As filed with the Securities and Exchange Commission on September 30, 1998
File Nos. 2-67052 and 811-3023
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 65
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 67
FORUM FUNDS
(Formerly "Forum Funds, Inc.")
Two Portland Square
Portland, Maine 04101
(207) 879-1900
Leslie K. Klenk, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
Copies to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on ______ pursuant to Rule 485, paragraph (b)
[ ] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on ______ pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on ______ pursuant to Rule 485, paragraph (a)(2)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being registered: Shares of Investors Equity Fund, Equity
Index Fund, Small Company Opportunities Fund, International Equity Fund and
Emerging Markets Fund. The series being registered are structured as
master-feeder funds and this amendment is also executed by Core Trust
(Delaware).
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(Prospectus offering shares of Investors Equity Fund, Equity Index Fund,
Small Company Opportunities Fund, International Equity Fund and
Emerging Markets Fund)
PART A
<TABLE>
<S><C> <C> <C>
FORM N-1A ITEM NO.
- ------------------- LOCATION IN PROSPECTUS
----------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Prospectus Summary; Investment Objectives and
Policies; Additional Investment Policies; Other
Information - The Trust and Its Shares; Other Information -
Core and Gateway Structure
Item 5. Management of the Fund Prospectus Summary; Management
Item 5A. Management's Discussion of Fund Performance Not Applicable
Item 6. Capital Stock and Other Securities Prospectus Summary; Investment Objectives and
Policies; Additional Investment Policies;
Distributions and Tax Matters;
Purchases and Redemptions of Shares; Other
Information - The Trust and its Shares; Other
Information - Core and Gateway Structure
Item 7. Purchase of Securities Being Offered Purchases and Redemptions of Shares; Other
Information - Determination of Net Asset Value
Item 8. Redemption or Repurchase Purchases and Redemptions of Shares
Item 9. Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(All other Prospectuses)
PART A
Not Applicable to this Filing
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
(SAI offering shares of Investors Equity Fund, Equity Index Fund, Small Company
Opportunities Fund, International Equity Fund and Emerging Markets Fund)
PART B
<TABLE>
<S> <C> <C>
FORM N-1A ITEM NO.
- ------------------ LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History General
Item 13. Investment Objectives and Other Policies Investment Policies; Additional Investment
Policies
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Holders of General
Securities
Item 16. Investment Advisory and Other Services Management; Other Information - Counsel,
Custodian, Independent Acountants
Item 17. Brokerage Allocation and Other Practices Portfolio Transactions
Item 18. Capital Stock and Other Securities General
Item 19. Purchase, Redemption and Pricing of Determination of Net Asset Value; Additional
Securities Being Offered Purchase and Redemption Information
Item 20. Tax Status Tax Matters
Item 21. Underwriters Management - The Distributor
Item 22. Calculation of Performance Data Performance Data
Item 23. Financial Statements Other Information - Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
(All other SAIs)
PART B
Not Applicable to this Filing
<PAGE>
FORUM FUNDS
FORUM FUNDS
EQUITY INDEX FUND
INVESTORS EQUITY FUND
SMALL COMPANY OPPORTUNITIES FUND
INTERNATIONAL EQUITY FUND
EMERGING MARKETS FUND
PROSPECTUS
October 1, 1998
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
- --------------------------------------------------------------------------------
This Prospectus offers shares of Equity Index Fund, Investors Equity Fund, Small
Company Opportunities Fund, International Equity Fund and Emerging Markets Fund
(each, a "Fund" and collectively, the "Funds"), separately-managed portfolios of
Forum Funds (the "Trust"), a registered, open-end, management investment
company. Each of Equity Index Fund, International Equity Fund and Emerging
Markets Fund seeks to achieve its investment objective by investing all of its
investable assets in a separate portfolio of another registered, open-end,
management investment company with the same investment objective. Accordingly,
each of these Fund's investment experience will correspond directly with the
portfolio's investment experience. See "Other Information - Core and Gateway(R)
Structure." Small Company Opportunities Fund seeks to achieve its investment
objective by investing in various portfolios of other registered,open-end,
management investment companies, each of which invests using a different small
company investment style. See "Other Information -- Core and Gateway(R)
Structure." Investors Equity Fund seeks to achieve its investment objective by
investing directly in portfolio securities.
EQUITY INDEX FUND seeks to duplicate the return of the Standard & Poor's
500 Composite Stock Index (the "S & P 500 Index") with minimum tracking
error, while also minimizing transaction costs. Under normal circumstances,
the portfolio will hold stocks representing 100% or more of the
capitalization-weighted market values of the S & P 500 Index.
INVESTORS EQUITY FUND seeks to provide capital appreciation by investing
primarily in a portfolio of common stock of companies domiciled in the
United States. The Fund intends to maintain a portfolio that is broadly
diversified across investment sectors.
SMALL COMPANY OPPORTUNITIES FUND seeks to provide long-term capital
appreciation while moderating annual return volatility by diversifying its
investments across different small capitalization equity investment styles.
INTERNATIONAL EQUITY FUND seeks to provide shareholders with long-term
capital appreciation by investing directly or indirectly in high quality
companies based outside the United States. Investments in foreign
securities involve special risks in addition to the risks associated with
investments in general.
EMERGING MARKETS FUND seeks to achieve long-term capital appreciation
through investment in equity securities of issuers domiciled or doing
business in emerging market countries in regions such as Southeast Asia,
Latin America, and Eastern and Southern Europe. It is designed for
investors who seek the aggressive growth potential of emerging world
markets and are willing to bear the special risks of investing in those
markets.
There can be no assurance that any Fund's objective will be achieved. Shares of
the Funds are offered to investors at a price equal to the next determined net
asset value plus a maximum sales charge of 4.0% of the total public offering
price (4.17% of the amount invested).
This Prospectus sets forth concisely the information a prospective investor
should know before investing in a Fund. The Trust has filed with the Securities
and Exchange Commission ("SEC") a Statement of Additional Information dated
October 1, 1998, as may be amended from time to time (the "SAI"), which contains
more detailed information about the Trust and the Funds and is available along
with other related materials for reference on the SEC's Internet
<PAGE>
Web Site (http://www.sec.gov). The SAI, which is incorporated by reference into
this Prospectus, is also available without charge by contacting Forum
Shareholder Services, LLC, the Funds' transfer agent, at the address and
telephone numbers printed above.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C>
Page Page
---- ----
1. Prospectus Summary 2 5. Risk Considerations 19
2. Financial Highlights 7 6. Management 24
3. Investment Objectives and Policies 8 7. Purchases and Redemptions of Shares 29
4. Additional Investment Policies 15 8. Distributions and Tax Matters 36
9. Other Information 38
Account Application
</TABLE>
FUND SHARES ARE NOT OBLIGATIONS, DEPOSITS, OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK OR ANY AFFILIATE OF A BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE SYSTEM, OR ANY
FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
1. PROSPECTUS SUMMARY
HIGHLIGHTS OF THE FUNDS
THE FUNDS
Each Fund's objective is described on the cover page. Investors Equity Fund
invests directly in portfolio securities. Each of Equity Index Fund,
International Equity Fund and Emerging Markets Fund seeks to achieve its
investment objective by investing all of its investable assets in a separate
series of another registered, open-end, management investment company (each a
"Portfolio"). Accordingly, the investment experience of each of these Funds will
correspond directly with the investment experience of its corresponding
Portfolio. See "Other Information - Core and Gateway(R) Structure." The
Portfolios in which the Funds invest are:
FUND PORTFOLIO
---- ---------
Equity Index Fund Index Portfolio
International Equity Fund International Portfolio
Emerging Markets Fund Schroder EM Core Portfolio
Index Portfolio and International Portfolio are series of Core Trust (Delaware)
("Core Trust"), and Schroder EM Core Portfolio is a series of Schroder Capital
Funds ("Schroder Core").
Small Company Opportunities Fund seeks to achieve its investment objective by
investing in various Portfolios of other registered, open-end, management
investment companies. Each Portfolio in which the Fund invests uses a different
investment style. See "Other Information -- Core and Gateway(R) Structure." The
Portfolios in which Small Company Opportunities Fund currently invests are:
Small Cap Index Portfolio, Small Company Stock Portfolio, Small Company Value
Portfolio, and Small Cap Value Portfolio, each a separate series of Core Trust.
The percentage of the Fund's assets invested in each Portfolio may be changed at
any time by the Fund's investment adviser in response to market or other
conditions. Allocations are made within specified ranges.
INVESTMENT ADVISERS
INVESTORS EQUITY FUND. H.M. Payson & Co. ("Payson") serves as the Fund's
investment adviser and Peoples Heritage Bank ("Peoples") serves as the
investment subadviser. Peoples is a subsidiary of Peoples Heritage Financial
Group, a multi-bank and financial services holding company.
EQUITY INDEX FUND. Norwest Investment Management, Inc. ("Norwest") serves
as Index Portfolio's investment adviser. Norwest is an indirect subsidiary of
Norwest Bank Minnesota, N.A. ("Norwest Bank"), a multi-bank holding company.
SMALL COMPANY OPPORTUNITIES FUND. Forum Investment Advisors, LLC ("Forum
Advisors") serves as the Fund's investment adviser. Following are the investment
advisers and investment subadvisers of the Portfolios in which the Fund may
invests:
NORWEST serves as investment adviser to Small Cap Index
Portfolio, Small Company Stock Portfolio, Small Company
Value Portfolio and Small Cap Value Portfolio.
CRESTONE CAPITAL MANAGEMENT, INC. ("Crestone"), an indirect
investment advisory subsidiary of Norwest Bank, serves as
investment subadviser to Small Company Stock Portfolio.
PEREGRINE CAPITAL MANAGEMENT, INC. ("Peregrine"), an
indirect investment advisory subsidiary of Norwest Bank,
serves as investment subadviser to Small Company Value
Portfolio.
SMITH ASSET MANAGEMENT GROUP, L.P. ("Smith"), an investment
advisory affiliate of Norwest Bank, serves as investment
subadviser to Small Cap Value Portfolio.
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS FUND.
Schroder Capital Management International Inc. ("SCMI")
serves as International Portfolio's and Schroder EM Core
2
<PAGE>
Portfolio's investment adviser. SCMI is a wholly owned U.S.
subsidiary of Schroders Incorporated, the wholly owned U.S.
subsidiary of Schroders plc, a publicly owned company
organized under the laws of England.
Each investment adviser to a Fund or Portfolio may be referred to as an
"Adviser." For a description of each Adviser and its fees, see "Management -
Investment Advisers." The investment advisory fees paid by a Portfolio are borne
indirectly by the Fund (and its shareholders) investing in that Portfolio.
MANAGEMENT
The administrator of the Funds is Forum Administrative Services, LLC
("FAdS") and the distributor of their shares is Forum Financial Services, Inc.
("FFSI"). Forum Shareholder Services, LLC ("FSS") serves as the Funds' transfer
agent, dividend disbursing agent and shareholder servicing agent while Forum
Accounting Services, LLC ("FAcS") provides portfolio accounting services for the
Funds. See "Management." Each of these companies are located at Two Portland
Square, Portland, Maine 04101.
PURCHASES AND REDEMPTIONS
Shares of each Fund are offered at the next-determined net asset value
per share plus any applicable sales charge. Shares may be purchased or redeemed
by mail, by bank-wire and through an investor's broker-dealer or other financial
institution. The minimum initial investment is $2,000, ($1,000 for an Individual
Retirement Account) and the minimum subsequent investment is $250. Shares may be
redeemed without charge. See "Purchases and Redemptions of Shares."
Shares of the Funds are not offered for sale in every state. To determine
whether a Fund is available for purchase in a particular state, contact FSS at
the numbers listed on the first page of this Prospectus.
EXCHANGE PROGRAM
Shareholders may exchange their shares without charge for the shares of
certain funds of the Trust. See "Purchases and Redemptions of Shares --
Exchanges."
