As filed with the Securities and Exchange Commission on February 19, 1998
File No. 2-67052
File No. 811-3023
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 59
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 61
FORUM FUNDS
(Formerly Forum Funds, Inc.)
(Exact Name of Registrant as Specified in its Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code: 207-879-1900
Catherine S. Wooledge, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
(Name and Address of Agent for Service)
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to Rule 485, paragraph (b)
_____ on ________________ pursuant to Rule 485, paragraph (b)
_____ 60 days after filing pursuant to Rule 485, paragraph (a)(i)
__X__ 75 days after filing pursuant to Rule 485, paragraph (a)(ii)
_____ on [ ] pursuant to Rule 485, paragraph (a)(ii)
_____ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment
Title of Securities Being Registered: Polaris Global Value Fund
<PAGE>
CROSS REFERENCE SHEET
PART A
(Prospectus offering shares of Polaris Global Value Fund)
<TABLE>
<S> <C> <C>
FORM N-1A LOCATION IN PROSPECTUS
ITEM NO. (CAPTION)
- --------- ----------------------
Item 1. Cover Page: Cover Page
Item 2. Synopsis: Prospectus Summary
Item 3. Condensed Financial
Information: Not Applicable
Item 4. General Description
of Registrant: Prospectus Summary; Investment Objective and
Policies; Other Information
Item 5. Management of the Fund: Prospectus Summary; Management
Item 6. Capital Stock and
Other Securities Investment Objective and Policies; Dividends and Tax
Matters; Other Information - The Trust and its Shares
Item 7. Purchase of Securities
Being Offered: Purchases and Redemptions of Shares; Other
Information - Determination of Net Asset Value;
Management
Item 8. Redemption or Repurchase
of Shares: Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
2
<PAGE>
CROSS REFERENCE SHEET
PART A
(All other Prospectuses)
Not Applicable in this Filing
3
<PAGE>
CROSS REFERENCE SHEET
PART B
(SAI offering shares of Polaris Global Value Fund)
<TABLE>
<S> <C> <C>
LOCATION IN STATEMENT
FORM N-1A OF ADDITIONAL INFORMATION
ITEM NO. (CAPTION)
- --------- -------------------------
Item 10. Cover Page: Cover Page
Item 11. Table of Contents: Cover Page
Item 12. General Information and History: Management; Other Information
Item 13. Investment Objectives and
Policies: Investment Policies; Investment Limitations
Item 14. Management of the Registrant: Management
Item 15. Control Persons and
Principal Holders of
Securities: Other Information
Item 16. Investment Advisory
and Other Services: Management; Other Information - Custodian, Counsel,
Auditors
Item 17. Brokerage Allocation
and Other Practices: Portfolio Transactions
Item 18. Capital Stock and
Other Securities: Determination of Net Asset Value
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered: Determination of Net Asset Value; Additional Purchase
and Redemption Information
Item 20. Tax Status: Taxation
Item 21. Underwriters: Management
Item 22. Calculation of
Performance Data: Performance Data
Item 23. Financial Statements: Not Applicable
</TABLE>
4
<PAGE>
CROSS REFERENCE SHEET
PART B
(All other SAIs)
Not Applicable in this Filing
5
<PAGE>
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
- --------------------------------------------------------------------------------
POLARIS GLOBAL VALUE FUND
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICING:
Forum Financial Corp.
Two Portland Square
Portland, Maine 04101
888-263-5594
PROSPECTUS SUBJECT TO COMPLETION May __, 1998
================================================================================
This Prospectus offers shares of Polaris Global Value Fund (the
"Fund"), which is a non-diversified portfolio of Forum Funds (the "Trust"), an
open-end, management investment company. The investment objective of the Fund is
to seek capital appreciation. The Fund seeks its objective by investing
primarily in a portfolio of equity securities of issuers worldwide. Fund shares
are offered to investors without any sales charge.
This Prospectus sets forth concisely the information concerning the
Fund and the Trust that a prospective investor should know before investing. The
Trust has filed a Statement of Additional Information dated May __, 1998, as may
be amended from time to time, that contains more detailed information about the
Fund and the Trust with the Securities and Exchange Commission (the "SAI"). The
SAI is hereby incorporated by reference into this Prospectus. An investor may
obtain a copy of the SAI without charge by contacting Shareholder Servicing at
the address or phone number listed above. The Securities and Exchange Commission
also maintains a Web site (http://www.sec.gov) that contains the Fund's
Prospectus, SAI and certain other information regarding the Fund.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Prospectus Summary.............................. 5. Purchases and Redemptions of Shares............
2. Expenses of Investing in the Fund............... 6. Dividends and Tax Matters......................
3. Performance Information......................... 7. Other Information..............................
4. Investment Objective, Policies and Risk......... 8. Appendix......................................
5. Management.....................................
</TABLE>
- --------------------------------------------------------------------------------
Investors should read this Prospectus and retain it for future reference.
6
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
7
<PAGE>
1. PROSPECTUS SUMMARY
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks 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 use leverage, which involves special risks and
may involve speculative investment techniques. See "Additional Investment
Policies - Techniques Involving Leverage." The Fund is non-diversified, which
may present certain risks. See "Additional Investment Policies - Diversification
and Concentration." 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.
2. EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. There are no transaction or sales charges
associated with the purchase or redemption of Fund shares.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after applicable fee waivers)
Advisory Fees (after fee waivers) 1.00%
12b-1 Fees None
Other Expenses .75%
-------------- ------
Total Fund Operating Expenses (after fee waivers) 1.75%
8
<PAGE>
The amounts of expenses are based on anticipated amounts projected for
the Fund's first fiscal period ending March 31, 1999. The Adviser has determined
voluntarily to cap advisory fees so that Total Fund Operating Expenses through
March 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
1.00% 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 "Management."
EXAMPLE
The following is a hypothetical example that indicates the dollar
amount of expenses an investor would pay assuming a $1,000 investment, a 5%
annual return, reinvestment of all dividends and distributions and full
redemption at the end of each period:
1 YEAR 3 YEARS
------ -------
$18 $55
The example is based on the estimated expenses listed in Annual Fund
Operating Expenses above. The 5% annual return is not a prediction of and does
not represent the Fund's projected returns; rather, it is required by government
regulation. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RETURN. ACTUAL EXPENSES AND RETURN MAY BE GREATER OR LESS
THAN INDICATED.
3. 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.
Presented below is performance information for the Fund, based upon the
performance of Global Value Limited Partnership, a Massachusetts limited
partnership (the "Predecessor Partnership). On May [__,] 1998, the Fund, which
has no previous operating history, acquired substantially all of the assets and
liabilities of the Predecessor Partnership.
Prior to May [__,] 1998, Polaris Capital Management, Inc. managed the
Predecessor Partnership with an investment objective and policies that were, in
all material respects, equivalent to the Fund. The Fund's performance includes
the performance of the Predecessor Partnership for the period before it became a
mutual fund on May [__,] 1998. The Predecessor Partnership's performance was
adjusted to reflect the fees and expenses that it is anticipated the Fund will
bear (without giving effect to any fee waivers or expense reimbursements) for
its first year of operations as a mutual fund. The Predecessor Partnership was
not registered under the Investment Company Act nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance result.
The fees and expenses of the Fund will differ from those of the
Predecessor Partnership. The Fund is an open-end investment company whose shares
generally are purchased and redeemed at net asset value with no sales
9
<PAGE>
charges. The financial information below may not be indicative of the Fund's
performance as an open-end fund. In any case, the Fund's total investment return
in the future will be based only on the net asset value of its shares and not on
any market value or other basis.
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.
The financial statements of the Predecessor Partnership for the fiscal
year ended December 31, 1997, which are not required to not include financial
highlights, have been audited by the Predecessor Partnership's independent
accountants and, together with the report of the independent auditors, are
incorporated by reference into the SAI. Further information about the
performance of the Predecessor Partnership also will be contained in the Fund's
Annual Report to Shareholders, which (when available) may be obtained without
charge by writing the Fund at Two Portland Square, Portland, Maine 04101 or by
calling 888-263-5594. See "Management of the Fund" and "Other Information --
Fund Structure".
[INSERT BAR CHART WITH 1 YEAR ANNUAL RETURNS COMPARED WITH BENCHMARK RETURNS]
4. INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek capital appreciation.
The Fund seeks its objective by investing primarily in a portfolio of equity
securities of issuers worldwide. There can be, 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.
Because of a belief that country and industry factors are important
influences on security prices, the Adviser's FIRST STEP employs proprietary
investment technology to evaluate data such as cash flow and interest rates to
produce a ranking of country and industry value sectors.
STEP TWO is based on the belief that normal security price fluctuations
can be an undervalue of cash flow and assets. Using traditional valuation
criteria, the Adviser regularly screens its database of more than 16,000
companies to produce a list of approximately 500 companies that appear to have
the greatest potential for undervalued streams of sustainable cash flow. The use
of strict valuation methods guides the Adviser to securities with undervalued
cash flow and undervalued assets.
In the FINAL STEP of its investment process, the Adviser conducts
rigorous fundamental research on the 500 companies identified in step two. The
result is a portfolio of 50-100 companies[ that are equally weighted]. Most
investments are held for three-to-five years generally, and portfolio turnover
is expected to average 30 percent per year. If a company's valuation falls below
target returns or below the rank of an alternative company, it is sold and
replaced by a company on the Adviser's "watch-list" 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
10
<PAGE>
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 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. The Fund may utilize foreign currency forward
contracts in order to hedge against uncertainty in the level of future foreign
exchange rates. The Fund will not enter into these contracts for speculative
purposes. These contracts involve an obligation to purchase or sell a specific
currency at a specified future date, usually less than one year from the date of
the contract, at a specified price. The Fund may enter into foreign currency
forward contracts to manage currency risks and to facilitate transactions in
foreign securities. These contracts involve a risk of loss if the Adviser fails
to predict currency values correctly and also involve risks similar to those
described under "Additional Investment Policies - Futures and Options." The Fund
may also buy and sell foreign currency options, foreign currency futures
contracts and options on those futures contracts. See "Additional Investment
Policies - Futures and Options."
11
<PAGE>
ADDITIONAL INVESTMENT POLICIES
The Fund's investment objective and fundamental investment limitations,
as described in the SAI, may not be changed without approval of the holders of a
majority of the 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 the SAI.
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, the following are not
treated as borrowings 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, (3) dollar-roll transactions and
(4) the lending of securities.
