership. The General Partner does not
anticipate using foreign currency hedging strategies with
respect to the Fund, although the Fund reserves the right to
engage in these strategies in the future if warranted by
market conditions. Specific investment limitations are
discussed below. See "Comparison of the Partnership to the
Fund - Investment Restrictions."
Because the Partnership does not redeem Shares
daily, it does not face the same Arbitrage Risk as that
faced by the Fund.
The Fund, which is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") is subject
to certain investment restrictions and other protections
that are required by applicable laws and regulations and
intended to reduce risks for investors. The Partnership,
unlike the Fund, is not registered under the 1940 Act in
reliance on an exception provided by Section 3(c)(1) of the
Act. Moreover, the Partnership Interests are not registered
under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on Section 4(2) and
Regulation D thereunder. Consequently, the Partnership as a
whole is subject to less federal and state regulation and
supervision than the Fund. Although the investment
restrictions and other protections applicable to the Fund
may protect investors, they may also prevent the Fund from
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pursuing investment opportunities that would be available to
the Partnership.
The General Partner will serve as investment
adviser to the Fund. Although the General Partner has
experience in managing pooled investments, the General
Partner does not have prior experience in managing mutual
funds.
The Partnership Interests are less liquid than the
Shares. The Fund's shares will be redeemable on any
Business Day at their next-determined net asset value after
receipt of a redemption order in proper form. The
Partnership Interests are not registered under the
Securities Act and are not transferable. Accordingly, no
secondary market exists for them. In addition, a Limited
Partner generally may make a partial or full withdrawal from
its capital account only as of the last Business Day of any
fiscal quarter and upon proper notice. Moreover, the
General Partner may, in its discretion, make such a
distribution in cash or in portfolio securities of the
Partnership. See "Comparison of the Partnership to the
Fund."
In general, due to the additional regulations that
apply to a registered open-end management investment
company, its administrative costs and related expenses will
be higher than those of a private limited partnership of
comparable size. Accordingly, the Fund's administrative
costs and related expenses upon completion of the Conversion
will be higher than those currently incurred by the
Partnership. See "Advisory Fees and Other Expenses."
The Conversion could cause taxable Partners that
are not calendar year taxpayers to pay taxes on Partnership
income before those taxes otherwise would have become due.
See "Federal Income Tax Consequences of the Conversion."
GENERAL INFORMATION ABOUT THE PARTNERSHIP AND THE FUND
The Partnership is a Massachusetts limited
partnership that commenced operations on July 31, 1989.
Partnership Interests generally are offered in initial
subscription amounts of $100,000 and only to certain
qualified investors. Additional capital contributions
generally may be made in minimum amounts of $25,000.
The Trust is an open-end management investment
company registered under the 1940 Act. The Trust commenced
operations on March 24, 1980 as a Maryland corporation and
was reorganized as a Delaware business trust on January 5,
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1996. The Trust has an unlimited number of authorized
Shares. Currently, those Shares are divided into 23
separate series. See "Securities To Be Issued."
Additional information about the Fund and the
Conversion has been filed with the Securities and Exchange
Commission as a separate statement of additional information
dated May __, 1998 (the "Statement") and is incorporated by
reference in this Proxy Statement/Prospectus. The Statement
can be obtained without charge by calling or writing to:
Forum Financial Corporation, Two Portland Square, Portland,
ME 04101, (888) 263-5594.
The Trust is subject to the informational
requirements of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and the 1940 Act, and in
accordance therewith files reports and other information
with the Securities and Exchange Commission. Proxy
material, reports, proxy and information statements and
other information filed by the Trust can be inspected and
copied at the public reference facilities maintained by the
Commission in Washington, D.C., and at certain of its
Regional Offices. Those Regional Offices include: (i)
Northeast Region Office, 7 World Trade Center, suite 1300,
New York, NY 10048; (ii) Southeast Region Office, 1401
Brickell Avenue, suite 200, Miami, FL 33131; (iii) Midwest
Region Office, 500 West Madison Street, suite 1400, Chicago,
IL 60661; (iv) Central Region Office, 1801 California
Street, suite 4800, Denver, CO 80202; and (v) Pacific Region
Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA
90036. In addition, for a prescribed fee, copies of such
materials can be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549.
THE CONVERSION
The Conversion will take place pursuant to an
Agreement and Plan of Reorganization (the "Plan"). The
following summary of the important terms of the Plan is
qualified by reference to the Plan, a copy of which is
attached to this Proxy Statement/Prospectus as Appendix B.
The Plan provides that the Partnership will
transfer substantially all of its assets to the Fund in
exchange solely for over 80% of the Shares (no par value per
Share) of the Fund. Immediately thereafter, the Shares will
be tranferred to the Participating Partners, in the Share
Distribution, in proportion to their positive capital
accounts as described below. The Partnership will then be
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dissolved, liquidated and terminated as soon as practicable
after the Share Distribution.
The Partnership's assets will be valued at the
close of regular trading on the New York Stock Exchange on
the Business Day immediately preceding the consummation of
the Exchange and after payment of any distributions or other
amounts (such time and date, the "Valuation Date"). The
Shares distributed to the Participating Partners will have
an aggregate net asset value equal to the aggregate net
asset value of the assets transferred to the Fund in the
Exchange. The number (or fraction thereof) of Shares each
Participating Partner will receive will be based upon that
Partner's proportionate interest in the Partnership's net
assets on the Valuation Date. In other words, for each
Participating Partner, the number of Shares received will be
calculated, as of the Valuation Date, by dividing the amount
of the Partner's positive capital account by the sum of all
of the other Participating Partners' capital accounts, and
multiplying that quotient by the total number of Shares
received by the Partnership in the Exchange.
In addition to approval by the Partners, as
described below in "The Proposals," certain other conditions
must be satisfied before the Exchange will be consummated,
including the rendering by counsel to the Partnership of an
opinion with respect to the tax consequences of the Exchange
to the Partnership and to the Fund. Such opinion will be
based upon certain facts, assumptions and representations
from the Parties.
The General Partner and the Trust propose to
consummate the Exchange on or about June 1, 1998. The
Exchange could, however, be delayed for regulatory or other
reasons.
Before the Exchange, the Fund will issue a nominal
number of Shares to Forum Administrative Services, LLC
("FAS"), the Fund's sponsor, which will vote those Shares
for the approval of the Investment Advisory Agreement
between the Fund and the General Partner, appointing the
General Partner as the Fund's investment adviser effective
immediately after consummation of the Exchange.
Upon consummation of the Exchange and the Share
Distribution, the only shareholders of the Fund will be FAS
and the Participating Partners. As soon as is practicable
thereafter, additional Shares will be available for purchase
and redemption by Limited Partners as well as by other
investors. Limited Partners that do not want to remain
invested in the Fund will be able to redeem their Shares
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beginning on the Business Day next following the Exchange,
in the same manner as any other Shareholder pursuant to the
redemption procedures set forth in Appendix A. See "Part I
- - Comparison of the Partnership to the Fund - Purchases and
Redemptions."
THE PROPOSALS
In order the effectuate the Conversion, the General
Partner is soliciting the Limited Partners' written consent
to two related proposals, as described below.
Proposal 1: Amendments to the Partnership
Agreement. The Global Value Limited Partnership Amended
and Restated Agreement of Limited Partnership dated as of
January 1, 1996 (the "Current Partnership Agreement") does
not expressly contemplate a conversion of the Partnership
into a registered investment company. Proposal 1 is to make
certain amendments to the Current Partnership Agreement
expressly authorizing the General Partner, subject to
Limited Partner approval, to effectuate the transactions
comprising the Conversion and, to the extent required by
applicable law, to permit dissenting Limited Partners to
make a complete withdrawal prior to the Exchange (the
"Amendments"). Section 3.1 ("Management and Control") of
the Partnership Agreement, which expressly authorizes the
General Partner to perform certain acts on behalf of the
Partnership, is proposed to be amended to expressly
authorize the General Partner to effectuate the conversion
by re-designating Subsection 3.1(i) in the Partnership
Agreement as Subsection "3.1(k)" and adding a new Subsection
3.1(i) as follows:
(i) to convert the Partnership into a
registered open-end management investment company (a "Fund")
by transferring substantially all of the assets of the
Partnership to a Fund in exchange for shares of beneficial
interest in that Fund, distributing those Fund shares to the
Partners of record as of the date of that exchange pro rata
in proportion to their positive capital accounts, and then
dissolving and terminating the Partnership pursuant to
Article 14, all upon the vote of such Limited Partners as
specified in Section 14.2; and
Section 3.1 ("Management and Control") is proposed
to be amended, further, by adding a new Subsection 3.1(j) as
follows:
(j) to permit a Partner to make a complete
withdrawal immediately prior to a conversion (an
"extraordinary withdrawal") pursuant to Section 3.1(i) if a
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Partner makes such an extraordinary withdrawal request and
the General Partner determines that such a withdrawal is
required by applicable law or is in the best interests of
the Partnership; and
Section 8.1 ("General Partner May Authorize
Distributions") is proposed to be amended by revising the
first sentence of that section (the bold language is new) as
follows:
8.1 General Partner May Authorize Distributions.
The amount of any distribution to be made to the Partners,
except distributions made pursuant to Sections 3.1(i) or
(j), shall be determined in the sole discretion of the
General Partner within 90 days after the close of each
Fiscal Year.
Section 8.3 ("Payment of Distributions") is
proposed to be amended by revising the first sentence of
that section (the bold language is new) as follows:
8.3 Payment of Distributions. Distributions, if
any, other than distributions upon termination and winding
up of the Partnership shall be made in the same proportion
as the allocations of profits and losses of the Partnership
pursuant to Section 7.3 and, except for distributions made
pursuant to Sections 3.1(i) or (j), shall be paid to one or
more Partners within 90 days after the close of the Fiscal
Year.
The Current Partnership Agreement may be amended by
the General Partner with the written consent of the Limited
Partners holding at least two-thirds of the amount of
Partnership Interest at the most recent fiscal quarter end.
The General Partner is seeking the written consent of the
Limited Partners to make the Amendments, effective May 29,
1998.
Proposal 2: Approval of the Conversion. Assuming
approval of Proposal 1, the General Partner may, pursuant to
the New Partnership Agreement, effectuate the Conversion
upon the written consent, as of the most recent fiscal
quarter end, of the General Partner and of the Limited
Partners holding at least two-thirds of the Partnership
Interests in amount and constituting at least two-thirds of
the Limited Partners in number. Accordingly, the General
Partner is seeking the written consent of the Limited
Partners for the Conversion, which consists of the Exchange,
the Share Distribution and the Liquidation. The General
Partner intends to give its written consent to the
Conversion.
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SECURITIES TO BE ISSUED
The Trust has an unlimited number of authorized
shares of beneficial interest. The Board of Trustees of the
Trust may, without shareholder approval, divide the
authorized shares into an unlimited number of separate
portfolios or series ("Series") and may in the future divide
the Series into two or more classes of shares. The Fund is
a newly created separate Series. Currently, the authorized
shares of the Trust are divided into 23 separate Series
(including the Fund).
Each share of each of the separate Series
(including the Fund) and each class of those shares, as
applicable, has dividend, distribution, liquidation and
voting rights equal to other shares of the Trust and
fractional shares have those rights proportionately, except
that expenses related to the distribution of the shares of
each Series or class (and certain other expenses such as
transfer agency and administration expenses) are borne
solely by shares of that Series or class, and other expenses
in the future may be borne by those shares.
Each Series (including the Fund) or class votes
separately with respect to matters for which separate series
or class voting is required or appropriate under applicable
law. Generally, shares are voted in the aggregate without
reference to a particular Series or class. If the matter
affects only one Series or class or voting by Series or
class is required by law, however, shares will be voted
separately by Series 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 with respect to the Fund
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 the Shares. All Shares are fully paid and
non-assessable. The Shares are redeemable (at the net asset
value per Share next-determined after receipt of a
redemption order in proper form) at the option of the
Shareholders. A Shareholder is entitled to a pro rata share
of all dividends and distributions arising from the Fund's
assets and, upon redeeming Shares, receives the portion of
the Fund's net assets represented by those redeemed Shares.
From time to time, certain Shareholders may own a large
percentage of Shares. Accordingly, those Shareholders may
15
<PAGE>
be able to significantly affect (if not determine) the
outcome of a Shareholder vote.
ADVANTAGES TO FUND SHAREHOLDERS
Shares are more liquid than Partnership Interests
and investments in the Fund are more flexible than
investments in the Partnership for several reasons. First,
Shares may be purchased on any Business Day without a sales
charge. Subscriptions for Partnership Interests, in
contrast, require the consent of the General Partner.
Second, Shares may be redeemed on any Business Day without a
redemption fee. Partnership Interests, in contrast, may be
redeemed (by a Partner making a withdrawal from its positive
capital account) quarterly, upon proper advance notice to
the Partnership, and with the potential imposition of a
withdrawal fee of 1/2 of 1% of the amount withdrawn. Third,
Shareholders will be able to shift investments between the
Fund and another Series of the Trust by exchanging their
Shares for shares of Daily Assets Treasury Fund (to be
renamed "Daily Assets Government Fund," effective May 25,
1998) a Series that is a money market fund. See "Part I -
Exchanges" in Appendix A. Fourth, Shares are transferable
and Partnership Interests are nontransferable. Finally,
although the Fund will initially incur expenses higher than
those currently incurred by the Partnership, the possibility
exists that, because the Fund will be publicly offered, per
Share expenses lower than those currently incurred by the
Partnership may be achieved through economies of scale if
the Fund attracts a substantial amount of assets from new
investors and the Fund's fixed expenses are accordingly
spread over a substantially larger number of investors. The
Partnership, however, is limited as to its ability to
attract assets from new investors because the Partnership
may not have more than one hundred investors.
In addition, the Form 1099 tax reporting forms that
the Fund will issue to its Shareholders are considerably
more simple than the complex Schedule K-1s issued by the
Partnership. Furthermore, the 1099s will be issued earlier
in the year than the K-1s.
FEDERAL INCOME TAX CONSEQUENCES OF THE CONVERSION
The Exchange is conditioned upon the receipt by the
Parties of an opinion by Dechert Price & Rhoads, counsel to
the Partnership, substantially to the effect that, based
upon certain facts, assumptions, and representations, the
Exchange constitutes a tax free exchange to the Fund and the
Partnership for federal income tax purposes.
16
<PAGE>
That opinion is not binding on the Internal Revenue
Service or the courts. Moreover, the conclusions reached in
that opinion are based upon current law and authorities, all
of which are subject to change. Any such change may be
retroactive.
If any of the assets transferred by the Partnership
to the Fund in the Exchange are debt securities that were
purchased by the Partnership at a discount, such transfer
could result in the recognition of income to the Partnership
in an amount equal to the accrued market discount on those
securities at the time of the Exchange. It is expected that
none of the assets transferred will be debt securities with
accrued market discount and that if any are, the amount of
that accrued market discount will be minimal.
The Conversion should have the following income tax
consequences to Limited Partners that participate in the
Exchange: (i) a Limited Partner's basis for its Shares
generally will be equal to the Limited Partner's adjusted
basis of its former Partnership Interest minus the amount of
cash, if any, received pursuant to the liquidation of its
Partnership Interest (Code Section 732(b)); (ii) a Limited
Partner's holding period with respect to its Shares
generally will include the Partnership's holding period of
such Shares (Code Section 735(b)); and (iii) the
distribution of the Shares from the Partnership to a Limited
Partner, which will be in liquidation of its Partnership
Interest, generally will not cause taxable gain or loss to
be recognized by the Limited Partner, although gain may be
recognized if any cash actually distributed or deemed to be
distributed (a partner will be deemed to have received a
cash distribution equal to its allocable share of
Partnership liabilities assumed by the Fund) exceeds the
Limited Partner's adjusted basis in its Partnership Interest
(Code Section 731(a)). The General Partner does not expect
that any Limited Partner will receive cash in excess of its
basis in its Partnership Interest.
Each Limited Partner must include in taxable income
for its tax year its share of Partnership income for any
Partnership tax year that ends with or within that Limited
Partner's tax year. Consequently, because the Partnership's
current tax year will end when the Partnership terminates,
if a taxable Limited Partner is not a calendar year
taxpayer, the Conversion could cause such a Limited Partner
to pay taxes on Partnership income sooner than it otherwise
would have paid those taxes.
The discussion contained herein is general in
nature and is not intended as tax advice. This discussion
17
<PAGE>
does not purport to be complete or to deal with all aspects
of federal income taxation that may be relevant to specific
taxpayers in light of their particular circumstances.
Limited Partners should consult their own tax advisers
regarding the tax consequences of the Exchange to them,
including federal, state, local and, if applicable, foreign
tax consequences.
ERISA CONSIDERATIONS
Assets of the Partnership may be deemed to be "plan
assets" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and Department of
Labor rules promulgated thereunder. As a result, the
General Partner may be deemed to be a fiduciary under ERISA
with respect to Limited Partners that are employee benefit
plans subject to ERISA or section 4975 of the Code
("Qualified Plans").
Certain transactions involving plan assets are
prohibited under ERISA unless an exemption is available.
Because the Conversion may be viewed as such a prohibited
transaction, the Conversion will be effected in accordance
with Prohibited Transaction Exemption 97-41 ("PTE 97-41"),
issued by the Pension and Welfare Benefits Administration,
Department of Labor. PTE 97-41 provides an exemption for
certain otherwise prohibited transactions, including a
transaction in which a Qualified Plan acquires shares of an
open-end management investment company (a "fund") through a
transfer of assets from a pooled investment vehicle, such as
the Partnership, to a fund where the same entity serves as
the investment adviser to the transferor and transferee.
The exemption requires, among other things, (i)
that the assets be valued in accordance with Rule 17a-7
under the l940 Act, (ii) that certain information and
disclosure is provided to each Qualified Plan and (iii) that
an independent plan fiduciary for each Qualified Plan
approves the transaction. This Proxy Statement/Prospectus
together with any lists identifying securities required to
be provided by Section II, paragraphs (e) (5) or (6) of PTE
97-41 (such lists to be sent under separate cover)
constitutes the advance written notice required to be
provided to fiduciaries of Qualified Plans. After the
Conversion, fiduciaries of Qualified Plans also will receive
certain confirmation statements in accordance with PTE 97-
41. Each fiduciary of a Qualified Plan should consult its
legal adviser concerning the ERISA and other considerations
discussed above before voting on each of the Proposals.
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COMPARISON OF THE PARTNERSHIP TO THE FUND
Distributions. The General Partner has the sole
authority to determine whether the Partnership will make a
distribution and if so, the amount of that distribution and
whether it will be in cash or in kind. Any such
distribution will be paid within 90 days of the close of the
Partnership's fiscal year to which the distribution relates,
and is payable to each Partner in the same proportion as
allocations of profits and losses.
In contrast to the Partnership, dividends
representing the net investment income of the Fund will be
declared and paid at least annually. In addition, any net
capital gain realized by the Fund will be distributed
annually. Shareholders may choose either to have all
distributions paid in cash, to have all distributions
reinvested in additional Shares, or to have dividends of net
investment income paid in cash and distributions of net
capital gain reinvested in additional Shares. All dividends
and other distributions are automatically reinvested in
additional Shares unless a Shareholder elects otherwise.
See "Part I - Dividends and Tax Matters" in Appendix A.
Reinvested dividends of net income will be
reinvested at the Fund's net asset value per Share as of the
last day of the period with respect to which the dividends
are paid. Reinvested distributions of net capital gain will
be reinvested at the net asset value per Share of the Fund
on the payment date for that distribution.
Fund dividends and distributions will be recognized
by Shareholders for federal income tax purposes regardless
of whether those dividends and distributions are reinvested.
See "Part I - Dividends and Tax Matters" in Appendix A.
Purchases and Redemptions. As mentioned above,
Partnership Interests generally are offered in minimum
initial subscription amounts of $100,000 and additional
capital contributions generally may be made in minimum
amounts of $25,000, although each minimum amount may be
increased at the discretion of the General Partner. In
contrast, Shares will be available for purchase with a
minimum initial investment of $2,500 and additional
investments of at least $250, and will be available for
purchase by an investor either directly or through certain
brokers and financial institutions of which the investor is
a customer. All transactions in the Shares will be effected
through a transfer agent, which will accept orders for
purchases and redemptions from Shareholders of record and
from new investors. Shares will be available for purchase
19
<PAGE>
without a sales charge at their net asset value next-
determined after receipt of a purchase order in proper form
on any Business Day. Subscriptions for the Partnership
Interests, in contrast, can only be made upon the approval
of the General Partner.
A Limited Partner may withdraw all or any part of
its positive capital account in the Partnership as of the
last day of any fiscal quarter. Such a Limited Partner must
give written notice to the Partnership at least 30 days
before the date of that fiscal quarter end. Payments for
withdrawals will be made by the Partnership no later than
fifteen Business Days after the effective date of the
withdrawal and a fee may be imposed as described below in
"Advisory Fees and Other Expenses."
The Fund, in contrast, will redeem Shares at their
net asset value next-determined following receipt of a
redemption order in proper form on any Business Day. There
is no redemption charge, no minimum period of investment,
and no limit on the frequency of redemptions. Normally,
redemption proceeds are paid immediately and, in any event,
within seven days, following receipt of a redemption order
by the Fund's transfer agent. See "Part I - Purchases and
Redemptions of Shares" in Appendix A.
Federal Income Tax Status. The Fund intends to
qualify each fiscal year to be taxed as a regulated
investment company (a "RIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). As a RIC, the Fund
generally will not be liable for federal income and excise
taxes on the net investment income and capital gain
distributed to its Shareholders in accordance with the
applicable provisions of the Code. The Fund intends to
distribute all of its net income and net capital gains each
year. Accordingly, the Fund should thereby avoid all
federal income and excise taxes.
Dividends paid by the Fund out of its net
investment income (including realized net short term capital
gain) will be taxable to the Shareholders as ordinary
income. Two different tax rates apply to net capital gain -
that is, the excess of net gain from capital assets held for
more than one year over net losses from capital assets held
for not more than one year. One rate (generally 28%)
applies to net gain on capital assets held for more than one
year but not more than 18 months ("mid-term gain"), and a
second rate (generally 20%) applies to the balance of such
net capital gain ("adjusted net capital gain").
Distributions of net capital gain will be treated in the
hands of Shareholders as mid-term gain to the extent
20
<PAGE>
designated by the Fund as deriving from net gain from assets
held for more than one year but not more than 18 months, and
the balance will be treated as adjusted net capital gain,
regardless of how long a Shareholder has held Shares in the
Fund. A portion of the Fund's dividends may qualify for the
dividends received deduction available to corporations.
If a Shareholder holds Shares for six months or
less and during that period receives a distribution of net
capital gain, any loss realized on the sale of the
Shareholder's Shares during that six-month period would be
deemed a long-term capital loss to the extent of the
distribution.
Any dividend or distribution received by a
Shareholder on the Shares will have the effect of reducing
the net asset value of the Shareholder's Shares by the
amount of the dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of
Shares by a Shareholder, although in effect a return of
capital to that particular Shareholder, would be taxable to
the Shareholder as described above.
Investment income received by the Fund from sources
outside the United States may be subject to foreign income
or other taxes. Under certain circumstances, Shareholders
will be notified of their share of those taxes and will be
required to include that amount as income. In that event,
the Shareholder may be entitled to claim a credit or
deduction for those taxes.
The Fund will be required by federal law to
withhold 31% of reportable payments (which may include
dividends, capital gain distributions and redemptions) paid
to a non-corporate Shareholder unless the Shareholder has
certified in writing that the social security or tax
identification number provided is correct and that the
Shareholder is not subject to backup withholding for prior
underreporting to the Internal Revenue Service.
Reports containing appropriate information with
respect to the federal income tax status of the Fund's
dividends and distributions paid during the year will be
mailed to Shareholders shortly after the close of each year.
The discussion contained herein is general in
nature and is not intended as tax advice. This discussion
does not purport to be complete or to deal with all aspects
of federal income taxation that may be relevant to specific
taxpayers in light of their particular circumstances.
Limited Partners should consult their own tax advisers
21
<PAGE>
regarding the tax consequences of investing in the Fund as
compared to the Partnership.
For additional information regarding the federal
income tax consequences of an investment in the Fund, see
"Part I - Dividends and Tax Matters" and "Part II - Tax
Matters" in Appendix A.