DISTRIBUTIONS
Distributions of net investment income are declared and paid annually.
Distributions of any net capital gain are made annually. With respect to each
Fund, distributions are reinvested automatically in additional shares of the
Fund at net asset value unless the shareholder has notified the Fund in writing
of the shareholder's election to receive distributions in cash. See
"Distributions and Tax Matters."
CERTAIN INVESTMENT CONSIDERATIONS AND RISK FACTORS
There can be no assurance that a Fund will achieve its investment
objective; a Fund's net asset value and total return will fluctuate based upon
changes in the value of the securities in which it or its corresponding
Portfolio invests. No single Fund is a complete investment program. See
"Investment Objectives and Policies" and "Risk Considerations."
The policies of Equity Index Fund, Investors Equity Fund and Small
Company Opportunities Fund of investing in equity securities of U.S. issuers
involve equity market risks that are related to such securities. Equity market
risk is the risk that common stock prices will fluctuate or decline over short
or even extended periods.
The policies of International Equity Fund and Emerging Markets Fund of
investing in the securities of foreign issuers may involve risks in addition to
those normally associated with investments in the securities of U.S. issuers,
including risks of foreign political and economic instability, adverse movements
in exchange rates, and the imposition or tightening of limitations on the
repatriation of capital. These risks are more pronounced for Emerging Markets
Fund. International Equity
3
<PAGE>
Fund and Emerging Markets Fund are designed for the investment of that portion
of an investor's funds that can appropriately bear the special risks associated
with an investment in foreign and/or emerging market securities. See "Risk
Considerations."
The policy of investing in securities of smaller companies employed by
Small Company Opportunities Fund entails certain risks in addition to those
normally associated with investments in equity securities. These risks include
lower trading volumes and, therefore, the potential for greater stock price
volatility. For a description of investment considerations and risks involved in
investing in small company securities, see "Risk Considerations." Small Company
Opportunities Fund is designed for the investment of that portion of an
investor's funds that can appropriately bear the special risks associated with
an investment in smaller market capitalization companies.
By pooling their assets in one or more Portfolios with other
institutional investors, Equity Index Fund, Small Company Opportunities Fund,
International Equity Fund and Emerging Markets Fund may achieve certain
efficiencies and economies of scale. Nonetheless, this investment also could
have potential adverse effects on these Funds. These risks are described under
"Other Information - Core and Gateway(R) Structure."
4
<PAGE>
EXPENSES OF INVESTING IN THE FUNDS
The purpose of the following table is to assist investors in
understanding the expenses that an investor in shares of the Funds will bear
directly or indirectly.
<TABLE>
<S> <C> <C> <C> <C> <C>
Equity Investors Small Company International Emerging
Index Equity Opportunities Equity Markets
Fund Fund Fund Fund Fund
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge imposed
on purchases(1) (as a percentage
of public offering price) 4.0% 4.0% 4.0% 4.0% 4.0%
Exchange Fee None None None None None
ANNUAL FUND OPERATING
EXPENSES(2)
(as a percentage of average
net assets)
Management Fees
(after fee waivers)(3) 0.15% 0.20% 0.79% 0.44% 0.09%
12b-1 Fees.................. None None None None None
Other Expenses
(after fee waivers and
expense reimbursements)(4)......... 0.10% 0.90% 0.94% 0.93% 1.62%
----- ----- ----- ----- -
Total Fund Operating
Expenses(4)................ 0.25% 1.10% 1.73% 1.37% 1.71%
</TABLE>
(1) Certain shareholders may be eligible for reduced sales charges. See
"Purchases and Redemptions of Shares - Reduced Sales Charges."
(2) For a further description of the various expenses incurred in the
operation of the Funds, see "Management." Expense reimbursements and fee waivers
are voluntary and may be reduced or eliminated at any time. The amount of fees
and expenses for each Fund is based on annualized expenses for the Fund's fiscal
year ending May 31, 1998.
For each Fund that invests its assets in one or more separate series of another
registered, open-end, management investment company (a "Portfolio"), the Fund's
expenses include its pro rate portion of all expenses of its corresponding
Portfolio(s), which are borne indirectly by the Fund's shareholders.
(3) Absent fee waivers, Management Fees for Equity Index Fund, Investors
Equity Fund, Small Company Opportunities Fund, International Equity Fund and
Emerging Markets Fund would be 0.15%, 0.65%, 1.04%, 0.45%, 1.00%, respectively.
Management Fees are the investment advisory fees of a Fund and/or of the
Portfolio or Portfolios in which the Fund invests.
(4) Absent expense reimbursements and fee waivers, Other Expenses and Total
Fund Operating Expenses would be 2.16% and 2.31%, respectively, for Equity Index
Fund, 1.44% and 2.09%, respectively, for Investors Equity Fund, 1835.38% and
1836.42%, respectively, for Small Company Opportunities Fund, 674.96% and
675.41%, respectively, for International Equity Fund, and 601.87% and 602.87%,
respectively for Emerging Markets Fund.
5
<PAGE>
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in each Fund would pay assuming: (1) a $1,000
investment in the Fund; (2) a 5% annual return; (3) the reinvestment of all
distributions; (4) the payment of the maximum initial sales charge and (5) full
redemption at the end of each period:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Equity Index Fund $42 $48 $53 $70
Investors Equity Fund $51 $74 $98 $169
Small Company Opportunities Fund $57 $92 $130 $235
International Equity Fund $53 $81 $112 $197
Emerging Markets Fund $57 $91 $129 $233
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
OR RETURNS. ACTUAL EXPENSES OR RETURNS MAY BE MORE OR LESS THAN INDICATED. The
example is based on the expenses listed in the table which assumes the continued
waiver and/or reimbursement of certain fees and expenses. The 5% annual return
is not a prediction of the Funds' projected return; rather it is required by
government regulation.
6
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Funds. The information has been audited in connection with an
audit of the Funds' financial statements by Deloitte & Touche LLP, independent
auditors. The financial statements and independent auditors' report thereon are
incorporated by reference into the SAI. Further information about the Funds'
performance is contained in the Funds' annual report to shareholders, which may
be obtained from the Trust, without charge, by contacting FSS.
<TABLE>
<S> <C> <C> <C> <C> <C>
SMALL COMPANY
INVESTORS EQUITY INDEX OPPORTUNITIES INTERNATIONAL EMERGING MARKETS
EQUITY FUND (A) FUND (A)_ FUND (A) EQUITY FUND(A) FUND (A)
--------------- --------------- --------------- -------------- -----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED MAY
MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 31, 1998
--------------- --------------- --------------- -------------- -----------------
--------------- --------------- --------------- -------------- -----------------
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00 $10.00
--------------- --------------- --------------- -------------- -----------------
Investment Operations:
Net Investment Income (Loss) 0.00 0.07 (0.01) 0.04 0.04
Net Realized and Unrealized Gain
(Loss) on Investments 1.43 1.62 (0.29) 1.98 (0.76)
--------------- --------------- --------------- -------------- -----------------
Total from Investment Operations 1.43 1.69 (0.30) 2.02 (0.72)
Net Asset Value, End of Period $11.43 $11.69 $9.70 $12.02 $9.28
=============== =============== =============== ============== =================
Total Return(b) 14.30%(c) 16.90%(c) (3.00%)(c) 20.20%(c) (7.20%)(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's $30,090 $5,038 $5 $9 $7
omitted)
Ratios to Average Net Assets:
Expenses Including 1.10% 0.25% 1.87% 1.36% 1.69%
Reimbursement/Waiver(d)
Expenses Excluding 2.09% 2.25%% 1,836.34% 675.46% 602.84%
Reimbursement/Waiver(d)
Net Investment Income (Loss) Including
Reimbursement/Waiver(d) 0.09% 1.41% (0.93%) 0.98% 1.05%
Average Commission Rate(e) $0.0549 $0.0339(f) N/A(g) $0.0194(f) $0.0039 (f)
Portfolio Turnover Rate 11.35% $6.68%(f) N/A(g) 36.96%(f) 20.09%(f)
</TABLE>
(a) Investors Equity Fund and Small Company Opportunities Fund commenced
operations on December 17, 1997 and March 31, 1998, respectively. Equity Index
Fund, International Equity Fund, and Emerging Markets Fund commenced operations
on December 24, 1997.
(b) Total return calculations do not include sales charge.
(c) Not annualized.
(d) Annualized.
(e) Amount represents the average commission per share paid to brokers on the
purchase of sale of equity securities.
(f) Information presented is that of the Portfolio in which the Fund invests.
(g) The average commission rates for Small Company Value Portfolio, Small Cap
Index Portfolio and Small Cap Value Portfolio were $0.0522, $0.0199 and $0.0556,
respectfully.
(h) The turnover rates for Small Company Value Portfolio, Small Cap Index
Portfolio and Small Cap Value Portfolio were 99.08%, 2.25% and 79.43%,
respectively.
7
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
To achieve their investment objectives, the Funds invest primarily in
common stocks and other equity securities. The domestic securities in which a
Fund invests are generally listed on a securities exchange or included in the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System but may be traded in the over-the-counter securities
market. Each Fund, other than Equity Index Fund, may invest in foreign issuers.
These investments may involve certain risks. See "Risk Considerations - Foreign
Investments."
There can be no assurance that a Fund or Portfolio will achieve its
investment objective; a Fund's net asset value and total return will fluctuate
based upon changes in the value of the securities in which it or its
corresponding Portfolio invests. No single Fund is a complete investment
program.
The investment policies of Equity Index Fund, Small Company
Opportunities Fund, International Equity Fund and Emerging Markets Fund mirror
those of the Portfolios in which they invest and the responsibilities of Core
Trust's Board of Trustees (the "Core Trust Board") or Schroder Core's Board of
Trustees (the "Schroder Core Board"), as applicable, apply equally to the Funds
and the Trust's Board of Trustees (the "Board"). Additional information
concerning the investment policies of the Funds and the Portfolios, including
additional fundamental policies, is contained in the SAI.
EQUITY INDEX FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIO
The investment objective of Equity Index Fund is to duplicate the return of
the S&P 500 Index.
The Fund currently seeks to achieve its investment objective by investing
all of its investable assets in Index Portfolio (the "Portfolio"), which has
substantially the same investment objective and substantially similar policies
as the Fund.
INVESTMENT POLICIES
The Fund duplicates the return of the S&P 500 Index with minimum tracking
error and to minimize transaction costs. Under normal circumstances, the Fund
holds stocks representing 100% or more of the capitalization-weighted market
values of the S&P 500 Index. Portfolio transactions for the Fund generally are
executed only to duplicate the composition of the S&P 500 Index, to invest cash
received from portfolio security dividends or investments in the Fund, and to
raise cash to fund redemptions. The Fund may hold cash or cash equivalents to
facilitate payment of the Fund's expenses or redemptions and may invest in index
futures contracts. For these and other reasons, the Fund's performance can be
expected to approximate but not be equal to that of the S&P 500 Index.
The Fund may utilize index futures contracts to a limited extent. Index
futures contracts are bilateral agreements pursuant to which two parties agree
to take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the index value at the close of trading of the
contract and the price at which the futures contract is originally struck. As no
physical delivery of securities comprising the S&P 500 Index is made, a
purchaser of index futures contracts may participate in the performance of the
securities contained in the S&P 500 Index without the required capital
commitment. Index futures contracts may be used for several reasons: to simulate
full investment in the underlying index while retaining a cash balance for fund
management purposes, to facilitate trading or to reduce transaction costs. The
Fund does not invest in futures contracts for speculative reasons or to leverage
the Fund. The Fund, however, subject to certain
8
<PAGE>
investment risks. These risks include: (1) imperfect correlations between
movements in the prices of futures contracts and movements in the price of the
securities hedged which may cause a given hedge not to achieve its objective;
(2) the fact that the skills and techniques needed to trade futures are
different from those needed to select the other securities in which the
Fund invests; (3) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder the Fund's ability to limit exposures by closing its
positions; and (4) the possible need to defer closing out of certain futures
contracts to avoid adverse tax consequences.