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 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 non-diversified, as that
term is defined in the Investment Company Act of 1940 (the "Investment Company
Act"). A non-diversified fund has greater latitude than a diversified fund with
respect to the investment of the Fund's assets in the securities of a relatively
small number of issuers. Non-diversified funds accordingly present more risk
than diversified funds. To the extent required to qualify as a regulated
12
<PAGE>
investment company under the Internal Revenue Code, the Fund may not purchase a
security (other than a U.S. Government Security or a security of an investment
company) if, as a result: (1) with respect to 50% of its assets, more than 5% of
the Fund's total assets would be invested in the securities of any single
issuer; (2) with respect to 50% of its assets, the Fund would own more than 10%
of the outstanding securities of any single issuer; or (3) more than 25% of the
Fund's total assets would be invested in the 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. This limit does not apply to
investments in U.S. Government Securities, repurchase agreements covering U.S.
Government Securities or securities of other regulated investment companies. The
Fund reserves the right to seek to achieve its investment objective by investing
up to 100% of its investable assets in one or more investment companies.
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.
PURCHASING SECURITIES ON MARGIN. When the Fund purchases securities on
margin, it only pays part of the purchase price and borrows the remainder from a
bank or other financial institution. As a borrowing, the Fund's purchase of
securities on margin is subject to the limitations and risks described in
"Additional Investment Policies - Borrowing." In addition, if the value of the
securities purchased on margin decreases such that the Fund's borrowing with
respect to the security exceeds the maximum permissible borrowing amount, the
Fund will be required to make margin payments (additional payments to the broker
to maintain the level of borrowing at permissible levels). The Fund's obligation
to satisfy margin calls may require the Fund to sell securities 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 emergency purposes, purchase securities on margin, 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.
13
<PAGE>
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
exchange-traded and over-the-counter options and the purchase and sale of
futures contracts and options on those futures contracts. The Fund may write
(sell) covered put and call options and may buy put and call options on equity
securities, foreign currencies and stock indices, such as the Standard & Poor's
500 Stock Index. In addition, the Fund may buy or sell stock index and foreign
currency futures contracts and may write covered options and buy options on
those contracts. Definitions of these instruments may be found in the Appendix
to this Prospectus. An option is covered if, so long as the Fund is obligated
under the option, it owns an offsetting position in the underlying security,
currency or futures contract or maintains liquid assets in a segregated account
with a value at all times sufficient to cover the Fund's obligation under the
option.
The Fund will not hedge more than 25% of its total assets by selling
futures contracts, buying put options and writing call options. In addition, the
Fund will not buy futures contracts or write put options whose underlying value
exceeds 25% of the Fund's total assets and will not purchase call options if the
value of purchased call options would exceed 5% of the Fund's total assets.
The Fund's use of options and futures contracts would subject the Fund
to certain investment risks and transaction costs to which it might not
otherwise be subject. These risks include: (1) dependence on the Adviser's
ability to predict movements in the prices of individual securities or
currencies and fluctuations in the general securities or currency markets; (2)
imperfect correlation between movements in the prices of options, futures
contracts or related options and movements in the price of the securities or
currencies hedged or used for cover; (3) the fact that skills and techniques
needed to trade these instruments are different from those needed to select the
other securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any particular instrument at any particular
time; (5) the possible need to defer closing out of certain options, futures
contracts and related options to avoid adverse tax consequences; and (6) the
potential for unlimited loss when investing in futures contracts. Other risks
include the inability of the Fund, as the writer of covered call options, to
benefit from the appreciation of the underlying securities above the exercise
price and the possible loss of the entire premium paid for options purchased by
the Fund.
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 matures or is redeemed, converted or
14
<PAGE>
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.
PORTFOLIO TRANSACTIONS. From time to time, the Fund may engage in
active short-term trading to take advantage of price movements affecting
individual issues, groups of issues or markets. This will increase the Fund's
rate of turnover and will result in higher total brokerage costs for the Fund.
The Adviser anticipates that the annual turnover in the Fund could be in excess
of 100%. An annual turnover rate of 100% would occur, for example, if all of the
securities in the Fund were replaced once in a period of one year. Higher
portfolio turnover rates may result in increased brokerage costs to the Fund and
a possible increase in short-term capital gains and losses.
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. As of the date
of this 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. 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.
15
<PAGE>
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 $40,00 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 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 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 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
16
<PAGE>
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
prospectuses, statements of additional information and shareholder reports and
delivering them to existing shareholders; costs of maintaining books and
accounts; costs of reproduction, stationery and supplies; compensation of the
Trust's trustees; compensation of the Trust's officers and employees who are not
employees of the Adviser, FAdS or their respective affiliates and costs of other
personnel performing services for the Trust; costs of corporate meetings;
Securities and Exchange Commission registration fees and related expenses; state
securities laws; 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 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
17
<PAGE>
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.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder
services apply to investors who invest in the Fund directly. [These investors
may open an account by completing the application at the back of this Prospectus
or by contacting the Transfer Agent at the address on the first page of this
Prospectus. For shareholder services described in this Prospectus but not
referenced on the account application or to change information regarding a
shareholder's account (such as addresses), investors should request an Optional
Services Form from the Transfer Agent.
There is a $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.
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.
18
<PAGE>
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 this Prospectus in
conjunction with any materials and information provided by their institution.
Customers who purchase Fund shares in this manner may or may not be the
shareholder of record and, subject to their institution's and the Fund's
procedures, may have Fund shares transferred into their name. Under their
arrangements with the Trust, broker-dealers are not generally required to
deliver payment for purchase orders until several business days after a purchase
order has been received by the Fund. Certain other 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
19
<PAGE>
Shareholders that wish to redeem shares by telephone or receive
redemption proceeds by bank wire must elect these options by properly completing
the appropriate sections of their account application. These privileges may not
be available until several weeks after a shareholder's application is received.
REDEMPTION BY MAIL. Shareholders may make a redemption in any amount by
sending a written request to the Transfer Agent accompanied by any share
certificate that was issued to the shareholder. All share certificates submitted
for redemption, and all written requests for redemption, must be endorsed by the
shareholder with signature guaranteed.
TELEPHONE REDEMPTION. A shareholder that has elected telephone
redemption privileges may make a telephone redemption request by calling the
Fund at 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 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
20
<PAGE>
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 employee's IRA 2% of the lesser of the
employee's earned income or $150,000.
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, another series of the Trust. 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
the SAI.
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.")
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
21
<PAGE>
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 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.
22
<PAGE>
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.
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 reorganize in a master-feeder or fund-of-funds structure
under the Investment Company Act or any rule or exemptive order thereunder
without shareholder approval.
On May [__], 1998, the Fund acquired substantially all of the assets of
the Predecessor Partnership, a Massachusetts limited partnership, for which the
Adviser served as the general partner and investment adviser. The Predecessor
Partnership, which had an investment objective and policies substantially
similar to those of the Fund, was organized in 1989.
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 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.
YEAR 2000 COMPLIANCE
23
<PAGE>
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and other service providers to the Fund do
not properly process and calculate date-related information and data from and
after January 2000. The Adviser has taken steps to address the Year 2000 issue
with respect to the computer systems that it uses and to obtain reasonable
assurances that comparable steps are being taken by the Fund's other major
service providers. The Adviser does not anticipate that the move to the Year
2000 will have a material impact on its ability to continue to provide the Funds
with service at current levels.
24
<PAGE>
APPENDIX
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
realize 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.
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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE FUND'S
SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER
MAY NOT LAWFULLY BE MADE.
25
<PAGE>
POLARIS GLOBAL VALUE FUND
PROSPECTUS
MAY __, 1998
POLARIS
CAPITAL MANAGEMENT, INC.
REGISTERED INVESTMENT ADVISORS
26
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may any
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
POLARIS GLOBAL VALUE FUND
- --------------------------------------------------------------------------------
Investment Adviser: Account Information and
Polaris Capital Management, Inc. Shareholder Servicing
125 Summer Street Forum Financial Corp.
Boston, Massachusetts 02110 Two Portland Square
Portland, Maine 04101
207-879-0001
888-263-5594
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION
STATEMENT OF ADDITIONAL INFORMATION
May __, 1998
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information ("SAI") supplements the Prospectus dated May
__, 1998 offering shares of Polaris Global Value Fund (the "Fund") and should be
read only in conjunction with the Prospectus, a copy of which may be obtained
without charge by contacting shareholder servicing at the addresses listed
above.
TABLE OF CONTENTS
PAGE
1. Investment Policies
and Limitations.................................
2. Performance Data..................................
3. Management........................................
4. Determination of Net Asset Value..................
5. Portfolio Transactions............................
6. Custodian.........................................
7. Additional Purchase and
Redemption Information..........................
8. Tax Matters.......................................
9. Other Matters.....................................
Appendix A - Description of Securities Ratings
Appendix B - Control Persons and Principal Holders of Securities
Defined terms used in this SAI have the same meaning as defined in the Fund's
Prospectus. THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
27
<PAGE>
1. INVESTMENT POLICIES AND LIMITATIONS
The Fund's Adviser, Polaris Capital Management, Inc., 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 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 Appendix A to this Statement of
Additional Information. The Fund may use these ratings in determining whether to
purchase, sell or hold a security. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
securities with the same maturity, interest rate and rating may have different
market prices. Subsequent to its purchase by the Fund, an issue of securities
may cease to be
28
<PAGE>
rated or its rating may be reduced. The Adviser will consider such an event in
determining whether the Fund should continue to hold the obligation. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than the rating indicates.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the same
or a different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Although no securities investment is without some risk, investment in
convertible securities generally entails less risk than in the issuer's common
stock. However, the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stocks since they have
fixed income characteristics and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases.
The investment value of a convertible security is influenced by changes
in interest rates, with investment value declining as interest rates increase
and increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is low
relative to the investment value, the price of the convertible security is
governed principally by its investment value and generally the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. In addition, a convertible security generally will sell at
a premium over its conversion value determined by the extent to which investors
place value on the right to acquire the underlying common stock while holding a
fixed income security.
A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption,
the Fund will be required to permit the issuer to redeem the security, convert
it into the underlying common stock or sell it to a third party.
WARRANTS
The Fund may invest in warrants, which 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.
29
<PAGE>
FOREIGN CURRENCY TRANSACTIONS
Investments in foreign companies will usually involve currencies of
foreign countries. In addition, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs.
Accordingly, the value of the assets of the Fund as measured in United States
dollars may be affected by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. The Fund may conduct foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
foreign currency forward contracts ("forward contracts") to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
(usually less than one year) from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers and involve the risk that the other
party to the contract may fail to deliver currency when due, which could result
in losses to the Fund. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. Foreign exchange dealers
realize a profit based on the difference between the price at which they buy and
sell various currencies.
The Fund may enter into forward contracts under two circumstances.
First, with respect to specific transactions, when the Fund enters into a
contract for the purchase or sale of a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale, for a fixed amount of
dollars, of the amount of foreign currency involved in the underlying security
transactions, the Fund may be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date the security is
purchased or sold and the date on which payment is made or received.