Rights of Holders. The rights of Limited Partners
in the Partnership are determined by the Current Partnership
Agreement and by the Massachusetts Uniform Limited
Partnership Act (the "Partnership Act"). The General
Partner is exclusively responsible for the management of the
Partnership and has full authority to manage the Partnership
affairs within the framework established by the Current
Partnership Agreement and by the Partnership Act. In
general, the Limited Partners are not permitted to
participate in the management of the Partnership and they
have very limited voting rights. For further details
regarding those rights, see the Current Partnership
Agreement.
Limited Partners that participate in the Conversion
will become shareholders in the Fund, which is a Delaware
business trust. As such, they will have certain rights
granted under the Trust's Declaration of Trust and under
Delaware law. See "Securities To Be Issued" above, and
"Part I - Management" in Appendix A. In addition, because
the Trust is registered under the 1940 Act, Shareholders
will have certain rights granted under the federal
securities laws.
Advisory Relationships and Management. The
Conversion will not substantially affect the day-to-day
portfolio management of the Partnership's assets because the
General Partner serves as investment adviser to the
Partnership and will do so for the Fund. It is expected
that the same personnel who manage the Partnership
investments will manage the Fund investments. Moreover, the
General Partner will employ a basic investment strategy on
behalf of the Fund that is substantially the same as that
employed on behalf of the Partnership.
In terms of overall management, however, the Fund
is somewhat different from the Partnership in that the Fund
is a Series of a business trust that is a registered open-
end management investment company. Accordingly, key policy
decisions affecting the Fund are made by the Fund's Board of
Trustees. For example, the Board, in its discretion, may
terminate the advisory contract with its investment adviser.
See "Part II - Management" in Appendix A. The Partnership,
22
<PAGE>
in contrast, is managed exclusively by the General Partner.
In addition, the Fund, as a registered open-end management
investment company, is subject to more federal regulations
that may impact management than the Partnership.
Investment Restrictions. Although the Fund will
follow a basic investment strategy that is substantially the
same as that followed by the Partnership, certain secondary
investment techniques and certain investment restrictions
differ between the Partnership and the Fund.
In particular, the Fund, unlike the Partnership,
may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government security or a
security of an investment company) if, as a result, (i) more
than 5% of the Fund's total assets would be invested in the
securities of a single issuer or (ii) the Fund would own
more than 10% of the outstanding voting securities of any
single issuer. Additionally, the Fund, unlike the
Partnership, 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 securities of issuers
conducting their principal business activities in the same
industry. The Fund may not invest more than 15% of its
assets in illiquid securities, including repurchase
agreements and other securities not entitling the Fund to
payment of principal within seven days. The Fund may borrow
money up to 33 1/3% of the Fund's total assets. The Fund
may engage in leveraged transactions, such as reverse
repurchase agreements, short sales, securities lending and
the purchase of securities on a when-issued or firm
commitment basis, as long as the Fund limits the risks
associated with certain of these transactions by maintaining
a segregated account of cash and securities in accordance
with Commission guidelines.
In general, the Partnership has fewer investment
restrictions than the Fund, although with respect to a
particular type of portfolio security or investment
technique, the Partnership may face narrower limitations.
The Partnership is not required to maintain a diversified
portfolio although it currently holds a diversified
portfolio. The Partnership is not limited to any specific
dollar amount or percentage of the securities of a single
issuer except as limited by the terms of a particular
offering. The Partnership does not, however, invest more
than 10% of the value of its net assets in securities for
which no public market exists at the time of the investment.
Additionally, although the Partnership may use leverage, it
borrows only to provide additional funds for portfolio
23
<PAGE>
investments to the extent that those borrowings are
outstanding for 90 or fewer days.
CAPITALIZATION
The following table shows (i) the capitalization
each of the Partnership and the Fund at December 31, 1997,
the Partnership's most recent fiscal year end, and (ii) the
pro forma combined capitalization of the Partnership and the
Fund:
Fund Pro Forma Pro Forma Pro Forma
Partnership Initial Net Combined Shares Fund
Net Assets Assets Net Assets Outstanding NAV/
(000's) (000's) (000's) (000's) Share
___________ __________ __________ __________ __________
$18,353 $0 $18,353 $1,835 $10/share
FINANCIAL INFORMATION
Appendix C contains recent historical financial
information with respect to the Partnership, as well as certain
pro forma financial information with respect to the Fund.
ADVISORY FEES AND OTHER EXPENSES
The following tables show the fees for the Partnership
and the Fund, including pro forma fees. The purpose of the table
is to assist investors in understanding the various costs and
expenses that an investor in the Partnership or the Fund will
bear directly and indirectly.
Transaction Expenses.
Partnership Fund
Redemption Fees
(as a % of amount 0.50 0.00
redeemed)
Transaction Expenses. The Partnership may impose a
redemption charge. A Limited Partner may voluntarily withdraw all
or part of its capital account at the end of any fiscal quarter
upon thirty (30) days' prior written notice. In the event of
such withdrawal, the withdrawing Limited Partner incurs a
redemption charge of 1/2 of 1% applied to and reducing the amount
of that withdrawal. That redemption charge may be waived by the
General Partner. The Fund, in contrast, does not impose any
sales or transaction charges in connection with the purchase or
redemption of Shares.
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Annual Operating Expenses.
(as a percentage of average net assets
after any applicable waivers
except as otherwise indicated)
Partnership Fund
(pro forma)
Management Fees 1.00 1.00
12b-1 Fees 0.00 0.00
Other Expenses 0.35 0.75
______________ _________ _________
Total Fund Operating Expenses 1.35 1.75
Partnership Annual Operating Expenses. The amounts of
the management fees are based on quarterly charges that have been
annualized to conform to the requirements of this registration
statement. As compensation for management of the Partnership,
for each quarter of the Partnership's fiscal year, the General
Partner receives a fee equal in the aggregate to the greater of
either 1/4 of 1% of the net portfolio value of the Partnership as
of the end of that quarter, or $10,000, payable as soon as
practicable after the end of that quarter. Other Expenses
include custody, auditing, accounting and legal fees.
Fund Annual Operating Expenses. The amounts of the fees
and expenses are based on anticipated amounts projected for the
Fund's first fiscal year ending May 31, 1999. The Fund's
investment adviser (the "Adviser") has determined voluntarily to
cap advisory fees or to reimburse expenses so that Total Fund
Operating Expenses through May 31, 1999 will not exceed 1.75%.
Absent fee waivers during the year, the Investment Advisory Fees
and Total Fund Operating Expenses are expected to be 1.0000% and
1.7515%, respectively. Fee waivers are voluntary and may be
reduced or eliminated at any time. For a further description of
the various costs and expenses incurred in the Fund's operation,
see "Part I - Expenses of Investing In The Fund" in Appendix A.
Hypothetical Examples. The following are hypothetical
examples that illustrate the dollar amount of expenses an
investor in each of the Partnership and the Fund would pay based
upon certain assumptions. The examples assume a $1,000
investment and a 5% annual rate of return. The examples assume,
further, in the case of the Partnership, no distributions and
full withdrawal (without a fee waiver) at the end of each
period, and in the case of the Fund, reinvestment of all
dividends and distributions, and full redemption at the end of
each period.
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<PAGE>
1 Year 3 Years 5 Years 10 Years
Partnership $ 14 $ 43 $ 74 $ 162
Fund $ 18 $ 55 N/A N/A
For the Partnership, the example is based upon the
expenses for the fiscal year ended December 31, 1997. For
the Fund, the example is based upon the estimated expenses
listed in "Annual Operating Expenses" above, which includes
fee waivers.
The 5% annual return is not a prediction of and
does not represent either the Partnership's or the Fund's
projected returns. The example should not be considered a
representation of past or future expenses or return for
either the Partnership, or the Fund, or both. Actual
expenses and return may be greater or less than indicated.
EXPENSES OF THE CONVERSION
Each party will pay its own expenses incurred in
connection with the Conversion.
This means that the Partnership will pay all of the
costs it incurs in connection with the Conversion, including
the costs associated with soliciting the written consent of
the Limited Partners to the Amendments and to the
Conversion.
The Fund will pay certain expenses connected with
the organization and start-up of the Fund. Those expenses
will be amortized over a 60-month period and accordingly, it
is expected that those costs will be borne, indirectly, by
former Limited Partners and new Shareholders. If the Fund
does not grow as expected, those costs could be borne
primarily by Limited Partners that remain in the Fund as
Shareholders.
VOTING INFORMATION
Voting Procedure. As described in "The Proposals"
above, the General Partner is soliciting the Limited
Partners' written consent to (i) the Amendments and (ii) the
Conversion. Limited Partners of record on March 31, 1998
(the "Record Date"), the end of the Partnership's most
recent fiscal quarter end, are entitled to vote.
In order to approve the Amendments, the written
consent of the Limited Partners holding at least two-thirds
26
<PAGE>
of the Partnership Interests in amount, as of the Record
Date, is required. The General Partner, which has proposed
the Amendments, recommends that the Limited Partners approve
the Amendments.
In order to approve the Conversion, the written
consent of the General Partner, and the written consent of
the Limited Partners holding at least two-thirds of the
Partnership Interests in amount and constituting at least
two-thirds of the Limited Partners in number, as of the
Record Date, are required. The General Partner intends to
provide its written consent pursuant to the Plan.
The Consent Form that is enclosed with this Proxy
Statement/Prospectus (the "Consent Form") may be used by the
Limited Partners to vote on the Amendments and on the
Conversion. A Limited Partner should indicate separately
(i) whether it approves, disapproves, or abstains from
approving or disapproving the Amendments by checking the
appropriate box on the Consent Form, and (ii) whether it
approves, disapproves, or abstains from approving or
disapproving the Conversion by checking the appropriate box
on the Consent Form, signing and dating the Consent Form,
and returning it to the Partnership in the enclosed postage-
paid envelope. A Limited Partner also may approve or
disapprove the Amendments or the Conversion by returning an
alternative written instrument that clearly identifies the
Limited Partner, sets forth the Limited Partner's decision
with respect to the Amendments and the Conversion, and is
signed and dated by the Limited Partner (a "Suitable
Alternative"). To be counted, a Consent Form or Suitable
Alternative must be received by the Partnership on or before
May 29, 1998. A Limited Partner that does not return the
Consent Form or a Suitable Alternative by that date will be
treated as not having provided its written consent for both
the Amendments and the Conversion.
To change a vote after returning a Consent Form or
Suitable Alternative to the Partnership, a Limited Partner
must provide the Partnership with a written statement
identifying the Limited Partner and stating that the Limited
Partner, as a Limited Partner in Global Value Limited
Partnership, (i) revokes its prior decisions as set forth in
the previously returned Consent Form or Suitable Alternative
and (ii) for each of Proposal 1 (to make the Amendments) and
Proposal 2 (to effectuate the Conversion), gives, does not
give, or abstains from giving its consent to the proposal (a
"Revocation Letter"). Any such Revocation Letter must be
received by the Partnership on or before May 29, 1998.
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Any Limited Partner that does not return a Consent
Form or Suitable Alternative by May 29, 1998 will be treated
as not having consented to both the Amendments and the
Conversion. If the Amendments and the Conversion are
approved by the Limited Partners, such a Limited Partner
will, at the discretion of the General Partner, either be
treated as a Participating Partner or be permitted to make a
complete withdrawal from the Partnership on the business day
immediately preceding the Exchange. It is anticipated that
the General Partner will permit such complete withdrawals
only when required by applicable law.
Participating Partners will receive Shares in the
Conversion. Those Participating Partners that prefer not to
invest in the Fund may redeem their Shares on the Business
Day next following the Exchange in accordance with the
Fund's normal redemption procedures as provided in "Part I
- -- Purchases and Redemptions of Shares" of Appendix A. As
described above, the Fund does not impose any fees for
redemptions.
Control. The General Partner may be deemed to
control the Partnership. In addition, two persons own
beneficially 5 percent or more of the Partnership Interests.
Mr. David Solomont, 60 Health Hill, Brookline, MA 02416 owns
approximately 9.72% of the Partnership Interests and is
expected to own approximately the same percentage of Shares
immediately after the Share Distribution. Dr. Audrey A.
Lewis, 10 Rogers Street, 806, Cambridge, MA 02412, owns
approximately 5.76% of the Partnership Interests and is
expected to own approximately the same percentage of Shares
after the Share Distribution.
The Fund has issued a nominal number of Shares to
FAS so that it may approve the Fund's Investment Advisory
Agreement, as described above in "The Conversion." As the
sole holder of the initial Shares outstanding, FAS may be
deemed to control the Fund. FAS is located at Two Portland
Square, Portland, ME 04101. Upon completion of the
Exchange, FAS will own a nominal amount of the Shares. The
officers and trustees of the Trust own less than one percent
of the outstanding shares of beneficial interest of the
Trust.
INTEREST OF MR. JOHN Y. KEFFER
Mr. John Y. Keffer, as chairman and president of
the Fund and owner of certain of the service providers of
the Fund, including Forum Administrative Services, LLC,
Forum Financial Corp. and Forum Accounting Services, LLC,
may be deemed to have a material interest in the Conversion
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to the extent that the service providers receive for their
services fees paid out of the assets of the Fund.
LEGAL MATTERS RELATING TO THE CONVERSION
Dechert Price & Rhoads is acting as counsel for the
Partnership and Seward & Kissel is acting as counsel for the
Trust.
Neither Dechert Price & Rhoads nor Seward & Kissel
should be deemed to represent the Limited Partners or the
Shareholders in connection with the Conversion, or any
related transactions.
FINANCIAL STATEMENTS
Audited financial statements of the Partnership,
which are included in Appendix C, have been examined by
Coopers & Lybrand L.L.P.
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APPENDIX A
PART I
INFORMATION REGARDING THE FUND
1. SUMMARY
Investment Objective and Policies
The Fund's investment objective is to seek capital
appreciation. The Fund seeks its objective by investing
primarily in a portfolio of equity securities of issuers
worldwide. See "Investment Objective and Policies."
Management
Polaris Capital Management, Inc. (the "Adviser") is the
Fund's investment adviser and makes investment decisions for the
Fund. Forum Financial Services, Inc. ("FFSI") distributes the
Fund's shares, and Forum Administrative Services, LLC ("FAdS")
administers the Fund. See "Management."
Purchases and Redemptions
Fund shares are offered at the next-determined net asset
value without a sales charge to investors who plan to invest a
minimum of $2,500 in the Fund. Fund shares may be redeemed from
the Fund without charge at their next-determined net asset value.
See "Purchases and Redemptions of Shares."
Dividends
Dividends representing the net investment income of the
Fund are declared and paid at least annually. Any net capital
gain realized by the Fund also is distributed annually.
Dividends and distributions are reinvested in additional Fund
shares unless a shareholder elects to have them paid in cash.
See "Dividends and Tax Matters."
Certain Risk Factors
There can be no assurance that the Fund will achieve its
investment objective, and the Fund's net asset value will
fluctuate based upon changes in the value of its portfolio
securities. The Fund invests in the securities of foreign
issuers, including issuers located in countries with emerging
capital markets. Investments in such securities entail certain
risks not associated with investment in domestic securities. See
"Investment Policies -- Foreign Securities." The Fund also may
<PAGE>
use leverage, which involves special risks and may involve
speculative investment techniques. See "Additional Investment
Policies - Techniques Involving Leverage." In addition, the
futures and options strategies in which the Fund may engage
involve additional risks. See "Additional Investment Policies --
Futures and Options." The Fund is not intended to provide a
complete or balanced investment program for all investors. The
Adviser has no prior experience in advising mutual funds.
2. PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in
terms of yield or total return. Performance calculations are
based on the Fund's historical results and are not intended to
indicate future performance. Yield is a way of showing the rate
of income earned on the Fund's investments as a percentage of the
Fund's share price. To calculate yield, the interest income the
Fund has earned from its portfolio of investments for a 30-day
period (net of expenses) is divided by the average number of
shares entitled to receive dividends and expressed the result as
an annualized percentage rate based on the Fund's share price at
the beginning of the period. Total return shows the Fund's
overall change in value, including changes in share price and
assuming all the Fund's distributions are reinvested. Cumulative
total return reflects the Fund's performance over a stated period
of time. Average annual total return reflects the hypothetical
annually compounded return that would have produced the same
cumulative total return if the Fund's performance had been
constant over the entire period. Because average annual returns
tend to smooth out variations in the Fund's returns, shareholders
should recognize that these returns are not the same as actual
year-by-year returns. To illustrate the components of overall
performance, the Fund may separate its cumulative and average
annual returns into income results and capital gain or loss.
The Fund's advertisements may refer to ratings and
rankings among similar funds by independent evaluators such as
Morningstar, Lipper Analytical Services, Inc. or
CDA/Weisenberger. In addition, the Fund's performance may be
compared to recognized indices or market performance.
Comparative material found in the Fund's advertisements, sales
literature or reports to shareholders may contain performance
ratings. These are not to be considered representative or
indicative of future performance.
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3. INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek capital
appreciation. The Fund seeks its objective by investing
primarily in a portfolio of equity securities of issuers
worldwide. There is, of course, no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES
The belief that companies exist to generate cash flow
for their owners drives the Adviser's investment philosophy.
Using a unique three-step process, the Adviser's main objective
is to identify companies with the most undervalued streams of
sustainable cash flow.
- - The Adviser believes that country and industry factors
are important influences on security prices. In order
to identify companies priced low relative to comparable
companies, the Adviser, as a first step, produces a
ranking of country and industry value sectors. This
ranking is achieved by evaluating the interaction of
cash flow, inflation and interest rates, utilizing a
proprietary investment model developed by the Adviser.
- - The Adviser also believes that normal security price
fluctuations can undervalue a company's cash flow and
assets. As the second step, using traditional valuation
criteria, the Adviser regularly screens its database of
more than 16,000 global companies to produce a list of
approximately 500 companies that appear to have the
greatest potential for undervalued streams of
sustainable cash flow.
- - With the ranking of country and industry value sectors
identified, the Adviser, as its third and final step,
conducts rigorous fundamental research on the companies
identified throughout the investment process. The Fund
invests in a portfolio of 50-100 companies that pass the
Fund's fundamental research criteria. Initial
investments, in the companies purchased, typically are
evenly weighted but will not necessarily remain so
because the value of stocks will change. Most
investments are generally held for three to five years.
If, however, a company becomes valued less attractively
than other companies on the Adviser's "watch-list," it
may be sold and replaced by another company on the
Adviser's watch-list. The Fund rebalances its portfolio
securities infrequently, typically when these normal
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portfolio changes are made. The Adviser's watch-list
consists of approximately 250 companies.
Common Stock. Common stock represents a share of
ownership in a company, and usually carries voting rights and may
earn dividends. Common stockholders 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 and, if applicable, preferred stockholders, are paid.
Dividends on common stock are declared at the discretion of the
issuer. Historically, common stocks have provided greater long-
term returns and entailed greater short-term risks than other
investment choices. The market value of all securities,
including common stock, is based on the market's perception of
value and not necessarily the book value of an issuer or other
objective measure of the issuer's worth.
Foreign Securities. The Fund invests in the securities
of foreign issuers, including issuers located in countries with
emerging capital markets. These investments 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.
While the Adviser currently intends to invest the Fund's
assets in issuers located in at least 5 countries, there is no
limit on the amount of the Fund's assets that may be invested in
issuers located in any one country or region. To the extent that
the Fund has concentrated its investments in issuers located in a
single country or region, the Fund is more susceptible to factors
adversely affecting the economy of that country or region than if
the Fund were invested in a more geographically diverse
portfolio.
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
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<PAGE>
domestic companies. Securities registration, custody and
settlements may in some instances be subject to delays and to
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 to the extent that the economies and markets in a region
are interrelated and are adversely affected in a similar manner
by political, economic, and other events.
Issuers of securities located in emerging markets may be
especially susceptible to the risks set forth above with respect
to foreign investments because the risks of political and
economic instability are generally greater in emerging market
countries, government supervision and regulation of exchanges and
brokers in emerging market countries is frequently less extensive
than in countries with developed markets and the securities
markets in emerging market countries tend to be relatively small,
with the majority of market-capitalization and trading volume
concentrated in a limited number of companies representing a
limited number of industries.
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 any decrease in the
value of those currencies relative to the U.S. dollar. These
changes will affect the Fund's net assets, distributions and
income. Currently, it is not the Adviser's policy to hedge the
foreign currency exposure associated with foreign investments.
In the future, however, the Fund may use foreign currency forward
contracts, foreign currency options, foreign currency futures
contracts and options on those futures contracts to hedge against
uncertainty in the level of foreign exchange rates. See "Part II
- - Certain Additional Information About the Fund" for descriptions
of these hedging practices.
ADDITIONAL INVESTMENT POLICIES
The Fund's investment objective and fundamental
investment limitations, as described in Part II, may not be
changed without approval of the holders of a majority of the
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Fund's outstanding voting securities. A majority of the Fund's
outstanding voting securities means the lesser of 67% of the
shares of the Fund present or represented at a meeting at which
the holders of more than 50% of the outstanding shares of the
Fund are present or represented or more than 50% of the
outstanding shares of the Fund. Except as otherwise indicated,
investment policies of the Fund are not fundamental and may be
changed by the Board of Trustees of the Trust (the "Board")
without shareholder approval. A further description of the
Fund's investment policies is contained in Part II.
Borrowing. As a fundamental policy, the Fund may not
borrow money if, as a result, outstanding borrowings would exceed
an amount equal to 33 1/3% of the Fund's total assets. For
purposes of this limitation, there is no limit on the following
to the extent they are fully collateralized: (1) the delayed
delivery of purchase securities (such as the purchase of when-
issued securities), (2) reverse repurchase agreements and
(3) dollar-roll transactions.
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 the needs for which funds were
borrowed). Under adverse market conditions, the Fund might have
to sell portfolio securities to meet interest or principal
payments at a time when investment considerations would not favor
such sales. The Fund's use of borrowed proceeds to make
investments would subject the Fund to the risks of leveraging.
The use of these techniques in connection with a segregated
account may result in the Fund's assets being 100 percent
leveraged. See "Additional Investment Policies - Techniques
Involving Leverage."
Illiquid Securities. The Fund may not invest more than
15% of its net assets in illiquid securities, including
repurchase agreements and other securities 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
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<PAGE>
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 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,
instrumentalities or government-sponsored enterprises ("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 income 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 50% of the value of the Fund's total assets.
Diversification and Concentration. The Fund is
diversified, as that term is defined in the Investment Company
Act of 1940 (the "Investment Company Act"). The Fund may not,
with respect to 75% of its assets, purchase a security (other
than a U.S. Government Security or a security of an investment
company) if, as a result: (i) more than 5% of the Fund's total
assets would be invested in the securities of a single issuer, or
(ii) the Fund would own more than l0% of the outstanding voting
securities of any single issuer.
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. For purposes of determining
industry concentration, (i) there is no limit on investments in
U.S. Government Securities, repurchase agreements covering U.S.
Government Securities, tax-exempt securities issued by the
states, territories or possessions of the United States
("municipal securities") or foreign government securities and
(ii) the Fund treats the assets of investment companies in which
7
<PAGE>
it invests as its own except to the extent that the Fund invests
in other investment companies pursuant to Section 12(d)(l)(A) of
the l940 Act.
Warrants. The Fund may invest in warrants, which
provide the holder the right 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.
Short Sales. The Fund may make short sales of
securities that it does not own or have the right to acquire in
anticipation of a decline in the market price for the security.
When the Fund makes a short sale, the proceeds that it receives
are retained by the broker until the Fund replaces the borrowed
security. In order to deliver the security to the buyer, the
Fund must arrange through a broker to borrow the security and, in
so doing, the Fund becomes obligated to replace the security
borrowed at its market price at the time of replacement, whatever
that price may be. Short sales create opportunities to increase
the Fund's return but, at the same time, involve special risk
considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of
the securities sold short without the need to invest the full
purchase price of the securities on the date of the short sale,
the Fund's net asset value per share will tend to increase more
when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in
value, than would otherwise be the case if it had not engaged in
such short sales. Short sales theoretically involve unlimited
loss potential, as the market price of securities sold short may
continuously increase, although the Fund may mitigate such losses
by replacing the securities sold short before the market price
has increased significantly. Under adverse market conditions,
the Fund might have difficulty purchasing securities to meet its
short sale delivery obligations and might have to sell portfolio
securities to raise the capital necessary to meet its short sale
obligations at a time when fundamental investment considerations
would not favor those sales.