The S&P 500 Index tracks the total return performance of 500 common stocks
which are chosen for inclusion in the S&P 500 Index by Standard & Poor's, A
Division of The McGraw Hill Companies, ("S&P") on a statistical basis. The 500
securities, most of which trade on the New York Stock Exchange, represent
approximately 70% of the total market value of all U.S. common stocks. Each
stock in the S&P 500 Index is weighted by its market value. Because of the
market-value weighting, the 50 largest companies in the S&P 500 Index currently
account for approximately 47% of its value. The S&P 500 Index emphasizes large
capitalizations and, typically, companies included in the S&P 500 Index are the
largest and most dominant firms in their respective industries.
S&P does not sponsor, sell, promote or endorse the Fund or the Portfolio.
S&P does not warrant that the S&P 500 Index is a good investment, is accurate or
complete, or will track general stock market performance.
INVESTORS EQUITY FUND
INVESTMENT OBJECTIVE
The investment objective of Investors Equity Fund is to seek capital
appreciation by investing primarily in common stock of companies domiciled in
the United States.
Investment Policies
The Fund intends to invest in securities of established, growing
companies that have demonstrated a high degree of financial strength and
fiduciary quality, and provide good liquidity in the market. Under normal
circumstances, the Fund invests at least 65% of its assets in these companies,
without concentration in any one industry. In seeking these investments, the
Advisers rely, in part, upon fundamental and technical analysis of individual
companies. The Advisers consider companies which have, among other things, the
following characteristics: a strong record of earnings growth, industry
leadership, a unique product or niche and good management. The Advisers also
apply a broader analysis of industry conditions and economic trends. While the
Fund will be broadly diversified across investment sectors, the Advisers' top
down industry and economic analysis will influence the actual sector weightings.
The fundamental risk of investing in common stock is the risk that the
value of the stock might decrease. Stock values fluctuate in response to the
activities of an individual company or in response to general market and/or
economic conditions. Historically, common stocks have provided greater long-term
returns and have entailed greater short-term risks than preferred stocks,
fixed-income securities and money market investments. The market value of all
securities, including equity securities, is based upon the market's perception
of value and not necessarily the book value of an issuer or other objective
measures of a company's worth.
In addition to common stock, the Fund also may invest in preferred
stocks and investment-grade convertible debt securities. The Fund also may
invest in American Depositary Receipts, European Depositary Receipts and other
similar securities of foreign issuers. The Fund expects any foreign investments
to constitute less than 10% of its assets.
9
<PAGE>
SMALL COMPANY OPPORTUNITIES FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIOS
The investment objective of the Small Company Opportunities Fund is to
provide long term capital appreciation while moderating annual return volatility
by diversifying its investments across different small capitalization equity
investment styles. The Fund currently seeks to achieve its investment objective
by investing all of its investable assets in the Portfolios described below.
INVESTMENT POLICIES
The Fund follows a "multi-style" approach designed to minimize the
volatility and risk of investing in small capitalization equity securities. The
Fund invests in various different small capitalization equity styles. The Fund
uses different investment styles in order to reduce the risk of price and return
volatility associated with reliance on a single investment style.
SMALL COMPANY OPPORTUNITIES FUND ALLOCATION. Set forth below are the
ranges of investments by the Fund in each Portfolio and current allocation among
the Portfolios on or about the date of this Prospectus.
<TABLE>
<S> <C> <C>
CURRENT RANGE OF
ALLOCATION INVESTMENT
------------------ -------------------
SMALL CAP INDEX PORTFOLIO 30% 25% - 75%
Small Company style 70%
SMALL COMPANY STOCK PORTFOLIO 0% 0% - 75%
SMALL COMPANY VALUE PORTFOLIO 30% 0% - 75%
SMALL CAP VALUE PORTFOLIO 40% 0% - 75%
-------
TOTAL FUND ASSETS 100%
</TABLE>
As market values of a Portfolio's assets change, the percentage of Fund
assets that are invested in each Portfolio may temporarily deviate from the
current allocations. In response thereto, Forum Advisors monitors the portfolio
on a daily basis and affects transactions as necessary.
Consistent with the Fund's investment objective and policies and under the
general supervision of the Board, Forum Advisors may make changes in the
percentage allocations, within the prescribed ranges of investment, at any time
Forum Advisors deems appropriate, including in response to market and other
conditions. When Forum Advisors believes that a change in the allocation
percentages is desirable, it will redeem and purchase interests in the
Portfolios to effect the change. In addition, upon approval of the Board and
notification of shareholders, the Fund may invest in additional or fewer
Portfolios or invest directly in portfolio securities.
Following is a discussion of the investment objectives, policies and risks
of the Portfolios in which the Fund currently invests.
SMALL CAP INDEX PORTFOLIO. Small Cap Index Portfolio seeks to replicate the
return of the Standard & Poor's Small Cap 600 Composite Stock Price Index (the
"S&P Small Cap 600 Index") with minimum tracking error and to minimize
transaction costs. Under normal circumstances, the Portfolio will hold stocks
representing 100% of the capitalization-weighted market values of the S&P Small
Cap 600 Index. Portfolio transactions for the Portfolio generally are executed
only to duplicate the composition of the S&P Small Cap 600 Index, to invest cash
received from portfolio security dividends or investments in the Portfolio, and
to raise cash to fund redemptions. The Portfolio may hold cash or cash
equivalents for the purpose of facilitating payment of the Portfolio's expenses
or redemptions and may invest in index futures contracts. For these and other
reasons, the Portfolio's performance can be expected to approximate but not be
equal to that of the S&P Small Cap 600 Index.
Small Cap Index Portfolio may utilize index futures contracts to a
limited extent. Index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the index value at the
close of trading of the contract and the price at which the futures contract is
originally
10
<PAGE>
struck. As no physical delivery of securities comprising the Index is made, a
purchaser of index futures contracts may participate in the performance of the
securities contained in the index without the required capital commitment. Index
futures contracts may be used for several reasons: to simulate full investment
in the underlying index while retaining a cash balance for portfolio management
purposes; to facilitate trading; or to reduce transaction costs. The Portfolio
does not invest in futures contracts for speculative reasons or to leverage the
Portfolio. (See "Investment Objectives and Policies -- Equity Index Fund".)
The S&P Small Cap 600 Index tracks the total return performance of 600
common stocks which are chosen for inclusion in the S&P Small Cap 600 Index by
S&P on a statistical basis. The 600 securities, most of which trade on the New
York Stock Exchange, represent 4% of the total market value of all U.S. common
stocks. Each stock in the S&P Small Cap 600 Index is weighted by its market
value. The S&P Small Cap 600 Index emphasizes smaller capitalizations and
typically, companies included in the S&P Small Cap 600 Index may not be the
largest nor the most dominent firms in their respective industries.
S&P does not sponsor, sell, endorse, or promote the Portfolio. S&P does not
warrant that the S&P Small Cap 600 Index is a good investment, is accurate or
complete, or will track general stock market performance.
SMALL COMPANY STOCK PORTFOLIO. Small Company Stock Portfolio seeks
long-term capital appreciation by investing primarily in the common stock of
small- and medium-size domestic companies that have a market capitalization well
below that of the average company in the S&P 500 Index. The Adviser considers
small companies to be those companies whose market capitalization is less than
the largest stock in the Russell 2000 Index. The Adviser considers medium
companies to be those companies whose market capitalization is in the range of
$500 million to $8 billion.
In selecting securities for the Portfolio, the Adviser seeks securities
with significant price appreciation potential, and attempts to identify
companies that show above-average growth. The companies in which the Portfolio
invests may be in relatively early stages of development or may produce goods
and services that have favorable prospects for growth due to increasing demand
or developing markets. Frequently, these companies have a small management group
and single product or product line expertise, which, in the view of the Adviser,
may result in an enhanced entrepreneurial spirit and greater focus.The Adviser
believes that these companies may develop into significant business enterprises
and that an investment in these companies offer a greater opportunity for
capital appreciation than an investment in larger, more established companies.
The Portfolio may invest up to 20% of its assets in foreign companies. The
Fund may also write covered call options and purchase call options on equity
securities to manage risk or enhance returns.
SMALL COMPANY VALUE PORTFOLIO. Small Company Value Portfolio seeks to
provide long-term capital appreciation by investing primarily in smaller
companies whose market capitalization is less than the largest stock in the
Russell 2000 Index.
The Adviser focuses on securities that are conservatively valued in the
marketplace relative to the stock of comparable companies, determined by
price/earnings ratios, cash flows, or other measures. Value investing provides
investors with a less aggressive way to take advantage of growth opportunities
of small companies. Value investing may reduce downside risk while offering
potential for capital appreciation as a stock gains favor among other investors
and its stock price rises.
11
<PAGE>
SMALL CAP VALUE PORTFOLIO. Small Cap Value Portfolio seeks capital
appreciation by investing in common stocks of smaller companies. Normally, the
Portfolio will invest substantially all of its assets in securities of companies
with market capitalizations that reflects the market capitalization of companies
included in the Russell 2000 Index. The Portfolio seeks higher growth rates and
greater long-term returns by investing primarily in the common stock of smaller
companies that the Adviser believes to be undervalued and likely to report a
level of earnings exceeding that expected by investors. The Adviser values
companies based upon both the price-to-earnings ratio of the company and a
comparison of the public market value of the company to a proprietary model that
values the company in the private market. In seeking companies that will report
a level of earnings exceeding that expected by investors, the investment adviser
uses both quantitative and fundamental analysis. Among the factors that the
Advisers considers are changes of earnings estimates by investment analysts, the
recent trend of company earnings reports, and the fundamental business outlook
for the company.
INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIO
The investment objective of International Equity Fund (the "Fund") is
long-term capital appreciation by investing directly or indirectly in high
quality companies based outside the United States.
The Fund is designed for U.S. investors who seek international
diversification of their investments by participating in foreign securities
markets. Investments in the securities of foreign issuers generally involve
risks in addition to the risks associated with investments in the securities of
U.S. issuers. See "Risk Considerations - Foreign Investments."
The Fund currently seeks to achieve its investment objective by
investing all of its investment assets in International Portfolio (the
"Portfolio"), which has substantially the same investment objective and
substantially similar policies as the Fund.
INVESTMENT POLICIES
The Fund normally invests at least 65% of its total assets in equity
securities of companies domiciled outside the United States. Investments by the
Fund are selected on the basis of their potential for capital appreciation
without regard to current income. The Fund also may invest in the securities of
domestic closed-end investment companies investing primarily in foreign
securities and may invest in debt obligations of foreign governments or their
political subdivisions, agencies or instrumentalities, of supranational
organizations and of foreign corporations. The Fund's investments are generally
diversified among securities of issuers in foreign countries including, but not
limited to, Japan, Germany, the United Kingdom, France, The Netherlands, Hong
Kong, Singapore and Australia. In general, the Fund will invest only in
securities of companies and governments in countries that the Adviser, in its
judgment, considers both politically and economically stable. The Fund has no
limit on the amount of its assets that may be invested in any one type of
foreign instrument or in any foreign country.To the extent the Fund concentrates
its assets in a foreign country, it will incur greater risks. See "Risk
Considerations - Foreign Investments."
The Fund may purchase preferred stock and convertible debt securities,
including convertible preferred stock, and may purchase American Depository
Receipts, European Depository Receipts or other similar securities of foreign
issuers The Fund also may enter into foreign exchange contracts, including
forward contracts to purchase or sell foreign currencies, in anticipation of its
currency requirements and to protect against possible adverse movements in
foreign exchange rates.