Second, the Fund may enter into forward currency contracts in
connection with existing portfolio positions. For example, when the Adviser
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Forward contracts involve the
risk of inaccurate predictions of currency price movements, which may cause the
Fund to incur losses on these contracts and transaction costs. The Adviser does
not intend to enter into forward contracts on a regular or continuous basis, and
will not do so if, as a result, the Fund will have more than 25% of the value of
its total assets committed to such contracts or the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
At or before the settlement of a forward currency contract, the Fund
may either make delivery of the foreign currency or terminate its contractual
obligation to deliver the foreign currency by purchasing an offsetting contract.
If the Fund chooses to make delivery of the foreign currency, it may be required
to obtain the currency through the conversion of assets of the Fund into the
currency. The Fund may close out a forward contract obligating it to purchase a
foreign currency by selling an offsetting contract. If the Fund engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Additionally, although
forward contracts may tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time they tend to limit any potential
gain which might result should the value of such currency increase.
30
<PAGE>
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 the Prospectus, 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 the Fund's Prospectus 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, the Fund will hold securities,
currencies or other options or futures positions whose values are expected to
offset ("cover") its obligations thereunder. The Fund will not enter into a
hedging strategy that exposes the Fund to an obligation to another party unless
it owns either: (1) an offsetting ("covered") position, or (2) cash, U.S.
Government Securities or other liquid assets with a value sufficient at all
times to cover its potential obligations. When required by applicable regulatory
guidelines, the Fund will set aside cash, U.S. Government Securities or other
liquid assets in a segregated account with its custodian in the prescribed
amount. Any assets used for cover or held in a segregated account cannot be sold
or closed out while the hedging strategy is outstanding, unless they are
replaced with similar assets. As a result, there is a possibility that the use
of cover or segregation involving a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
OPTIONS STRATEGIES
The Fund may purchase put and call options written by others and write
(sell) put and call options covering specified securities, stock index-related
amounts or currencies. A put option (sometimes called a "standby commitment")
gives the buyer of the option, upon payment of a premium, the right to deliver a
specified amount of a security or currency to the writer of the option on or
before a fixed date at a predetermined price. A call option (sometimes called a
"reverse standby commitment") gives the purchaser of the option, upon payment of
a premium, the right to call upon the writer to deliver a specified amount of a
security or currency on or before a fixed date, at a predetermined price. The
predetermined prices may be higher or lower than the market value of the
underlying currency or security. The Fund may buy or sell both exchange-traded
and over-the-counter ("OTC") options. The Fund will purchase or write an option
only if that option is traded on a recognized U.S. options exchange or if the
Adviser believes that a liquid secondary market for the option exists. When the
Fund purchases an OTC option, it relies on the dealer from which it has
purchased the OTC option to make or take delivery of the securities or currency
underlying the option. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as the loss of the expected benefit of
the transaction. OTC options and the securities underlying these options
currently are treated as illiquid securities.
The Fund may purchase call options on equity securities that the
Adviser intends to include in the Fund's portfolio in order to fix the cost of a
future purchase. Call options may also be purchased as a means of participating
in an anticipated price increase of a security on a more limited risk basis than
would be possible if the security itself were purchased. In the event of a
decline in the price of the underlying security, use of this strategy
31
<PAGE>
would serve to limit the potential loss to the Fund to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Fund either sells or exercises the option, any profit
eventually realized will be reduced by the premium paid. The Fund may similarly
purchase put options in order to hedge against a decline in market value of
securities held in its portfolio. The put enables the Fund to sell the
underlying security at the predetermined exercise price; thus the potential for
loss to the Fund is limited to the option premium paid. If the market price of
the underlying security is lower than the exercise price of the put, any profit
the Fund realizes on the sale of the security would be reduced by the premium
paid for the put option less any amount for which the put may be sold.
The Fund may write covered call options. The Fund may write call
options when the Adviser believes that the market value of the underlying
security will not rise to a value greater than the exercise price plus the
premium received. Call options may also be written to provide limited protection
against a decrease in the market price of a security, in an amount equal to the
call premium received less any transaction costs. The Fund may write covered put
options only to effect closing transactions.
The Fund may purchase and write put and call options on stock indices
in much the same manner as the equity security options discussed above, except
that stock index options may serve as a hedge against overall fluctuations in
the securities markets (or market sectors) or as a means of participating in an
anticipated price increase in those markets. The effectiveness of hedging
techniques using stock index options will depend on the extent to which price
movements in the stock index selected correlate with price movements of the
securities which are being hedged. Stock index options are settled exclusively
in cash.
FOREIGN CURRENCY OPTIONS AND RELATED RISKS
The Fund may take positions in options on foreign currencies in order
to hedge against the risk of foreign exchange fluctuation on foreign securities
the Fund holds in its portfolio or which it intends to purchase. Options on
foreign currencies are affected by the factors discussed in "Options Strategies"
above and "Foreign Currency Forward Transactions" which influence foreign
exchange sales and investments generally.
The value of foreign currency options is dependent upon the value of
the foreign currency relative to the U.S. dollar and has no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, the Fund may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
To the extent that the U.S. options markets are closed while the market
for the underlying currencies remains open, significant price and rate movements
may take place in the underlying markets that cannot be reflected in the options
markets.
SPECIAL CHARACTERISTICS AND RISKS OF OPTIONS TRADING
The Fund may effectively terminate its right or obligation under an
option contract by entering into a closing transaction. For instance, if the
Fund wished to terminate its potential obligation to sell securities or
currencies under a call option it had written, a call option of the same type
would be purchased by the Fund. Closing transactions essentially permit the Fund
to realize profits or limit losses on its options positions prior to the
exercise or expiration of the option. In addition:
(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.
32
<PAGE>
(2) Options normally have expiration dates of up to nine months.
Options that expire unexercised have no value. Unless an option purchased by the
Fund is exercised or unless a closing transaction is effected with respect to
that position, a loss will be realized in the amount of the premium paid.
(3) A position in an exchange-listed option may be closed out only on
an exchange which provides a market for identical options. Most exchange-listed
options relate to equity securities. Exchange markets for options on foreign
currencies are relatively new and the ability to establish and close out
positions on the exchanges is subject to the maintenance of a liquid secondary
market. Closing transactions may be effected with respect to options traded in
the over-the-counter markets (currently the primary markets for options on
foreign currencies) only by negotiating directly with the other party to the
option contract or in a secondary market for the option if such market exists.
There is no assurance that a liquid secondary market will exist for any
particular option at any specific time. If it is not possible to effect a
closing transaction, the Fund would have to exercise the option which it
purchased in order to realize any profit. The inability to effect a closing
transaction on an option written by the Fund may result in material losses to
the Fund.
(4) The Fund's activities in the options markets may result in a higher
portfolio turnover rate and additional brokerage costs.
FUTURES STRATEGIES
A futures contract is a bilateral agreement wherein one party agrees to
accept, and the other party agrees to make, delivery of cash, securities or
currencies as called for in the contract at a specified future date and at a
specified price. For stock index futures contracts, delivery is of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the time of the contract and the close of trading of the
contract.
The Fund may sell stock index futures contracts in anticipation of a
general market or market sector decline that may adversely affect the market
values of the Fund's securities. To the extent that the Fund's portfolio
correlates with a given stock index, the sale of futures contracts on that index
could reduce the risks associated with a market decline and thus provide an
alternative to the liquidation of securities positions. The Fund may purchase a
stock index futures contract if a significant market or market sector advance is
anticipated. These purchases would serve as a temporary substitute for the
purchase of individual stocks, which stocks may then be purchased in the future.
The Fund may purchase call options on a stock index future as a means
of obtaining temporary exposure to market appreciation at limited risk. This
strategy is analogous to the purchase of a call option on an individual stock,
in that it can be used as a temporary substitute for a position in the stock
itself. The Fund may purchase a call option on a stock index future to hedge
against a market advance in stocks which the Fund planned to acquire at a future
date. The Fund may also purchase put options on stock index futures contracts.
These purchases are analogous to the purchase of protective puts on individual
stocks, where a level of protection is sought below which no additional economic
loss would be incurred by the Fund. The Fund may write covered call options on
stock index futures contracts as a partial hedge against a decline in the prices
of stocks held in the Fund's portfolio. This is analogous to writing covered
call options on securities.
The Fund may sell foreign currency futures contracts to hedge against
possible variations in the exchange rate of the foreign currency in relation to
the U.S. dollar. In addition, the Fund may sell foreign currency futures
contracts when the Adviser anticipates a general weakening of foreign currency
exchange rates that could adversely affect the market values of the Fund's
foreign securities holdings. The Fund may purchase a foreign currency futures
contract to hedge against an anticipated foreign exchange rate increase pending
completion of anticipated transactions. Such a purchase would serve as a
temporary measure to protect the Fund against such increase. The Fund may also
purchase call or put options on foreign currency futures contracts to obtain a
fixed foreign exchange rate at limited 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.
33
<PAGE>
SPECIAL CHARACTERISTICS AND RISKS OF FUTURES AND RELATED OPTIONS TRADING
No price is paid upon entering into futures contracts; rather, the Fund
is required to deposit with its custodian in a segregated account in the name of
the futures broker an amount of cash or U.S. Government Securities generally
equal to 5% or less of the contract value. This amount is known as initial
margin. Subsequent payments, called variation margin, to and from the broker,
would be made on a daily basis as the value of the futures position varies. When
writing a call on a futures contract, variation margin must be deposited in
accordance with applicable exchange rules. The initial margin in futures
transactions is in the nature of a performance bond or good-faith deposit on the
contract that is returned to the Fund upon termination of the contract, assuming
all contractual obligations have been satisfied.
Holders and writers of futures and options on futures contracts can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, a futures contract or related
option with the same terms as the position held or written. Positions in futures
contracts may be closed only on an exchange or board of trade providing a
secondary market for such futures contracts. For example, futures contracts on
broad-based stock indices can currently be entered into with respect to the
Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Stock Index on the New York Futures Exchange, the
Value Line Composite Stock Index on the Kansas City Board of Trade and the Major
Market Index of the Chicago Board of Trade.
Under certain circumstances, futures exchanges may establish daily
limits in the amount that the price of a futures contract or related option may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. Prices could move to the daily limit for several
consecutive trading days with little or no trading and thereby prevent prompt
liquidation of positions. In such event, it may not be possible for the Fund to
close a position, and in the event of adverse price movements, the Fund would
have to make daily cash payments of variation margin. In addition:
(1) Successful use by the Fund of futures contracts and related options
will depend upon the Adviser's ability to predict movements in the direction of
the overall securities and currency markets, which requires different skills and
techniques than predicting changes in the prices of individual securities.