Techniques Involving Leverage. Use of leveraging
involves special risks and may involve speculative investment
techniques. The Fund may borrow for other than temporary or
8
<PAGE>
emergency purposes (including to purchase investment securities),
sell securities short, lend its securities, enter into reverse
repurchase agreements and purchase securities on a when-issued or
forward commitment basis. Each of these transactions involves
the use of "leverage" when cash made available to the Fund
through the investment technique is used to make additional
portfolio investments. The 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 the Fund achieves the right to a
return on a capital base that exceeds the Fund's investment.
Leverage creates the risk of magnified capital losses which occur
when losses affect an asset base, enlarged by borrowings or the
creation of liabilities, that exceeds the equity base of the
Fund.
The risks of leverage include a higher volatility of the
net asset value of the Fund's shares and the relatively greater
effect on the net asset value of the shares caused by favorable
or adverse market movements or changes in the cost of cash
obtained by leveraging and the yield obtained from investing the
cash. 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. 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 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 sell securities at a time when fundamental investment
considerations would not favor those sales.
In order to limit the risks involved in various
transactions involving leverage, the Trust's custodian will set
aside and maintain in a segregated account cash and securities in
accordance with Securities and Exchange Commission guidelines.
The account's value, which is marked to market daily, will be at
least equal to the Fund's commitments under these transactions.
Futures and Options. The Fund may seek to enhance
returns by writing exchange-traded or over-the-counter covered
call options or 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
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<PAGE>
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 and stock indices,
such as the Standard & Poor's 500 Stock Index. In addition, the
Fund may buy or sell stock index futures contracts and may write
covered options and buy options on those contracts. Definitions
of these instruments may be found in the Attachment to this part
of Appendix A. An option is covered if, so long as the Fund is
obligated under the option, it owns an offsetting position in the
underlying security 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, 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 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 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.
Convertible Securities. The Fund may invest in
convertible securities, which 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
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matures or is redeemed, converted or exchanged. The value of a
convertible security generally increases when interest rates
decline and generally decreases when interest rates rise, but is
also influenced by the value of the underlying common stock. The
Fund may only invest in convertible securities that are
investment grade, that is, rated "Baa" or higher by Moody's
Investor Service ("Moody's") or "BBB" or higher by Standard &
Poor's. The Fund may purchase unrated securities if the Adviser
determines the security to be of comparable quality to a rated
investment grade security. Moody's indicates that securities
rated "Baa" have speculative characteristics.
Temporary Investments. It is the general policy of the
Fund to be fully invested in accordance with its investment
objective and policies. However, pending investment of cash
balances or if the Adviser believes that business or financial
conditions warrant, 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, other investment companies (including affiliates of
the Fund) that invest in securities in which the Fund may invest.
During periods when and to the extent that the Fund is invested
in cash equivalents, it will not be pursuing its investment
objective.
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 2000. The Adviser and the Trust's manager 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.
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 will not be in
excess of 50%. An annual turnover rate of 50% would occur, for
example, if one half of the securities in the Fund were replaced
once in a period of one year.
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The Adviser 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's brokerage transactions may be conducted 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. The Adviser may effect
transactions for the Fund through brokers who sell Fund shares.
5. MANAGEMENT
The business of the Trust is 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.
INVESTMENT ADVISER
Under an investment advisory agreement with the Trust,
Polaris Capital Management, Inc. serves as the Fund's investment
adviser. Subject to the general control of the Board, the
Adviser makes investment decisions for the Fund. For its
services, the Adviser receives an advisory fee that is accrued
daily and paid monthly at an annual rate of 1.00% of the average
daily net assets of the Fund.
The Adviser, which is located at 125 Summer Street,
Boston, Massachusetts 02110, is registered as an investment
adviser with the Securities and Exchange Commission and provides
investment management services to pension plans, endowment funds
and institutional and individual accounts. The Adviser has had
no prior experience in advising mutual funds. As of the date of
this Proxy Statement/Prospectus, the Adviser had approximately
$50 million of assets under management and was controlled by
Bernard R. Horn, Jr., president and chief portfolio manager of
the Adviser since its organization in 1995.
Mr. Horn has been portfolio manager of the Fund since
the Fund's inception and, as such, is responsible for the
day-to-day management of the Fund's portfolio. The ability of
the Adviser to manage the Fund depends entirely on the services
of Mr. Horn. Prior to his establishment of the Adviser, Mr. Horn
was a portfolio manager and Investment Officer at MDT Advisers,
Inc. Prior thereto, Mr. Horn was vice-president of Freedom
Capital Management Corp. from 1990 to 1992 and the principal and
founder of Horn & Company from 1980 to 1990.
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ADMINISTRATION
On behalf of the Fund, the Trust has entered into an
Administration Agreement with FAdS. Under this agreement, FAdS
is responsible for the supervision of the overall management of
the Trust (including the Trust's receipt of services for which
the Trust is obligated to pay), providing the Trust with general
office facilities, and providing persons satisfactory to the
Board to serve as officers of the Trust. For these services,
FAdS is entitled to receive a monthly fee at annual rates of
0.10% of the first $150 million of the Fund's average daily net
assets and 0.05% of the Fund's average daily net assets in excess
of $150 million, with a $40,000 minimum fee per year. FAdS, in
its sole discretion, may waive all or any portion of its fees.
FAdS, which is located at Two Portland Square, Portland,
Maine 04101, was organized under Delaware law on December 29,
1995 and, as of the date of this Proxy Statement/Prospectus, FAdS
and FFSI provided management, administrative and distribution
services to registered investment companies and collective
investment funds with assets of approximately $18 billion.
DISTRIBUTOR
Under a Distribution Agreement, FFSI acts as the
distributor of the Fund's shares. FFSI acts as the agent of the
Trust in connection with the offering of Fund shares. FFSI
receives no compensation for its services under the Distribution
Agreement. FFSI may enter into arrangements with banks, broker-
dealers or other financial institutions 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 Fund
shares. 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 Securities Dealers, Inc.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a shareholder services plan (the
"Plan") which provides 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
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 shares owned by investors for which the
shareholder servicing agent maintains a servicing relationship.
Among the services provided by the shareholder servicing
agents are: (1) aggregating and processing purchase and
redemption orders and transmitting and receiving funds for
shareholder orders; (2) answering customer inquiries regarding
account matters; (3) assisting shareholders in designating and
changing various account options; (4) transmitting, on behalf of
the Trust, proxy statements, prospectuses and shareholder
reports; (5) tabulating proxies; (6) processing dividend payments
and providing subaccounting services for Fund shares held
beneficially; and (7) providing such other services as the Trust
or a shareholder may request.
TRANSFER AGENT AND FUND ACCOUNTANT
The Trust has entered into a Transfer Agency Agreement
with Forum Financial Corp. (the "Transfer Agent") under which the
Transfer Agent acts as the Fund's transfer agent and dividend
disbursing agent. The Transfer Agent maintains for each
shareholder of record, an account (unless such accounts are
maintained by sub-transfer agents) to which all shares purchased
are credited, together with any dividends or distributions that
are reinvested in additional shares. The Transfer Agent also
performs other transfer agency functions and acts as dividend
disbursing agent for the Trust. Forum Accounting Services, LLC
("FAcS") performs fund accounting services for the Fund,
including determination of the Fund's net asset value. As of the
date of this Proxy Statement/Prospectus each of FAdS, FFSI, the
Transfer Agent and FAcS was controlled by John Y. Keffer,
President and Chairman of the Trust.
EXPENSES OF THE TRUST
The Fund's expenses comprise Trust expenses attributable
to the Fund, which are charged to the Fund, and those not
attributable to a particular fund of the Trust, which are
allocated among the Fund and all other funds of the Trust in
proportion to their average net assets. The Adviser, FAdS and
the Transfer Agent may each elect to waive (or continue to waive)
all or a portion of their fees. Fee waivers are voluntary and
may be reduced or eliminated at any time. The Trust is
responsible for all of its expenses, including: interest charges
and taxes; 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
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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; expenses incurred
pursuant to state securities laws; the fees payable under the
Advisory Agreement and the Administration Agreement; and any fees
and expenses payable pursuant to the Plan. The Adviser has
agreed to reimburse the Trust for certain of the Fund's operating
expenses which in any year exceed the limits prescribed by any
state in which the Fund's shares are qualified for sale.
6. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL
Purchases. Investments in the Fund may be made by an
investor either directly or through certain brokers and financial
institutions of which the investor is a customer. All
transactions in Fund shares are effected through the Transfer
Agent, which accepts orders for purchases and redemptions from
shareholders of record and new investors. Shareholders of record
will receive from the Trust periodic statements listing all
account activity during the statement period. The Trust reserves
the right in the future to modify, limit or terminate any
shareholder privilege upon appropriate notice to shareholders.
Fund shares may be purchased without a sales charge at
their net asset value on any weekday except days when the New
York Stock Exchange (the "Exchange") is closed, normally, New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas (a "Business Day"). See "Other Information --
Determination of Net Asset Value."
Fund shares are issued at a price equal to their net
asset value per share next determined immediately after an order
in proper form is received by the Transfer Agent. The Fund's net
asset value is calculated as of the close of the Exchange
(normally, 4:00 p.m., Eastern time) on each Business Day. Fund
shares become entitled to receive dividends on the next Business
Day after the order is accepted. The Trust and the Adviser
reserve the right to reject any subscription for the purchase of
Fund shares.
Redemptions. Fund shares may be redeemed without charge
on any Business Day. There is no minimum period of investment
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and no restriction on frequency of redemptions. Redemptions are
effected at a price equal to the net asset value per share next
determined following receipt by the Transfer Agent of the
redemption order in proper form (and any supporting documentation
that the Transfer Agent may require). Shares redeemed are not
entitled to participate in dividends declared after the day on
which a redemption becomes effective.
Normally, redemption proceeds are paid immediately, but
in any event within seven days, following receipt of a redemption
order by the Transfer Agent. Redemption proceeds, however, are
not paid unless any check used for investment has been cleared by
the shareholder's bank, which may take up to 15 calendar days.
This delay may be avoided by investing in the Fund through wire
transfers. Unless otherwise indicated, redemption proceeds
normally are paid by check mailed to the shareholder of record at
his or her record address. Redemption rights may not be
suspended nor may payment dates be postponed except when the
Exchange is closed (or when trading thereon is restricted) for
any reason other than its customary weekend or holiday closings
or under any emergency or other circumstance as determined by the
Securities and Exchange Commission.
Redemption proceeds are normally paid in cash. Payments
may be made wholly or partially in portfolio securities, however,
if the Board determines that payment in cash would be detrimental
to the best interests of the Fund. The Trust may only effect a
redemption in portfolio securities if the particular shareholder
is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90 day period.
The Trust and the Transfer Agent employ reasonable
procedures to insure that telephone orders are genuine (which
include recording certain transactions and the use of shareholder
security codes). If the Trust and Transfer Agent did not employ
such procedures, either could be liable for any losses due to
unauthorized or fraudulent telephone instructions. Shareholders
should verify the accuracy of telephone instructions immediately
upon receipt of confirmation statements. During times of drastic
economic or market changes, the telephone redemption privilege
may be difficult to implement. In the event that a shareholder
is unable to reach the Transfer Agent by telephone, these
requests may be mailed or hand-delivered to the Transfer Agent.
Due to the cost to the Trust of maintaining smaller
accounts, the Trust reserves the right to redeem, upon not less
than 60 days' written notice, all shares in any Fund account with
an aggregate net asset value of less than $2,500 ($2,000 for
IRAs). Shareholders who wish to redeem shares by telephone or by
bank wire must elect these options by properly completing the
appropriate sections of their account application.
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PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and
shareholder services apply to investors who invest in the Fund
directly. These investors may open an account by completing the
application at the back of the Fund's Prospectus or by contacting
the Transfer Agent at the address on the first page of the Fund's
Prospectus. For shareholder services described in the Fund's
Prospectus but not referenced on the account application or to
change information regarding a shareholder's account (such as
addresses), investors should request an Optional Services Form
from the Transfer Agent.
There is a $2,500 minimum for initial investments in the
Fund and a $250 minimum for subsequent purchases, except for
individual retirement accounts. See "Purchases and Redemptions
of Shares -- Individual Retirement Accounts." Shareholders of
record will receive from the Trust periodic statements listing
account activity during a statement period.
Initial Purchase of Shares
Mail. Investors may send a check made payable to the
Trust along with a completed account application to the Transfer
Agent at:
Polaris Global Value Fund
Two Portland Square
Portland, Maine 04101
Checks are accepted at full value subject to collection.
If a check does not clear, the purchase order will be canceled,
and the investor will be liable for any losses or fees incurred
by the Trust, the Transfer Agent or FFSI.
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Bank Wire. To make an initial investment in the Fund
using the fed wire system for transmittal of money among banks,
an investor should first telephone the Transfer Agent at
888-263-5594 or 207-879-0001 to obtain an account number for an
initial investment. The investor should then instruct a member
commercial bank to wire the money immediately to:
The Chase Manhattan Bank
New York, NY
ABA # 021000021
For Credit to: Forum Financial Corp.
Account # 910-2-718187
Polaris Global Value Fund
(Investor's Name)
(Investor's Account Number)
The investor should then promptly complete and mail the
account application.
Any investor planning to wire funds should instruct the
bank early in the day so the wire transfer can be accomplished
the same day. There may be a charge by the investor's bank for
transmitting the money by bank wire, and there also may be a
charge for use of federal funds. The Trust does not charge
investors for the receipt of wire transfers.
Through Brokers and Other Financial Institutions.
Shares may be purchased and redeemed through brokers and other
financial institutions that have entered into sales agreements
with FFSI. These institutions may charge their customers a fee
for their services and are responsible for promptly transmitting
purchase, redemption and other requests to the Trust. The Trust
is not responsible for the failure of any institution to promptly
forward these requests or otherwise carry out its obligations to
its customers.
Investors who purchase shares through a financial
institution may be charged a fee if they effect transactions in
Fund shares through the institution and are subject to the
procedures of their financial institution, which may include
charges, limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable
to shareholders who invest in the Fund directly. These investors
should acquaint themselves with their financial institution's
procedures and should read the Fund's Prospectus in conjunction
with any materials and information provided by their institution.
Customers who purchase Fund shares in this manner may or may not
be the shareholder of record and, subject to their institution's
and the Fund's procedures, may have Fund shares transferred into
their name. Under their arrangements with the Trust,
broker-dealers are not generally required to deliver payment for
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purchase orders until several business days after a purchase
order has been received by the Fund. Certain other institutions
may also enter purchase orders with payment to follow.
Certain shareholder services may not be available to
shareholders who have purchased shares through an institution.
These shareholders should contact their institution for further
information. The Trust may confirm purchases and redemptions of
an institution's customers directly to the institution, which in
turn will provide its customers with such confirmations and
periodic statements as may be required by law or agreed to
between the institution and its customers. The Trust is not
responsible for the failure of any institution to carry out its
obligations to its customers. Certain states permit Fund shares
to be purchased and redeemed only through registered
broker-dealers, including the Fund's distributor.
Subsequent Purchases of Shares
Subsequent purchases may be made by sending a bank wire
or by mailing a check as indicated above. Shareholders using the
wire system for subsequent purchases should first telephone the
Fund at 888-263-5594 or the Transfer Agent at 888-263-5594 or
207-879-0001 to notify it of the wire transfer. All payments
should clearly indicate the shareholder's name and account
number.
Automatic Investment. Shareholders may purchase Fund
shares at regular, preselected intervals by authorizing the
automatic transfer of funds from a designated bank account
maintained with a United States banking institution that is an
Automated Clearing House member. Under the program, existing
shareholders may authorize amounts of $250 or more to be debited
from their bank account and invested in a Fund monthly or
quarterly. Shareholders wishing to participate in this program
may obtain the applicable forms from the Transfer Agent.
Shareholders may terminate their automatic investments or change
the amount to be invested at any time by written notification to
the Transfer Agent.
Redemption of Shares
Shareholders who wish to redeem shares by telephone or
receive redemption proceeds by bank wire must elect these options
by properly completing the appropriate sections of their account
application. These privileges may not be available until several
weeks after a shareholder's application is received.
Redemption by Mail. Shareholders may make a redemption
in any amount by sending a written request to the Transfer Agent
accompanied by any share certificate that was issued to the
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shareholder. All share certificates submitted for redemption,
and all written requests for redemption, must be endorsed by the
shareholder with signature guaranteed.
Telephone Redemption. A shareholder that has elected
telephone redemption privileges may make a telephone redemption
request by calling the Fund at 888-263-5594 or the Transfer Agent
at 207-879-0001. Shareholders must provide the Transfer Agent
with the shareholder's account number, the exact name in which
the shares are registered, and the shareholder's social security
or taxpayer identification number. In response to the telephone
redemption instruction, the Fund will mail a check to the
shareholder's record address or, if the shareholder has elected
wire redemption privileges, wire the proceeds.
Bank Wire Redemption. For redemptions of more than
$10,000, a shareholder who has elected wire redemption privileges
may request the Fund to transmit the redemption proceeds by
federal funds wire to a bank account designated on the
shareholder's account application. To request bank wire
redemptions by telephone, the shareholder also must have elected
the telephone redemption privilege. Redemption proceeds are
transmitted by wire on the day the redemption request in proper
form is received by the Transfer Agent.
Automatic Redemptions. Shareholders may redeem Fund
shares at regular, preselected intervals by authorizing the
automatic redemption of shares from their Fund account.
Redemption proceeds are sent either by check or by automatic
transfer to a designated bank account maintained with a United
States banking institution that is an Automated Clearing House
member. Under this program, shareholders may authorize the
redemption of shares in amounts of $250 or more from their
account monthly or quarterly. Shareholders may terminate their
automatic redemptions or change the amount to be redeemed at any
time by written notification to the Transfer Agent.
Other Redemption Matters. To protect shareholders and
the Fund against fraud, signatures on certain requests must have
a signature guarantee. Requests must be made in writing and
include a signature guarantee for any of the following
transactions: (1) any endorsement on a share certificate; (2)
written instruction to redeem shares whose value exceeds $50,000;
(3) instructions to change a shareholder's record name; (4)
redemption in an account in which the account address or account
registration has changed within the last 30 days; (5) redemption
proceeds to be sent to other than the address of record,
preauthorized bank account, or preauthorized brokerage firm
account; (6) redemption proceeds to be paid to someone other than
the record owners or to an account with a different registration;
or (7) change of automatic investment or redemption, dividend
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election, telephone redemption option election or any other
option election in connection with the shareholder's account.
Signature guarantees may be provided by any eligible
institution acceptable to the Transfer Agent, including a bank, a
broker, a dealer, a national securities exchange, a credit union,
or a savings association that is authorized to guarantee
signatures. Whenever a signature guarantee is required, the
signature of each person required to sign for the account must be
guaranteed. A notarized signature is not sufficient.
The Transfer Agent may deem a shareholder's account
"lost" if correspondence to the shareholder's address of record
is returned for six months, unless the Transfer Agent determines
the shareholder's new address. When an account is deemed lost,
all distributions on the account are reinvested in additional
shares of the Fund. In addition, the amount of any outstanding
(unpaid for six months or more) checks for distributions that
have been returned to the Transfer Agent will be reinvested, and
the checks will be canceled.
Individual Retirement Accounts
A single Fund should not be considered as a complete
investment vehicle for the assets held in individual retirement
accounts. The Fund may be a suitable investment for assets held
in a traditional or Roth individual retirement account
(collectively, "IRAs"). An IRA account application form may be
obtained by contacting the Trust at 888-263-5594 or its Transfer
Agent at 207-879-0001. For a traditional IRA, generally, all
contributions are tax-deductible, and investment earnings will be
tax-deferred until withdrawn. The deduction on contributions to
a traditional IRA is reduced, however, if the individual or, in
the case of a married individual, 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. Contributions to a Roth IRA are not tax
deductible, but generally investment earnings grow tax-free.
Individuals may make IRA contributions of up to a maximum of
$2,000 annually. The Fund's minimum initial investment for
investors opening an IRA or investing through their own IRA is
$2,000, and its minimum subsequent investment is $250.
An employer may also contribute to an individual's IRA
as part of a Savings Incentive Match Plan for Employees, or
"SIMPLE plan," established after December 31, 1996. Under a
SIMPLE plan, an employee may contribute up to $6,000 annually to
the employee's IRA, and the employer must generally match such
contributions up to 3% of the employee's annual salary.
Alternatively, the employer may elect to contribute to the
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employee's IRA 2% of the lesser of the employee's earned income
or $160,000.
The foregoing discussion regarding IRAs is based on
regulations in effect as of January 1, 1998 and summarizes only
some of the important federal tax considerations generally
affecting IRA contributions made by individuals or their
employers. It is not intended as a substitute for tax planning.
Investors should consult their tax advisors with respect to their
specific tax situations as well as with respect to state and
local taxes.
Exchanges
Fund shareholders may exchange their shares for Investor
shares of Daily Assets Treasury Fund (to be renamed Daily Assets
Government Fund, effective May 25, 1998), another series of the
Trust that is a money market fund. A prospectus for Daily Assets
Treasury Fund may be obtained by contacting the Transfer Agent.
The Trust does not charge for exchanges, and there is
currently no limit on the number of exchanges you may make. The
Trust reserves the right, however, to limit excessive exchanges
by any shareholder and may impose a fee for excessive exchanges.
Exchanges are subject to the fees charged by, and the limitations
(including minimum investment restrictions) of Daily Assets
Treasury Fund.
Exchanges may only be made between identically
registered accounts or by opening a new account. A new account
application is required to open a new account through an exchange
if the new account will not have an identical registration and
the same shareholder privileges as the account from which the
exchange is being made.
Under federal tax law, an exchange is treated as a
redemption and a purchase. Accordingly, an investor may realize
a capital gain or loss depending on whether the value of the
shares redeemed is more or less than the investor's basis in the
shares at the time of the exchange transaction. Exchange
procedures may be amended materially or terminated by the Trust
at any time upon 60 days' notice to shareholders. See
"Additional Purchase and Redemption Information" in Part II.
Exchanges by Mail. You may make an exchange by sending
a written request to the Transfer Agent accompanied by any share
certificates for the shares to be exchanged. You must sign all
written requests for exchanges and endorse all certificates
submitted for exchange with your signature guaranteed. (See
"Redemption of Shares - Other Redemption Matters.")
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Exchange by Telephone. If you have elected telephone
exchange privileges, you may make a telephone exchange request by
calling the Transfer Agent at 888-263-5594 or 207-879-0001 and
providing the account number, the exact name in which the
shareholder's shares are registered and your social security or
taxpayer identification number. (See "Redemption of Shares -
Other Redemption Matters.")
7. DIVIDENDS AND TAX MATTERS
DIVIDENDS
Dividends of the Fund's net investment income are
declared and paid at least annually. Any net capital gain
realized by the Fund is distributed annually.
Shareholders may choose either to have all dividends
reinvested in additional Fund shares or received in cash or to
have distributions of net capital gain reinvested in additional
shares of the Fund and dividends of net investment income paid in
cash. All dividends are treated in the same manner for federal
income tax purposes whether received in cash or reinvested in
shares of the Fund.
Income dividends will be reinvested at the Fund's net
asset value as of the last day of the period with respect to
which the dividends are paid. Capital gain distributions will be
reinvested at the net asset value of the Fund on the payment date
for the distribution. All dividends and distributions are
reinvested unless another option is selected. All dividends not
reinvested will be paid to the shareholder in cash and may be
made more than seven days following the date on which dividends
would otherwise be reinvested.
TAXES
Taxation of the Fund. The Fund intends to qualify each
fiscal year to be taxed as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). As
such, the Fund will not be liable for federal income and excise
taxes on the net investment income and capital gain distributed
to its shareholders in accordance with the applicable provisions
of the Code. The Fund intends to distribute all of its net
income and net capital gains each year. Accordingly, the Fund
should thereby avoid all federal income and excise taxes.