12
<PAGE>
Although such contracts may reduce the risk of loss to the Fund from adverse
movements in currency values, the contracts also limit possible gains from
favorable movements. See "Additional Investment Policies - Foreign Exchange
Contracts."
EMERGING MARKETS FUND
INVESTMENT OBJECTIVE AND THE PORTFOLIO
The investment objective of Emerging Markets Fund (the "Fund") is to
seek long-term capital appreciation. It seeks to achieve this objective through
investment in equity securities of issuers domiciled or doing business in
emerging market countries in regions such as Southeast Asia, Latin America, and
Eastern and Southern Europe.
The Fund is designed for investors who seek the aggressive growth
potential of emerging world markets and are willing to bear the special risks of
investing in those markets. Investments in the securities of foreign issuers
generally involve risks in addition to the risks associated with investments in
the securities of U.S. issuers. See "Risk Considerations." The Fund is not
intended for investors whose objective is assured income or preservation of
capital.
The Fund seeks to achieve its investment objective by investing all of its
assets in Schroder EM Core Portfolio, which has substantially the same
investment objective and substantially similar policies as the Fund.
INVESTMENT POLICIES
Under normal market conditions, the Fund invests at least 65% of its total
assets in equity securities of issuers determined by the Adviser to be emerging
market issuers. Equity securities include common stocks; preferred stocks;
securities convertible into common and preferred stocks; and rights or warrants
to purchase any of the foregoing. Emerging market equity securities may also
include American Depositary Receipts, European Depositary Receipts, and other
similar instruments providing for indirect investment in securities of foreign
issuers. The Portfolio may also invest in securities of closed-end investment
companies that invest in turn primarily in foreign securities, including
emerging market issuers. See "Investment in Other Investment Companies or
Vehicles" below.Investments in stock rights and warrants will not be considered
for purposes of determining compliance with this policy.
The remainder of the Fund's assets may be invested in securities of issuers
located anywhere in the world. The Fund may invest up to 35% of its total assets
in debt securities, including lower-quality, high-yielding debt securities that
are unrated or rated below investment grade. See "Risk Considerations - Debt
Securities." The Portfolio may acquire emerging market securities that are not
denominated in emerging market currencies.. In recent years, many emerging
market countries have begun programs of economic reform: removing import
tariffs, dismantling trade barriers, deregulating foreign investment,
privatizing state-owned industries, permitting the value of their currencies to
float against the dollar and other major currencies, and generally reducing the
level of state intervention in industry and commerce. Important intra-regional
economic integration also holds the promise of greater trade and growth. At the
same time, significant progress has been made in restructuring the heavy
external debt burden that certain emerging market countries accumulated during
the 1970s and 1980s. While there is no assurance that these trends will
continue, the Fund's Adviser will seek out attractive investment opportunities
in these countries.
"Emerging market" countries are all those not included in the Morgan
Stanley Capital International World Index ("MSCI World") of major world
economies. The following economies currently are not considered to be emerging
markets by the Adviser: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Japan, The Netherlands,
13
<PAGE>
New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United
Kingdom, and the United States of America. The Adviser may at times determine
that the economy of a MSCI World-listed country is an emerging market economy
and include such country in the emerging market category. There is no limit on
the amount of the Fund's assets that may be invested in the securities of
issuers domiciled in any one country. See "Risk Considerations - Foreign
Investments - Geographic Concentration."
An issuer of a security will be considered to be domiciled or doing
business in an emerging market if the Adviser determines that (1) it is
organized under the laws of an emerging market country; (2) its primary
securities trading market is in an emerging market country; (3) at least 50% of
the issuer's revenues or profits are derived from goods produced or sold,
investments made, or services performed in emerging market countries; or (4) it
has at least 50% of its assets situated in emerging market countries. The
Portfolio may consider investment companies to be located in the country or
countries in which the Adviser determines that they focus their investments.
BRADY BONDS. The Fund may invest a portion of its assets in Brady Bonds,
which are securities created through the exchange of existing commercial bank
loans to sovereign entities for new obligations in connection with debt
restructuring (under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady). Brady Bonds have been issued only
recently and, therefore, do not have a long payment history. Brady Bonds may
have collateralized and uncollateralized components, are issued in various
currencies and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered U.S. Government Securities as that term is
defined in the Securities Exchnage Act of 1934. In light of the residual risk
associated with the uncollateralized portions of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds, investments in Brady
Bonds are considered speculative. Brady Bonds could be subject to restructuring
arrangements or to requests for new credit, which could cause the Fund to suffer
a loss of interest or principal on its holdings. For further information, see
"Brady Bonds" in the SAI.
INVESTMENTS IN OTHER INVESTMENT COMPANIES OR VEHICLES. The Fund is
permitted to invest in certain emerging markets through governmentally
authorized investment vehicles or companies. Pursuant to the 1940 Act, the Fund
may invest in the shares of other investment companies which invest in
securities that the Fund is permitted to purchase subject to the limits
permitted under the 1940 Act or any orders, rules or regulations thereunder.
When investing through investment companies, the Fund may pay substantial
premiums above such investment companies' net asset value per share. As a
shareholder in an investment company, the Fund would bear its ratable share of
the investment company's expenses, including its advisory and administrative
fees. At the same time, the Fund would continue to pay its own fees and
expenses.
NON-DIVERSIFIED INVESTMENTS. Because suitable investments in emerging
market countries may be limited, the Fund is classified as "non-diversified" so
that it may invest more than 5% of its total assets in the securities of a
single issuer. This classification may not be changed without a shareholder
vote. However, so that the Fund may continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, at the close of
each quarter of the taxable year: (1) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer;
and (2) with respect to 50% of the market value of its total assets, not more
than 5% will be invested in the securities of a single issuer; and the Fund will
not own more
14
<PAGE>
than 10% of the outstanding voting securities of a single issuer.
To the extent the Fund makes investments in excess of 5% of its assets in a
particular issuer, its exposure to credit and market risks associated with that
issuer is increased. Also, since a relatively high percentage of the Fund's
assets may be invested in the securities of a limited number of issuers, the
Fund may be more susceptible to any single economic, political or regulatory
occurrence than a diversified investment company.
4. ADDITIONAL INVESTMENT POLICIES
The investment objective and all investment policies of each of the Funds
and the Portfolios that are designated as fundamental may not be changed without
approval of the holders of a majority of the outstanding voting securities of a
Fund or a Portfolio, as applicable. A majority of outstanding voting securities
means the lesser of: (1) 67% of the shares present or represented at a
shareholder meeting at which the holders of more than 50% of the outstanding
shares are present or represented; or (2) more than 50% of outstanding shares.
Unless otherwise indicated, all investment policies of the Funds are not
fundamental and may be changed by the Board without approval by shareholders of
the Fund. Likewise, nonfundamental investment policies of a Portfolio may be
changed by the Core Trust Boards, or the Schroder Core Board as applicable,
without shareholder approval. For more information concerning shareholder
voting, see "Other Information - "The Trust and Its Shares" and "Core and
Gateway(R) Structure."
Unless otherwise indicated below, the discussion below of the investment
policies of a Fund investing in a Portfolio(s) also refers to the investment
policies of the Portfolio(s).
COMMON AND PREFERRED STOCK, WARRANTS AND RIGHTS
Each Fund may invest in common and preferred stock. Common stockholders are
the owners of the company issuing the stock and, accordingly, vote on various
corporate governance matters such as mergers. They are not creditors of the
company, but rather, upon liquidation of the company, are entitled to their pro
rata share of the company's assets after creditors (including fixed income
security holders) and, if applicable, preferred stockholders are paid. Preferred
stock is a class of stock having a preference over common stock as to dividends
and, in general, as to the recovery of investment. A preferred stockholder is a
shareholder in the company and not a creditor of the company, as is a holder of
the company's fixed income securities. Dividends paid to common and preferred
stockholders are distributions of the earnings of the company and not interest
payments, which are expenses of the company. Equity securities owned by a Fund
may be traded in the over-the counter market or on a securities exchange, but
may not be traded every day or in the volume typical of securities traded on a
major U.S. national securities exchange. As a result, disposition by a Fund of a
security to meet redemptions by interest holders or otherwise may require the
Fund to sell these securities at a discount from market prices, to sell during
periods when disposition is not desirable, or to make many small sales over a
lengthy period of time. The market value of all securities, including equity
securities, is based upon the market's perception of value and not necessarily
the book value of an issuer or other objective measure of a company's worth. A
Fund may also invest in warrants, which are options to purchase an equity
security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during a specified period of time. Emerging
Markets Fund may also invest in stock rights which are options given to
shareholders to buy additional
15
<PAGE>
shares at a predetermined price during a specified time period.
BORROWING
Equity Index Fund, Investors Equity Fund, Small Company Opportunities
Fund and International Equity Fund may each borrow money for temporary or
emergency purposes, including the meeting of redemption requests, but not in
excess of 33 1/3% of the value of the Fund's total assets (computed immediately
after the borrowing). Emerging Markets Fund will not borrow money if, as a
result, outstanding borrowings for temporary or emergency purposes would exceed
an amount equal to one third of the Fund's total assets (computed immediately
after the borrowing). No Fund may borrow more than 5% of the Fund's net assets
for other than temporary or emergency purposes.
DIVERSIFICATION AND CONCENTRATION
Each Fund (except Emerging Markets Fund) is diversified as that term is
defined in the Investment Company Act of 1940 (the "1940 Act"). As a fundamental
policy, with respect to 75% of its assets, a diversified fund may not purchase a
security (other than a U.S. Government Security or shares of investment
companies) if, as a result: (1) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer; or (2) the Fund would own more
than 10% of the outstanding voting securities of any single issuer. Each Fund is
prohibited from concentrating its assets in the securities of issuers in any
industry. As a fundamental policy, no Fund may purchase securities if,
immediately after the purchase, more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers conducting their principal
business activities in the same industry. This limit does not apply to
investments in U.S. Government Securities or repurchase agreements covering U.S.
Government securities. Each Fund reserves the right to invest up to 100% of its
assets in one or more investment companies such as the Portfolios. International
Equity Fund and Emerging Markets Fund have no limitations on the amount of
assets invested in securities of issuers domiciled in a foreign country.
ILLIQUID SECURITIES
No Fund may knowingly acquire securities or invest in repurchase
agreements with respect to any securities if, as a result, more than 15% of the
Fund's net assets taken at current value would be invested in securities that
are not readily marketable. Illiquid securities are securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities and
include, among other things, repurchase agreements not entitling the holder to
payment within seven days and restricted securities (other than those determined
to be liquid pursuant to guidelines established by the Board, the Schroder Core
Board or the Core Trust Board). Under the supervision of the applicable Board,
an Adviser determines and monitors the liquidity of portfolio securities.
REPURCHASE AGREEMENTS AND LENDING OF PORTFOLIO SECURITIES
Each Fund may enter into repurchase agreements and may lend securities
from its portfolio to brokers, dealers and other financial institutions. These
investments may entail certain risks not associated with direct investments in
securities. For instance, in the event that bankruptcy or similar proceedings
were commenced against a counterparty in these transactions or a counterparty
defaulted on its obligations, a Fund
16
<PAGE>
may have difficulties in exercising its rights to the underlying securities, may
incur costs and experience time delays in disposing of them and may suffer a
loss.
Repurchase agreements are transactions in which a Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed-upon price on an agreed-upon future date, normally one to seven days
later. The resale price reflects a market rate of interest that is not related
to the coupon rate or maturity of the purchased security. When a Fund lends a
security it receives interest from the borrower or from investing cash
collateral. The Trust maintains possession of the purchased securities and any
underlying collateral in these transactions, the total market value of which on
a continuous basis is at least equal to the repurchase price or value of
securities loaned, plus accrued interest. The Funds may pay fees to arrange
securities loans and each Fund will limit securities lending to not more than 33
1/3% of the value of its total assets.