Moreover, futures contracts relate not to the current level of the underlying
instrument but to the anticipated levels at some point in the future; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself.
(2) The price of futures contracts may not correlate perfectly with
movement in the price of the hedged securities or currencies due to price
distortions in the futures market or otherwise. There may be several reasons
unrelated to the value of the underlying securities or currencies which causes
this situation to occur. As a result, a correct forecast of general market
trends still may not result in successful hedging through the use of futures
contracts over the short term.
(3) There is no assurance that a liquid secondary market will exist for
any particular contract at any particular time. In such event, it may not be
possible to close a position, and in the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin.
(4) Like other options, options on futures contracts have a limited
life. The Fund will not trade options on futures contracts on any exchange or
board of trade unless and until, in the Adviser's opinion, the market for such
options has developed sufficiently that the risks in connection with options on
futures transactions are not greater than the risks in connection with futures
transactions.
(5) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs is all that is at
risk. Sellers of options on futures contracts, however, must post an initial
34
<PAGE>
margin and are subject to additional margin calls which could be substantial in
the event of adverse price movements.
(6) The Fund's activities in the futures markets may result in a higher
portfolio turnover rate and additional transaction costs in the form of added
brokerage commissions.
(7) Buyers and sellers of foreign currency futures contracts are
subject to the same risks that apply to the buying and selling of futures
generally. In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. In addition, settlement of
foreign currency futures contracts must occur within the country issuing that
currency. Thus, the Fund must accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign restrictions or regulations
regarding the maintenance of foreign banking arrangements by U.S. residents, and
the Fund may be required to pay any fees, taxes or charges associated with such
delivery which are assessed in the issuing country.
COMMODITY FUTURES CONTRACTS AND COMMODITY OPTIONS
The Fund may invest in certain financial futures contracts and options
contracts in accordance with the policies described in the Prospectus and above.
The Fund will only invest in futures contracts, options on futures contracts and
other options contracts that are subject to the jurisdiction of the CFTC after
filing a notice of eligibility and otherwise complying with the requirements of
Section 4.5 of the rules of the CFTC. Under that section the Fund would be
permitted to purchase such futures or options contracts only for bona fide
hedging purposes within the meaning of the rules of the CFTC; provided, however,
that in addition, with respect to positions in commodity futures and option
contracts not for bona fide hedging purposes, the Fund represents that the
aggregate initial margin and premiums required to establish these positions
(subject to certain exclusions) will not exceed 5% of the liquidation value of
the Fund's assets after taking into account unrealized profits and losses on any
such contract the Fund has entered into.
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 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 Fun 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, 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).
35
<PAGE>
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 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 and to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. In addition,
interest costs on the money received in a reverse repurchase agreement may
exceed the return received on the investments made by a Fund with those monies.
The use of reverse repurchase agreement proceeds to make investments may be
considered to be a speculative technique.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase or sell portfolio securities on a when-issued or
delayed delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased by a Fund with payment and delivery to take place in
the future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time it enters into the transaction. In those cases,
the purchase price and the interest rate payable on the securities are fixed on
the transaction date and delivery and payment may take place a month or more
after the date of the transaction. When the Fund enters into a delayed delivery
transaction, it becomes obligated to purchase securities and it has all of the
rights and risks attendant to ownership of the security, although delivery and
payment occur at a
36
<PAGE>
later date. To facilitate such acquisitions, the Fund will maintain with its
custodian a separate account with portfolio securities in an amount at least
equal to such commitments.
At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction as a
purchase and thereafter reflect the value each day of such securities in
determining its net asset value. The value of the fixed income securities to be
delivered in the future will fluctuate as interest rates and the credit of the
underlying issuer vary. On delivery dates for such transactions, the Fund will
meet its obligations from maturities, sales of the securities held in the
separate account or from other available sources of cash. The Fund generally has
the ability to close out a purchase obligation on or before the settlement date,
rather than purchase the security. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition, it could, as with
the disposition of any other portfolio obligation, realize a gain or loss due to
market fluctuation.
To the extent the Fund engages in when-issued or delayed delivery
transactions, it will do so for the purpose of acquiring securities consistent
with the Fund's investment objectives and policies and not for the purpose of
investment leverage or to speculate in interest rate changes. The Fund will only
make commitments to purchase securities on a when-issued or delayed delivery
basis with the intention of actually acquiring the securities, but the Fund
reserves the right to dispose of the right to acquire these securities before
the settlement date if deemed advisable.
The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond prices, the Fund
might sell securities which it owned on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising bond
prices, the Fund might sell a security and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements, the Fund might be
required to complete such when-issued or forward transactions at prices inferior
to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. If the Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. The Fund will establish and maintain with its custodian a separate account
with cash, U.S. Government Securities or other liquid assets in an amount at
least equal to such commitments. No when-issued or forward commitments will be
made by the Fund if, as a result, more than 10% of the value of the Fund's total
assets would be committed to such transactions.
INVESTMENT COMPANY SECURITIES
In connection with managing its cash 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).
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
37
<PAGE>
to be of comparable quality; and (3) 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 the Fund's Prospectus 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, the following are not treated as borrowings 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; (c)
dollar-roll transactions; and (d) the lending of securities.
(2) Purchase securities, other than U.S. Government Securities,
repurchase agreements covering U.S. Government Securities, or securities of
other regulated investment companies, if, immediately after each purchase,
more than 25% of the Fund's total assets taken at market value would be
invested in securities of issuers conducting their principal business activity
in the same industry.
(3) The Fund is "non-diversified" as that term is defined in the
Investment Company Act. To the extent required to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), the Fund may not purchase a security (other than a U.S. Government
Security or a security of a regulated investment company) if, as a result: (a)
with respect to 50% of its assets, more than 5% of the Fund's total assets would
be invested in the securities of any single issuer; (b) with respect to 50% of
its assets, the Fund would own more than 10% of the outstanding securities of
any single issuer; or (c) more than 25% of the Fund's total assets would be
invested in the 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 a
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
38
<PAGE>
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.
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) The Fund 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 invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted continuous operations for
less than three years, including the operations of predecessors, unless
guaranteed as to principal and interest by an issuer in whose securities the
Fund could invest, if as a result, more than 5% of the value of the Fund's total
assets would be so invested.
(e) May not invest in or hold securities of any issuer if to the Fund's
knowledge officers and trustees of the Trust or the Fund's investment adviser,
individually owning beneficially more than 1/2 of 1% of the securities of the
issuer, in the aggregate own more than 5% of the issuer's securities.
(f) 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").
(g) May not invest in interests in oil or gas or interests in other
mineral exploration or development programs.
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. The average annual return of the Fund for the periods ended May ___, 1998
was as follows:
39
<PAGE>
One Year Three Years Five Years Since Inception
------- --------- --------- ------------
As discussed below, the performance of the Fund includes the performance of a
limited partnership prior to its acquisition by the Fund.
In performance advertising each Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). Each Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indices,
including but not limited to the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index, the
Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Funds may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Funds may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of the
Funds and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Fund may advertise total return. Total returns quoted in
advertising reflect all aspects of the Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
Fund's net asset value per share over the period. Average annual returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in the Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that the performance is not constant over time but changes from year to year,
and that average annual returns represent averaged figures as opposed to the
actual year-to-year performance of the Fund.
Average annual total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment, over such periods
according to the following formula:
P(1+T)n = ERV; where:
P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value (ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 payment made at the beginning of
the applicable period.
In addition to average annual total returns, the Fund may quote
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:
40
<PAGE>
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total
return above.
LIMITED PARTNERSHIP PERFORMANCE
[Prior to May __, 1998, the Adviser acted as general partner and
investment adviser to a Massachusetts limited partnership, the Predecessor
Partnership, with an investment objective and investment policies that were [in
all material respects] equivalent to those of the Fund. On May ___, l998, the
Fund acquired the assets of the limited partnership.] Therefore, the performance
for the Fund includes the performance of the predecessor limited partnership for
periods before the Fund was established. The limited partnership performance was
adjusted by netting the Fund's 1998 estimate of its expense ratios for its first
year of operation as a mutual fund. The limited partnership was not registered
under the Investment Company Act and was not subject to certain limitations,
diversification requirements, and other restrictions imposed by the Investment
Company Act and the Internal Revenue Code, which, if applicable, may have
adversely affected the performance result. Prior performance is not indicative
of the Fund's future performance.]
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, 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.
41
<PAGE>
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.
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.
<TABLE>
<S> <C> <C> <C> <C>
Accrued Annual
Aggregate Pension Benefits Upon Total
Trustee Compensation Benefits Retirement Compensation
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $4,000 None None $4,000
Mr. Cheng $4,000 None None $4,000
Mr. Parish $4,000 None None $4,000
</TABLE>
42
<PAGE>
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 1.00% 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 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
43
<PAGE>
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 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 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
Processing Organizations (as defined in the Prospectus) and in the case of
sub-transfer agents or processing agents, may also be affiliated persons of FFC
or FAdS.
44
<PAGE>
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
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 the Prospectus), by dividing the value of the
Fund's net assets (i.e., the value of its securities and other assets less its
liabilities, including expenses payable or accrued) by the number of shares
outstanding at the time the determination is made. The Trust does not determine
net asset value on the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
Securities listed or traded on United States or foreign securities
exchanges are valued at the last quoted sales prices on such exchanges prior to
the time when assets are valued. Securities listed or traded on certain foreign
exchanges whose operations are similar to the United States over-the-counter
market are valued at the price within the limits of the latest available current
bid and asked prices deemed best to reflect market value. Listed securities that
are not traded on a particular day, and securities regularly traded in the
over-the-counter market, are valued at the price within the limits of the latest
available current bid and asked prices deemed best to reflect market value. In
instances where market quotations are not readily available, the security is
valued in a manner intended to reflect its fair value. All other securities and
assets are valued in a manner determined to reflect their fair value. For
purposes of determining the Fund's net asset value per share, all assets and
liabilities initially expressed in foreign currencies will be converted into
United States dollars at the mean of the bid and asked prices of such currencies
against the United States dollar last quoted by any major bank.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business of each Fund Business Day in New York. In addition, European or Far
Eastern securities trading generally or in a particular country or countries may
not take place on all business days in New York. Furthermore, trading takes
place in Japanese markets on certain Saturdays and in various foreign markets on
days which are not Fund Business Days in New York and on which the Fund's net
asset value is not calculated. Calculation of the net asset value per share of
the Fund does not take place contemporaneously with the determination of the
prices of the majority of the portfolio securities used in such calculation.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of the New York Stock Exchange, Inc.
will not be reflected in the Fund's calculation of net asset value unless it is
deemed that the particular event would materially affect net asset value, in
which case an adjustment will be made.