Shareholder Tax Matters. Dividends paid by the Fund out
of its net investment income (including realized net short term
capital gain) are taxable to Fund shareholders as ordinary
income. Two different tax rates apply to net capital gain - that
is, the excess of net gain from capital assets held for more than
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one year over net losses from capital assets held for not more
than one year. One rate (generally 28%) applies to net gain on
capital assets held for more than one year but not more than 18
months ("mid-term gain"), and a second rate (generally 20%)
applies to the balance of such net capital gain ("adjusted net
capital gain"). Distributions of net capital gain will be
treated in the hands of shareholders as mid-term gain to the
extent designated by the Fund as deriving from net gain from
assets held for more than one year but not more than 18 months,
and the balance will be treated as adjusted net capital gain,
regardless of how long a shareholder has held shares in the Fund.
A portion of the Fund's dividends may qualify for the dividends
received deduction available to corporations.
If a shareholder holds shares for six months or less and
during that period receives a distribution of net capital gain,
any loss realized on the sale of the shareholder's shares during
that six-month period would be deemed a long-term capital loss to
the extent of the distribution.
Any dividend or distribution received by a shareholder
on Fund shares will have the effect of reducing the net asset
value of the shareholder's shares by the amount of the dividend
or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of shares by a shareholder, although
in effect a return of capital to that particular shareholder,
would be taxable to the shareholder as described above.
Investment income received by the Fund from sources
within foreign countries may be subject to foreign income or
other taxes. Under certain circumstances, shareholders will be
notified of their share of these taxes and will be required to
include that amount as income. In that event, the shareholder
may be entitled to claim a credit or deduction for those taxes.
General. The Fund is required by federal law to
withhold 31% of reportable payments (which may include dividends,
capital gain distributions and redemptions) paid to a
non-corporate shareholder unless the shareholder has certified in
writing that the social security or tax identification number
provided is correct and that the shareholder is not subject to
backup withholding for prior underreporting to the Internal
Revenue Service.
Reports containing appropriate information with respect
to the federal income tax status of the Fund's dividends and
distributions paid during the year will be mailed to shareholders
shortly after the close of each year.
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8. OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of
the Fund as of the close of the Exchange on each Business Day by
dividing the value of the Fund's net assets (i.e., the value of
its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and
surplus) by the number of shares outstanding at the time the
determination is made. Securities owned by the Fund for which
market quotations are readily available are valued at current
market value, or, in their absence, at fair value as determined
by the Board. Purchases and redemptions are effected at the net
asset value next determined following the receipt of any purchase
or redemption order as described under "Purchases and Redemptions
of Shares."
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on
March 24, 1980 and assumed the name of Forum Funds, Inc. on
March 16, 1987. On January 5, 1996, Forum Funds, Inc. was
reorganized as a Delaware business trust. 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. The Fund reserves the right to reorganize as a
separate registered investment company, as opposed to a series of
the Trust, without shareholder approval. The Fund also reserves
the right to invest in a master-feeder or fund-of-funds structure
under the Investment Company Act or any rule or exemptive order
thereunder without shareholder approval.
Each share of each fund of the Trust and each class of
shares, as applicable, 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 fund or class (and certain
other expenses such as transfer agency and administration
expenses) are borne solely by those shares. Each fund or class
votes separately with respect to the provisions of any Rule 12b-1
plan that pertains to the fund or class and other matters for
which separate fund or class voting is required or appropriate
under applicable law. Generally, shares are voted in the
aggregate without reference to a particular fund or class, except
if the matter affects only one fund or class or voting by fund or
class is required by law, in which case shares will be voted
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separately by fund or class, as appropriate. Delaware law does
not require the Trust to hold annual meetings of shareholders,
and it is anticipated that shareholder meetings will be held only
when specifically required by federal or state law. Shareholders
(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 fund is entitled
to a pro rata share of all dividends and distributions arising
from that fund's assets and, upon redeeming shares, will receive
the portion of the fund's net assets represented by the redeemed
shares.
From time to time, certain shareholders may own a large
percentage of the shares of the Fund. Accordingly, those
shareholders may be able to greatly affect (if not determine) the
outcome of a shareholder vote. Prior to the public offering of
the Fund's shares, FAdS, the holder of the initial shares of the
Fund, may be deemed to control the Fund.
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ATTACHMENT
Options on Equity Securities (sometimes referred to as
stock options) - A call option is a short-term contract under
which the purchaser of the call option, in return for a premium
paid, has the right to buy the security underlying the option at
a specified exercise price at any time during the term of the
option. The writer (seller) 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 (seller) 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 Indices - A stock index assigns
relative values to the stocks 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 option, the purchaser will receive and the writer will pay
an amount based on the difference 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 markets.
Stock Index Futures Contracts - A stock index futures
contract is a bilateral agreement under 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 under 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.
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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 in the future.
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PART II
CERTAIN ADDITIONAL INFORMATION ABOUT THE FUND
1. INVESTMENT POLICIES AND LIMITATIONS
The Adviser intends to invest the Fund's assets
primarily in a portfolio of equity securities of issuers located
worldwide.
Investment in Foreign Securities
While the Adviser currently intends to invest the Fund's
assets in issuers located in at least 5 countries, there is no
limit on the amount of the Fund's assets that may be invested in
issuers located in any one country or region. To the extent that
the Fund has concentrated its investments in issuers located in a
country or region, the Fund is more susceptible to factors
adversely affecting the economy of that country or region than if
the Fund were invested in a more geographically diverse
portfolio.
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 can be higher than
negotiated commissions on United States exchanges. 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
<PAGE>
credit or deduction for U.S. federal income tax purposes for the
shareholder's proportionate share of foreign taxes paid by the
Fund. See "Tax Matters."
Although the Fund values its assets daily in terms of
U.S. dollars, it will not normally convert its holdings of
foreign currencies into U.S. dollars on a daily basis. It will
do so from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit
based on the difference (commonly known as the "spread") between
the price at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
Investors should understand that the expense ratio of
the Fund can be expected to be higher than that of other
investment companies investing solely in domestic securities due
to, among other things, the greater cost of maintaining the
custody of foreign securities and higher transaction charges,
such as stamp duties and turnover taxes that may be associated
with the purchase and sale of portfolio securities.
Ratings as Investment Criteria
Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Corporation ("S&P") are private services that provide
ratings of the credit quality of debt obligations, including
convertible securities. A description of the range of ratings
assigned to corporate bonds, including convertible securities by
Moody's and S&P is included in the Attachment to this Part of
Appendix A. 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.
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Convertible Securities
The Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different
issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive
interest paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of
income with generally higher yields than those of common stocks
of the same or similar issuers. Although no securities
investment is without some risk, investment in convertible
securities generally entails less risk than in the issuer's
common stock. However, the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
Convertible securities have unique investment characteristics in
that they generally (1) have higher yields than common stocks,
but lower yields than comparable non-convertible securities,
(2) are less subject to fluctuation in value than the underlying
stocks since they have fixed income characteristics and
(3) provide the potential for capital appreciation if the market
price of the underlying common stock increases.
The investment value of a convertible security is
influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other
factors also may have an effect on the convertible security's
investment value. The conversion value of a convertible security
is determined by the market price of the underlying common stock.
If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by
its investment value and generally the conversion value decreases
as the convertible security approaches maturity. To the extent
the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value.
In addition, a convertible security generally will sell at a
premium over its conversion value determined by the extent to
which investors place value on the right to acquire the
underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at
the option of the issuer at a price established in the
convertible security's governing instrument. If a convertible
security held by the Fund is called for redemption, the Fund will
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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 provide the
holder the right 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.
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 normally will conduct foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market. While it is
not currently the policy of the Adviser to engage in foreign
currency hedging strategies, the Fund in the future may enter
into foreign currency forward contracts ("forward contracts") to
purchase or sell foreign currencies or engage in certain other
foreign currency hedging strategies set forth in "Investment
Policies and Limitations -- Hedging and Option Income
Strategies." 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. 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
4
<PAGE>
values correctly. 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.
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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.
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 and Option Income Strategies
As discussed in Part I, the Adviser may engage in
certain options and futures strategies to attempt to enhance
performance or hedge the Fund's portfolio. The instruments in
which the Fund may invest include: (1) options on securities,
stock indices and foreign currencies; (2) stock index and foreign
currency futures contracts ("futures contracts"); and (3) 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 Part I
are intended to illustrate the types 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,
6
<PAGE>
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, obligations issued or
guaranteed as to principal and interest by the U.S. Government,
its agencies and instrumentalities ("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.
Options Strategies
The Fund may purchase put and call options written by
others and write (sell) put and call options covering specified
securities, stock index-related amounts or currencies. A put
option (sometimes called a "standby commitment") gives the buyer
of the option, upon payment of a premium, the right to deliver a
specified amount of a security or currency to the writer of the
option on or before a fixed date at a predetermined price. A
call option (sometimes called a "reverse standby commitment")
gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified amount of a
security or currency on or before a fixed date, at a
predetermined price. The predetermined prices may be higher or
lower than the market value of the underlying currency or
security. The Fund may buy or sell both exchange-traded and
over-the-counter ("OTC") options. The Fund will purchase or
write an option only if that option is traded on a recognized
U.S. options exchange or if the Adviser believes that a liquid
secondary market for the option exists. When the Fund purchases
an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the
securities or currency underlying the option. Failure by the
dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the
transaction. OTC options and the securities underlying these
options currently are treated as illiquid securities.
The Fund may purchase call options on equity securities
that the Adviser intends to include in the Fund's portfolio in
7
<PAGE>
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.
8
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The value of foreign currency options is dependent upon
the value of the foreign currency relative to the U.S. dollar and
has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those
that may be involved in the use of foreign currency options, the
Fund may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less
favorable than for round lots.
To the extent that the U.S. options markets are closed
while the market for the underlying currencies remains open,
significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options
markets.
Special Characteristics and Risks of Options Trading
The Fund may effectively terminate its right or
obligation under an option contract by entering into a closing
transaction. For instance, if the Fund wished to terminate its
potential obligation to sell securities or currencies under a
call option it had written, a call option of the same type would
be purchased by the Fund. Closing transactions essentially
permit the Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option. In
addition:
(1) The successful use of options depends upon the
Adviser's ability to forecast the direction of price fluctuations
in the underlying securities or currency markets, or in the case
of a stock index option, fluctuations in the market sector
represented by the index.
(2) Options normally have expiration dates of up to
nine months. Options that expire unexercised have no value.
Unless an option purchased by the Fund is exercised or unless a
closing transaction is effected with respect to that position, a
loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be
closed out only on an exchange which provides a market for
identical options. Most exchange-listed options relate to equity
securities. Exchange markets for options on foreign currencies
are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a
liquid secondary market. Closing transactions may be effected
with respect to options traded in the over-the-counter markets
(currently the primary markets for options on foreign currencies)
only by negotiating directly with the other party to the option
9
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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
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in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to
hedge against possible variations in the exchange rate of the
foreign currency in relation to the U.S. dollar. In addition,
the Fund may sell foreign currency futures contracts when the
Adviser anticipates a general weakening of foreign currency
exchange rates that could adversely affect the market values of
the Fund's foreign securities holdings. The Fund may purchase a
foreign currency futures contract to hedge against an anticipated
foreign exchange rate increase pending completion of anticipated
transactions. Such a purchase would serve as a temporary measure
to protect the Fund against such increase. The Fund may also
purchase call or put options on foreign currency futures
contracts to obtain a fixed foreign exchange rate at limited
risk. The Fund may write call options on foreign currency
futures contracts as a partial hedge against the effects of
declining foreign exchange rates on the value of foreign
securities.
Special Characteristics and Risks of Futures and Related Options
Trading
No price is paid upon entering into futures contracts;
rather, the Fund is required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of
cash or U.S. Government Securities generally equal to 5% or less
of the contract value. This amount is known as initial margin.
Subsequent payments, called variation margin, to and from the
broker, would be made on a daily basis as the value of the
futures position varies. When writing a call on a futures
contract, variation margin must be deposited in accordance with
applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith
deposit on the contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations
have been satisfied.
Holders and writers of futures and options on futures
contracts can enter into offsetting closing transactions, similar
to closing transactions on options, by selling or purchasing,
respectively, a futures contract or related option with the same
terms as the position held or written. Positions in futures
contracts may be closed only on an exchange or board of trade
providing a secondary market for such futures contracts. For
example, futures contracts on broad-based stock indices can
currently be entered into with respect to the Standard & Poor's
500 Stock Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Stock Index on the New York Futures
Exchange, the Value Line Composite Stock Index on the Kansas City
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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.
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(5) Purchasers of options on futures contracts pay a
premium in cash at the time of purchase. This amount and the
transaction costs is all that is at risk. Sellers of options on
futures contracts, however, must post an initial margin and are
subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) The Fund's activities in the futures markets may
result in a higher portfolio turnover rate and additional
transaction costs in the form of added brokerage commissions.
(7) Buyers and sellers of foreign currency futures
contracts are subject to the same risks that apply to the buying
and selling of futures generally. In addition, there are risks
associated with foreign currency futures contracts and their use
as a hedging device similar to those associated with options on
foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country
issuing that currency. Thus, the Fund must accept or make
delivery of the underlying foreign currency in accordance with
any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents,
and the Fund may be required to pay any fees, taxes or charges
associated with such delivery which are assessed in the issuing
country.
Commodity Futures Contracts and Commodity Options
The Fund may invest in certain financial futures
contracts and options contracts in accordance with the policies
described in the Part I 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.
Borrowing and Transactions Involving Leverage
The Fund may borrow money in amounts up to 33 1/3
percent of the Fund's total assets. Borrowing involves special
risk considerations. Interest costs on borrowings may fluctuate
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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 the needs for which
funds were borrowed). Under adverse market conditions, the Fund
might have to sell portfolio securities to meet interest or
principal payments at a time when investment considerations would
not favor such sales. The 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 and other similar investments that involve a form
of leverage have characteristics similar to borrowings but are
not considered borrowings if the Fund maintains a segregated
account.
Other Techniques Involving Leverage
Utilization of leveraging involves special risks and may
involve speculative investment techniques. The Fund may borrow
for other than temporary or emergency purposes, sell securities
short, lend its securities, enter reverse repurchase agreements
and purchase securities on a when issued or forward commitment
basis. Each of these transactions involves the use of "leverage"
when cash made available to the Fund through the investment
technique is used to make additional portfolio investments. The
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 creates the risk of magnified capital losses
which occur when losses affect an asset base, enlarged by
borrowings or the creation of liabilities, that exceeds the
equity base of the Fund. Leverage may involve the creation of a
liability that requires the Fund to pay interest (for instance,
reverse repurchase agreements) or the creation of a liability
that does not entail any interest costs (for instance, forward
commitment transactions).
The risks of leverage include a higher volatility of the net
asset value of the Fund's shares and the relatively greater
effect on the net asset value of the shares caused by favorable
or adverse market movements or changes in the cost of cash
obtained by leveraging and the yield obtained from investing the
cash. So long as the 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
14
<PAGE>
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 the Fund's investment
portfolio, the benefit of leveraging will be reduced, and, if
the interest expense on borrowing were to exceed the net return
to shareholders, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged.
Similarly, the effect of leverage in a declining market could be
a greater decrease in net asset value per share than if the Fund
were not leveraged. In an extreme case, if the Fund's current
investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to
liquidate certain of it 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
maintain in a segregated account cash, U.S. Government Securities
or other assets as may be permitted by the Securities and
Exchange Commission in accordance with Securities and Exchange
Commission guidelines. The account's value, which is marked to
market daily, will be at least equal to the Fund's commitments
under these transactions. The Fund's commitments include the
Fund's obligations to repurchase securities under a reverse
repurchase agreement and settle when-issued and forward
commitment transactions.
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
15
<PAGE>
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 moneys. 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 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
16
<PAGE>
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 securities will
be purchased 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 position, the Fund
may invest in the securities of other investment companies that
are money market funds, including the Fund's affiliates, within
the limits proscribed by the Investment Company 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).
17
<PAGE>
Temporary Investments
The cash or cash equivalents in which the Fund may
invest include: (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 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; (3) commercial paper of prime quality rated
"A-2" or higher by S&P or "Prime-2" or higher by Moody's or, if
not rated by those agencies, determined by the Adviser to be of
comparable quality; and (4) repurchase agreements covering any of
the securities in which the Fund may invest directly.
Fundamental Policies
Fundamental investment policies of the Fund may not be
changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. A majority of the Fund's
outstanding voting securities, as defined in the Investment
Company Act, means the lesser of: (1) 67% of the shares of the
Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the shares are present or
represented; or (2) more than 50% of the outstanding shares of
the Fund. Investment policies are not fundamental unless they
are designated as fundamental.
Investment Limitations
The Fund has adopted the following fundamental
investment limitations that are in addition to those contained in
Part I and that may not be changed without shareholder approval.
The Fund may not:
(1) Borrow money if, as a result, outstanding
borrowings would exceed an amount equal to 33 1/3% of the Fund's
total assets. For purposes of this limitation, there is no limit
on the following to the extent they are fully collateralized:
(a) the delayed delivery of purchased securities; (such as the
purchase of when-issued securities); (b) reverse repurchase
agreements; and (c) dollar-roll transactions.
(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 conducting their
principal business activities in the same industry. For purposes
of determining industry concentration, (i) there is no limit on
investments in U.S. Government Securities, repurchase agreements
covering U.S. Government Securities, tax-exempt securities issued
18
<PAGE>
by the states, territories or possessions of the United States
("municipal securities") or foreign government securities and
(ii) the Fund treats the assets of investment companies in which
it invests as its own except to the extent that the Fund invests
in other investment companies pursuant to Section 12(d)(l)(A) of
the l940 Act.
(3) With respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of
an investment company) if, as a result: (i) more than 5% of the
Fund's total assets would be invested in the securities of a
single issuer, or (ii) the Fund would own more than l0% of the
outstanding voting securities of any single 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-through 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 the Fund from purchasing
or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities).
(8) Issue senior securities, except that: (a) the Fund
may engage in transactions that may result in the issuance of
senior securities to the extent permitted under applicable
regulations and interpretations of the Investment Company Act 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 Investment Company Act; and (c) subject to
the restrictions set forth above, the Fund may borrow money as
authorized by the Investment Company Act.
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<PAGE>
The Fund has adopted the following nonfundamental
investment limitations that may be changed by the Trust's Board
of Trustees without shareholder approval. The Fund:
(a) 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.
(b) May not invest in securities of another registered
investment company, except to the extent permitted by the
Investment Company Act.
(c) May not enter into short sales if, as a result,
more than 25% of the Fund's total assets would be so invested or
the Fund's short positions (other than those positions "against
the box") would represent more than 2% of the outstanding voting
securities of any single issuer or of any class of securities of
any single issuer.
(d) May not acquire securities or invest in repurchase
agreements that do not provide for termination within in seven
days with respect to any securities if, as a result, more than
15% of the Fund's net assets (taken at current value) would be
invested in securities that are not readily marketable, 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").
Except as required by the Investment Company 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.
2. PERFORMANCE DATA
The Fund may quote performance in various ways. All
performance information supplied by the Fund in advertising is
historical and is not intended to indicate future returns. The
Fund's net asset value, yield and total return will fluctuate in
response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original
cost.
20
<PAGE>
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.
21
<PAGE>
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 cumulative total returns reflecting the simple change
in value of an investment over a stated period. Total returns
may be broken down into their components of income and capital
(including capital gain and changes in share price) in order to
illustrate the relationship of these factors and their
contributions to total return. Total returns, yields, and other
performance information may be quoted numerically or in a table,
graph, or similar illustration.
Period total return is calculated according to the following
formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average
annual total return above.
3. MANAGEMENT
The trustees and officers of the Trust and their
principal occupations during the past five years are set forth
below. Each Trustee who is an "interested person" (as defined by
the Investment Company Act) of the Trust is indicated by an
asterisk.
John Y. Keffer,* Chairman and President (age 54)
President and Director, Forum Financial Services, Inc.
(a registered broker-dealer), Forum Administrative
Services, LLC (a mutual fund administrator), Forum
Financial Corp. (a registered transfer agent) and Forum
Investment Advisors, LLC (a registered investment
adviser). Mr. Keffer is a Trustee and/or officer of
various registered investment companies for which Forum
Administrative Services, LLC serves as manager or
administrator and for which Forum Financial Services,
22
<PAGE>
Inc. serves as distributor. His address is Two Portland
Square, Portland, Maine 04101.
Costas Azariadis, Trustee (age 53)
Professor of Economics, University of California, Los
Angeles, since July 1992. Prior thereto, Dr. Azariadis
was Professor of Economics at the University of
Pennsylvania. His address is Department of Economics,
University of California, Los Angeles, 405 Hilgard
Avenue, Los Angeles, California 90024.
James C. Cheng, Trustee (age 54)
President of Technology Marketing Associates (a
marketing consulting company) since September 1991.
Prior thereto, Mr. Cheng was President and Chief
Executive Officer of Network Dynamics, Incorporated (a
software development company). His address is 27 Temple
Street, Belmont, Massachusetts 02178.
J. Michael Parish, Trustee (age 53)
Partner at the law firm of Reid & Priest LLP. Prior
thereto, he was a partner at the law firm of Winthrop
Stimson Putnam & Roberts and prior thereto, a partner at
the law firm of LeBoeuf, Lamb, Leiby & MacRae. His
address is 40 West 57th Street, New York, New York
10019-4097.
Mark D. Kaplan, Vice President, Acting Treasurer and Assistant
Secretary (age 41)
Managing Director at Forum Financial Services, Inc.
since September 1995. Prior thereto, Mr. Kaplan was
Managing Director and Director of Research at H.M.
Payson & Co. His address is Two Portland Square,
Portland, Maine 04101.
David I. Goldstein, Secretary (age 35)
Counsel, Forum Financial Services, Inc., with which he
has been associated since 1991. Prior thereto,
Mr. Goldstein was associated with the law firm of
Kirkpatrick & Lockhart. Mr. Goldstein is also Secretary
or Assistant Secretary of various registered investment
companies for which Forum Administrative Services, LLC
or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
23
<PAGE>
Max Berueffy, Assistant Secretary (age 44)
Counsel, Forum Financial Services, Inc., with which he
has been associated since 1994. Prior thereto,
Mr. Berueffy was on the staff of the U.S. Securities and
Exchange Commission for seven years, first in the
appellate branch of the Office of the General Counsel,
then as a counsel to Commissioner Grundfest and finally
as a senior special counsel in the Division of
Investment Management. Mr. Berueffy is also Secretary
or Assistant Secretary of various registered investment
companies for which Forum Administrative Services, LLC
or Forum Financial Services, Inc. serves as manager,
administrator and/or distributor. His address is Two
Portland Square, Portland, Maine 04101.
Cheryl O. Tumlin, Assistant Secretary (age 31)
Assistant Counsel, Forum Financial Services, Inc., with
which she has been associated since July 1996. Prior
thereto, Ms. Tumlin was on the staff of the U.S.
Securities and Exchange Commission as an attorney in the
Division of Market Regulation and prior thereto Ms.
Tumlin was an associate with the law firm of Robinson
Silverman Pearce Aronsohn & Berman in New York, New
York. Ms. Tumlin is also Assistant Secretary of various
registered investment companies for which Forum
Administrative Services, LLC or Forum Financial
Services, Inc. serves as manager, administrator and/or
distributor. Her address is Two Portland Square,
Portland, Maine 04101.
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, 1997.
24
<PAGE>
Accrued Annual
Aggregate Pension Benefits Upon Total
Trustee Compensation Benefits Retirement Compensation
Mr. Keffer None None None None
Mr. Azariadis $4,000 None None $4,000
Mr. Cheng $4,000 None None $4,000
Mr. Parish $4,000 None None $4,000
The Investment Adviser
Under an investment advisory agreement with the Trust
(the "Advisory Agreement"), the Fund's investment adviser, Polaris
Capital Management, Inc. (the "Adviser") furnishes at its own
expense all services, facilities and personnel necessary in
connection with managing the Fund's investments and effecting
portfolio transactions for the Fund. The Advisory Agreement will
remain in effect for a period of twelve months from the date of
its effectiveness and will continue in effect thereafter only if
its continuance is specifically approved at least annually by the
Board of Trustees or by vote of the shareholders, and in either
case by a majority of the Trustees who are not parties to the
Advisory Agreement or interested persons of any such party, at a
meeting called for the purpose of voting on the Advisory
Agreement.