MARGIN AND SHORT SALES
No Fund may purchase securities on margin or make short sales of
securities, except short sales against the box. A short sale is
"against-the-box" to the extent that the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold short. These
prohibitions do not restrict the Fund's ability to use short-term credits
necessary for the clearance of portfolio transactions and to make margin
deposits in connection with permitted transactions in options and futures
contracts.
FOREIGN EXCHANGE CONTRACTS
Investors Equity Fund, Small Company Opportunities Fund, International
Equity Fund, and Emerging Markets Fund may invest in securities issued by
foreign companies. Changes in foreign currency exchange rates will affect the
U.S. dollar values of securities denominated in currencies other than the U.S.
dollar. The rate of exchange between the U.S. dollar and other currencies
fluctuates in response to forces of supply and demand in the foreign exchange
markets. These forces are affected by the international balance of payments and
other economic and financial conditions, government intervention, speculation
and other factors, many of which may be difficult if not impossible to predict.
No Fund or Portfolio will seek to benefit from anticipated short-term
fluctuations in currency exchange rates. When investing in foreign securities,
these Funds, will usually effect currency exchange transactions on a spot (I.E.,
cash) basis at the spot rate prevailing in the foreign exchange market. The
Funds incur foreign exchange expenses in converting assets from one currency to
another.
These Funds may enter into foreign currency forward contracts for the
purchase or sale of foreign currency to "lock in" the U.S. dollar price of the
securities denominated in a foreign currency or the U.S. dollar value of
interest and dividends to be paid on such securities, or to hedge against the
possibility that the currency of a foreign country in which the Fund has
investments may suffer a decline against the U.S. dollar. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. This method of
attempting to hedge the value of portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. Although the strategy of engaging in foreign currency
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency, it could also limit the potential gain from an increase in the
value of the currency. The Funds do not intend to maintain a net exposure to
such contracts where the fulfillment of the Fund's obligations under such
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in the currency. A Fund will not enter into these contracts for
speculative purposes and will not enter into non-hedging currency contracts.
These contracts involve a risk of loss if the Adviser fails to predict currency
values correctly. International Portfolio has no present intention to enter into
currency futures or options contracts but may do so in the future.
OPTIONS AND FUTURES TRANSACTIONS
Each Fund may (1) purchase or sell (write) put and call options on
securities to enhance its
17
<PAGE>
performance and (2) seek to hedge against a decline in the value of securities
owned by a Fund or an increase in the price of securities a Fund plans to
purchase through the writing and purchase of exchange-traded and over-the
counter options on individual securities, broadly-based stock indices or
financial indices and through the purchase and sale of futures and options on
those futures contracts, all of which are referred to as "Hedging Instruments."
To the extent that a Fund invests in foreign issues, it may purchase and sell
options on foreign currencies or invest in foreign currency futures.
The Hedging Instruments a Fund is authorized to use have certain risks
associated with them, including: (1) the possible failure of such instruments as
hedging techniques in cases where the price movements of the securities
underlying the options or futures do not follow the price movements of the
portfolio securities subject to the hedge; (2) potentially unlimited loss
associated with futures transactions and the possible lack of a liquid secondary
market for closing out a futures position; and (3) possible losses resulting
from the inability of the investment adviser to predict the direction of stock
prices, interest rates and other economic factors. The Hedging Instruments each
Fund may use and the risks associated with them are described in greater detail
under "Options and Hedging" in the SAI.
DEBT SECURITIES
Each Fund except Equity Index Fund may seek capital appreciation through
investment in convertible or non-convertible debt securities. Capital
appreciation in debt securities may arise as a result of a favorable change in
relative foreign exchange rates, in relative interest rate levels, or in the
creditworthiness of issuers. The receipt of income from such debt securities is
incidental to a Fund's or Portfolio's objective of long-term capital
appreciation. Such income can be used, however, to offset the operating expenses
of the Funds or Portfolios. The debt securities in which the Funds invest may be
unrated. Emerging Markets Fund may invest up to 35% of its total assets in debt
securities that are unrated or rated below investment grade (below "Baa" by
Moody's Investors Service, Inc. ("Moody's") or "BBB" by S&P). See "Risk
Considerations - Debt Securities." For a further description of S&P's and
Moody's securities ratings see the Appendix to the SAI.
TEMPORARY DEFENSIVE POSITION
When business or financial conditions warrant, each Fund may assume a
temporary defensive position and invest without limit in cash or prime quality
cash equivalents, including: (1) short-term U.S. Government Securities; (2)
certificates of deposit, bankers acceptances and interest-bearing savings
deposits of commercial banks doing business in the United States that have, at
the time of the investment, except in the case of the International Equity Fund,
total assets in excess of one billion dollars and that are insured by the FDIC;
(3) commercial paper of prime quality rated Prime-2 or higher by Moody's or A-2
or higher by S&P or, if not rated, determined by the Adviser to be of comparable
quality; (4) repurchase agreements covering any of the securities in which a
Fund may invest directly; and (5) shares of money market funds registered under
the 1940 Act within the limits specified therein. During periods when and to the
extent that a Fund or Portfolio has assumed a temporary defensive position, it
may not be pursuing its investment objective. Prime quality instruments
18
<PAGE>
are those that are rated in one of the two highest short-term rating categories
or, if not rated, determined by the Adviser to be of comparable quality. Apart
from temporary defensive purposes, a Fund may at any time invest a portion of
its assets in cash and cash equivalents as described above. To the extent that
Investors Equity Fund, Small Company Opportunities Fund, International Equity
Fund and Emerging Markets Fund may invest in foreign issuers, they may also hold
cash and bank instruments denominated in any major foreign currency.
PORTFOLIO TRANSACTIONS
The frequency of portfolio transactions of the Funds (the portfolio
turnover rate) will vary from year to year depending on market conditions. The
Funds (or their respective Portfolios where applicable) may engage in short-term
trading but their portfolio turnover rate is not expected to exceed 100%. An
annual portfolio turnover rate of 100% would occur if all the securities in a
Fund or Portfolio were replaced in a one year period. Higher portfolio turnover
and short-term trading involve correspondingly greater commission expenses and
transaction costs. The Advisers weigh the anticipated benefits of short-term
investments against these consequences. Also, higher portfolio turnover rates
may cause shareholders of a Fund to recognize greater capital gains for federal
income tax purposes. See "Distributions and Tax Matters."
The Advisers have no obligation to deal with any specific brokers or
dealers in the execution of transaction on behalf of the Portfolios or the
Funds. Consistent with the Funds' or Portfolios' policy of obtaining the best
price consistent with quality of execution of transactions, a Fund and/or
Portfolio's transactions may be conducted through certain affiliates of the
Advisers (collectively "Affiliated Brokers"). A Fund or Portfolio's payment of
commissions to Affiliated Brokers is subject to procedures adopted by the Board,
the Core Trust Board or the Schroder Core Board, to provide that the commissions
are comparable to those charged by unaffiliated qualified broker-dealers. No
specific portion of a Fund's brokerage will be directed to Affiliated Brokers
and in no event will a broker affiliated with an Adviser directing the
transaction receive brokerage transactions in recognition of research services
provided to the Adviser. The Advisers may effect transactions for the Funds (or
the Portfolios) through brokers who sell Fund shares.
5. RISK CONSIDERATIONS
FOREIGN INVESTMENTS
GENERAL
All investments, domestic and foreign, involve certain risks. Investment in
the securities of foreign issuers may involve risks in addition to those
normally associated with investments in the securities of U.S. issuers. In
general, an Adviser will invest only in securities of companies and governments
in countries which it, in its judgment, considers both politically and
economically stable. Nevertheless, all foreign investments are subject to risks
of foreign political and economic instability, adverse movements in foreign
exchange rates, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital and changes in foreign
governmental attitudes towards private investment possibly leading to
nationalization, increased taxation or confiscation of Fund assets. To the
extent the Funds invest substantially in issuers located in one country or area,
such investments may be subject to greater risk in the event of political or
social instability or adverse economic developments affecting that country or
area.
Moreover, (1) dividends payable on foreign securities may be subject to
foreign withholding taxes, thereby reducing the income available for
distribution to a Fund's shareholders; (2) commission rates payable on foreign
portfolio transactions are generally higher than in the U.S.; (3) accounting,
auditing and financial reporting
19
<PAGE>
standards differ from those in the U.S., and this may mean that less information
about foreign companies may be available than is generally available about
issuers of comparable securities in the U.S.; (4) foreign securities often trade
less frequently and with less volume than U.S. securities and consequently may
exhibit greater price volatility; and (5) foreign securities trading practices,
including those involving securities settlement, may expose the Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer or registrar.
CURRENCY FLUCTUATIONS AND DEVALUATIONS
Because International Equity Fund and Emerging Markets Fund will invest
heavily in non-U.S. currency denominated securities, changes in foreign currency
exchange rates will affect the value of the Funds' investments. Exchange rates
are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies. A decline in the value of currencies in which a Fund's investments
are denominated against the dollar will result in a corresponding decline in the
dollar value of the Fund's assets. This risk tends to be heightened in the case
of investments in certain emerging market countries as further discussed below.
A decline in the value of a particular foreign currency against the U.S. dollar
occurring after the Fund's income has been earned and computed in U.S. dollars
may require the Fund to liquidate portfolio securities to acquire sufficient
U.S. dollars to fund redemptions. Similarly, if the exchange rate declines
between the time the Fund incurs expenses in U.S. dollars and the time such
expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
GEOGRAPHIC CONCENTRATION
Emerging Markets Fund and International Equity Fund may invest more than
25% of their total assets in issuers located in any one country. To the extent
it invests in issuers located in one country, a Fund is susceptible to factors
adversely affecting that country. In particular, these factors may include the
political and economic developments and foreign exchange rate fluctuations
discussed above. As a result of investing substantially in one country, the
value of a Fund's assets may fluctuate more widely than the value of shares of a
comparable fund with a lesser degree of geographic concentration.
EMERGING MARKETS
POLITICAL AND ECONOMIC RISKS
Emerging Markets Fund may invest in securities of issuers located in
countries considered by some to be emerging market countries. The risks of
investing in foreign securities may be greater with respect to securities of
issuers in, or denominated in the currencies of, emerging market countries. In
any emerging market country, there is the possibility of expropriation of
assets, confiscatory taxation, nationalization, foreign exchange controls,
foreign investment controls on daily stock market movements, default in foreign
government securities, political or social instability or diplomatic
developments which could affect investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as economic growth rates, rates of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments positions.
Certain foreign investments may also be subject to foreign withholding taxes,
thereby reducing the income available for distribution to a Fund's shareholders.
The economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values
20
<PAGE>
and other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
Certain emerging market countries may restrict investment by foreign
entities. For example, some of these countries may limit the size of foreign
investment in certain issuers, require prior approval of foreign investment by
the government, impose additional tax on foreign investors or limit foreign
investors to specific classes of securities of an issuer that have less
advantageous rights (with regard to price or convertibility, for example) than
classes available to domiciliaries of the country. These restrictions or
controls may at times limit or preclude investment in certain securities and may
increase the costs and expenses of the Fund.
Substantial limitations may also exist in certain countries with respect to
a foreign investor's ability to repatriate investment income, capital or the
proceeds of sales of securities. The Fund could be adversely affected by delays
in, or refusals to grant, any required governmental approvals for repatriation
of capital. If a deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital remittances. In
the event of expropriation, nationalization or other confiscation, the Fund
could lose its entire investment in the country involved.
REGULATION AND LIQUIDITY OF MARKETS
Government supervision and regulation of exchanges and brokers in
emerging market countries is frequently less extensive than in the United
States. Therefore, there is an increased risk of uninsured loss due to lost,
stolen or counterfeit stock certificates. These markets may have different
clearance and settlement procedures. Securities settlements may, in some
instances, be subject to delays and related administrative uncertainties. In
certain cases, settlements have not kept pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could adversely affect or interrupt the Fund's intended investment
program or result in investment losses due to intervening declines in security
values.