45
<PAGE>
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 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"), The [Bank]
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
46
<PAGE>
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 is redeeming
more than $250,000 or 1% of the Fund's total net assets, whichever is less,
during any 90-day period.
In addition to the situations described in the Prospectus under
"Purchases and Redemptions of Shares," the Trust may redeem shares involuntarily
to reimburse the Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to the Fund's shares as provided in the
Prospectus from time to time.
Shareholders' rights of redemption may not be suspended, except: (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, 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 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
47
<PAGE>
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 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.
_________________, independent auditors, have been selected as auditors
of the Trust.
48
<PAGE>
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 reorganize 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, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
49
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
---------------------------------
CORPORATE BONDS (INCLUDING CONVERTIBLE DEBT)
(A) MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's rates corporate bond issues, including convertible debt issues,
as follows:
Bonds 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.
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".
50
<PAGE>
(B) STANDARD & POOR'S CORPORATION ("S&P")
S&P rates corporate bond issues, including convertible debt issues, as
follows:
Bonds rated "AAA" have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated "AA" have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated "A" have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Bonds rated "BBB" are regarded as having an adequate capacity to pay interest
and repay principal. Whereas, they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Bonds rated "BB" have less near-term
vulnerability to default than other speculative issues. However, they face major
ongoing uncertainties or exposure to adverse business, financial, or economic
conditions 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:
51
<PAGE>
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.
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."
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas if normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.
Preferred 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.
52
<PAGE>
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
To provide more detailed indications of preferred stock quality, the ratings
from "AA" to "B" may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within the major rating categories.
53
<PAGE>
APPENDIX B
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 10, 1998, the officers and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- ----------------
OAK HALL EQUITY FUND
- --------------------
Maryann Wolf 11.96% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Simeon Gold & Heide Gold, Jt. Ten. 8.13% 27,856.149
136 East 76th Street Apt. 10F
New York NY 10021
Jane Levy 5.15% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 5.13% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
AUSTIN GLOBAL EQUITY FUND
- -------------------------
Administrative Data Management Corp. 95.46% 900,625.402
Attn: Sue Needell
581 Main Street
Woodbridge NJ 07095-1198
DAILY ASSETS TREASURY FUND
INSTITUTIONAL SERVICE SHARES
- ----------------------------
Forum Fi 100.00% 10.000
Forum Financial Group
Two Portland Square
Portland ME 04101
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- ----------------
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
- ----------------------
Forum Fi 100.00% 10.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SHARES
- ----------------------------
Babb & Co #02-6004105 100.00% 4,154,555.490
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
- ---------------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
- --------------------------------------
Babb & Co #02-6004105 100.00% 70,805,935.890
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
INVESTORS BOND FUND
- -------------------
Firstrust Co. 73.33% 5,802,674.028
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 18.35% 1,452,104.356
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- ----------------
FORUM TAXSAVER BOND FUND
- ------------------------
First Trust Co. 50.98% 1,823,877.187
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 25.55% 913,993.962
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Ttee 5.76% 206,021.417
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Lawrence L. Zusman Ttee 5.16% 184,652.189
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
PAYSON BALANCED FUND
- --------------------
ALA & Co. 15.39% 248,375.143
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
Payse & Co. 15.13% 244,299.596
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
MAINE MUNICIPAL BOND FUND
- -------------------------
Administrative Data Management Corp. 40.63% 1,015,080.634
Attn: Sue Needell
581 Main Street
Woodbridge NJ 07095-1198
DAILY ASSETS TREASURY FUND
INSTITUTIONAL SERVICES SHARES
- -----------------------------
H.M. Payson & Co. Custody Account 40.07% 18,918,278.950
FBO Customer Funds Under Management
PO Box 31
Portland ME 04112
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- ----------------
DAILY ASSETS TREASURY FUND
INSTITUTIONAL SERVICES SHARES (CONTINUED)
- -----------------------------------------
H.M. Payson & Co. Trust Account 39.63% 18,709,475.200
FBO Trust Funds Under Management
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
- -----------------
Payse & Co. 21.65% 194,687.710
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
ALA & Co. 17.47% 157,110.127
c/o H.M. Payson & Co. Attn: Rebecca Lott
PO Box 31
Portland ME 04112
NEW HAMPSHIRE BOND FUND
- -----------------------
Independence Trust 43.00% 503,378.386
Attn: Linda Feliciano
200 Bedford Street 5th Floor
Manchester NH 03105-0119
Administrative Data Management Corp. 35.22% 412,367.462
Attn: Sue Needell
581 Main Street
Woodbridge NJ 07095-1198
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICES SHARES
- -----------------------------
H.M. Payson & Co. Custody Account 56.90% 7,166,186.340
FBO Customer Funds Under Management
PO Box 31
Portland ME 04112
H.M. Payson & Co. Trust Account 37.44% 4,715,126.140
FBO Trust Funds Under Management
PO Box 31
Portland ME 04112
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- ----------------
INVESTORS EQUITY FUND
- ---------------------
Allagash & Co. 96.61% 130,658.987
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
INTERNATIONAL EQUITY FUND
- -------------------------
Forum Fi 67.80% 500.000
Forum Financial Group
Two Portland Square
Portland ME 04101
Donaldson, Lufkin & Jenrette Sec Corp. 32.20% 237.417
Mutual Funds Dept. - 5th Floor
PO Box 2052
Jersey City NJ 07303
INVESTORS GROWTH FUND
- ---------------------
Firstrust Co. 100.00% 2,863,713.851
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
- ----------------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICES SHARES
- -----------------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
DAILY ASSETS TREASURY OBLIGATIONS
INSTITUTIONAL SERVICES SHARE
- ---------------------------------
Forum Fi 100.00% 5.000
Forum Financial Group
Two Portland Square
Portland ME 04101
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- -----------------
EQUITY INDEX FUND
- -----------------
Allagash & Co. 99.83% 430,724.526
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
QUADRA VALUE EQUITY FUND
- ------------------------
HMK Enterprises, Inc. 45.47% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
Charlesgate West Management Inc. 17.79% 16,561.068
Attn: Paul Malnati
2 Charlesgate West
Boston MA 02215
Bank of Boston IRA R/O Custodian 9.02% 8,398.994
FBO Eileen Delasandro Levi
8 Paige Street
Hingham MA 02043
Bank of Boston IRA R/O Cust. 5.42% 5,047.801
FBO Howard H. Stevenson
PO Box 277
Southborough MA 01772-0003
Lester I. Tenney as Ttee 5.33% 4,962.848
FBO Lester I. Tenney & Betty S. Tenney
Living Trust U/A/D 09/13/83
4513 E. Walatown
Phoenix AZ 85044
A S Gibbs Ttee 5.02% 4,669.392
FBO The Alfred S. Gibbs Family Trust
U/A/D 03/01/1991
1980 Pine Tree Way NW
Stuart FL 34994-8834
QUADRA INTERNATIONAL EQUITY FUND
- --------------------------------
Bank of Boston IRA R/O Cust. 37.64% 12,040.312
FBO Howard H. Stevenson
PO Box 277
Southborough MA 01772-0003
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- ----------------
QUADRA INTERNATIONAL EQUITY FUND (CONTINUED)
- --------------------------------------------
Bank of Boston SEP IRA Cust. 32.67% 10,450.397
FBO William Gould
116 Old Wharf Road
North Chatam MA 02650
Bank of Boston IRA Cust. 12.11% 3,874.428
FBO Nancy Hsiung
5 Ingraham Road
Wellesley MA 02181
Eileen Delasandro Levi Ttee 6.39% 2,045.028
FBO Eileen Delasandro Levi Keogh Plan
DTD 12/31/95
8 Paige Street
Hingham MA 02043
Donald A. Levi Ttee 6.39% 2,045.028
FBO Donald A. Levi Keogh Plan
DTD 12/31/95 Amended
8 Paige Street
Hingham MA 02043
QUADRA GROWTH FUND
- ------------------
John E. Rosenthal 71.49% 80,304.108
1212 West Street
Carlisle MA 01741
Nancy Hsiung 6.69% 7,512.935
5 Ingraham Road
Wellesley MA 02181
Bank of Boston IRA R/O Cust. 5.18% 5,821.412
FBO Howard H. Stevenson
PO Box 277
Southborough MA 01772-0003
Donald A. Levi Ttee 5.16% 5,792.573
FBO Donald A. Levi Keogh Plan
DTD 12/31/95 Amended
8 Paige Street
Hingham MA 02043
</TABLE>
60
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------- ----------------
EMERGING MARKETS FUND
- ---------------------
Forum Fi 65.52% 500.000
Forum Financial Group
Two Portland Square
Portland ME 04101
Donaldson Lufkin & Jenrette Sec Corp. 34.48% 263.158
Mutual Funds Dept. - 5th Floor
PO Box 2052
Jersey City NJ 07303
</TABLE>
61
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS.
Included in the Prospectus:
Not Applicable
Included in the Statement of Additional Information:
Not Applicable
(B) EXHIBITS.
NOTE: * INDICATES THAT THE EXHIBIT IS INCORPORATED HEREIN BY REFERENCE. ALL
REFERENCES TO A POST-EFFECTIVE AMENDMENT ("PEA") OR PRE-EFFECTIVE AMENDMENT
("PREEA") ARE TO PEAS AND PREEAS TO REGISTRANT'S REGISTRATION STATEMENT ON FORM
N-1A, FILE NO. 2-67052.
(1)* Copy of the Trust Instrument of the Registrant dated August
29, 1995 (filed as Exhibit 1 to PEA No. 34 via EDGAR on May 9,
1996, accession number 0000912057-96-008780).
(2)* Copy of By-Laws of the Registrant (filed as Exhibit (2) to
PEA No 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707)
(3) None.
(4) (a) Sections 2.04 and 2.06 of Registrant's Trust
Instrument provide as follows:
"SECTION 2.04 TRANSFER OF SHARES. Except as
otherwise provided by the Trustees, Shares shall be
transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly
authorized in writing, upon delivery to the Trustees
or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the
genuineness of such execution and authorization and
of such other matters as may be required by the
Trustees. Upon such delivery the transfer shall be
recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor the
Trust, nor any transfer agent or registrar nor any
officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.