The Advisory Agreement is terminable without penalty by
the Trust with respect to the Fund on 60 days' written notice when
authorized either by vote of the Fund's shareholders or by a vote
of a majority of the Board of Trustees, or by the Adviser on 60
days' written notice to the Trust, and will automatically
terminate in the event of its assignment. The Advisory Agreement
also provides that, with respect to the Fund, the Adviser shall
not be liable for any error of judgment or mistake of law or for
any act or omission in the performance of its duties to the Fund,
except for willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard
of its obligations and duties under the Advisory Agreement.
The Advisory Agreement provides that the Adviser may
render services to others. In addition to receiving its advisory
fee from the Fund of 1.0% of the Fund's average daily net assets,
the Adviser may also act and be compensated as investment manager
for its clients with respect to assets which are invested in the
Fund. In some instances the Adviser may elect to credit against
any investment management fee received from a client who is also a
shareholder in the Fund an amount equal to all or a portion of the
fees received by the Adviser or any affiliate of the Adviser from
the Fund with respect to the client's assets invested in the Fund.
The Adviser has agreed to reimburse the Trust for certain
of the Fund's operating expenses which in any year exceed the
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<PAGE>
limits prescribed by any state in which the Fund's shares are
qualified for sale. The Trust may elect not to qualify its shares
for sale in every state. For the purpose of this obligation to
reimburse expenses, the Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments will be made
by the Adviser monthly. Subject to the obligations of the Adviser
to reimburse the Trust for its excess expenses, the Trust has,
under the Advisory Agreement, confirmed its obligation to pay all
its other expenses. The 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 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.
Administration
Under an Administration Agreement, Forum Administrative
Services, LLC ("FAdS") supervises the overall management of the
Trust (which includes, among other responsibilities, negotiation
of contracts and fees with, and monitoring of performance and
billing of, the transfer agent, fund accountant and custodian and
arranging for maintenance of books and records of the Trust). 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. Under
the Administration Agreement, FAdS is entitled to an annual fee,
payable monthly, at the rates of 0.10% of the first $150 million
of the Fund's average daily net assets and 0.05% on the Fund's
average daily net assets in excess of that amount. The
Administration Agreement remains in effect until terminated,
provided that continuance is specifically approved at least
annually: (1) by the Board of Trustees or by a vote of a majority
of the outstanding voting securities of the Fund; and (2) by a
vote of a majority of trustees of the Trust who are not parties to
the Administration Agreement or interested persons of a party to
the Administration Agreement.
The Administration Agreement may be terminated by either
party without penalty on 60 days' written notice and may not be
assigned except upon written consent of both parties. 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.
FAdS also provides persons satisfactory to the Board of
Trustees to serve as officers of the Trust. Those officers, as
well as certain other employees and trustees of the Trust, may be
26
<PAGE>
directors, officers or employees of (and persons providing
services to the Trust may include) FAdS, the Adviser or their
respective affiliates.
Distributor
Forum Financial Services, Inc. ("FFSI") acts as
distributor of the Fund's shares on a best efforts basis pursuant
to a Distribution Agreement with the Trust (the "Distribution
Agreement"). The Distribution Agreement will remain in effect for
a period of twelve months from the date of its effectiveness and
will continue in effect thereafter only if its continuance is
specifically approved at least annually by the Board of Trustees
or by the shareholders and, in either case, by a majority of the
Trustees who are not parties to the agreement or interested
persons of any such party and do not have any direct or indirect
financial interest in the Distribution Agreement.
The Distribution Agreement terminates automatically if it
is assigned and may be terminated without penalty with respect to
the Fund by vote of the Fund's shareholders or by either party to
the agreement on 60 days' written notice to the Trust. The
Distribution Agreement also provides that FFSI shall not be liable
for any error of judgment or mistake of law or for any act or
omission in the administration or management of the Trust, except
for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of
its obligations and duties under the Distribution Agreement.
Transfer Agent
Forum Financial Corp. ("FFC") acts as transfer agent of
the Trust under a transfer agency agreement (the "Transfer Agency
Agreement"). The Transfer Agency Agreement provides, 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 the
Fund, by a vote of the shareholders of the Fund, and in either
case by a majority of the trustees who are not parties to the
Transfer Agency Agreement or interested persons of any such party
at a meeting called for the purpose of voting on the Transfer
Agency Agreement.
Among the responsibilities of FFC 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
27
<PAGE>
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 it 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.
FFC 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. FFC 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 FFC with respect to assets of those customers or
clients invested in the Fund. FFC, FAdS or sub-transfer agents or
processing agents retained by FFC may be financial institutions
which sell Fund Shares to customers and in the case of sub-
transfer agents or processing agents, may also be affiliated
persons of FFC or FAdS.
For its services under the Transfer Agency Agreement, FFC
receives a fee at an annual rate $24,000 per year plus annual
shareholder account fees of $25.00 per shareholder account; such
fees to be computed as of the last business day of the prior
month.
Fund Accounting
Forum Accounting Services, LLC ("FAcS") performs
portfolio accounting services for the Fund under a Fund Accounting
Agreement with the Trust. The Fund Accounting Agreement will
continue in effect only if such continuance is specifically
approved at least annually by the Board of Trustees or by a vote
of the shareholders of the Trust and in either case by a majority
of the trustees who are not parties to the Fund Accounting
Agreement or interested persons of any such party, at a meeting
called for the purpose of voting on the Fund Accounting Agreement.
Under its agreement, FAcS prepares and maintains books and records
of the Fund on behalf of the Trust as required under the
Investment Company 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. For the services provided under the Fund
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Accounting Agreement, FAcS is entitled to receive from the Trust
with respect to the Fund a fee of $36,000 per year plus an
additional $12,000 per year in fiscal years after the Fund's first
two years of operations.
4. DETERMINATION OF NET ASSET VALUE
The Trust determines the Fund's net asset value per share
as of the close of the New York Stock Exchange (normally,
4:00 p.m., Eastern time), on Business Days (as defined in Part I),
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
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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 effects purchases and sales through
brokers who charge commissions. Allocations of transactions to
brokers and dealers and the frequency of transactions are
determined by the Adviser in its best judgment and in a manner
deemed to be in the best interest of shareholders of the Fund
rather than by any formula. The primary consideration is prompt
execution of orders in an effective manner and at the most
favorable price available to the Fund.
Transactions on stock exchanges involve the payment of
brokerage commissions. In transactions on stock exchanges in the
United States, these commissions are negotiated, whereas on
foreign stock exchanges these commissions are generally fixed. In
the case of securities traded in the foreign and domestic over-
the-counter markets, there is generally no stated commission, but
the price usually includes an undisclosed commission or markup.
In underwritten offerings, the price includes a disclosed fixed
commission or discount. Where transactions are executed in the
over-the-counter market, the Fund will seek to deal with the
primary market makers; but when necessary in order to obtain best
execution, it will utilize the services of others. In all cases
the Fund will attempt to negotiate best execution.
The Fund may not always pay the lowest commission or
spread available. Rather, in determining the amount of
commission, including certain dealer spreads, paid in connection
with Fund transactions, the Adviser takes into account such
factors as size of the order, difficulty of execution, efficiency
of the executing broker's facilities (including the services
described below) and any risk assumed by the executing broker.
The Adviser may also take into account payments made by brokers
effecting transactions for the Fund: (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
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not reduced by reason of the Adviser's receipt of the research
services.
Investment decisions for the Fund are 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 of Trustees has adopted procedures
in conformity with applicable rules under the Investment Company
Act to ensure that all brokerage commissions paid to these persons
are reasonable and fair.
6. CUSTODIAN
Under a Custodian Agreement (the "Custodian Agreement"),
BankBoston, N.A. 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. The Fund's custodian employs
foreign subcustodians to provide custody of the Fund's foreign
assets in accordance with applicable regulations.
7. 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. Redemption proceeds
normally are paid in cash. However, payments may be made wholly
or partly in portfolio securities if the Board of Trustees
determines economic conditions exist which would make payment in
cash detrimental to the best interests of the Fund. If payment
for shares redeemed is made wholly or partly in portfolio
securities, brokerage costs may be incurred by the shareholder in
converting the securities to cash. The Trust has filed an
election with the SEC to which the Fund may only effect a
redemption in portfolio securities if the particular shareholder
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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 Part I
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 Fund's
Prospectus from time to time.
Shareholders' rights of redemption may not be suspended,
except: (1) 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; (2) 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 which it is not reasonably practicable for the Fund
fairly to determine the value of its net assets; or (3) 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 Daily Assets
Treasury Fund (to be renamed Daily Assets Government Fund
effective May 25, 1998), a money market fund of the Trust
("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 FFC 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 FFC to be genuine. The
records of FFC of such instructions are binding. Proceeds of an
exchange transaction may be invested in the other Participating
Fund in the name of the shareholder.
Exchange transactions are made on the basis of relative
net asset values per share at the time of the exchange
transaction. Shares of either Participating Fund may be redeemed
and the proceeds used to purchase, without a sales charge, shares
of the 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
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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 company" under 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: (1) to
include in gross income, even though not actually received, their
respective pro-rata share of foreign taxes paid by the Fund; and
(2) 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 (1) the foreign taxes
paid, and (2) the Fund's gross income from foreign sources.
Shareholders who are not liable for federal income taxes, such as
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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: (1) foreign
currencies; (2) debt securities denominated in a foreign currency;
or (3) 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 during the 90 day period beginning 45 days prior to
the ex-dividend date. 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 and Auditors
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.
Coopers & Lybrand L.L.P., One Post Office Square, Boston,
MA 02109, independent auditors, have been selected as auditors of
the Trust.
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The Trust and Its Shares
The Trust was originally incorporated in Maryland on
March 24, 1980 and assumed the name of Forum Funds, Inc. on
March 16, 1987. On January 5, 1996, Forum Funds, Inc. was
reorganized as a Delaware business trust. The Trust has an
unlimited number of authorized shares of beneficial interest. The
Board may, without shareholder approval, divide the authorized
shares into an unlimited number of separate portfolios or series
(such as the Fund) and may in the future divide portfolios or
series into two or more classes of shares (such as Investor and
Institutional Shares). Currently the authorized shares of the
Trust are divided into 23 separate series. The Fund reserves the
right to reorganize as a separate registered investment company,
as opposed to a series of the Trust, without a shareholder vote.
The Fund also reserves the right to invest in a master-feeder or
funds-of-funds structure without a shareholder vote.
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 fund or 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. A shareholder in a fund is
entitled to the shareholder's pro rata share of all dividends and
distributions arising from that fund's assets and, upon redeeming
shares, will receive the portion of the fund's net assets
represented by the redeemed shares.
Control Persons and Principal Holders of Securities
As of April 30, l998, Forum Administrative Services, LLC
owned all the initial shares of the Fund. A shareholder owning
25% or more of the shares of Fund may be deemed to be a
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controlling person of the Fund. By reason of substantial holdings
of shares, such a person 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.
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ATTACHMENT
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 that 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 that 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 that 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 that 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 that 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.
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Bonds that 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 that 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 that are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
Bonds that 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
that 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
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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
that 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 is 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 (Including Convertible Preferred Stock)
(a) Moody's
Moody's rates preferred stock issues as follows:
An issue 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.
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An issue 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 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 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 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 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 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 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 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."
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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 stocks 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 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 currently making such
payments.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer
in default on debt instruments.
To provide more detailed indications of preferred stock quality,
the ratings from "AA" to "B" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories.
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Appendix B
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made as of this ____ day of ________________,
1998, by and among Forum Funds ("Forum"), a Delaware Business
Trust with its principal place of business at Two Portland
Square, Portland, ME, on behalf of Polaris Global Value Fund
("Polaris Fund"), a newly formed separate series of Forum, Global
Value Limited Partnership (the "Partnership"), a Massachusetts
limited partnership with its principal place of business at
125 Summer Street, Boston, MA, and Polaris Capital Management,
Inc., as general partner of the Partnership (the "General
Partner" or the "Adviser"). The term "Acquiring Fund" is used
herein, as the context requires, to refer to Forum, or Polaris
Fund, or both.
This Agreement is intended to be and is adopted as a
plan of exchange within the meaning of section 351 of the
Internal Revenue Code of 1986, as amended (the "Code"). Subject
to the terms and representations set forth herein, that exchange
(the "Exchange") will consist of the transfer of substantially
all of the assets of the Partnership to the Acquiring Fund in
exchange solely for over 80% of the shares of beneficial interest
(no par value per share) of the Acquiring Fund (the "Acquiring
Fund Shares" or "Shares of the Acquiring Fund"). Immediately
following the Exchange, the Partnership will distribute the
Acquiring Fund Shares to the General Partner and the limited
partners of the Partnership (the "Limited Partners" and together
with the General Partner, the "Partners" and each, a "Partner")
in proportion to their positive capital account balances,
followed as soon as practicable by the liquidation and
termination of the Partnership, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the parties hereto wish to effect the Exchange
to attempt to increase liquidity and flexibility through daily
purchases and redemptions, and to obtain economies of scale as a
result of a larger asset base;
NOW, THEREFORE, in consideration of the premises and of
the covenants and agreements hereinafter set forth, the parties
hereto covenant and agree as follows:
<PAGE>
1. TRANSFER OF ASSETS OF THE PARTNERSHIP TO THE ACQUIRING
FUND IN EXCHANGE FOR THE ACQUIRING FUND SHARES AND THE
LIQUIDATION OF THE PARTNERSHIP
1.1 Subject to the terms and conditions herein set
forth and on the basis of the representations and warranties
contained herein, the Partnership agrees to transfer to the
Acquiring Fund substantially all of the Partnership's assets as
set forth in section 1.2, and the Acquiring Fund agrees in
exchange therefor to deliver to the Partnership that number of
full and fractional Acquiring Fund Shares computed in the manner
set forth in section 2.3. Such transactions shall take place at
the closing provided for in section 3.1 (the "Closing").
1.2 The assets of the Partnership to be acquired by
the Acquiring Fund (the "Assets") shall consist of all assets,
including, without limitation, all cash, cash equivalents,
securities, commodities and futures interests and dividends or
interest or other receivables that are owned by the Partnership
and any deferred or prepaid expenses shown on the balance sheet
of the Partnership prepared as of the Valuation Date (as defined
in section 2.1), prepared in accordance with generally accepted
accounting principles ("GAAP") applied consistently with those of
the Partnership's most recent audited balance sheet, except for
cash and cash equivalents retained by the Partnership in an
amount estimated by it to be sufficient to discharge in full all
its liabilities, including the expenses of its liquidation and
termination, (the "Expense Reserve") and any assets which the
Acquiring Fund is not permitted to acquire (the "Retained
Assets"). Any assets retained by the Partnership, after paying
or providing for the payment of all its liabilities, shall be
distributed by the Partnership or its agent to the Partners of
record as of the Valuation Date pursuant to Article 14 of the
Partnership's Partnership Agreement (as defined in
section 4.1(a)).
1.3 The Partnership will pay or cause to be paid to
the Acquiring Fund any interest or dividends received on or after
the Closing with respect to securities transferred to the
Acquiring Fund hereunder. The Partnership will transfer to the
Acquiring Fund any distributions, rights, stock dividends or
other securities received by the Partnership after the Closing as
distributions on or with respect to the securities transferred,
which shall be deemed included in the Assets and shall not be
separately valued unless the securities in respect of which such
distribution is made shall have gone "ex" such distribution prior
to the Valuation Date. Notwithstanding the foregoing, the
Acquiring Fund shall not be entitled to receive any interest or
dividends or other distributions on securities not transferred to
the Acquiring Fund hereunder.
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1.4 Immediately after the transfer of Assets in
exchange for Acquiring Fund Shares provided for in section 1.1
(the "Distribution Time"), the Partnership will distribute to the
Partners of record, determined as of the Valuation Date (the
"Participating Partners"), pro rata in the proportion that each
Partner's Capital Account bears to the aggregate Capital Accounts
of all Partners, the Acquiring Fund Shares received by the
Partnership pursuant to section 1.1. Such distribution (the
"Distribution") will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the
Partnership on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the
Participating Partners. The aggregate net asset value of
Acquiring Fund Shares to be so credited to the Participating
Partners shall be equal to the aggregate net asset value at the
Valuation Date of the Assets, which shall be transferred to the
Acquiring Fund pursuant to section 1.1. All issued and
outstanding interests in the Partnership will simultaneously be
cancelled on the books of the Partnership. The Acquiring Fund
will not issue certificates representing Acquiring Fund Shares in
connection with the Exchange.
1.5 Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund. Shares of the Acquiring Fund
will be issued in the manner described in the Acquiring Fund's
then-current prospectus and statement of additional information.
1.6 The General Partner will liquidate and terminate
the Partnership after the Distribution. As soon as is reasonably
practicable after the Distribution, but not until the earlier of
(i) payment by the Partnership of all the Partnership's
liabilities or (ii) 90 days after the Closing Date (as defined in
section 3.1), the Partnership shall be completely liquidated and
its Certificate of Cancellation shall have been filed under the
laws of the Commonwealth of Massachusetts. The Partnership shall
not conduct any business on and after the Closing Date except in
connection with its dissolution, liquidation, and termination.
1.7 Any reporting responsibility of the Partnership
including, but not limited to, the responsibility for filing of
regulatory reports, tax returns, or other documents with the
Securities and Exchange Commission (the "Commission"), any state
securities commission, any federal, state or local tax
authorities, or any other relevant regulatory authority, is and
shall remain the responsibility of the Partnership.
1.8 All books and records of the Partnership shall be
available to the Acquiring Fund from and after the Closing Date
and shall be turned over to the Acquiring Fund as soon as
practicable following the Closing Date. All such books and
records shall be available to the Partnership thereafter until
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the Partnership is completely liquidated and has filed its
Certificate of Cancellation with the Commonwealth of
Massachusetts.
1.9 The Acquiring Fund shall not assume, and shall not
be obligated to assume, any liabilities (absolute or contingent)
of the Partnership.
2. VALUATION
2.1 The value of the Assets, of the Expense Reserve,
and of the Retained Assets shall be computed as of the close of
regular trading on the New York Stock Exchange (normally,
4:00 P.M., Eastern time) on the business day immediately
preceding the Closing and after the payment of any distributions
or other amounts by the Partnership (such time and date, the
"Valuation Date").
2.2 The net asset value of an Acquiring Fund Share
shall be determined by the Acquiring Fund in the manner described
in the Acquiring Fund's then-current prospectus and statement of
additional information in its N-1A (as defined in Section 5.9)
prior to the Closing Date.
2.3 The number of the Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the
Assets shall be determined by dividing the value of the net
Assets, determined pursuant to section 2.1 by the net asset value
of one Acquiring Fund Share determined pursuant to section 2.2.
2.4 The value of the Assets, of the Expense Reserve,
and of the Retained Assets, and all other computations of value
that may be required shall be determined in the manner described
in the Acquiring Fund's then-current prospectus and statement of
additional information included in its N-1A (as defined in
section 5.9).
3. CLOSING AND CLOSING DATE
3.1 The Closing of the transactions contemplated by
this Agreement shall be on or about 8:00 A.M., Eastern time, on
June 1, 1998, or such later date as the parties may agree in
writing (the "Closing Date"). All acts taking place at the
Closing shall be deemed to take place simultaneously as of
12:00 A.M., Eastern time, on the Closing Date, unless otherwise
agreed to by the parties. The Closing shall be held at the
offices of the Partnership or at such other place and time as the
parties shall mutually agree.
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3.2 The Partnership shall deliver to Acquiring Fund on
the Closing Date a schedule of Assets, a schedule of Retained
Assets, and a schedule of assets in the Expense Reserve.
3.3 Chase Manhattan Bank (the "Partnership
Custodian"), as custodian for the Partnership, shall deliver at
the Closing a certificate of an authorized officer stating that
(i) the Assets shall have been delivered in proper form to
BankBoston, N.A. (the "Fund Custodian"), custodian for the
Acquiring Fund, prior to or on the Closing Date, and (ii) all
necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made.
The Partnership's portfolio securities represented by a
certificate or other written instrument shall be presented by the
Partnership Custodian to the Fund Custodian for examination no
later than five business days preceding the Closing Date and
those portfolio securities comprising the Assets shall be
transferred and delivered as of the Closing Date by the
Partnership for the account of the Acquiring Fund duly endorsed
in proper form for transfer in such condition as to constitute
good delivery thereof. The Partnership's portfolio securities
and instruments deposited with a securities depository, as
defined in Rule 17f-4 under the Investment Company Act of 1940
(the "1940 Act"), shall be delivered as of the Closing Date by
book entry in accordance with the customary practices of such
depositories and the Fund Custodian. The cash to be transferred
by the Partnership shall be delivered by wire transfer of Federal
Funds on the Closing Date.
3.4 The Partnership shall deliver at the Closing a
certificate executed by the General Partner stating that the
Partnership's records contain the names and addresses of the
Participating Partners and the percentage ownership to 5 decimal
places that each Partner's capital account bears to the Capital
Accounts of all Participating Partners immediately prior to the
Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Partnership or provide evidence
satisfactory to the General Partner that such Acquiring Fund
Shares have been credited to the Partnership's account on the
books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
3.5 In the event that immediately prior to the
Valuation Date (a) the New York Stock Exchange or another primary
trading market for portfolio securities of the Partnership shall
be closed to trading or trading thereupon shall be restricted, or
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(b) trading or the reporting of trading on such exchange or
elsewhere shall be disrupted so that, in the judgment of the
General Partner, or the board of trustees of the Acquiring Fund,
or both, accurate appraisal of the value of the net assets of the
Partnership is impracticable, the Closing Date shall be postponed
until the first business day after the day when trading shall
have been fully resumed and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1 The General Partner and the Partnership represent
and warrant to the Acquiring Fund as follows:
(a) The Partnership is a limited partnership duly
organized and validly existing under the laws of the Commonwealth
of Massachusetts with power under the Partnership's Amended and
Restated Agreement of Limited Partnership dated as of January 1,
1996 (the "Partnership Agreement") to own all of its properties
and assets and to carry on its business as it is now being
conducted;
(b) Polaris Capital Management, Inc. is the general
partner of the Partnership;
(c) The General Partner has approved this Agreement
and the transactions contemplated by it hereunder, including the
Exchange, and the subsequent dissolution, liquidation, and
termination of the Partnership;
(d) No consent, approval, authorization, or order of
any court or governmental authority is required for the
consummation by the Partnership of the transactions contemplated
herein, except such as have been obtained under the Securities
Act of 1933, as amended, (the "1933 Act") the Securities Exchange
Act of 1934, as amended, (the "1934 Act") and the 1940 Act, or
state securities laws;
(e) The Partnership is not, and the execution,
delivery and performance of this Agreement by the Partnership
will not result, in violation of the laws of the Commonwealth of
Massachusetts, or of the Partnership Agreement, or of any
material agreement, indenture, instrument, contract, lease or
other undertaking to which the Partnership is a party or by which
it is bound; and the execution, delivery and performance of this
Agreement by the General Partner and the Partnership will not
result in the acceleration of any obligation, or the imposition
of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Partnership is a
party or by which it is bound;
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(f) No material litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or to the General Partner
or the Partnership's knowledge threatened against the General
Partner, the Partnership, or any properties or assets held by the
Partnership. Neither the General Partner nor the Partnership
knows of any facts which might form the basis for the institution
of such proceedings which would materially and adversely affect
their respective businesses and neither is a party to or subject
to the provisions of any order, decree, or judgment of any court
or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated;
(g) There are no material contracts outstanding to
which the Partnership is a party, other than those that have been
disclosed to the Acquiring Fund;
(h) The Statement of Assets and Liabilities and for
the fiscal year ended December 31, 1997 has been audited by
Coopers & Lybrand L.L.P., independent certified public
accountants, and is in accordance with GAAP consistently applied,
and such statement (a copy of which has been furnished to the
Acquiring Fund) presents fairly, in all material respects, the
financial position of the Partnership as of such date in
accordance with GAAP, and there are no known contingent
liabilities of the Partnership required to be reflected on a
balance sheet (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(i) Since December 31, 1997, there has not been any
material adverse change in the Partnership's financial condition,
assets, liabilities or business other than changes occurring in
the ordinary course of business. For purposes of this
subsection, a decline in net value of a Partnership interest due
to declines in market values of securities in the Partnership's
portfolio, the discharge of Partnership liabilities, or the
partial or complete withdrawal of a Partner shall not constitute
a material adverse change;
(j) At the date hereof and at the Closing Date, all
federal and other tax returns and reports of the Partnership
required by law to have been filed by such dates (including any
extensions) shall have been filed and are or will be correct in
all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Partnership's knowledge,
no such return is currently under audit and no assessment has
been asserted with respect to such returns;
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<PAGE>
(k) The interests of each Partner in the Partnership,
as they appear on the Partnership books as of the Valuation Date
(the "Partnership Interests"), (i) in each jurisdiction where
offered for sale and sold, have been offered for sale or sold in
compliance in all material respects with applicable registration
requirements of the 1933 Act or exemptions therefrom, state
securities laws and other applicable laws of the jurisdiction in
which offered or sold, (ii) are, and on the Closing Date will be,
duly authorized, duly and validly issued and fully paid, and
(iii) will be held at the time of the Closing by the persons and
in the amounts set forth in the records of the Partnership, as
provided in section 3.4. The Partnership does not have
outstanding any options, warrants or other rights to subscribe
for or to purchase any Partnership Interests nor is there
outstanding any security convertible into any Partnership
Interests;
(l) At the Closing Date, the Partnership will have
good and marketable title to the Assets, which are to be
transferred to the Acquiring Fund pursuant to section 1.1, and
full right, power, and authority to sell, assign, transfer and
deliver such Assets hereunder free of any liens, encumbrances,
security interests, or other transfer restrictions except those
liens, encumbrances, security interests, or other transfer
restrictions as to which the Acquiring Fund has received notice
of and agreed to prior to the Closing or those liens,
encumbrances, security interests, or other transfer restrictions
created by the Acquiring Fund, and upon delivery and payment for
such Assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the
1933 Act, except those restrictions which the Acquiring Fund has
received notice of and agreed to prior to the Closing;
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing
Date by all necessary action on the part of the General Partner,
and subject to the written consent, pursuant to the Partnership
Agreement, of the General Partner and the Limited Partners
holding at least two-thirds of the amount of the Partnership
Interests and constituting at least two-thirds of the number of
Limited Partners, this Agreement will constitute a valid and
binding obligation of the Partnership, enforceable pursuant to
its terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity
principles. The General Partner shall use its reasonable best
efforts to obtain that written consent from the Limited Partners;
(n) The information to be furnished by the Partnership
or the General Partner to the Acquiring Fund for use in
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advertisements, applications for orders, registration statements,
annual reports, proxy materials, or for use in any other document
filed or to be filed with any federal, state or local regulatory
authority (including the National Association of Securities
Dealers, Inc.), which may be necessary in connection with the
transactions contemplated herein, shall be true, accurate and
complete in all material respects, shall comply in all material
respects with federal securities and other laws and regulations
applicable thereto and shall not omit to state any material fact
necessary in order to make the information not misleading;
(o) The Registration Statement (as defined in
section 5.6), except insofar as it relates to Polaris Fund or
Forum, or both, will, on the effective date of the Registration
Statement and on the Closing Date: (i) conform in all material
respects to applicable requirements of the 1933 Act, the 1934
Act, and the 1940 Act, and the rules and regulations of the
Commission thereunder, (ii) not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements are made,
not materially misleading; provided, however, that the
representations and warranties in this section shall not apply to
statements in or omissions from the Registration Statement made
in reasonable reliance upon and in conformity with information
that was furnished or should have been furnished by Polaris Fund
or Forum, or both, for use therein; and
(p) The Assets will satisfy the 50-percent and
25-percent tests of Code sections 851(b)(3)(A) and 851(b)(3)(B).