The securities markets of many foreign countries, including emerging
market countries, are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited number of companies
representing a small number of industries. Consequently, a Fund whose investment
portfolio includes securities traded in such markets may experience greater
price volatility and significantly lower liquidity than a portfolio invested
solely in equity securities of United States companies. These foreign markets
may be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. Furthermore, reduced secondary market liquidity may
make it more difficult for the Fund to determine the value of its portfolio
securities or dispose of particular instruments when necessary.
Investing in local markets, particularly emerging markets, may require
the Fund to adopt special procedures, seek local government approvals or take
other actions each of which may involve additional costs to the Fund. Brokerage
commissions and other transaction costs on and off of foreign securities
exchanges are also generally higher.
FINANCIAL INFORMATION AND STANDARDS AND REGULATION OF ISSUERS
Issuers of securities in foreign jurisdictions are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. Foreign companies may not be
subject to uniform accounting, auditing and financial reporting standards.
Often, available information about issuers and their securities is less
extensive, and, in certain circumstances, substantially less extensive in
foreign markets, and particularly emerging market
21
<PAGE>
countries, than in the United States. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may provide less
protection to security holders such as the Portfolio than that provided by U.S.
laws.
CURRENCY FLUCTUATIONS AND DEVALUATIONS
The risks associated with currency fluctuations and devaluations often
are heightened with respect to investments in emerging market countries. For
example, some currencies of emerging market countries have experienced steady
devaluations relative to the U.S. dollar, and major adjustments have been made
in certain of such currencies periodically. Some emerging market countries also
may have managed currencies which do not freely float against the U.S. dollar.
Exchange rates are influenced generally by the forces of supply and demand in
the foreign currency markets and by numerous other political and economic events
occurring outside the United States, many of which may be difficult, if not
impossible, to predict.
INFLATION
Several emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation in recent years. Inflation and
rapid fluctuations in inflation rates may have very negative effects on the
economies and securities markets of certain emerging market countries. Further,
inflation accounting rules in some emerging market countries require, for
companies that keep accounting records in the local currency, that certain
assets and liabilities be restated on the company's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits for certain emerging market
companies.
DEBT SECURITIES
Emerging Markets Fund may invest up to 35% of its total assets in debt
securities including debt securities that are unrated or are rated below
investment grade (below "Baa" by Moody's or "BBB" by S&P; (for a further
description of Moody's and S&P's securities ratings please see the Appendix to
the SAI.) Note that even debt securities rated "Baa" by Moody's are considered
to have speculative characteristics. Below investment grade securities (and
unrated securities of comparable quality) ("high yield/high risk securities")
are predominantly speculative with respect to the capacity to pay interest and
repay principal, and generally involve a greater volatility of price than
securities in higher rating categories. These securities are commonly referred
to as "junk" bonds. The risks associated with junk bonds are generally greater
than those associated with higher-rated securities. The Fund is not obligated to
dispose of securities due to rating changes by Moody's, S&P or other rating
agencies. The Fund is not authorized to purchase debt securities that are in
default, except for sovereign debt (discussed below) in which the Portfolio may
invest no more than 5% of its total assets while such sovereign debt securities
are in default.
In purchasing high yield/high risk securities, the Fund will rely on the
investment adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer of such securities. Nonetheless, investors should
review the investment objective and policies of the Fund and consider their
willingness to assume risk before making an investment.
High yield/high risk securities' market values are affected more by
individual issuer developments and are more sensitive to adverse economic
changes than are higher-rated securities. Issuers of high yield/high risk
securities may be highly leveraged and may not have more traditional methods of
financing available to them. During economic downturns or substantial periods of
rising interest rates, issuers of high yield/high risk securities, especially
highly leveraged ones, may be less able to service their principal and interest
payment obligations, meet their projected business goals, or obtain additional
financing. The risk of loss due to default by the issuer is significantly
greater for
22
<PAGE>
holders of high yield/high risk securities because such securities may be
unsecured and may be subordinated to other creditors of the issuer. In addition,
the Portfolio may incur additional expenses if it is required to seek recovery
upon a default by the issuer of such an obligation or participate in the
restructuring of such obligation.
Periods of economic uncertainty and change will likely cause increased
volatility in the market prices of high yield/high risk securities and,
correspondingly, the Fund's net asset value if it invests in such securities;
market prices of such securities structured as zero coupon or pay-in-kind
securities are more affected by interest rate changes and thus tend to be more
volatile than securities that pay interest periodically and in cash.
High yield/high risk securities may have call or redemption features which
would permit an issuer to repurchase the securities from the Fund. If a call
were exercised by the issuer during a period of declining interest rates, the
Fund would likely have to replace called securities with lower yielding
securities, thus decreasing the Fund's net investment income and dividends to
shareholders.
While a secondary trading market for high yield/high risk securities
does exist, it is generally not as liquid as the secondary market for higher
rated securities. In periods of reduced secondary market liquidity, prices of
high yield/high risk securities may become volatile and experience sudden and
substantial price declines. The Fund may, therefore, have difficulty disposing
of particular issues to meet its liquidity needs or in response to a specific
economic event (such as a deterioration in the creditworthiness of the issuer).
Reduced secondary market liquidity for certain high yield/high risk securities
also may make it more difficult for the Fund to obtain accurate market
quotations (for purposes of valuing the Fund's investment portfolio): market
quotations are generally available on many high yield/high risk securities only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales. Under such conditions, high yield/high
risk securities may have to be valued at fair value as determined by the
Schroder Core Board or the Adviser under Board-approved guidelines.
Adverse publicity and investor perceptions (which may not be based on
fundamental analysis) may decrease the value and liquidity of high yield/ high
risk securities, particularly in a thinly traded market. Factors adversely
affecting the market value of high yield/high risk securities are likely to
adversely affect the Fund's net asset value.
SMALL COMPANY INVESTMENTS
While all investments have risks, investments in smaller capitalization
companies carry greater risk than investments in larger capitalization
companies. Smaller capitalization companies generally experience higher growth
rates and higher failure rates than do larger capitalization companies; and the
trading volume of smaller capitalization companies' securities is normally lower
than that of larger capitalization companies and, consequently, generally has a
disproportionate effect on market price (tending to make prices rise more in
response to buying demand and fall more in response to selling pressure).
Disposition by a Fund of a security, to meet redemption requests by shareholders
or otherwise, may require the Fund to sell these securities at a discount from
market prices, to sell during periods when disposition is not desirable, or to
make many small sales over a lengthy period of time. Accordingly, the net asset
value of the Funds can be expected to fluctuate more than other portfolios.
Investments in small, unseasoned issuers generally carry greater risk than
is customarily associated with larger, more seasoned companies. Such issuers
often have products and management personnel that have not been tested by time
or the marketplace and their financial resources may not be as substantial as
those of more established companies. Their securities (which a Fund may purchase
when they are offered to the public for the first time) may have a limited
trading market
23
<PAGE>
which can adversely affect their sale by the Portfolio and can result in such
securities being priced lower than otherwise might be the case. If other
institutional investors engage in trading this type of security, the Portfolio
may be forced to dispose of its holdings at prices lower than might otherwise be
obtained.
6. MANAGEMENT
The business and affairs of the Funds are managed under the direction of
the Board. The Trustees of the Trust are John Y. Keffer, Costas Azariadis, James
C. Cheng and J. Michael Parish. The business and affairs of Index Portfolio,
International Portfolio and the various Portfolios in which Small Company
Opportunities Fund invests, are managed under the direction of the Core Trust
Board. The Trustees of the Trust also serve as the Trustees of Core Trust. The
business and affairs of Schroder EM Core Portfolio are managed under the
direction of the Schroder Core Board. The Trustees of Schroder Core are Peter E.
Guernsey, John I. Howell, Clarence F. Michalis, Hermann C. Schwab, Mark J.
Smith, David N. Dinkins, Peter S. Knight, and Sharon L. Haugh. Additional
information regarding the Trustees and the respective executive officers of the
Trust, Core Trust and Schroder Core may be found in the SAI under "Management -
Trustees and Officers."
INVESTMENT ADVISERS
INVESTORS EQUITY FUND
H.M. Payson & Co., located at One Portland Square, Portland, Maine
04101, serves as investment adviser to Investors Equity Fund. Subject to the
general control of the Board, Payson is responsible for, among other things,
developing a continuing investment program for the Fund in accordance with its
investment objective and reviewing the investment strategies and policies of the
Fund. For its services, Payson receives an advisory fee at a rate of 0.65% of
the Fund's average daily net assets.
Payson was founded in Portland, Maine in 1854 and was incorporated in Maine
in 1987, making it one of the oldest investment firms in the United States
operating under its original name. Payson is a registered broker-dealer and
investment adviser and is a member of the National Association of Securities
Dealers, Inc. Payson provides investment management services through an
investment advisory division and a trust division. As of August 31, 1998, Payson
had approximately $1.05 billion in assets under management. Payson's clients
include pension plans, endowment funds and institutional and individual
accounts.
Payson has entered into an investment sub-advisory agreement with Peoples
Heritage Bank to exercise certain investment discretion over the assets (or a
portion of assets) of the Fund. Subject to the general supervision of the Board,
Peoples is responsible for, among other things, making investment decisions for
the Fund and developing a continuing investment program for the Fund in
accordance with its investment objective and reviewing the investment strategies
and policies of the Fund. Peoples, located at One Portland Square, Portland,
Maine 04101, is a subsidiary of Peoples Heritage Financial Group, a multi-bank
holding company. As of June 30, 1998, Peoples Heritage Financial Group had
assets of approximately $9.8billion and Peoples and its affiliates managed
assets in their trust departments with a value of approximately $939 million.
Payson pays a fee to Peoples for its sub-advisory services. This fee is borne
solely by Payson and does not increase the fee paid by shareholders of the Fund.
For its services, Peoples receives a sub-advisory fee at an annual rate of 0.25%
of the Fund's average daily net assets.
William N. Weickert, Jr., CFA, Dana R. Mitiguy, CFA and Jonathan W. White,
CFA serve as the portfolio managers of Investors Equity Fund. William N.
Weickert, Jr. has sixteen years of experience in the investment industry and is
a Director, equity and fixed income Research Analyst and Portfolio Manager of
Payson, with which
24
<PAGE>
he has been associated since 1989. Mr. Weickert received a Bachelor of Arts
degree from Hobart College. Dana R. Mitiguy has fourteen years of experience in
the investment industry and is the Chief Investment Officer for Peoples'
Heritage Bank. Prior to joining Peoples in September 1995, Mr. Mitiguy served as
a Vice President at Key Trust of Maine. Mr. Mitiguy received a Bachelor of Arts
degree from Middlebury College. Jonathan W. White, a member of the Peoples
Investment Committee and Chief Investment Officer for the Bank of New Hampshire,
another subsidiary of Peoples Heritage Financial Group, has over 25 years of
experience in the investment industry. From 1989 through 1994, Mr. White was an
investment associate with Connecticut Seed Ventures. Mr. White received a
Bachelor of Arts degree from Dartmouth College and a Masters in Business
Administration from the University of New Hampshire.
EQUITY INDEX FUND
Subject to the general supervision of the Core Trust Board, Norwest
Investment Management, Inc., located at Norwest Center, Sixth Street and
Marquette, Minneapolis, Minnesota 55479, provides investment advisory services
to Index Portfolio. Norwest manages the investment and reinvestment of the
assets of Index Portfolio and continuously reviews, supervises and administers
the Portfolio's investments. It is the responsibility of Norwest to make
decisions relating to Index Portfolio's investments and to place purchase and
sale orders regarding investments with brokers or dealers selected by it in its
discretion. For its services with respect to the Portfolio, Norwest receives an
advisory fee at an annual rate of 0.15% of the Portfolio's average daily net
assets. The investment advisory fees paid to Norwest by Index Portfolio are
borne indirectly by Equity Index Fund. Norwest is an indirect subsidiary of
Norwest Bank, a multi-bank holding company that was incorporated under the laws
of Delaware in 1929. As of June 30, 1998, Norwest Corporation had assets of
approximately $93 billion, which made it the 12th largest bank holding company
in the United States, and Norwest and its affiliates managed assets with a value
in excess of $29 billion.