"SECTION 2.06 ESTABLISHMENT OF SERIES. The
Trust created hereby shall consist of one or more
Series and separate and distinct records shall be
maintained by the Trust for each Series and the
assets associated with any such Series shall be held
and accounted for separately from the assets of the
Trust or any other Series. The Trustees shall have
full power and authority, in their sole discretion,
and without obtaining any prior authorization or vote
of the Shareholders of any Series of the Trust, to
establish and designate and to change in any manner
any such Series of Shares or any classes of initial
or additional Series and to fix such preferences,
voting powers, rights and privileges of such Series
or classes thereof as the Trustees may from time to
time determine, to divide or combine the Shares or
any Series or classes thereof into a greater or
lesser number, to classify or reclassify any issued
Shares or any Series or classes thereof into one or
62
<PAGE>
more Series or classes of Shares, and to take such
other action with respect to the Shares as the
Trustees may deem desirable. The establishment and
designation of any Series shall be effective upon the
adoption of a resolution by a majority of the
Trustees setting forth such establishment and
designation and the relative rights and preferences
of the Shares of such Series. A Series may issue any
number of Shares and need not issue shares. At any
time that there are no Shares outstanding of any
particular Series previously established and
designated, the Trustees may by a majority vote
abolish that Series and the establishment and
designation thereof.
"All references to Shares in this Trust
Instrument shall be deemed to be Shares of any or all
Series, or classes thereof, as the context may
require. All provisions herein relating to the Trust
shall apply equally to each Series of the Trust, and
each class thereof, except as the context otherwise
requires.
"Each Share of a Series of the Trust shall
represent an equal beneficial interest in the net
assets of such Series. Each holder of Shares of a
Series shall be entitled to receive his pro rata
share of all distributions made with respect to such
Series. Upon redemption of his Shares, such
Shareholder shall be paid solely out of the funds and
property of such Series of the Trust."
(5) (a)* 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).
(g)* Investment Advisory Agreement between the Registrant and
Austin Investment Management, Inc. (filed as Exhibit (5)(j)
to PEA No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(h)* Investment Advisory Agreement between the Registrant and Oak
Hall Capital Advisors, Inc. (filed as Exhibit (5)(k) to PEA
No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(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 the
Registration Statement of Core Trust (Delarware), File No.
811-8858, via EDGAR on September 30, 1996, accession number
0000912057-96-021568).
63
<PAGE>
(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, accesssion
number 0000898432-96-000341.
(k)* Form of Investment Advisory Agreement between Core Trust
(Delware) and Forum Investment Advisors, LLC relating to
Treasury Portfolio, Treasury Cash Portfolio, Cash Portfolio,
Government Cash Portfolio and Municipal Cash Portfolio
(filed as Exhibit 5(n) to PEA No. 52 via EDGAR on November
24, 1997, accession number 0001047469-97-005953).
(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).
(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).
(6) (a)* Form of Selected Dealer Agreement between Forum Financial
Services, Inc. and securities brokers (filed as Exhibit 6(c)
to PEA 21).
(b)* Form of Bank Affiliated Selected Dealer Agreement between
Forum Financial Services, Inc. and bank affiliates filed as
Exhibit 6(d) of PEA 21).
(c)* Distribution Agreement between Registrant and Forum
Financial Services, Inc. (filed as Exhibit 6(f) to PEA No.
43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(7) None.
(8) (a)* Form of Transfer Agency Agreement between Registrant and
Forum Financial Corp. (filed as Exhibit 8(a) to PEA No. 33
via EDGAR on January 5, 1996, accession number
0000912057-96-000216).
(b)* Form of Custodian Agreement between Registrant and the First
National Bank of Boston (filed as Exhibit 8(b) to PEA No. 33
via EDGAR on January 5, 1996, accession number
0000912057-96-000216).
(9) (a)* Administration Agreement between Registrant and Forum
Administrative Services, LLC (filed as Exhibit 6(e) to PEA
No. 43 via EDGAR on July 31, 1997, accession number
0000912057-97-025707).
(b)* Shareholder Service Plan of Registrant relating to the
Quadra Funds and Form of Shareholder Service Agreement
relating to Quadra Funds (filed as Exhibit 9(b) to PEA No.
49 via EDGAR on November 5, 1997, accession number
0001004402-97-000163).
64
<PAGE>
(c)* Form of Shareholder Service Plan of Registrant and Form of
Shareholder Service Agreement relating to the Daily Assets
Treasury Fund, Daily Assets Cash Fund, Daily Assets
Government Fund, Daily Assets Tax-Exempt Fund and Daily
Assets Treasury Obligations Fund (filed as Exhibit 9(c) to
PEA No. 50 via EDGAR on November 12, 1997, accession no.
0001004402-97-000189).
(10)* Opinion of Seward & Kissel dated January 5, 1996 (filed as
Exhibit 10 of PEA No. 33 via EDGAR on January 5, 1996,
accession number 0000912057-96-000216).
(11) None.
(12) None.
(13)* Investment Representation letter of Reich & Tang, Inc. as
original purchaser of shares of registrant (filed as Exhibit
13 to Registration Statement).
(14)* Form of Disclosure Statement and Custodial Account
Agreement applicable to individual retirement accounts (filed
as Exhibit 14 of PEA No. 21).
(15) (a)* Form of Rule 12b-1 Plan adopted by the Registrant (filed as
Exhibit 15 of PEA No. 16).
(b)* Rule 12b-1 Plan adopted by the Registrant with respect to
the Payson Value Fund and the Payson Balanced Fund (filed as
Exhibit 8(c) of PEA No. 20).
(16) Schedule of Sample Performance Calculations (filed as Exhibit
16 to PEA No. 43 via EDGAR on July 31, 1997, accession
number 0000912057-97-025707).
Other Exhibits:
(a)* Powers of Attorney for Trustee James C. Cheng, Trustee
Costas Azariadis, and Trustee J. Michael Parrish (filed as
Exhibit 99 to PEA No. 34 via EDGAR on May 9, 1996, accession
number 0000912057-96-008780).
(b) Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF DECEMBER 31, 1997
TITLE OF CLASS NUMBER OF HOLDERS
-------------- -----------------
Investors High Grade Bond Fund 0
Investors Bond Fund 55
TaxSaver Bond Fund 40
Daily Assets Cash Fund 22
Daily Assets Treasury Fund 96
Daily Assets Government Fund 2
Daily Assets Municipal Fund 3
Daily Assets Treasury Obligations Fund 2
Payson Value Fund 326
Payson Balanced Fund 378
65
<PAGE>
Maine Municipal Bond Fund 391
New Hampshire Bond Fund 81
Austin Global Equity Fund 13
Oak Hall Equity Fund 186
Quadra Limited Maturity Treasury Fund 3
Quadra Value Equity Fund 14
Quadra Growth Fund 7
Quadra International Equity Fund 8
Quadra Opportunistic Bond Fund 6
Equity Index Fund 2
Investors Equity Fund
International Equity Fund 1
Emerging Markets Fund 1
Investors Growth Fund 2
ITEM 27. INDEMNIFICATION.
In accordance with Section 3803 of the Delaware Business Trust Act, SECTION
5.2 of the Registrant's Trust Instrument provides as follows:
"5.2. INDEMNIFICATION.
"(a) Subject to the exceptions and limitations contained in
Section (b) below:
"(i) Every Person who is, or has been, a Trustee or
officer of the Trust (hereinafter referred to as a "Covered
Person") shall be indemnified by the Trust to the fullest
extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of being or having
been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
"(ii) The words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals),
actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
"(b) No indemnification shall be provided hereunder to a
Covered Person:
"(i) Who shall have been adjudicated by a court or
body before which the proceeding was brought (A) to be liable
to the Trust or its Holders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the Covered Person's office
or (B) not to have acted in good faith in the reasonable
belief that Covered Person's action was in the best interest
of the Trust; or
"(ii) In the event of a settlement, unless there has
been a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
the Trustee's or officer's office,
"(A) By the court or other body approving the
settlement;
66
<PAGE>
"(B) By at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily
available facts (as opposed to a full trial-type
inquiry); or
"(C) By written opinion of independent legal counsel
based upon a review of readily available facts (as
opposed to a full trial-type inquiry);
provided, however, that any Holder may, by appropriate legal
proceedings, challenge any such determination by the Trustees
or by independent counsel.
"(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights to
which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such
a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
"(d) Expenses in connection with the preparation and
presentation of a defense to any claim, action, suit or proceeding of
the character described in paragraph (a) of this Section 5.2 may be
paid by the Trust or Series from time to time prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not entitled
to indemnification under this Section 5.2; provided, however, that
either (a) such Covered Person shall have provided appropriate security
for such undertaking, (b) the Trust is insured against losses arising
out of any such advance payments or (c) either a majority of the
Trustees who are neither Interested Persons of the Trust nor parties to
the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as
opposed to a trial-type inquiry or full investigation), that there is
reason to believe that such Covered Person will be found entitled to
indemnification under this Section 5.2.
"(e) Conditional advancing of indemnification monies under
this Section 5.2 for actions based upon the 1940 Act may be made only
on the following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation
of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount
of the advance which exceeds that amount which it is ultimately
determined that he is entitled to receive from the Trust by reason of
indemnification; and (iii) (a) such promise must be secured by a surety
bond, other suitable insurance or an equivalent form of security which
assures that any repayments may be obtained by the Trust without delay
or litigation, which bond, insurance or other form of security must be
provided by the recipient of the advance, or (b) a majority of a quorum
of the Trust's disinterested, non-party Trustees, or an independent
legal counsel in a written opinion, shall determine, based upon a
review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
"(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:
67
<PAGE>
"4. We shall expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we
agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or and to our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Paragraphs 3(f) and (g) and paragraph 5 of the Management and Distribution
Agreement provide as follows:
"(f) We agree to indemnify, defend and hold you, your several officers
and directors, and any person who controls you within the meaning of
Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which you, your
officers and directors or any such controlling person may incur, under
the Securities Act, or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in
our Registration Statement or Prospectus in effect from time to time
under the Securities Act or arising out of or based upon any alleged
omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not
misleading; provided, however, that in no event shall anything
contained in this paragraph 3(f) be so construed as to protect you
against any liability to us or our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of your duties, or by reason of
your reckless disregard of your obligations and duties under this
paragraph. Our agreement to indemnify you, your officers and directors
and any such controlling person as aforesaid is expressly conditioned
upon our being notified of any action brought against you, your
officers and directors or any such controlling person, such
notification to be given by letter or by telegram addressed to us at
our principal office in New York, New York, and sent to us by the
person against whom such action is brought within ten days after the
summons or other first legal process shall have been served. The
failure so to notify us of any such action shall not relieve us from
any liability which we may have to the person against whom such action
is brought by reason of any such alleged untrue statement or omission
otherwise than on account of our indemnity agreement contained in this
paragraph 3(f). We will be entitled to assume the defense of any suit
brought to enforce any such claim, and to retain counsel of good
standing chosen by us and approved by you. In the event we do elect to
assume the defense of any such suit and retain counsel of good standing
approved by you, the defendant or defendants in such suit shall bear
the fees and expenses of any additional counsel retained by any of
them; but in case we do not elect to assume the defense of any such
suit, or in case you do not approve of counsel chosen by us, we will
reimburse you or the controlling person or persons named as defendant
or defendants in such suit, for the fees and expenses of any counsel
retained by you or them. Our indemnification agreement contained in
this paragraph 3(f) and our representations and warranties in this
agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you, your
officers and directors or any controlling person and shall survive the
sale of any shares of our common stock made pursuant to subscriptions
obtained by you. This agreement of indemnity 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
68
<PAGE>
your capacity as distributor to us for use in our Registration
Statement or Prospectus in effect from time to time under the Act, or
shall arise out of or be based upon any alleged omission to state a
material fact in connection with such information required to be stated
in the Registration Statement or Prospectus or necessary to make such
information not misleading. Your agreement to indemnify us, our
officers and directors, and any such controlling person as aforesaid is
expressly conditioned upon your being notified of any action brought
against us, our officers or directors or any such controlling person,
such notification to be given by letter or telegram addressed to you at
your principal office in New York, New York, and sent to you by the
person against whom such action is brought, within ten days after the
summons or other first legal process shall have been served. You shall
have a right to control the defense of such action, with counsel of
your own choosing, satisfactory to us, if such action is based solely
upon such alleged misstatement or omission on your part, and in any
other event you and we, our officers or directors or such controlling
person shall each have the right to participate in the defense or
preparation of the defense of any such action. The failure so to notify
you of any such action shall not relieve you from any liability which
you may have to us, to our officers or directors, or to such
controlling person by reason of any such untrue statement or omission
on your part otherwise than on account of your indemnity agreement
contained in this paragraph 3(g).