4.2 Forum, on behalf of the Acquiring Fund, represents
and warrants to the Partnership as follows:
(a) Forum is a business trust duly organized, validly
existing, and in good standing under the laws of the State of
Delaware with power under its Declaration of Trust, as amended,
to own all of its properties and assets and to carry on its
business as it is now being conducted;
(b) Forum, which is organized as a "series mutual
fund," is registered with the Commission as an open-end
management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of
any court or governmental authority is required for the
consummation by the Acquiring Fund of the transactions
contemplated herein, except such as have been obtained under the
1933 Act, the 1934 Act, and the 1940 Act, and such as may be
required by state securities laws;
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<PAGE>
(d) The Acquiring Fund is not, and the execution,
delivery, and performance of this Agreement by the Acquiring Fund
will not result in violation of Delaware law or of the Acquiring
Fund's Declaration of Trust, as amended, or any material
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Fund is a party or by which it
is bound, and the execution, delivery and performance of this
Agreement by the Acquiring Fund will not result in the
acceleration of any obligation, or the imposition of any penalty,
under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by
which it is bound;
(e) No material litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or to its knowledge
threatened against the Acquiring Fund or any properties or assets
held by it. The Acquiring Fund knows of no facts which might
form the basis for the institution of such proceedings which
would materially and adversely affect the Acquiring Fund's
business and the Acquiring Fund is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated;
(f) At the date hereof and at the Closing Date, all
federal and other tax returns and reports of the Acquiring Fund
required by law to have been filed by such dates (including any
extensions) shall have been filed and are or will be correct in
all material respects, and all federal and other taxes shown as
due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's
knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(g) The Acquiring Fund does not have outstanding any
options, warrants or other rights to subscribe for or purchase
any Acquiring Fund Shares nor is there outstanding any security
convertible into any Acquiring Fund Shares;
(h) The Acquiring Fund Shares to be issued and
delivered to the Partnership pursuant to the terms of this
Agreement, and all other issued and outstanding Acquiring Fund
Shares, will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued and
outstanding Acquiring Fund Shares, and will be fully paid and
non-assessable;
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(i) At the Closing Date, the Acquiring Fund will have
good and marketable title to the Assets, free of any liens,
encumbrances, security interests, or other transfer restrictions,
except those liens, encumbrances, security interests, or other
transfer restrictions, which the Partnership has received notice
of and agreed to prior to the Closing;
(j) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing
Date by all necessary action, if any, on the part of the trustees
of the Acquiring Fund and this Agreement constitutes a valid and
binding obligation of the Acquiring Fund, enforceable pursuant to
its terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity
principles;
(k) The information to be furnished by the Acquiring
Fund for use in advertisements, applications for orders,
registration statements, annual reports, proxy materials, or for
use in any other document filed or to be filed with any federal,
state or local regulatory authority (including the National
Association of Securities Dealers, Inc.), which may be necessary
in connection with the transactions contemplated herein, shall be
true, accurate and complete in all material respects, shall
comply in all material respects with federal securities and other
laws and regulations applicable thereto, and shall not omit to
state any material fact necessary in order to make the
information not misleading;
(l) The Registration Statement, only insofar as it
relates to Polaris Fund or Forum, or both, will, on the effective
date of the Registration Statement and on the Closing Date:
(i) conform in all material respects to applicable requirements
of the 1933 Act, the 1934 Act, and the 1940 Act, and the rules
and regulations of the Commission thereunder, (ii) not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
such statements are made, not materially misleading; provided,
however, that the representations and warranties in this section
shall not apply to statements in or omissions from the
Registration Statement made in reasonable reliance upon and in
conformity with information that was furnished or should have
been furnished by the Partnership for use therein; and
(m) For its first taxable year, which includes the
date of the Exchange, Acquiring Fund will elect and qualify to be
treated as a "regulated investment company" under subchapter M of
the Code and will for that taxable year compute its federal
income tax under Code section 852.
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5. COVENANTS OF THE ACQUIRING FUND AND THE PARTNERSHIP
5.1 The General Partner and the Partnership covenant
to operate the Partnership's business in the ordinary course
between the date hereof and the Closing Date, it being understood
that (i) such ordinary course of business will include such
changes as are contemplated by the Partnership's normal
operations and preparing for its dissolution, liquidation, and
termination, and (ii) the Partnership shall retain exclusive
control of the composition of its Assets until the Closing Date.
5.2 The General Partner and the Partnership covenant
that upon reasonable notice, the Acquiring Fund's officers and
agents shall have reasonable access to the Partnership's books
and records necessary to maintain current knowledge of the
Partnership and to ensure that the representations and warranties
made by the Partnership are accurate.
5.3 The General Partner and the Partnership covenant
that the Shares of the Acquiring Fund to be issued hereunder are
not being acquired for the purpose of making any distribution
thereof other than pursuant to the terms of this Agreement.
5.4 The General Partner and the Partnership covenant
that they will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Partnership Interests.
5.5 Subject to the provisions of this Agreement, each
of the Acquiring Fund, the General Partner, and the Partnership,
covenants that it will take, or cause to be taken, all actions,
and do or cause to be done, all things reasonably necessary,
proper, and/or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.6 The Acquiring Fund and the Partnership each
covenant to prepare the Registration Statement on Form N-14 (the
"Registration Statement") in compliance with the 1933 Act, the
1934 Act, and the 1940 Act, and the rules and regulations
promulgated thereunder by the Commission, in connection with the
consideration by the Partners of the transactions contemplated
herein. The Acquiring Fund covenants to file the Registration
Statement with the Commission. The General Partner and the
Partnership covenant to provide the Acquiring Fund with
information reasonably necessary for the preparation of the
Registration Statement, in compliance in all material respects
with the 1933 Act, the 1934 Act, and the 1940 Act.
5.7 The General Partner and the Partnership covenant
that they will, from time to time, as and when reasonably
requested by the Acquiring Fund, execute and deliver or cause to
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be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further
action as the Acquiring Fund may reasonably deem necessary or
desirable in order to vest in and confirm the Acquiring Fund's
title to and possession of all the Assets and otherwise to carry
out the intent and purpose of this Agreement.
5.8 The General Partner and the Partnership covenant
to use all reasonable efforts to obtain approvals and
authorizations required by the 1933 Act, the 1934 Act, the 1940
Act, and such of the state securities laws and the laws of The
Commonwealth of Massachusetts, as it deems appropriate to
consummate the transactions contemplated herein, which approvals
include the written consent of the Limited Partners holding at
least two-thirds of the amount of the Partnership Interests and
constituting at least two-thirds of the number of Limited
Partners, as specified in the Partnership Agreement.
5.9 The Acquiring Fund covenants to use all reasonable
efforts to obtain the approvals and authorizations required by
the 1933 Act, the 1934 Act, the 1940 Act, and such of the state
securities laws, as it deems appropriate to consummate the
transactions contemplated herein and to continue its operations
after the Closing Date as a Regulated Investment Company under
the Code, including having a registration statement on Form N-1A
(the "N-1A") effective at the Closing Date that covers the
continuous public offering of shares of the Acquiring Fund;
provided, however, that the Acquiring Fund may take such actions
it reasonably deems advisable after the Closing Date as
circumstances change.
5.10 The Acquiring Fund covenants that it will, from
time to time, as and when reasonably requested by the
Partnership, execute and deliver or cause to be executed and
delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such
further action, as the Partnership may reasonably deem necessary
or desirable in order to vest and confirm to the Partnership
title to and possession of all Acquiring Fund shares to be
transferred to the Partnership pursuant to this Agreement.
5.11 The Partnership covenants to make a distribution,
pursuant to section 1.4, at the Distribution Time to the
Participating Partners consisting of the Shares of the Acquiring
Fund received at the Closing.
5.12 Each of the Acquiring Fund, the General Partner
and the Partnership covenants that it shall use its reasonable
best efforts to fulfill or obtain the fulfillment of the
conditions precedent to effect the transactions contemplated by
this Agreement as promptly as practicable.
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5.13 Before the Closing, the Acquiring Fund covenants
to issue a nominal number of Acquiring Fund Shares to Forum
Administrative Services, LLC (the "Sponsor").
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTNERSHIP
The obligations of the Partnership to consummate the
transactions provided for herein shall be subject, at its
election, to the performance by the Acquiring Fund of all the
obligations to be performed by the Acquiring Fund hereunder on or
before the Closing Date, and, in addition thereto, the following
further conditions:
6.1 All representations and warranties of Forum, with
respect to the Acquiring Fund, contained in this Agreement shall
be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date;
and there shall be (i) no pending or threatened litigation
brought by any person (other than Acquiring Fund, its adviser or
any of their affiliates) against the Partnership, the Acquiring
Fund or their advisers, directors, trustees or officers arising
out of this Agreement and (ii) no facts known to the Partnership
which the Partnership reasonably believes might result in such
litigation;
6.2 The Acquiring Fund shall have delivered to the
Partnership on the Closing Date a certificate executed in its
name by the President or Vice President of Forum, in a form
reasonably satisfactory to the Partnership and dated as of the
Closing Date, to the effect that the representations and
warranties of Forum with respect to the Acquiring Fund made in
this Agreement are true and correct on and as of the Closing
Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as
the Partnership shall reasonably request;
6.3 The Partnership shall have received on the Closing
Date an opinion of Seward & Kissel, counsel to Forum, in a form
reasonably satisfactory to the Partnership, and dated as of the
Closing Date, to the effect that: (i) Forum has been duly formed
and is a validly existing Delaware business trust in good
standing; (ii) the Acquiring Fund has the power to carry on its
business as presently conducted pursuant to the description
thereof in Forum's registration statement under the 1940 Act;
(iii) this Agreement has been duly authorized, executed and
delivered by the Acquiring Fund, and constitutes a valid and
legally binding obligation of the Acquiring Fund, enforceable
pursuant to its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and laws of
14
<PAGE>
general applicability relating to or affecting creditors' rights
and to general equity principles; (iv) the execution and delivery
of this Agreement did not, and the exchange of substantially all
of the Partnership's assets for Shares of the Acquiring Fund
pursuant to this Agreement will not, violate the Acquiring Fund's
Declaration of Trust, as amended; and (v) to the knowledge of
such counsel, all regulatory consents, authorizations, approvals
or filings required to be obtained or made by the Acquiring Fund
under the federal laws of the United States or the laws of the
State of Delaware for the exchange of substantially all of the
Partnership's assets for Shares of the Acquiring Fund pursuant to
this Agreement have been obtained or made;
6.4 The Acquiring Fund shall have performed all of the
covenants and complied with all of the provisions required by
this Agreement to be performed or complied with by the Acquiring
Fund on or before the Closing Date; and
6.5 Before the Closing, the Acquiring Fund shall have
issued to the Sponsor a nominal number of Acquiring Fund Shares;
and Sponsor, as the sole shareholder in the Acquiring Fund, shall
have approved the Investment Advisory Agreement between the
Acquiring Fund and the Adviser to become effective immediately
following the Closing.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND
The obligations of the Acquiring Fund to consummate the
transactions provided for herein shall be subject, at its
election, to the performance by the Partnership of all of the
obligations to be performed by the Partnership hereunder on or
before the Closing Date and, in addition thereto, the following
further conditions:
7.1 All representations and warranties of the General
Partner, with respect to the Partnership, contained in this
Agreement shall be true and correct in all material respects as
of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing
Date, with the same force and effect as if made on and as of the
Closing Date; and there shall be (i) no pending or threatened
litigation brought by any person (other than the Partnership or
any of its affiliates) against the Partnership, or the Acquiring
Fund, its advisers, directors, trustees or officers, arising out
of this Agreement and (ii) no facts known to the Acquiring Fund
which the Acquiring Fund reasonably believes might result in such
litigation;
7.2 The Partnership shall have delivered to the
Acquiring Fund a statement of the Partnership's assets and
15
<PAGE>
liabilities as of the Valuation Date, certified by the General
Partner, including a list of securities owned by the Partnership
with their respective tax costs and values determined as provided
in section 2 above, all as of the Valuation Date;
7.3 The Partnership shall have delivered to the
Acquiring Fund on the Closing Date a certificate executed in its
name by its General Partner, in a form reasonably satisfactory to
the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the General
Partner with respect to the Partnership made in this Agreement
are true and correct on and as of the Closing Date, except as
they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund
shall reasonably request;
7.4 The Acquiring Fund shall have received on the
Closing Date an opinion of Dechert Price & Rhoads, counsel to the
Partnership, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(i) the Partnership has been duly formed and is a validly
existing Massachusetts limited partnership; (ii) the Partnership
has the power to carry on its business as presently conducted
pursuant to the description thereof in the Partnership Agreement;
(iii) the Agreement has been duly authorized, executed and
delivered by the General Partner, on behalf of the Partnership,
and constitutes a valid and legally binding obligation of the
Partnership, enforceable pursuant to its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles;
(iv) the execution and delivery of the Agreement did not, and the
exchange of substantially all of the Partnership's assets for
Shares of the Acquiring Fund pursuant to the Agreement will not,
violate the Partnership Agreement; (v) to the knowledge of such
counsel, all regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Partnership under
the federal laws of the United States or the laws of the
Commonwealth of Massachusetts for the exchange of substantially
all of the Partnership's assets for Shares of the Acquiring Fund
pursuant to this Agreement have been obtained or made; (vi) the
Registration Statement (except as to the financial statements and
schedules contained therein and except as to Appendix A to Part A
contained therein) complies as to form in all material respects
with the requirements of the 1933 Act and the 1934 Act, and with
the rules and regulations of the Commission thereunder; and
(vii) the Registration Statement (except as to the financial
statements and schedules contained therein and except as to
Appendix A to Part A contained therein), as to the Partnership,
to the knowledge of counsel based upon representations made by
the General Partner or obtained in the due course of counsel's
16
<PAGE>
engagement, and without having made an independent investigation
thereof, does not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not
misleading; and
7.5 The Partnership shall have performed all of the
covenants and complied with all of the provisions required by
this Agreement to be performed or complied with by the
Partnership on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE PARTNERSHIP
If any of the conditions set forth below have not been
met on or before the Closing Date with respect to the Partnership
or the Acquiring Fund, the other party to this Agreement shall,
at its option, not be required to consummate the transactions
contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated
herein shall have been approved by the written consent of the
General Partner and the Limited Partners holding at least two-
thirds of the amount of Partnership Interests and constituting at
least two-thirds of the number of Limited Partners, pursuant to
the Partnership Agreement, applicable laws of the Commonwealth of
Massachusetts, and applicable federal securities laws.
Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Partnership may waive the conditions set
forth in this section 8.1;
8.2 On the Closing Date, no action, suit or other
proceeding shall be pending or to either party's knowledge
threatened before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the
transactions contemplated herein;
8.3 All consents of other parties and all other
consents, orders and permits of federal, state and local
regulatory authorities deemed necessary by the Acquiring Fund or
the Partnership to permit consummation, in all material respects,
of the transactions contemplated herein shall have been obtained,
except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the
assets or properties of the Acquiring Fund or the Partnership,
provided that either party hereto may for itself waive any of
such conditions;
8.4 Each of the N-1A and the Registration Statement
shall have become effective under the 1933 Act and no stop orders
17
<PAGE>
suspending the effectiveness thereof shall have been issued and,
to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act; and
8.5 The parties shall have received an opinion of
Dechert Price & Rhoads addressed to each of the Partnership and
the Acquiring Fund substantially to the effect that, based upon
certain facts, assumptions and representations, the Exchange
contemplated by this Agreement constitutes a tax free exchange
for federal income tax purposes. The delivery of such opinion is
conditioned upon receipt by Dechert Price & Rhoads of
representations it shall request of each of the Partnership and
the Acquiring Fund.
9. INDEMNIFICATION
9.1 The Acquiring Fund agrees to indemnify and hold
harmless the Partnership, each of the Partners, and the
Partnership's employees, from and against any and all losses,
claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable
court costs, but excluding any indirect, consequential, or
special damages) to which jointly and severally, the Partnership
or any of its Partners or employees may become subject, insofar
as any such loss, claim, damage, liability, or expense arises out
of or is based on (i) any breach by the Acquiring Fund of any of
its representations, warranties, covenants or agreements set
forth in this Agreement, or (ii) the negligent or reckless acts
or omissions or willful misfeasance of the Acquiring Fund in
connection with this Agreement.
9.2 The General Partner and the Partnership agree to
indemnify and hold harmless the Acquiring Fund and each of the
Acquiring Fund's trustees, officers or employees from and against
any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal
fees and reasonable court costs, but excluding any indirect,
consequential, or special damages) to which jointly and
severally, the Acquiring Fund or any of its trustees, officers,
or employees may become subject, insofar as any such loss, claim,
damage, liability, or expense arises out of or is based on
(i) any breach by the General Partner or the Partnership of any
of their representations, warranties, covenants or agreements set
forth in this Agreement, or (ii) the negligent or reckless acts
or omissions or willful misfeasance of the General Partner and
the Partnership in connection with this Agreement, or (iii) any
action brought by a Limited Partner that does not consent to the
transactions contemplated by this Agreement, which action results
from the distribution of Acquiring Fund Shares to that Limited
Partner in cancellation of its Partnership Interest pursuant to
18
<PAGE>
this Agreement, excluding any action resulting from adverse tax
consequences to that Limited Partner, provided, however, that any
indemnification under this section 9.2(iii) shall be limited to
reasonable legal fees and reasonable court costs, excluding any
indirect, consequential, or special damages, and to the
difference between the proceeds that would have been received by
that Limited Partner if that Limited Partner's Fund Shares were
redeemed on the Business Day next following the Closing and the
value of that Limited Partner's Partnership Interest on the
Valuation Date.
10. FEES AND EXPENSES
10.1 Each of Forum and the General Partner represents
and warrants to the other that it has no obligations to pay any
brokers or finders fees in connection with the transactions
provided for herein.
10.2 Each party will pay its own expenses incurred in
connection with the Exchange.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 The Acquiring Fund, the General Partner and the
Partnership agree that no party has made any representation,
warranty or covenant not set forth herein and this Agreement
constitutes the entire agreement between the parties.
11.2 Except as specified in the next sentence set forth
in this section 11.2, the representations, warranties and
covenants contained in this Agreement or in any document
delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated
hereunder. The covenants to be performed after the Closing and
the obligations of each of Forum, Polaris Fund, the General
Partner and the Partnership in Sections 9.1 and 9.2 shall survive
the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions
contemplated herein may be abandoned by either party by
(i) mutual agreement of the parties, or (ii) by either party if
the Closing shall not have occurred on or before June 30, 1998,
unless such date is extended by mutual agreement of the parties,
or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material
and intentional misrepresentation herein or in connection
herewith. In the event of any such termination, this Agreement
shall become void and there shall be no liability hereunder on
the part of any party or their respective trustees, or officers,
19
<PAGE>
as the case may be, except for any such material breach or
intentional misrepresentation, as to each of which all remedies
at law or in equity of the party adversely affected shall
survive.
13. WAIVER
At any time prior to the Closing Date, the General
Partner or the Acquiring Fund may (i) extend the time for the
performance of the obligations or other acts of the other;
(ii) waive any inaccuracy in the representations of the other;
and (iii) waive compliance by the other with any of the
agreements or conditions set forth herein. Any such extension or
waiver must be in writing.
14. AMENDMENTS
This Agreement may be amended, modified or supplemented
in such manner as may be mutually agreed upon in writing by the
authorized officers of the Partnership and the Acquiring Fund;
provided, however, that following approval by the Limited
Partners pursuant to section 5.8 of this Agreement, no such
amendment may have the effect of changing the provisions for
determining the number of the Acquiring Fund shares to be issued
to the Participating Partners under this Agreement to the
detriment of those Participating Partners without their further
approval.
15. NOTICES
Any notice, report, statement or demand required or
permitted by any provisions of this Agreement shall be in writing
and shall be deemed duly given if delivered by hand (including by
Federal Express or similar express courier) or transmitted by
facsimile or three days after being mailed by prepaid registered
or certified mail, return receipt requested, addressed to the
Partnership, 125 Summer Street, Boston, MA 02110 with a copy to
Dechert Price & Rhoads, Ten Post Office Square South, Boston, MA
02109, Attention: Sheldon A. Jones, Esq., or to the Acquiring
Fund, Two Portland Square, Portland, ME 04101, Attention:
David I. Goldstein, Esq., with a copy to Seward & Kissel, 1200 G
Street, N.W., Washington, D.C. 20005, Attention: Anthony C.J.
Nuland, Esq., or to any other address that the Partnership or the
Acquiring Fund shall have last designated by duly given notice to
the other party.
20
<PAGE>
16. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF
LIABILITY
16.1 The Article and section headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
16.2 This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
16.3 This Agreement shall bind and inure to the benefit
of the parties hereto and their respective successors and
assigns, but no assignment or transfer hereof or of any rights or
obligations hereunder shall be made by any party without the
written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto
and the shareholders of the Acquiring Fund and the Limited
Partners and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
16.4 This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of The Commonwealth of
Massachusetts, without regard to its principles of conflicts of
laws.