David D. Sylvester and Laurie R. White are primarily responsible for the
day-to-day management of Index Portfolio. Mr. Sylvester has been associated with
Norwest or its affiliates since 1979 and currently is a Managing Director -
Reserve Asset Management. Ms. White has been associated with Norwest or its
affiliates since 1991 and is a Director - Reserve Asset Management. Mr.
Sylvester and Ms. White began serving as portfolio managers of Index Portfolio
on January 1, 1996.
SMALL COMPANY OPPORTUNITIES FUND
Forum Investment Advisors, LLC serves as investment adviser to Small
Company Opportunities Fund. Subject to the general control of the Board, Forum
Advisors is responsible for, among other things, making allocation decisions on
behalf of the Fund and developing a continuing investment program for the Fund
in accordance with its investment objective and reviewing the investment
strategies and policies of the Fund. Forum Advisors was organized under the laws
of Delaware in 1987 and is registered under the Investment Advisers Act of 1940.
For its services, Forum Advisors receives an advisory fee at an annual rate of
0.25% of the Fund's average daily net assets. The Fund also bears an investment
advisory fee at a blended rate based on the investment advisory fees of the
Portfolios in which the Fund invests. The total fee payable by the Fund through
its investments in the Portfolios will vary based on the percentage of its
assets invested in each Portfolio.
Mark Kaplan, CFA, serves as the portfolio manager of the Fund. Mr. Kaplan
has over fourteen years of experience in the investment industry and has been a
Managing Director at Forum Investment Advisors, LLC, where he is responsible for
investment advisory services, since September 1995. Before that, Mr. Kaplan was
Managing
25
<PAGE>
Director and Director of Research at H.M. Payson & Co., an investment advisory
and trust services company. Prior thereto, Mr. Kaplan was a securities analyst
in the investment division of UNUM Life Insurance Company. Mr. Kaplan has a
Masters in Business Administration from Boston University. Forum Advisors is
controlled by John Y. Keffer, President and Chairman of the Trust and is located
at Two Portland Square, Portland, Maine 04101. As of June 30, 1998, Forum
Advisors provided investment advisory services to registered investment
companies with assets of approximately $1.9 billion.
Norwest serves as investment adviser to Small Cap Index Portfolio,
Small Company Stock Portfolio, Small Company Value Portfolio and Small Cap Value
Portfolio, the four Core Trust portfolios in which the Fund invests. It is the
responsibility of Norwest to make investment decisions and to continuously
review, supervise and administer each Portfolio's investment program or to
oversee the investment decisions of the Portfolio's investment subadviser, as
applicable. For its services as investment adviser, Norwest receives an advisory
fee at an annual rate of 0.25%, 0.90%, 0.90% and 0.95% of the net assets of
Small Cap Index Portfolio, Small Company Stock Portfolio, Small Company Value
Portfolio and Small Cap Value Portfolio, respectively. For a description of
Norwest, see "Management -- Investment Advisers -- Equity Index Fund."
To assist Norwest in carrying out its obligations, Core Trust and
Norwest have retained the services of the investment subadvisers described
below. Each investment subadviser makes investment decisions for the Portfolio
to which it serves as investment subadviser and continuously reviews, supervises
and administers the Portfolio's investment program with respect to that portion,
if any, of the Portfolio's assets that Norwest believes should be managed by the
investment subadviser. Currently, each investment subadviser manages all of the
assets of the Portfolio that it subadvises. Norwest (and not the Portfolios)
pays each investment subadviser a fee for its investment subadvisory services.
This compensation does not increase the amount paid by the Portfolios to Norwest
for investment advisory services.
Crestone Capital Management, Inc., which is located at 7720 East Belleview
Avenue, Suite 220, Englewood, Colorado 80111, serves as investment subadviser to
Small Company Stock Portfolio. Crestone, an indirect investment advisory
subsidiary of Norwest Bank, provides investment advice regarding companies with
small market capitalization to various clients, including institutional
investors. As of June 30, 1998, Crestone managed assets with value of
approximately $325 million. Kirk McCown is primarily responsible for the
day-to-day management of the Small Company Stock Portfolio. Mr. McCown has been
associated with Norwest or its affiliates since 1993 and is the founder,
President, and Director of Crestone. Mr. McCown has served as the portfolio
manager for Small Company Stock Portfolio since it commenced operations in June
1997.
Peregrine Capital Management, Inc., which is located at LaSalle Plaza, 800
LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55402, serves as investment
subadviser to Small Company Value Portfolio. Peregrine, an indirect investment
advisory subsidiary of Norwest Bank, provides investment advisory services to
corporate and public pension plans, profit-sharing plans, savings- investment
plans and 401(k) plans. As of June 30, 1998, Peregrine managed approximately
$5.8 billion in assets. Tasso H. Coin, Jr. and Douglas G. Pugh are responsible
for the day-to-day management of Small Company Value Portfolio. Mr. Coin has
been associated with Norwest or its affiliates since 1995 and has been a Senior
Vice President of Peregrine since 1995. From 1992 to 1995, Mr. Coin was a
research officer at Lord Asset Management. Mr. Pugh has been associated with
Norwest or its affiliates since 1997. Mr. Pugh is a Senior Vice President of
Peregrine. Prior thereto,
26
<PAGE>
he was a senior equity analyst and portfolio manager for Advantus Capital
Management and an analyst with Kemper Corporation. Mr. Coin and Mr. Pugh have
served as portfolio managers for Small Company Value Portfolio since it
commenced operations in June 1997.
Smith Asset Management Group, L.P., which is located at 500 Crescent Court,
Suite 250, Dallas, Texas 75201, serves as investment subadviser to Small Cap
Value Portfolio. Smith, and investment advisory affiliate of Norwest Bank,
provides investment management services to company retirement plans,
foundations, endowments, trust companies and high net worth individuals using a
disciplined equity style. As of June 30, 1998, Smith managed over $634 million
in assets. Mr. Smith has been associated with Norwest or its affiliates since
1997. Mr. Smith has been a Chief Investment Officer and principal of Smith since
1995. Mr. Smith previously served as a senior portfolio manager with NationsBank
and in several capacities with AIM Management Company's Summit Fund. Mr. Smith
has served as the portfolio manager of Small Cap Value Portfolio since it
commenced operations in October 1997.
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS FUND
Schroder Capital Management International Inc. manages the investment
and reinvestment of the assets of International Portfolio and Schroder EM Core
Portfolio, the portfolios into which International Equity Fund and Emerging
Markets Fund, respectively, invest their assets. SCMI continuously reviews,
supervises and administers each Portfolio's investments. In this regard, it is
the responsibility of SCMI to make decisions relating to the Portfolios'
investments and to place purchase and sale orders regarding investments with
brokers or dealers selected by it in its discretion. For its services under the
investment advisory agreements between SCMI and Core Trust and between SCMI and
Schroder Core, SCMI is entitled to receive advisory fees at the annual rates of
0.45%, in the case of International Portfolio, and 1.00%, in the case of
Schroder EM Core Portfolio, of the Portfolio's average daily net assets.
The investment advisory fees paid to SCMI by International Portfolio
and Schroder EM Core Portfolio are borne indirectly by International Equity Fund
and Emerging Markets Fund, respectively.
SCMI, located at 787 Seventh Avenue, New York, New York 10019, is a wholly
owned U.S. subsidiary of Schroders Incorporated, the wholly owned U.S.
subsidiary of Schroders plc, a publicly owned company organized under the laws
of England. Schroders plc is the holding company parent of a large world-wide
group of banks and financial services companies (referred to as the "Schroder
Group"), with associated companies and branch and representative offices located
in eighteen countries world-wide. The investment management subsidiaries of the
Schroder Group had, as of June 30, 1998, assets under management of
approximately $175 billion.
Michael Perelstein, a Senior Vice President of SCMI, with the assistance of
an SCMI investment committee, is primarily responsible for the day-to-day
management of International Portfolio's investment portfolio. Mr. Perelstein has
been a Senior Vice President of SCMI since January 1997. Prior thereto, Mr.
Perelstein was a Managing Director at MacKay Shields. Mr. Perelstein has more
than twelve years of international and global investment experience. Mr.
Perelstein has served as portfolio manager of International Portfolio since
January 1997.
Schroder EM Core Portfolio's current investment managers are John A.
Troiano, a Vice President of Schroder Core, who has managed the Portfolio's
assets since its inception, assisted by the management team of Heather Crighton
and Mark Bridgeman, who are responsible for the day-to-day management of the
investment portfolio. Mr. Troiano, Chief Executive Officer of SCMI since April
1, 1997, has been a Managing Director
27
<PAGE>
of SCMI since October 1995 and has been employed by Schroder Group companies in
the investment research and portfolio management areas since 1981. Ms. Crighton
is a Vice President of SCMI and has been employed by SCMI in the investment
research and portfolio management areas since 1992. Mr. Bridgeman, also a Vice
President of SCMI, has been employed by various Schroder Group companies in the
investment research and portfolio management areas since 1990.
THE ADMINISTRATOR
On behalf of the Funds, the Trust has entered into an administrative
services agreement with Forum Administrative Services, LLC. FAdS is responsible
for the supervision of the overall management of the Trust (including the
Trust's receipt of services for which it must pay), providing the Trust with
general office facilities, necessary personnel to ensure the effective operation
of the Trust, as well as persons satisfactory to the Board to serve as officers
of the Trust. For these services, FAdS receives from each Fund a fee at an
annual rate of 0.20% of the Fund's average daily net assets.
FAdS also serves as administrator of each Portfolio of Core Trust. For
these services, FAdS is entitled to receive fees at annual rates of 0.15% of
International Portfolio's average daily net assets and 0.05% of each other
Portfolio's average daily net assets.
As of June 30, 1998, FAdS and its affiliates provided management
administration and distribution services to registered investment companies with
assets of approximately $38 billion. As of the date of this Prospectus each of
FAdS, FFSI, FAcS and FSS was controlled by John Y. Keffer, president and
Chairman of the Trust and was located at Two Portland Square, Portland, Maine
Schroder Fund Advisors Inc. ("Schroder Advisers"), 787 Seventh Avenue, New
York, New York 10019 serves as administrator for EM Schroder Core Portfolio.
Schroder Advisors is a wholly owned subsidiary of SCMI. For these services,
Schroder Advisors receives an administrative services fee at an annual rate of
0.10% of the Portfolio's average daily net assets. In addition, Schroder Core
has entered into a subadministration agreement with FAdS. Under the agreement,
FAdS is entitled to a fee for its services with respect to Schroder EM Core
Portfolio at an annual rate of 0.075% of the Portfolio's average daily net
assets.