"5 We shall expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we
agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or to our security holders to which you would
otherwise be subject by reason or willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Section 9(a) of the Distribution Services Agreement provides:
"The Company agrees to indemnify, defend and hold the Underwriter, and
any person who controls the Underwriter within the meaning of Section
15 of the Securities Act, free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Underwriter or
any such controlling person may incur, under the Securities Act or
under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Company's
Registration Statement or the Prospectus or Statement of Additional
Information in effect from time to time under the Securities Act and
relating to the Fund or arising out of or based upon any alleged
omission to state a material fact required to be stated in any thereof
or necessary to make the statements in any thereof not misleading;
provided, however, that in no event shall anything herein contained be
so construed as to protect the Underwriter against any liability to the
Company or its security holders to which the Underwriter would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of the
Underwriter's reckless disregard of its obligations and duties under
this agreement. The Company's agreement to indemnify the Underwriter
and any controlling person as aforesaid is expressly conditioned upon
the Company's being notified of the commencement of any action brought
against the Underwriter or any such controlling person, such
notification to be given by letter or by telegram addressed to the
Company at its principal office in New York, New York, and sent to the
Company by the person against whom such action is brought within ten
days after the summons or other first legal process shall have been
served. The Company will be entitled to assume the defense of any suit
brought to enforce any such claim, and to retain counsel of good
standing chosen by the Company and approved by the Underwriter. In the
event the Company elects to assume the defense of any such suit and
retain counsel of good standing approved by the Underwriter, the
defendants in the suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Company
does not elect to assume the defense of the suit or in case the
Underwriter does not approve of counsel chosen by the Company, the
Company will reimburse the Underwriter or the controlling person or
persons named defendant or defendants in the suit for the fees and
expenses of any counsel retained by the Underwriter or such person. The
indemnification agreement contained in this Section 9 shall remain
69
<PAGE>
operative and in full force and effect regardless of any investigation
made by or on behalf of the Underwriter or any controlling person and
shall survive the sale of the Fund's shares made pursuant to
subscriptions obtained by the Underwriter. This agreement of indemnity
will inure exclusively to the benefit of the Underwriter, to the
benefit of its successors and assigns, and to the benefit of any
controlling persons and their successors and assigns. The Company
agrees promptly to notify the Underwriter of the Underwriter of the
commencement of any litigation or proceeding against the Company in
connection with the issue and sale of any of shares of the Fund. The
failure to do so notify the Company of the commencement of any such
action shall not relieve the Company from any liability which it may
have to the person against whom the action is brought by reason of any
alleged untrue statement or omission otherwise than on account of the
indemnity agreement contained in this Section 9."
In so far as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS.
Forum Investment Advisors, LLC
The description of Forum Investment Advisors, LLC (investment adviser
to each of Daily Assets Treasury Fund, Daily Assets Treasury
Obligations Fund, Daily Assets Government Fund, Daily Assets Cash Fund,
Daily Assets Municipal Fund, Investors High Grade Bond Fund, Investors
Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New Hampshire
Bond Fund and Investors Growth Fund) under the captions "Management "
and "Management - Adviser" in the Prospectuses and Statements of
Additional Information, constituting certain of Parts A and B,
respectively, of this Registration Statement, are incorporated by
reference herein.
The following are the members of Forum Investment Advisors, LLC, Two
Portland Square, Portland, Maine 04101, including their business
connections which are of a substantial nature.
Forum Holdings Corp., Member.
Forum Financial Group, LLC., Member.
Both Forum Holdings Corp. and Forum Financial Group, LLC are controlled
by John Y. Keffer, Chairman and President of the Registrant. Mr. Keffer
is President of Forum Financial Group, LLC. Mr. Keffer is also a
director and/or officer of various registered investment companies for
which the various Forum Financial Group of Companies provides services.
The following are the officers of Forum Investment Advisors, LLC,
including their business connections which are of a substantial nature.
Each officer may serve as an officer of various registered investment
companies for which the Forum Financial Group of Companies provides
services.
William J. Lewis, Director.
Director of Forum Investment Advisors, LLC.
Sara M. Morris, Treasurer.
70
<PAGE>
Chief Financial Officer, Forum Financial Group, LLC. Ms. Morris
serves as an officer of several other Forum affiliated companies.
David I. Goldstein, Secretary.
General Counsel, Forum Financial Group, LLC. Mr. Goldstein serves
as an officer of several other Forum affiliated companies.
Dana A. Lukens, Assistant Secretary.
Corporate Counsel, Forum Financial Group, LLC. Mr. Lukens also
serves as an officer of several other Forum affiliated companies.
Margaret J. Fenderson, Assistant Treasurer.
Corporate Accounting Manager, Forum Financial Group, LLC. Ms.
Fenderson also serves as an officer of several other Forum
affiliated companies.
H.M. Payson & Co.
The descriptions of H.M. Payson & Co. under the caption "Management -
Adviser" in the Prospectus and Statement of Additional Information,
with respect to the Payson Value Fund and the Payson Balanced Fund,
constituting certain of Parts A and B, respectively, of this
Registration Statement are incorporated by reference herein.
The following are the directors and principal executive officers of
H.M. Payson & Co., including their business connections which are of a
substantial nature. The address of H.M. Payson & Co. is One Portland
Square, Portland, Maine 04101.
Adrian L. Asherman, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1955, General
Partner from 1964 to 1987 and Managing Director since 1987.
His address is One Portland Square, Portland, Maine 04101.
John C. Downing, Managing Director and Treasurer.
Portfolio Manger of H.M. Payson since 1983 and Managing
Director since 1992. Mr. Downing has been associated with
H.M. Payson since 1983. His address is One Portland Square,
Portland, Maine 04101.
William A. Macleod, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1984 and
Managing Director since 1989. His address is One Portland
Square, Portland, Maine 04101.
Thomas M. Pierce, Managing Director.
Portfolio Manager of H.M. Payson & Co. since 1975, General
Partner from 1981 to 1987 and Managing Director since 1987.
His address is One Portland Square, Portland, Maine 04101.
Peter E. Robbins, Managing Director.
71
<PAGE>
Portfolio Manager of H.M. Payson & Co. since 1992, except
for the period from January 1988 to October 1990. During
that period, Mr. Robbins was president of Mariner Capital
Group, a real estate development and non-financial asset
management business. General Partner of H.M. Payson & Co.
from 1986 to 1987, and Managing Director from 1987 to 1988,
and since 1993.
John H. Walker, Managing Director and President.
Portfolio Manager of H.M. Payson & Co. since 1967, General
Partner from 1974 to 1987, and Managing Director since 1987.
Mr. Walker is also a Director of York Holding Company and
York Insurance Company. His address is One Portland Square,
Portland, Maine 04101.
Teresa M. Esposito, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. Her
address is One Portland Square, Portland, Maine 04101.
John C. Knox, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. His
address is One Portland Square, Portland, Maine 04101.
Harold J. Dixon, Managing Director and Secretary.
Managing Director of H.M. Payson & Co. since 1995. His
address is One Portland Square, Portland, Maine 04101.
Laura McDill, Managing Director.
Managing Director of H.M. Payson & Co. since 1995. Her
address is One Portland Square, Portland, Maine 04101.
Austin Investment Management, Inc.
The description of Austin Investment Management, Inc. under the caption
"Management - Adviser" in the Prospectus and Statement of Additional
Information with respect to the Austin Global Equity Fund, constituting
part of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following is the director and principal executive officer of Austin
Investment Management, Inc. 375 Park Avenue, New York, New York 10152,
including his business connections which are of a substantial nature.
Peter Vlachos, Director, President Treasurer and Secretary
Oak Hall Capital Advisors, Inc.
The description of Oak Hall Capital Advisors, Inc. under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Oak Hall Equity Fund, constituting part
of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of, Oak
Hall Capital Advisors, Inc. 122 East 42nd Street, New York, New York
10168, including their business connections which are of a substantial
nature.
Alexander G. Anagnos, Director and Portfolio Manager.
72
<PAGE>
Consultant to American Services Corporation and Financial Advisor to
WR Family Associates.
Lewis G. Cole, Director.
Partner, the Law Firm of Strook, Strook & Lavan.
John C. Hathaway, President, director and Portfolio Manager.
John J. Hock, Executive Vice President.
Charles D. Klein, Portfolio Manager.
Director, American Securities Corporation and Financial Advisor to WR
Family Associates.
David P. Steinmann, Executive Vice President, Secretary and Treasurer.
Administrator WR Family Associates and Secretary and Treasurer of
American Securities Corporation.
Carl Domino Associates, L.P.
The description of Carl Domino Associates, L.P. under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Quadra Value Equity Fund, constituting
part of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of, Carl
Domino Associates, L.P., 580 Village Blvd., West Palm Beach, FL 33409
including their business connections which are of a substantial nature.
Carl J. Domino, Managing Partner & Portfolio Manager.
Paul Scoville, Jr., Senior Portfolio Manager.
Ann Fritts Syring, Senior Portfolio Manager.
John Wagstaff-Callahan, Senior Portfolio Manager.
Prior to joining Carl Domino Associates, L.P., Mr. Wagstaff-Callahan
was a Trustee with Batterymarch Financial Management, Boston,
Massachusetts.