16.5 The trustees of Forum and the shareholders of each
series of Forum shall not be liable for any obligations of Forum
or Polaris Fund under this Agreement, and the General Partner and
the Partnership agree that, in asserting any rights or claims
against Forum or Polaris Fund under this Agreement, they shall
look only to the assets and property of Forum or Polaris Fund in
settlement of such rights or claims, and not to the trustees of
Forum or the shareholders of the series of Forum.
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed and attested on its behalf
by its duly authorized representatives, all as of the ___ day of
_________________ , 1998.
Attest: Forum Funds
on behalf of Polaris Global Value
Fund
By:___________________________
Its:___________________________
Attest: Global Value Limited Partnership
By General Partner:
Polaris Capital Management, Inc.
By:___________________________
Its:___________________________
Attest: Polaris Capital Management, Inc., as
General Partner of Global Value
Limited Partnership
By:___________________________
Its:___________________________
22
<PAGE>
Appendix C
GLOBAL VALUE LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Global Value Limited Partnership
(A Massachusetts Limited Partnership):
We have audited the accompanying statement of assets and
liabilities of the Global Value Limited Partnership (a
Massachusetts Limited Partnership), including the related
statement of investments, as of December 31, 1997, and the
related statement of operations for the year then ended and
changes in net assets for each of the two years then ended.
These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Global Value Limited Partnership (a Massachusetts Limited
Partnership) as of December 31, 1997, and the results of its
operations for the year then ended and changes in its net assets
for each of the two years then ended, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 29, 1998
<PAGE>
GLOBAL VALUE LIMITED PARTNERSHIP
(A MASSACHUSETTS LIMITED PARTNERSHIP)
STATEMENT OF INVESTMENTS
as of December 31, 1997
The accompanying notes are an integral part of the financial
statements.
(Showing Percentage of Total Investments)
COMMON STOCK - 100.0%
Austria 1.6%
Radex - Heraklith Ind, AG 8,200 $ 281,957
Canada 1.7%
Methanex Corporation 40,000 317,255
Denmark 2.1%
JYSKE Bank 3,100 378,037
Finland 4.6%
Kesko OY 22,000 348,251
Rautaruukki OY 32,100 259,370
SILJA OY AB - A Shares 51,200 217,194
_________
824,815
France 1.5%
Elf Aquitaine, Ord 100 11,636
Christian Dior, SA 2,550 261,534
_________
273,170
Germany 5.5%
Continental AG 13,400 295,866
Veba AG 5,500 374,712
Walter AG 950 317,012
_________
<PAGE>
987,590
<PAGE>
Hong Kong 0.8%
Semi-Tech (Global) Company Limited 922,644 $ 151,228
Ireland 1.8%
Crean (James) PLC 162,500 331,112
Italy 3.0%
ENI SPA, ADR 9,300 530,681
Japan 6.0%
Arisawa Manufacturing Co., Ltd. 24,000 227,040
Futaba Industrial Co., Ltd. 25,000 269,187
TDK Corporation ADR 3,550 260,925
Toyota Motor Corporation ADR 5,425 311,259
_________
1,068,411
Mexico 1.7%
Cemex, SA ADR - B shares 27,700 297,775
Netherlands 5.3%
KLM (Royal Dutch Airlines) N.V. 8,912 329,711
N.V. Koninklijke KNP BT 13,200 304,080
Schuttersveld (Holding) N.V. 13,920 323,413
_________
957,204
2
<PAGE>
Norway 5.5%
Nycomed Amersham ASA NOK4 Series "A" 9,179 $ 344,900
Nycomed Amersham ASA NOK4 Series "B" 308 11,187
Norsk Hydro a.s ADR 5,354 273,054
ORKLA a.s - Class A Free Shares 4,100 353,151
_________
982,292
Russia 1.8%
Lukoil Oil Co-Spons ADR 3,500 320,250
South Africa 2.3%
Palabora Mining Co. 20,150 205,999
Sappi, Ltd. 42,800 215,479
_________
421,478
Spain 5.7%
Banco Popular EspanOl, S.A. 4,720 329,809
Repsol, S.A. ADR 7,250 308,578
Union Electrica Fenosa SA 39,600 379,331
_________
1,017,718
Sweden 3.2%
SKF AB - B Shares 11,600 247,077
Volvo AB A Shares 12,100 323,302
_________
570,379
3
<PAGE>
Switzerland 0.1%
Ciba Specialty Chemical Shares 32 $ 3,817
Novaritis, AG Regd Shares 10 16,249
_________
20,066
United Kingdom 0.0%
BTR Warrants* 310 4
United States 45.8%
Abington Bancorp, Inc. 11,600 243,600
Adflex Solutions Inc.* 14,400 232,200
Affiliated Community Bancorp. 10,750 405,812
American Bank of Connecticut 7,050 341,043
Asyst Technologies Inc.* 8,300 180,525
BT Office Products International, Inc. 26,400 204,600
Cendant Corporation 11,043 379,603
Dime Financial Corp. 9,500 289,750
Eagle Financial Corp. 7,614 418,770
Emerald Isle Bancorp, Inc. 12,600 405,562
Fedder Corp. 58,769 359,960
Gainsco, Inc. 35,184 299,064
General Electric Company 5,100 374,212
Goodyear Tire & Rubber Company 4,950 314,943
Intel Corp. 3,695 259,574
Ipswich Savings Bank 31,000 511,500
Massbank Corp. 8,800 419,100
Mechanics Savings Bank* 14,500 377,906
4
<PAGE>
Peoples Heritage Financial Group 6,881 $ 316,526
Phelps Dodge Corp. 4,400 273,900
SIS Bancorp Inc. 9,250 371,748
Teradyne Inc.* 6,650 212,800
Utopia Inc.+ 37,500 75,000
Warren Bancorp, Inc. 13,450 309,350
Webster Financial Corp. 5,500 365,750
Wellman Inc. 14,400 280,800
_________
8,223,598
_________
Total Investments-100% (identified cost
$14,368,978) $17,955,020
* Nonincome-producing security
+ Security valued at estimated fair value as determined in good
faith under procedures established by and under the
supervision of the General Partner of the Partnership.
INCOME TAX INFORMATION
At December 31, 1997, the aggregate cost of investment securities
for income tax purposes was $14,368,978. Net unrealized
appreciation aggregated $3,586,042, of which $4,912,285 related
to appreciated investment securities and $1,326,243 related to
depreciated investment securities.
5
<PAGE>
Market Sector Diversification (Unaudited)
As a Percentage of Total Value of Investments in Securities
Brick Refractory 1.57%
Chemicals 4.62%
Banking 30.55%
Consumer Goods 8.04%
Steel 1.44%
Leisure and Tourism 1.21%
Metals 4.40%
Industrial Component 3.02%
Energy 6.46%
Utility - Electric 6.26%
Electric Products 0.84%
Machinery 2.77%
Multi Industry 3.81%
Auto Parts 6.80%
Electronics 5.38%
Transportation - Air 1.84%
Materials 1.52%
Medical 1.98%
Drugs 0.09%
Paper Products 1.20%
Services 2.11%
Appliances 2.00%
Insurance 1.67%
Capital Equipment 0.42%
_________
100 %
_________
6
<PAGE>
GLOBAL VALUE LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF ASSETS AND LIABILITIES
as of December 31, 1997
ASSETS
Investments in securities, at market
value (identified cost: $14,368,978) $ 17,955,020
Cash and cash equivalents 1,302,636
____________
Total assets $ 19,257,656
LIABILITIES
Partners' capital withdrawals payable 161,324
Partners' capital paid in advance 674,640
Accrued management fee (Note C) 46,402
Accrued expenses 22,166
____________
Total liabilities 904,532
____________
NET ASSETS
Contributed capital 10,733,037
Accumulated net investment income 121,359
Accumulated net realized gain on
investments 3,912,686
Net unrealized appreciation of
investments 3,586,042
____________
Net assets $ 18,353,124
<PAGE>
GLOBAL VALUE LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF OPERATIONS
for the year ended December 31, 1997
Investment income:
Interest $ 29,886
Dividends 227,184
Other income 1,125
____________
258,195
Less foreign tax withholdings (25,129)
____________
Total investment income 233,066
Operating expenses:
Management fee (Note C) 152,443
Custodian fees 16,963
Accounting, audit and tax preparation 23,100
Legal fees 641
Other 235
____________
Total operating expenses 193,382
____________
Net investment income 39,684
____________
Realized and unrealized gain on
investments:
Net realized gain on investments 2,285,289
Change in net unrealized appreciation
on investments 1,379,045
____________
Net realized and unrealized gain on
investments 3,664,334
____________
Net increase in net assets resulting
from operations $ 3,704,018
2
<PAGE>
GLOBAL VALUE LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1997 and 1996
1997 1996
Operations:
Net investment income $ 39,684 $ 22,021
Net realized gain on investment 2,285,289 891,194
Change in net unrealized
appreciation on investments 1,379,045 525,362
____________ ____________
Net increase in net assets
resulting from operations 3,704,018 1,438,577
Capital transactions:
Capital contributions (Note E) 7,212,576 1,240,604
Withdrawals (Note E) (538,527) (118,975)
____________ ____________
Net increase in net assets
resulting from capital transactions 6,674,049 1,121,629
____________ ____________
Net increase in net assets 10,378,067 2,560,206
Net assets:
Beginning of period 7,975,057 5,414,851
____________ ____________
End of period $ 18,353,124 $ 7,975,057
3
<PAGE>
GLOBAL VALUE LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
A. The Partnership:
Global Value Limited Partnership (the "Partnership") was
formed for the purpose of investing in a portfolio of
globally diversified securities. The investment objective of
the Partnership is to seek opportunities to realize a
substantial rate of return on its investments through capital
appreciation. The Partnership commenced operations on July
31, 1989.
Effective January 1, 1996, the Partnership amended its
partnership agreement. The amendments incorporated various
changes including:
1. Establishing Polaris Capital Management, Inc. (the
"General Partner") in place of Bernard R. Horn, Jr., as
the general partner and investment advisor. Bernard R.
Horn, Jr. is the president and sole owner of Polaris
Capital Management, Inc. Bernard R. Horn, Jr., is also
a limited partner of the Partnership. In order to
facilitate this change in general partner, Bernard R.
Horn, Jr. withdrew his general partnership interest
(held in the form of a Simplified Employee Pension plan)
and contributed it as a limited partner interest.
Polaris Capital Management, Inc. subsequently deposited
$10,000 as its general partner interest.
2. Changing the methodology for allocating Partnership
income from a straight one percent of the General
Partner's interest to one based on the General Partner's
capital interest on a quarterly basis.
3. Facilitating the Partnership's investment in "hot
issues" as defined by the Rules of Fair Practice of the
National Association of Security Dealers, Inc.
B. Significant Accounting Policies:
Preparation of Financial Statements
The Partnership's policy is to prepare its financial
statements on the accrual basis of accounting. The
preparation of financial statements in conformity with
generally accepted accounting principles requires
4
<PAGE>
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
All highly liquid investments with a majority of three
months or less at the date of acquisition are classified
as cash equivalents. Cash balances are maintained in
various interest bearing custody accounts to facilitate
investment transactions. At December 31, 1997
approximately $1,290,300 in cash was placed in the Chase
Money Market Fund at Chase Manhattan Bank, the custodian
of the Partnership's funds and securities.
Valuation of Securities
The valuation of investments in the portfolio is
determined by the General Partner in conformity with the
following guidelines established by the partnership
agreement:
1. Marketable securities listed on one or more
national securities exchange will be valued at
their last sales price on the date of valuation
(or, in the absence of sales on that date, at the
last closing bid price less normal commissions);
2. Marketable securities traded in the over-the-
counter markets or quoted on NASDAQ or similar
quotation systems will be valued at their last
sales price as of the closing price on the date of
valuation (or, in the absence of sales, on that
date, at the last closing bid price less normal
commissions);
3. Securities not marketable due to investment letter
restrictions or other reasons but part of a class
of publicly traded securities will be valued at an
appropriate discount from the public market value;
and
4. All other securities will be valued at cost or at a
valuation based on contemporaneous third party
transactions in the private market or at fair
market value determined by the General Partner
taking into consideration the cost of the
5
<PAGE>
securities, the quoted prices of securities of
comparable publicly traded companies, market
conditions, the underlying collateral, financial
data and projections of the issuer furnished to the
General Partner and such other facts as the General
Partner may deem relevant; and
5. All foreign currencies and securities prices quoted
in foreign currencies will be converted to U.S.
dollars at the exchange rates published in the Wall
Street Journal or other reliable publications.
Income Taxes
The Partnership files informational returns with the
Internal Revenue Service and the Commonwealth of
Massachusetts and other states. As a partnership,
income and losses are passed through to the individual
partners and, accordingly, there is no provision for
income taxes.
Foreign Currency Translation
The accounting records of the Partnership are maintained
in U.S. dollars. Investment securities, other assets,
and liabilities denominated in a foreign currency are
translated into U.S. dollars at the current exchange
rate as of the end of the period. Purchases and sales
of securities, income receipts and expense payments are
translated into U.S. dollars at the exchange rate on the
dates of the transactions.
Forward Foreign Currency Contracts
In connection with the Partnership's purchase and sale
of securities denominated in foreign currency, the
Partnership may enter into forward foreign currency
exchange contracts for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign
currency involved in the underlying security
transaction.
Investment Transactions
Security transactions are accounted for as of the trade
date. The Partnership uses the identified cost method
to determine gains and losses on securities sold. The
effects of changes in foreign currency exchange rates on
investments in securities are included with the net
realized and unrealized gain or loss on investment
securities.
6
<PAGE>
Investment Income
Dividend income is recorded on the ex-dividend date and
interest income is recorded on the accrual basis.
C. Management Fee:
Under the partnership agreement, the General Partner is paid
an annual management fee equal to the greater of $40,000 or
1.0% of the Net Portfolio Value of the Partnership, payable
quarterly. Net Portfolio Value represents the market value
of the Partnership's securities plus cash and cash
equivalents less the Partnership's liabilities.
D. Allocation of Profits and Losses:
The Partnership Agreement, amended in 1996, provides that
gains and losses, which include net investment income (loss)
and net realized and unrealized appreciation (depreciation)
on investments, be allocated among the partners pro rata in
the proportion that each partners' capital account bears to
the aggregated capital of all partners. Allocation of
profits and losses are made at such time as capital
contributions and withdrawals are allowed.
E. Contributions and Withdrawals:
A Limited Partner may withdraw all or any part of his capital
account as of the last day of the calendar quarter upon 30
days prior written notice. New subscriptions from new or
existing Limited Partners will be accepted on the first day
of each calendar quarter or such other times as shall be
designated by the General Partner.
All withdrawals by partners are subject to a redemption fee
equal to 1/2 of 1% of the amount withdrawn, such amount to be
paid to the Partnership. The redemption fee may be waived by
the General Partner as its sole discretion.
F. Investment Transactions:
Purchases and sales of investment securities, other than
short-term investment securities, during 1997 totaled
$10,091,677 and $4,898,470, respectively.
7
<PAGE>
G. Concentration of Market Risk:
At December 31, 1997, the Partnership's total holdings in the
banking industry represent $5,484,263 (30% of net assets).
H. Related Parties
During 1997 and 1996, Bernard R. Horn, Jr. and certain family
members made contributions and held equity interests in the
Partnership in accordance with the Partnership Agreement.
Amounts contributed and withdrawn by related parties during
the year ended December 31, 1997 totaled $11,275 and $20,000,
respectively. At December 31, 1997, the related party equity
interest was $799,870, or 4% of total partners' capital.
Amounts contributed by related parties during the year ended
December 31, 1996 totaled $199,913.
I. Non-cash Transactions:
During 1997, the Partnership received capital contributions
of $7,212,576. Approximately $1,456,000 of these
contributions represent securities transferred at market
value. The remaining balance of these capital contributions
represent cash contributions.
8
<PAGE>
<TABLE>
POLARIS GLOBAL VALUE FUND
GLOBAL VALUE LIMITED PARTNERSHIP & POLARIS GLOBAL VALUE FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
YEAR ENDING DECEMBER 31, 1997
(unaudited)
<CAPTION>
Global Value Polaris Global Pro Forma Pro Forma
Limited Partnership Value Fund Combined Adjustments Combined
___________________ ______________ _________ _____________ _________
<S> <C> <C> <C> <C> <C> <C>
Income:
INTEREST $29,886 $29,886 $29,886
DIVIDENDS $227,184 $227,184 $227,184
OTHER $1,125 $1,125 $1,125
_____________ _____________ _______________ __________ __ ___________
$258,195 $258,195 $258,195
LESS FOREIGN TAXES ($25,129) ($25,129) ($25,129)
_____________ _____________ _______________ __________ __ ___________
$233,066 $0 $233,066 $233,066
_____________ _____________ _______________ __________ __ ___________
Expenses:
ADVISORY $152,443 $152,443 ($9,481) (a) $142,962
ADMINISTRATION $0 $40,000 (b) $40,000
TRANSFER AGENT $0 $26,500 (c) $26,500
CUSTODY $16,963 $16,963 ($8,104) (d) $8,859
LEGAL $641 $641 $9,359 (e) $10,000
COMPLIANCE $0 $11,701 (f) $11,701
SEC FEES $0 $4,217 (g) $4,217
ACCOUNTING $0 $42,480 (h) $42,480
AUDITING $23,100 $23,100 $23,100
AMORTIZATION OF ORG. COSTS $0 $6,000 (i) $6,000
DIRECTORS $0 $746 (j) $746
REPORTING $0 $12,300 (k) $12,300
OTHER $235 $235 $2,265 (l) $2,500
____________ _____________ _______________ __________ __ ___________
GROSS EXPENSES $193,382 $0 $193,382 $137,983 $331,365
____________ _____________ _______________ __________ __ ___________
LESS WAIVERS:
Investment Advisory ($81,383) (m) ($81,383)
____________ _____________ _______________ __________ __ ___________
TOTAL WAIVERS $0 $0 $0 ($81,383) ($81,383)
____________ _____________ _______________ __________ __ ___________
NET EXPENSES $193,382 $0 $193,382 $56,600 $249,982
============ ============= =============== ========== == ===========
9
<PAGE>
</TABLE>
10
<PAGE>
<TABLE>
POLARIS GLOBAL VALUE FUND
GLOBAL VALUE LIMITED PARTNERSHIP & POLARIS GLOBAL VALUE FUND
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
AS OF DECEMBER 31, 1997
(unaudited)
<CAPTION>
Global Value Polaris Global Pro Forma Pro Forma
Limited Partnership Value Fund Combined Adjustments Combined
__________________ _____________ ________ _____________ _________
<S> <C> <C> <C> <C> <C> <C>
Assets
INVESTMENTS IN
SECURITIES, AT COST
(identifed cost: $14,368,978
+$615,660(q) = $14,984,638) $17,955,020 $17,955,020 $615,660 (q) $18,570,680
CASH & CASH EQUIVALENTS $1,302,636 $1,302,636 ($684,640) (n) $12,336
TOTAL ASSETS $19,257,656 $0 $19,257,656 $615,660 (q) $18,583,016
Liabilities
PARTNER'S CAPITAL
WITHDRAWLS PAYABLE/
PAYABLE FOR FUND SHARES SOLD $161,324 $161,324 $161,324
PARTNER'S CAPITAL
PAID IN ADVANCE $674,640 $674,640 ($674,640) (n) $0
ACCRUED MGMT FEE $46,402 $46,402 $46,402
ACCRUED EXPENSES $22,166 $22,166 $22,166
____________ __________ _______________ __________ __ ___________
TOTAL LIABILITES $904,532 $0 $904,532 $229,892
____________ __________ _______________ __________ __ ___________
NET ASSETS $18,353,124 $0 $18,353,124 $18,353,124
============ ========== =============== ========== == ===========
Net Assets Consist of:
CONTRIBUTED CAPITAL / $10,733,037 $10,733,037 $3,912,686 (o)
PAID IN CAPITAL $121,359 (p) $14,767,082
ACCUMULATED NET INVESTMENT
INCOME $121,359 $121,359 ($121,359) (p) $0
ACCUMULATED NET REALIZED GAIN
ON INVESTMENTS $3,912,686 $3,912,686 ($3,912,686) (o) $0
NET UNREALIZED APP/(DEP)
ON INVESTMENTS $3,586,042 $3,586,042 $3,586,042
____________ __________ _______________ __________ __ ___________
NET ASSETS $18,353,124 $18,353,124 $18,353,124
============ ========== =============== ========== == ===========
11
<PAGE>
Net Assets $18,353,124
Net Asset Value, offering price and redemption price 1,835,312.40
Shares Outstanding $10.00
</TABLE>
12
<PAGE>
POLARIS GLOBAL VALUE FUND
GLOBAL VALUE LIMITED PARTNERSHIP & POLARIS GLOBAL VALUE FUND
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited Pro Forma Combining Statement of
Assets and Liabilities as of December 31, 1997 and the unaudited
Pro Forma Combining Statement of Operations for the year ended
December 31, 1997 are intended to present the financial condition
and related results of operations of Polaris Global Value Fund
("Fund") as if the reorganization with Global Value Limited
Partnership had been consummated as of January 1, 1997.
A Pro Forma Combining Schedule of Investments has been omitted
from these pro forma financial statements since there were no pro
forma adjustments to the Schedule of Investments as included in
the December 31, 1997 Global Value Limited Partnership Financial
Statements.
The pro forma adjustments to these pro forma financial statements
are comprised of:
(a) Decrease in fees reflects calculation of investment
advisory fee on average net assets as opposed to quarter
end net portfolio value
(b) Reflects minimum fee for administration services by Forum
Administrative Services, LLC to the Fund
(c) Reflects transfer agent base fee and estimated account
fees by Forum Financial Corp. to the Fund
(d) Reflects decrease in custody fees through change in
custodian for the Fund
(e) Reflects legal fees associated with independent counsel
to the Fund
(f) Reflects blue sky registration fees associated with
initial and ongoing registration of the shares of the
Fund for sale in all fifty states
(g) Reflects fees charged by the Securities & Exchange
Commission under Section 24f2 to the Fund
(h) Reflects fund accounting fees charged by Forum Fund
Accounting Services, LLC and related out of pocket
expenses for pricing services
13
<PAGE>
(i) Reflects twelve months amortization of organizational
costs associated with the establishment of the Fund
(j) Reflects pro rata share of board of trustee fees and
expenses for the Fund
(k) Reflects the costs of printing, filing and mailing
semiannual and annual financial statements as well as
fund prospectuses
(l) Reflects increase in miscellaneous costs due to out of
pocket expense incurred as a regulated investment company
(m) Reflects reduction in expenses due to Polaris Capital
Management's agreement to voluntarily limit the fund
expense to 1.75% of average net assets
(n) Reflects the return of cash contributed to the
partnership in anticipation of purchasing partnership
interests on January 1, 1998
(o) Reflects reclassification of gains previously recognized
by the partners for tax purposes as paid in capital
(p) Reflects reclassification of income previously recognized
by the partners for tax purposes as paid in capital
(q) Reflects reclassification of cash equivalents to short-
term investments in securities for the Fund.
The unaudited combining statements should be read in conjunction
with the separate annual audited financial statements as of
December 31, 1997 for Global Value Limited Partnership, which are
also included in Appendix C to this proxy and prospectus.
14
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
May __, 1998
FORUM FUNDS
Two Portland Square
Portland, Maine 04101
(207) 879-1900
Acquisition of the Assets of
GLOBAL VALUE LIMITED PARTNERSHIP
125 Summer Street
Boston, MA 02110
(617) 951 1365
By and in Exchange for the Shares of
P0LARIS GLOBAL VALUE FUND
(A Series of Forum Funds)
This Statement of Additional Information (the
"Statement") relates to the proposed transfer of substantially
all of the assets of Global Value Limited Partnership (the
"Partnership") to Polaris Global Value Fund (the "Fund"), a newly
created series of Forum Funds (the "Trust"), in exchange solely
for over 80% of shares of the Fund (the "Exchange"); and the
subsequent distribution of those shares pro rata to the
Partnership's partners immediately thereafter, followed as soon
as practicable by the liquidation and termination of the
Partnership.