Stephen Krider Kent, Jr., Senior Portfolio Manager.
Prior to joining Carl Domino Associates, L.P., Mr. Kent was a Senior
Portfolio Manager with Gamble, Jones Holbrook & Bent, Carlsbad,
California.
Anhalt/O'Connell, Inc.
The description of Anhalt/O'Connell, Inc. under the caption "Management -
Advisor" in the Prospectus and Statement of Additional Information with
respect to the Quadra Limited Maturity Treasury Fund, constituting part
of Parts A and B, respectively, of this Registration Statement are
incorporated by reference herein.
The following are the directors and principal executive officers of,
Anhalt/O'Connell, Inc., 345 South Figueroa Street, Suite 303, Los
Angeles, CA, including their business connections which are of a
substantial nature.
73
<PAGE>
Paul Edward Anhalt, Managing Director and Chairman.
Mr. Anhalt is also a partner of Anhalt/O'Connell, a partnership, and
was formerly Managing Director and Consulting Economist of Trust
Company of the West.
Michael Frederick O'Connell, Managing Director
Mr. O'Connell is also a partner of Anhalt/O'Connell, a partnership,
and was formerly Managing Director of Trust Company of the West and
Vice President of Institutional Research Services, Inc., a registered
broker-dealer.
LM Capital Management, Inc.
The description of LM Capital Management, Inc., under the caption
"Management - Advisor" in the Prospectus and Statement of Additional
Information with respect to the Quadra Opportunistic Bond Fund,
constituting part of Parts A and B, respectively, of this Registration
Statement are incorporated by reference herein.
The following are the directors and principal executive officers of, LM
Capital Management, Inc., including their business connections which are
of a substantial nature.
Luis Malzel, Managing Director.
John Chalker, Managing Director
McDonald Investment Management, Inc.
The description of McDonald Investment Management, Inc., under the
caption "Management - Advisor" in the Prospectus and Statement of
Additional Information with respect to the Quadra International Equity
Fund, constituting part of Parts A and B, respectively, of this
Registration Statement are incorporated by reference herein.
The following are the directors and principal executive officers of
McDonald Investment Management, Inc., including their business
connections which are of a substantial nature.
John McDonald, President and Chief Investment Officer.
Ron Belcot, Vice President - Research and Trading.
Bill Hallman, Vice President.
Ray DiBernardo, Vice President., Managing Director
Mr. DiBernardo was formerly a portfolio manager with Royal Trust.
Smith Asset Management Group, L.P.
The description of Smith Asset Management Group, L.P., under the caption
"Management - Investment Advisory Services" in the Prospectus and
Statement of Additional Information with respect to the Quadra Growth
Fund, constituting part of Parts A and B, respectively, of this
Registration Statement are incorporated by reference herein.
The following are the directors and principal executive officers of Smith
Asset Management Group, L.P., including their business connections which
are of a substantial nature.
74
<PAGE>
Mr. Stephen Smith, Chief Investment Officer
Norwest Investment Management, Inc.
The description of Norwest Investment Management, Inc. ("NIM"), under
the caption "Management Investment Advisers and Portfolio Managers" in
the Prospectus for Equity Index Fund and "Management --Adviser" or
"Management - Investment Advisers and Portfolio Managers" in the
Statement of Additional Information constituting Parts A and B,
respectively, of this Registration Statement are incorporated by
reference herein.
The following are the directors and principal executive officers of
NIM, including their business connections which are of a substantial
nature. The address of Norwest Corporation, the parent of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), which is the parent of NIM, is
Norwest Center, Sixth Street and Marquette Avenue, Minneapolis, MN
55479. Unless otherwise indicated below, the principal business address
of any company with which the directors and principal executive
officers are connected is also Sixth Street and Marquette Avenue,
Minneapolis, MN 55479.
P. Jay Kiedrowski, Chairman, Chief Executive Officer and President, has
been affiliated with NIM since 1989. Mr. Kiedrowski is also Executive
Vice President of Norwest Bank Minnesota, N.A., and has served in
various capacities as an employee of Norwest Bank Minnesota, N.A.
and/or its affiliates since August, 1987.
James W. Paulsen, Chief Investment Officer, has served in this capacity
since January, 1997.
Stephen P. Gianoli, Senior Vice President and Chief Executive Officer
has been affiliated with NIM in various capacities since 1986.
David S. Lunt, Vice President and Senior Portfolio Manager has been
affiliated with NIM since 1997.
Richard C. Villars, Vice President and Senior Portfolio Manager has
been affiliated with NIM since 1997.
Lee K. Chase, Vice President, has been affiliated with NIM since 1997.
Andrew Owen, Vice President, has been affiliated with NIM since 1997.
Eileen A. Kuhry, Investment Compliance Specialist, has been affiliated
with NIM since 2997.
Schroder Capital Management International Inc.
The description of Schroder Capital Management International Inc.
("Schroder") under the caption "Management - Investment Advisers and
Portfolio Managers." in the Prospectus for International Equity Fund
and Emerging Markets Fund and "Management - Investment Advisers and
Portfolio Managers" in the Statement of Additional Information relating
to those funds, constituting certain of Parts A and B, respectively, of
the Registration Statement, are incorporated by reference herein.
The following are the directors and principal officers of Schroder,
including their business connections of a substantial nature. The
address of each company listed, unless otherwise noted, is 33 Gutter
Lane, London EC2V 8AS, United Kingdom. Schroder Capital Management
International Limited ("Schroder Ltd.") is a United Kingdom affiliate
of Schroder which provides investment management services international
clients located principally in the United States.
David M. Salisbury. Chief Executive Officer, Director and Chairman of
SCMI; Joint Chief Executive and Director of Schroder Ltd.
75
<PAGE>
Richard R. Foulkes. Deputy Chairman/Executive Vice President of SCMI.
Mr. Foulkes is also a Director of Schroder Ltd.
John A. Troiano. Chief Executive and Director of SCMI. Mr. Troiano is
also a Director of Schroder Ltd.
David Gibson. Senior Vice President and Director of SCMI. Director of
Schroder Capital Management and Senior Vice President of Schroder Ltd.
John S. Ager. Senior Vice President and Director of SCMI. Mr. Ager is
also a Director of Schroder Ltd.
Sharon L. Haugh. Executive Vice President and Director of SCMI,
Director and Chairman of Schroder Advisors Inc., and Director of
Schroder Ltd.
Gavin D.L. Ralston. Senior Vice President and Managing Director of
SCMI; Director of Schroder Ltd.
Mark J. Smith. Senior Vice President and Director of SCMI. Mr. Smith
is also Director of Schroder Ltd.
Robert G. Davy. Senior Vice President. Mr. Davy is also a Director of
Schroder Ltd. and an officer of open end investment companies for
which SCMI and/or its affiliates provide investment services.
Jane P. Lucas. Senior Vice President and Director of SCMI; Director of
Schroder Advisors Inc.; Director of Schroder Capital Management.
C. John Govett. Director of SCMI; Group Managing Director of Schroder
Ltd. And Director of Schroders plc.
Phillipa J. Gould. Senior Vice President and Director of SCMI.
Louise Croset. First Vice President and Director of SCMI, also First
Vice President of Schroder Ltd.
Abdallah Nauphal, Group Vice President and Director of SCMI.
Polaris Capital Management, Inc.
The description of Polaris Capital Management, Inc. ("Polaris") under
the caption "Management Investment Adviser and Portfolio Manager." in
the Prospectus for Polaris Global Value Fund and "Management -
Investment Adviser and Portfolio Manager" in the Statement of
Additional Information relating to that fund, constituting certain of
Parts A and B, respectively, of the Registration Statement, are
incorporated by reference herein.
The following are the directors and principal officers of Polaris,
including their business connections of a substantial nature. The
address of the company is 125 Summer Street, Boston, Massachusetts
02110.
Bernard R. Horn, Jr. President and portfolio manager of Polaris
Capital Management, Inc.
ITEM 29. PRINCIPAL UNDERWRITER.
(a) Forum Financial Services, Inc., Registrant's underwriter,
serves as underwriter to Core Trust (Delaware), The CRM Funds,
The Cutler Trust, The Highland Family of Funds, Monarch Funds,
Norwest Funds, Norwest Select Funds and Sound Shore Fund, Inc.
76
<PAGE>
(b) John Y. Keffer, President of Forum Financial Services, Inc.,
is the Chairman and President of the Registrant. Sara M.
Morris is the Treasurer of Forum Financial Services. David I.
Goldstein, Secretary of Forum Financial Services, Inc., is the
Secretary of the Registrant. Margaret J. Fenderson is the
Assistant Treasurer of Forum Financial Services, Inc. and Dana
Lukens is the Assistant Secretary of Forum Financial Services,
Inc. Their business address is Two Portland Square, Portland,
Maine 04101.
(c) Not Applicable.
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained at the offices of Forum Administrative Services, LLC
and Forum Financial Corp., Two Portland Square, Portland, Maine 04101. The
records required to be maintained under Rule 31a-1(b)(1) with respect to
journals of receipts and deliveries of securities and receipts and disbursements
of cash are maintained at the offices of the Registrant's custodian, The First
National Bank of Boston, 100 Federal Street, Boston, Massachusetts 02106. The
records required to be maintained under Rule 31a-1(b)(5), (6) and (9) are
maintained at the offices of the Registrant's adviser or subadviser, as listed
in Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(i) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the latter of the effective date of Registrant's Securities
Act of 1933 Registration Statement relating to the prospectus offering
the shares or the commencement of public shares of the shares of
Polaris Global Value Fund; and,
(i) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
77
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Portland, and State of Maine on the 18th day of
Febuary, 1998.
FORUM FUNDS
By: /s/ David I. Goldstein
----------------------------
David I. Goldstein, Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registrant's Registration Statement has been signed below by the following
persons on the 18th day of February, 1998.
SIGNATURES TITLE
(a) Principal Executive Officer
John Y. Keffer President and
Chairman
By: /s/ David I. Goldstein
-------------------------
David I. Goldstein
Attorney in Fact*
(b) Principal Financial and Accounting Officer
/s/ Mark D. Kaplan Assistant Treasurer
----------------------------
Mark D. Kaplan
(c) The Trustees
John Y. Keffer* Trustee
James C. Cheng* Trustee
J. Michael Parish* Trustee
Costas Azariadis* Trustee
By: /s/ David I. Goldstein
----------------------------
David I. Goldstein
Attorney in Fact*
78
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John Y. Keffer constitutes and
appoints David I. Goldstein, Anthony C. J. Nuland, Catherine S. Wooledge, and
each of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement on Form N-1A and any
or all amendments thereto of Forum Funds, and to file the same with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
/s/ John Y. Keffer
------------------------
John Y. Keffer
Dated: February 18, 1998