This Statement is not a prospectus and is meant to be
read in conjunction with the Proxy Statement/Prospectus dated May
__, 1998, which this Statement accompanies.
A copy of that Proxy Statement/Prospectus may be
obtained without charge by writing to or calling: Forum
Financial Corporation; Two Portland Square; Portland, ME 04101;
(888) 263-5594.
<PAGE>
TABLE OF CONTENTS
Page
THE TRUST
FINANCIAL STATEMENTS
2
<PAGE>
THE TRUST
For further information about the Trust and the Fund
(the "Parties"), Limited Partners in the Partnership should
refer to the information regarding the Fund that is attached
to the Proxy Statement/Prospectus as Appendix A. For
further information about the Partnership, Limited Partners
should refer to the Partnership's Partnership Agreement and
Private Offering Memorandum.
FINANCIAL STATEMENTS
Financial statements are included in Appendix C of the
Proxy Statement/Prospectus dated May __, 1998.
3
<PAGE>
PART C
OTHER INFORMATION
Item 15 - Indemnification.
In accordance with Section 3803 of the Delaware Business Trust
Act, SECTION 5.2 of the Registrant's Trust Instrument provides as
follows:
"5.2. INDEMNIFICATION.
"(a) Subject to the exceptions and limitations contained
in Section (b) below:
"(i) Every Person who is, or has been, a Trustee or
officer of the Trust (hereinafter referred to as a
"Covered Person") shall be indemnified by the Trust
to the fullest extent permitted by law against
liability and against all expenses reasonably
incurred or paid by him in connection with any
claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue
of being or having been a Trustee or officer and
against amounts paid or incurred by him in the
settlement thereof;
"(ii) The words "claim," "action," "suit," or
proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in
office or thereafter, and the words "liability" and
"expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
"(b) No indemnification shall be provided hereunder to a
Covered Person:
"(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
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<PAGE>
"(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
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<PAGE>
is reason to believe that such Covered Person will be found
entitled to indemnification under this Section 5.2.
"(e) Conditional advancing of indemnification moneys
under this Section 5.2 for actions based upon the 1940 Act may be
made only on the following conditions: (i) the advances must be
limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected
with the preparation of a settlement; (ii) advances may be made
only upon receipt of a written promise by, or on behalf of, the
recipient to repay that amount of the advance which exceeds that
amount which it is ultimately determined that he is entitled to
receive from the Trust by reason of indemnification; and
(iii) (a) such promise must be secured by a surety bond, other
suitable insurance or an equivalent form of security which assures
that any repayments may be obtained by the Trust without delay or
litigation, which bond, insurance or other form of security must
be provided by the recipient of the advance, or (b) a majority of
a quorum of the Trust's disinterested, non-party Trustees, or an
independent legal counsel in a written opinion, shall determine,
based upon a review of readily available facts, that the recipient
of the advance ultimately will be found entitled to
indemnification.
"(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
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<PAGE>
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Paragraphs 3(f) and (g) and paragraph 5 of the Management and
Distribution Agreement provide as follows:
"(f) We agree to indemnify, defend and hold you, your
several officers and directors, and any person who controls you
within the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending
such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which you, your officers and directors or
any such controlling person may incur, under the Securities Act,
or under common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in our
Registration Statement or Prospectus in effect from time to time
under the Securities Act or arising out of or based upon any
alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either
thereof not misleading; provided, however, that in no event shall
anything contained in this paragraph 3(f) be so construed as to
protect you against any liability to us or our security holders to
which you would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of
your duties, or by reason of your reckless disregard of your
obligations and duties under this paragraph. Our agreement to
indemnify you, your officers and directors and any such
controlling person as aforesaid is expressly conditioned upon our
being notified of any action brought against you, your officers
and directors or any such controlling person, such notification to
be given by letter or by telegram addressed to us at our principal
office in New York, New York, and sent to us by the person against
whom such action is brought within ten days after the summons or
other first legal process shall have been served. The failure so
to notify us of any such action shall not relieve us from any
liability which we may have to the person against whom such action
is brought by reason of any such alleged untrue statement or
omission otherwise than on account of our indemnity agreement
contained in this paragraph 3(f). We will be entitled to assume
the defense of any suit brought to enforce any such claim, and to
retain counsel of good standing chosen by us and approved by you.
In the event we do elect to assume the defense of any such suit
and retain counsel of good standing approved by you, the defendant
or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case we do not
elect to assume the defense of any such suit, or in case you do
not approve of counsel chosen by us, we will reimburse you or the
controlling person or persons named as defendant or defendants in
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<PAGE>
such suit, for the fees and expenses of any counsel retained by
you or them. Our indemnification agreement contained in this
paragraph 3(f) and our representations and warranties in this
agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you, your
officers and directors or any controlling person and shall survive
the sale of any shares of our common stock made pursuant to
subscriptions obtained by you. This agreement of indemnity will
inure exclusively to your benefit, to the benefit of your
successors and assigns, and to the benefit of your officers and
directors and any controlling persons and their successors and
assigns. We agree promptly to notify you of the commencement of
any litigation or proceeding against us in connection with the
issue and sale of any shares of our common stock.
"(g) You agree to indemnify, defend and hold us, our
several officers and directors, and person who controls us within
the meaning of Section 15 of the Securities Act, free and harmless
from and against any and all claims, demands, liabilities, and
expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which we, our officers or
directors, or any such controlling person may incur under the Act
or under common law or otherwise, but only to the extent that such
liability, or expense incurred by us, our officers or directors or
such controlling person resulting from such claims or demands
shall arise out of or be based upon any alleged untrue statement
of a material fact contained in information furnished in writing
by you in your capacity as distributor to us for use in our
Registration Statement or Prospectus in effect from time to time
under the Act, or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such
information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading.
Your agreement to indemnify us, our officers and directors, and
any such controlling person as aforesaid is expressly conditioned
upon your being notified of any action brought against us, our
officers or directors or any such controlling person, such
notification to be given by letter or telegram addressed to you at
your principal office in New York, New York, and sent to you by
the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been
served. You shall have a right to control the defense of such
action, with counsel of your own choosing, satisfactory to us, if
such action is based solely upon such alleged misstatement or
omission on your part, and in any other event you and we, our
officers or directors or such controlling person shall each have
the right to participate in the defense or preparation of the
defense of any such action. The failure so to notify you of any
such action shall not relieve you from any liability which you may
have to us, to our officers or directors, or to such controlling
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<PAGE>
person by reason of any such untrue statement or omission on your
part otherwise to an on account of your indemnity agreement
contained in this paragraph 3(g). "5 We shall expect of you, and
you will give us the benefit of, your best judgment and efforts in
rendering these services to us, and we agree as an inducement to
your undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event whatsoever,
except for lack of good faith, provided that nothing herein shall
be deemed to protect, or purport to protect, you against any
liability to us or to our security holders to which you would
otherwise be subject by reason or willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder,
or by reason of your reckless disregard of your obligations and
duties hereunder."
Section 9(a) of the Distribution Services Agreement provides:
"The Company agrees to indemnify, defend and hold the
Underwriter, and any person who controls the Underwriter
within the meaning of Section 15 of the Securities Act,
free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection
therewith) which the Underwriter or any such controlling
person may incur, under the Securities Act or under
common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in
the Company's Registration Statement or the Prospectus or
Statement of Additional Information in effect from time
to time under the Securities Act and relating to the Fund
or arising out of or based upon any alleged omission to
state a material fact required to be stated in any
thereof or necessary to make the statements in any
thereof not misleading; provided, however, that in no
event shall anything herein contained be so construed as
to protect the Underwriter against any liability to the
Company or its security holders to which the Underwriter
would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of the
Underwriter's reckless disregard of its obligations and
duties under this agreement. The Company's agreement to
indemnify the Underwriter and any controlling person as
aforesaid is expressly conditioned upon the Company's
being notified of the commencement of any action brought
against the Underwriter or any such controlling person,
such notification to be given by letter or by telegram
addressed to the Company at its principal office in New
York, New York, and sent to the Company by the person
against whom such action is brought within ten days after
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the summons or other first legal process shall have been
served. The Company will be entitled to assume the
defense of any suit brought to enforce any such claim,
and to retain counsel of good standing chosen by the
Company and approved by the Underwriter. In the event
the Company elects to assume the defense of any such suit
and retain counsel of good standing approved by the
Underwriter, the defendants in the suit shall bear the
fees and expenses of any additional counsel retained by
any of them; but in case the Company does not elect to
assume the defense of the suit or in case the Underwriter
does not approve of counsel chosen by the Company, the
Company will reimburse the Underwriter or the controlling
person or persons named defendant or defendants in the
suit for the fees and expenses of any counsel retained by
the Underwriter or such person. The indemnification
agreement contained in this Section 9 shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriter or
any controlling person and shall survive the sale of the
Fund's shares made pursuant to subscriptions obtained by
the Underwriter. This agreement of indemnity will inure
exclusively to the benefit of the Underwriter, to the
benefit of its successors and assigns, and to the benefit
of any controlling persons and their successors and
assigns. The Company agrees promptly to notify the
Underwriter of the Underwriter of the commencement of any
litigation or proceeding against the Company in
connection with the issue and sale of any of shares of
the Fund. The failure to do so notify the Company of the
commencement of any such action shall not relieve the
Company from any liability which it may have to the
person against whom the action is brought by reason of
any alleged untrue statement or omission otherwise than
on account of the indemnity agreement contained in this
Section 9."
In so far as indemnification for liabilities arising
under the Securities Act of 1933 (the "Securities Act")
may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
a director, officer or the Registrant in the successful
defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in
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<PAGE>
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Item 16 - Exhibits.
NOTE: * Indicates that the exhibit is incorporated herein by
reference. All references to a post-effective amendment ("PEA")
or pre-effective amendment ("PREEA") are to PEAs and PREEAs to
registrant's registration statement on Form N-1A, file
no. 2-67052.
(1)* Copy of the Trust Instrument of the Registrant dated
August 29, 1995 (filed as Exhibit 1 to PEA No. 34
via EDGAR on May 9, 1996, accession number
0000912057-96-008780).
(2)* Copy of By-Laws of the Registrant (filed as
Exhibit (2) to PEA No 43 via EDGAR on July 31, 1997,
accession number 0000912057-97-025707)
(3) None.
(4) Form of Agreement and Plan of Reorganization (filed
herewith as Exhibit B to Part A)
(5) (a) Sections 2.04 and 2.06 of Registrant's Trust
Instrument provide as follows:
"SECTION 2.04 TRANSFER OF SHARES.
Except as otherwise provided by the Trustees,
Shares shall be transferable on the records of
the Trust only by the record holder thereof or
by his agent thereunto duly authorized in
writing, upon delivery to the Trustees or the
Trust's transfer agent of a duly executed
instrument of transfer and such evidence of
the genuineness of such execution and
authorization and of such other matters as may
be required by the Trustees. Upon such
delivery the transfer shall be recorded on the
register of the Trust. Until such record is
made, the Shareholder of record shall be
deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or
registrar nor any officer, employee or agent
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<PAGE>
of the Trust shall be affected by any notice
of the proposed transfer.
"SECTION 2.06 ESTABLISHMENT OF SERIES.
The Trust created hereby shall consist of one
or more Series and separate and distinct
records shall be maintained by the Trust for
each Series and the assets associated with any
such Series shall be held and accounted for
separately from the assets of the Trust or any
other Series. The Trustees shall have full
power and authority, in their sole discretion,
and without obtaining any prior authorization
or vote of the Shareholders of any Series of
the Trust, to establish and designate and to
change in any manner any such Series of Shares
or any classes of initial or additional Series
and to fix such preferences, voting powers,
rights and privileges of such Series or
classes thereof as the Trustees may from time
to time determine, to divide or combine the
Shares or any Series or classes thereof into a
greater or lesser number, to classify or
reclassify any issued Shares or any Series or
classes thereof into one or more Series or
classes of Shares, and to take such other
action with respect to the Shares as the
Trustees may deem desirable. The
establishment and designation of any Series
shall be effective upon the adoption of a
resolution by a majority of the Trustees
setting forth such establishment and
designation and the relative rights and
preferences of the Shares of such Series. A
Series may issue any number of Shares and need
not issue shares. At any time that there are
no Shares outstanding of any particular Series
previously established and designated, the
Trustees may by a majority vote abolish that
Series and the establishment and designation
thereof.
"All references to Shares in this Trust
Instrument shall be deemed to be Shares of any
or all Series, or classes thereof, as the
context may require. All provisions herein
relating to the Trust shall apply equally to
each Series of the Trust, and each class
thereof, except as the context otherwise
requires.
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<PAGE>
"Each Share of a Series of the Trust
shall represent an equal beneficial interest
in the net assets of such Series. Each holder
of Shares of a Series shall be entitled to
receive his pro rata share of all
distributions made with respect to such
Series. Upon redemption of his Shares, such
Shareholder shall be paid solely out of the
funds and property of such Series of the
Trust."
(6) (a)* Investment Advisory Agreement between
Registrant and H.M. Payson & Co. relating to
the Payson Value Fund and the Payson Balanced
Fund (filed as Exhibit 5(b) to PEA No. 33 via
EDGAR on January 5, 1996, accession number
0000912057-96-000216).
(b)* Investment Advisory Agreement between
Registrant and Quadra Capital Partners, L.P.
(filed as Exhibit (5)(c) to PEA No. 41 via
EDGAR on December 31, 1996, accession number
0000912057-96-030646).
(c)* Investment Subadvisory Agreement between
Quadra Capital Partners, L.P. and
Anhalt/O'Connell, Inc. (filed as
Exhibit (5)(d) to PEA No. 41 via EDGAR on
December 31, 1996, accession number
0000912057-96-030646).
(d)* Investment Subadvisory Agreement between
Quadra Capital Partners, L.P. and Carl Domino
Associates, L.P. (filed as Exhibit (5)(e) to
PEA No. 41 via EDGAR on December 31, 1996,
accession number 0000912057-96-030646).
(e)* Investment Subadvisory Agreement between
Quadra Capital Partners, L.P. and McDonald
Investment Management, Inc. (filed as
Exhibit (5)(f) to PEA No. 41 via EDGAR on
December 31, 1996, accession number
0000912057-96-030646).
(f)* Investment Subadvisory Agreement between
Quadra Capital Partners, L.P. and LM Capital
Management, Inc. (filed as Exhibit (5)(g) to
PEA No. 41 via EDGAR on December 31, 1996,
accession number 0000912057-96-030646).
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<PAGE>
(g)* Investment Advisory Agreement between
Registrant and Austin Investment Management,
Inc. (filed as Exhibit (5)(j) to PEA No. 43
via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(h)* Investment Advisory Agreement between
Registrant and Oak Hall Capital Advisors, Inc.
(filed as Exhibit (5)(k) to PEA No. 43 via
EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(i)* Investment Advisory Agreement between Norwest
Bank Minnesota, N.A. and Core Trust (Delaware)
relating to Index Portfolio (filed as
Exhibit (5)(a) to Amendment No. 5 to the
Registration Statement of Core Trust
(Delaware), File No. 811-8858, via EDGAR on
July 31, 1997, accession number 0000912057-96-
021568).
(j)* Investment Advisory Agreement between Schroder
Capital Management International, Inc. and
Schroder Capital Funds, relating to Schroder
U.S. Smaller Companies Portfolio,
International Equity Fund and Schroder
Emerging Markets Fund Institutional Portfolio
(filed as Exhibit 5 to Amendment No. 1 to the
Registration Statement of Schroder Capital
Funds, File No. 811-9130, via EDGAR on
August 9, 1996, accession number 0000898432-
96-000341).
(k)* Form of Investment Advisory Agreement between
Core Trust (Delaware) and Forum Investment
Advisors, LLC relating to Treasury Portfolio,
Treasury Cash Portfolio, Cash Portfolio,
Government Cash Portfolio and Municipal Cash
Portfolio (filed as Exhibit 5(n) to PEA No. 52
via EDGAR on November 24, 1997, accession
number 0001047469-97-005953).
(l)* Investment Advisory Agreement between Core
Trust (Delaware) and Schroder Capital
Management International, Inc. relating to
International Portfolio (filed as Exhibit 5(b)
to Amendment No. 5 to the Registration
Statement of Core Trust (Delaware), File
No. 811-8858, via EDGAR on September 30, 1996,
accession number 0000912057-96-021568).
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<PAGE>
(m)* Investment Advisory Agreement between
Registrant and Forum Investment Advisors, LLC
(filed as Exhibit 5(p) to PEA 56 via EDGAR on
December 31, 1997, accession number
0001004402-97-000281).
(n) Investment Advisory Agreement between
Registrant and Polaris Capital Management,
Inc. (to be filed by Post-Effective Amendment
ot the Registrant's Registration Statement on
Form N-1A).
(7) (a)* Form of Selected Dealer Agreement between
Forum Financial Services, Inc. and securities
brokers (filed as Exhibit 6(c) to PEA 21).
(b)* Form of Bank Affiliated Selected Dealer
Agreement between Forum Financial Services,
Inc. and bank affiliates (filed as
Exhibit 6(d) of PEA 21).
(c)* Distribution Agreement between Registrant and
Forum Financial Services, Inc. (filed as
Exhibit 6(f) to PEA No. 43 via EDGAR on
July 31, 1997, accession number 0000912057-97-
025707).
(8) None.
(9) (a)* Form of Transfer Agency Agreement between
Registrant and Forum Financial Corp. (filed as
Exhibit 8(a) to PEA no. 33 via EDGAR on
January 5, 1996, accession number 0000912057-
96-000216).
(b)* Form of Custodian Agreement between Registrant
and the First National Bank of Boston (filed
as Exhibit 8(b) to PEA No. 33 via EDGAR on
January 5, 1996, accession number 0000912057-
96-000216).
(10) (a)* Form of Rule 12b-1 Plan adopted by the
Registrant (filed as Exhibit 15 of PEA
No. 16).
(b)* Rule 12b-1 Plan adopted by the Registrant with
respect to they Payson Value Fund and the
Payson Balanced Fund (filed as Exhibit 8(c) of
PEA No. 20).
C-12
<PAGE>
(11) Opinion and consent of Seward & Kissel regarding
legality of securities (filed as Exhibit ll to the
Registration Statement of Registrant on Form N-l4
via EDGAR on April 7, l998, accession number
0000919574-98-000466).
(12) Form of opinion and consent of Dechert Price &
Rhoads regarding tax consequences (filed herewith).
(13) (a)* Administration Agreement between Registrant
and Forum Administrative Services, LLC (filed
as Exhibit 6(e) to PEA No. 43 via EDGAR on
July 31, 1997, accession number 0000912057-97-
025707).
(b)* Shareholder Service Plan of Registrant
relating to the Quadra Funds and Form of
Shareholder Service Agreement relating to
Quadra Funds (filed as Exhibit 9(b) to PEA
No. 49 via EDGAR on November 5, 1997,
accession number 0001004402-97-000163).
(c)* Form of Shareholder Service Plan of Registrant
and Form of Shareholder Service Agreement
relating to the Daily Assets Treasury Fund,
Daily Assets Cash Fund, Daily Assets
Government Fund, Daily Assets Tax-Exempt Fund
and Daily Assets Treasury Obligations Fund
(filed as Exhibit 9(c) to PEA No. 50 via EDGAR
on November 12, 1997, accession no.
0001004402-97-000189).
(14) Consent of Coopers & Lybrand L.L.P. (filed herewith)
(16) Powers of Attorney (filed as Exhibit ll to the
Registration Statement of Registrant on Form N-l4
via EDGAR on April 7, l998, accession number
0000919574-98-000466).
(17) Form of consent letter of limited partners of Global
Value Limited Partnership (filed as Exhibit ll to
the Registration Statement of Registrant on Form N-
l4 via EDGAR on April 7, l998, accession number
0000919574-98-000466).
Item 17 - Undertakings
(1) The undersigned registrant agrees that prior to any
public reoffering of the securities registered through the use of
a prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
C-13
<PAGE>
meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c],
the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who
may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant agrees that every
prospectus that is filed under paragraph (1) above will be filed
as a part of an amendment to the registration statement and will
not be used until the amendment is effective, and that, in
determining any liability under the Securities Act, each post-
effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of
the securities at that time shall be deemed to be the initial bona
fide offering of them.
(3) The undersigned registrant agrees to file a copy of
the tax opinion required to be filed as an exhibit to the
registration statement by Item 16(12) of Form N-14 under the
Securities Act of 1933, as amended, by means of a post-effective
amendment to the registration statement.
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<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this
Registration Statement has been signed on behalf of the
Registrant in the city of Portland and State of Maine, on the
5th day of May, 1998.
FORUM FUNDS
By: /s/ John Y. Keffer
John Y. Keffer
President
As required by the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
Signature Title Date
_________ _____ ____
1) Principal
Executive Officer
/s/ John Y.Keffer Chairman May 5, 1998
John Y. Keffer and President
2) Principal Financial
and Accounting Officer
/s/ Mark D. Kaplan Acting Treasurer May 5, 1998
Mark D. Kaplan
3) Trustees
____________________
John Y. Keffer
Costas Azariadis
James C. Cheng
J. Michael Parish
/s/ John Y. Keffer May 5, 1998
By: John Y. Keffer
(Attorney-in-fact)
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(12) Form of opinion of
Dechert, Price & Rhoads as
to tax consequences of the
Agreement and Plan of
Reorganization.
(14) Consent of Coopers &
Lybrand L.L.P.,
independent accountants
for Global Value Limited
Partnership and Polaris
Global Value Fund.
C-16
47180060.AY6
<PAGE>
Exhibit 12
FORM OF TAX OPINION AND CONSENT
[Date], 1998
Global Value Limited Partnership
c/o Polaris Capital Management, Inc.,
General Partner
125 Summer Street
Boston, MA 02110
Forum Funds
on behalf of
Polaris Global Value Fund
Two Portland Square
Portland, ME 04101
Gentlemen:
You have requested our opinion regarding certain federal
income tax consequences to Global Value Limited Partnership
("Transferor") and to Polaris Global Value Fund ("Fund"), a
separate series of Forum Funds, in connection with the proposed
transfer pursuant to section 351 of the Internal Revenue Code of
1986, as amended, (the "Code") of all of the assets of Transferor
to Fund in exchange solely for over 80 percent of the shares of
beneficial interest of Fund ("Shares"), all pursuant to the
Agreement and Plan of Reorganization (the "Plan") dated as of
[Date], 1998 (the Exchange).
For purposes of this opinion, we have examined and rely
upon (1) the Plan, (2) the Form N-14, filed by Forum Funds on
[Date], 1998, with the Securities and Exchange Commission,
(3) the facts and representations contained in the letter dated
[Date], 1998, addressed to us from Transferor and Fund, and
(4) such other documents and instruments as we have deemed
necessary or appropriate for purposes of rendering this opinion.
This opinion is based upon the Code, United States
Treasury regulations, judicial decisions and administrative
rulings and pronouncements of the Internal Revenue Service, all
as in effect on the date hereof. This opinion is conditioned
upon (a) the Exchange taking place in the manner described in the
Plan and the Form N-14 referred to above, and (b) the facts and
representations contained in the letter dated [Date], 1998,
<PAGE>
addressed to us from Transferor and Fund, being true and accurate
as of the closing date of the Exchange.
Based upon the foregoing, it is our opinion that:
(1) Transferor will recognize no gain or loss on the
Exchange.
(2) Fund will recognize no gain or loss on the
Exchange.
(3) Funds basis in the assets received in the Exchange
will equal the basis of those assets in the hands
of Transferor immediately prior to the Exchange.
(4) Funds holding period for the assets received in the
Exchange will include the holding period during
which Transferor held the assets.
We express no opinion as to the federal income tax
consequences of the Exchange except as expressly set forth above,
or as to any transaction except those consummated in accordance
with the Plan and the representations made to us.
We hereby consent to the filing of this opinion letter
as an exhibit to the Registration Statement on Form N-14 filed by
Forum Funds with the Securities and Exchange Commission and to
the reference to our firm under the caption Legal Matters
Relating to the Conversion in the Proxy Statement/Prospectus
included in that Registration Statement.
Very truly yours,
2
47180060.AZ0
<PAGE>
Exhibit 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on
Form N-14 of our report dated January 29, 1998, on our audits of
the financial statements of the Global Value Limited Partnership.
We also consent to all references to our firm in this
registration statement.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 1, 1998
47180060.AY7