Forum Accounting Services, LLC ("FAcS") performs portfolio accounting
services for the Funds and the Portfolios, including determination of each
Fund's and Portfolio's net asset value, pursuant to separate agreements between
FAcS and each of the Trust, Core Trust and Schroder Core
THE DISTRIBUTOR
Pursuant to a distribution agreement with the Trust, Forum Financial
Services, Inc. acts as distributor of the Funds' shares. FFSI acts as the agent
of the Trust in connection with the offering of shares of the Funds. FFSI
receives, and may reallow to certain financial institutions (i.e. selected
brokers or dealers), the sales charge paid by the purchasers of the Funds'
shares. FFSI may enter into arrangements with banks, broker-dealers or other
financial institutions (i.e. selected brokers or dealers) through which
investors may purchase or redeem shares. FFSI may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund. Investors purchasing
shares of the Funds through another financial institution should read any
materials and information provided by the financial institution to acquaint
themselves with its procedures and any fees that it may charge. FFSI is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
28
<PAGE>
SHAREHOLDER SERVICING
Shareholder inquiries and communications concerning a Fund may be
directed to FSS, the Funds' transfer agent and dividend disbursing agent. FSS
maintains for each shareholder of record, an account (unless such accounts are
maintained by sub-transfer agents) to which all shares purchased are credited,
together with any distributions that are reinvested in additional shares. FSS
also performs other transfer agency functions and acts as dividend disbursing
agent for the Trust. For its services, FSS receives a fee at an annual rate of
0.25% of each Fund's average daily net assets plus $12,000.
FSS is authorized to subcontract any or all of its functions to one or more
qualified sub-transfer agents or financial institutions which agree to comply
with the terms of the Transfer Agency and Services Agreement. FSS may pay those
agents for their services, but no such payment will increase FSS's compensation
from the Trust. Fund shares may also be available for purchase through these
financial institutions as described under "Purchase and Redemptions of Shares -
Purchases and Redemptions Through Financial Institutions."
EXPENSES OF THE TRUST
The Trust is obligated to pay for all its expenses. The Funds' expenses
comprise Trust expenses attributable to the Funds and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Funds
and the portfolios in proportion to their average net assets. Each Fund's
expenses include the Fund's pro rata share of the operating expenses of the
Portfolio or Portfolios, if any, in which it invests, which are borne indirectly
by the Fund's shareholders. A Fund's expenses include: interest charges; taxes;
brokerage fees and commissions; certain insurance premiums; applicable fees and
expenses under the Trust's service contracts, custodian fees, fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; auditing, legal and compliance expenses; costs of preparing
and printing the Trust's prospectuses, statements of additional information and
shareholder reports and delivering them to existing shareholders; compensation
of certain of the Trust's, trustees, officers and employees and other personnel
performing services for the Trust, and registration fees and related expenses.
Each Adviser and each other service provider in its sole discretion,
may waive all or any portion of its respective fees, which are accrued daily and
paid monthly. Any such waiver, which could be discontinued at any time, would
have the effect of increasing a Fund's performance for the period during which
the waiver was in effect and would not be recouped at a later date.
YEAR 2000 AND EURO
The Funds could be adversely affected if the computer systems used by the
Advisers and other service providers (and in particular foreign service
providers) to the Funds do not properly process and calculate date related
information and data from and after January 1, 2000 or information regarding the
new common currency of The European Union. The Year 2000 and Euro issues also
may adversely affect the Funds' investments. The Advisers and FAdS are taking
steps to address the Year 2000 issue with respect to the computer systems that
they use and to obtain reasonable assurances that comparable steps are being
taken by the Funds' other major service providers. There can be no assurance,
however, that these steps will be sufficient to avoid any adverse impact on the
Funds from this problem.
7. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL INFORMATION
Investments in a Fund may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are
29
<PAGE>
effected through FSS, which accepts orders for purchases and redemptions from
shareholders of record and new investors. Shareholders of record will receive
from the Trust periodic statements listing all account activity during the
statement period. The Trust reserves the right in the future to modify, limit or
terminate any shareholder privilege upon appropriate notice to shareholders and
charge a fee for certain shareholder services, although no such fees are
currently contemplated.
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined after receipt of an order in proper form plus any applicable
sales charge on all weekdays except days when the New York Stock Exchange is
closed ("Business Day"). Normally, the New York Stock Exchange is closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas . Fund shares
are issued immediately after an order for the shares in proper form is accepted
by FSS. Each Fund's net asset value is calculated at 4:00 p.m., Eastern Time on
each Business Day. Fund shares become entitled to receive dividends on the same
Business Day that the order is accepted.
The Funds reserve the right to reject any subscription for the purchase
of their shares. Stock certificates are issued only to shareholders of record
upon their written request and no certificates are issued for fractional shares.
REDEMPTIONS
Fund shares may be redeemed without charge at their net asset value on any
Business Day. There is no minimum period of investment and no restriction on the
frequency of redemptions. Fund shares are redeemed as of the next determination
of a Fund's net asset value following receipt by FSS of the redemption order in
proper form (and any supporting documentation which the Transfer Agent may
require). Shares redeemed are not entitled to receive dividends declared on the
day on which the redemption becomes effective.
Normally, redemption proceeds are paid immediately following, but in no
event later than seven days following, receipt of a redemption order in proper
form by FSS. Proceeds of redemption requests (and exchanges), however, will not
be paid unless any check used for investment has been cleared by the
shareholder's bank. This delay may be avoided by investing through wire
transfers. Unless otherwise indicated, redemption proceeds normally are paid by
check mailed to the shareholder's record address. The right of redemption may
not be suspended nor the payment dates postponed except when the New York Stock
Exchange is closed (or when trading thereon is restricted) for any reason other
than its customary weekend or holiday closings or under any emergency or other
circumstance as determined by the Securities and Exchange Commission.
Proceeds of redemptions normally are paid in cash. However, payments
may be made wholly or partially in portfolio securities if the Board determines
that payment in cash would be detrimental to the best interests of a Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to insure that telephone orders
are genuine including the recording of certain transactions. If the Trust did
not employ such procedures it could be liable for any losses due to unauthorized
or fraudulent telephone instructions. Shareholders should verify the accuracy of
telephone instructions immediately upon receipt of confirmation statements.
During times of drastic economic or market changes, the telephone redemption and
exchange privileges may be difficult to implement. In the event that a
shareholder is unable to reach FSS by telephone, requests may be mailed or
hand-delivered to FSS.
30
<PAGE>
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder
services apply to investors who invest in a Fund directly. These investors may
open an account by completing the application at the back of this Prospectus or
by contacting FSS at the address on the first page of this prospectus. For those
shareholder services not referenced on the account application, investors should
request an Optional Services Form from FSS.
INITIAL PURCHASE OF SHARES
There is a $2,000 minimum for initial investments in any Fund ($1,000 for
individual retirement accounts).
BY MAIL. Investors may send a check made payable to the Trust along
with a completed account application for a Fund to FSS. Checks are accepted at
full value subject to collection. If a check does not clear, the purchase order
will be canceled and the investor will be liable for any losses or fees incurred
by the Trust, FSS or FFSI.
For individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of a Fund must be made payable to "Forum
Funds" or to one or more owners of that account and endorsed to Forum Funds. For
corporation, partnership, trust, 401(k) plan or other non-individual type
accounts, the check used to purchase shares of a Fund must be made payable on
its face to "Forum Funds." No other method of payment by check will be accepted.
All purchases must be paid in U.S. dollars; checks must be drawn on U.S. banks.
Payment by Traveler's Checks is prohibited.
BY BANK WIRE. To make an initial investment in any Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
BankBoston
Boston, MA
ABA# 011000390
Credit To: Forum Shareholder Services, LLC
Account #: 541-54171
Re: [Name of Fund]
Account #:______________
Account Name: __________
The investor should then promptly complete and mail the account
application. Any investor planning to wire funds should instruct a bank early in
the day so the wire transfer can be received prior to 4:00 p.m., Eastern time,
on the same day. There may be a charge imposed by the bank for transmitting
payment by wire, and there also may be a charge for the use of Federal funds.
SUBSEQUENT PURCHASES OF SHARES
There is a $250 minimum for subsequent purchases. Subsequent purchases
may be made by mailing a check or by sending a bank wire as indicated above.
Shareholders using the wire system for purchase should first telephone the Trust
at (207) 879-0001 or 800-94FORUM (800-943-6786) to notify it of the wire
transfer. All payments should clearly indicate the shareholder's name and
account number.
AUTOMATIC INVESTMENT. Shareholders may purchase Fund shares at regular,
preselected intervals by authorizing the automatic transfer of funds from a
designated bank account maintained with a United States banking institution
which is
31
<PAGE>
an Automated Clearing House member. Under the program, existing shareholders may
authorize amounts of $250 or more to be debited from their bank account and
invested in a Fund monthly or quarterly. Shareholders wishing to participate in
this program may obtain the applicable forms from FSS. Shareholders may
terminate their automatic investments or change the amount to be invested at any
time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or by check or
receive redemption proceeds by bank wire must elect these options by properly
completing the appropriate sections of their account application. These
privileges may not be available until several weeks after a shareholder's
application is received. Shares for which certificates have been issued may not
be redeemed by telephone.
BY MAIL. Shareholders may make a redemption in any amount by sending a
written request to FSS accompanied by any stock certificate that may have been
issued to the shareholder. All certificates submitted for redemption must be
endorsed by the shareholder with signature guaranteed. All written requests for
redemption must be signed by the shareholder and, in some cases, must have a
signature guarantee. See "Purchase and Redemption Procedures -- Other Redemption
Matters."
BY TELEPHONE. A shareholder that has elected telephone redemption
privileges may make a telephone redemption request by calling FSS at (207)
879-0001 or 800-94FORUM (800-943-6786) and providing the shareholder's account
number, the exact name in which the shareholder's shares are registered and the
shareholder's social security or taxpayer identification number. In response to
the telephone redemption instruction, the Fund will mail a check to the
shareholder's record address or, if the shareholder has elected wire redemption
privileges, wire the proceeds.
BY BANK WIRE. For redemptions of more than $5,000, a shareholder that
has elected wire redemption privileges may request the Fund to transmit the
redemption proceeds by Federal funds wire to a bank account designated on the
shareholder's account application. To request bank wire redemptions by
telephone, the shareholder also must have elected the telephone redemption
privilege. Redemption proceeds are transmitted by wire on the Business Day after
the redemption request in proper form is received by FSS.
AUTOMATIC REDEMPTIONS. Shareholders may redeem Fund shares at regular,
preselected intervals by authorizing the automatic redemption of shares from
their Fund account. Redemption proceeds will be sent either by check or by
automatic transfer to a designated bank account maintained with a United States
banking institution which is an Automated Clearing House member. Under this
program, shareholders may authorize the redemption of shares in amounts of $250
or more from their account monthly or quarterly. Shareholders may terminate
their automatic redemptions or change the amount to be redeemed at any time by
written notification to FSS.
OTHER REDEMPTION MATTERS. To protect shareholders and the Funds against
fraud, signatures on certain requests must have a signature guarantee. Requests
must be made in writing and include a signature guarantee for any of the
following transactions: (1) any endorsement on a stock certificate; (2) written
instruction to redeem Shares whose value exceeds $50,000; (3) instructions to
change a shareholder's record name and address; (4) redemption in an account in
which the account address or account registration has changed within the last 30
days; (5) the proceeds are not being sent to the address of record,
preauthorized bank account, or preauthorized brokerage firm account; (6)
proceeds are to be paid to someone other than the registered owners or to an
account with a different registration; or (7) change of automatic
32
<PAGE>
investment or redemption, dividend election, telephone redemption or exchange
option election or any other option election in connection with the
shareholder's account.
Signature guarantees may be provided by any eligible institution
acceptable to FSS, including a bank, a broker, a dealer, a national securities
exchange, a credit union, or a savings association that is authorized to
guarantee signatures. Whenever a signature guarantee is required, the signature
of each person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost, all
distributions on the account will be reinvested in additional shares of a Fund.
In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to FSS will be reinvested and
the checks will be canceled.
SALES CHARGES
The public offering price for shares of a Fund is the sum of the net
asset value of the shares being purchased plus any applicable sales charge. No
sales charge is assessed on the reinvestment of dividends or other
distributions. The sales charge is assessed for each Fund as follows:
<TABLE>
<S> <C> <C> <C>
PUBLIC OFFERING NET ASSET DEALERS'
AMOUNT OF PURCHASE PRICE VALUE* REALLOWANCE
- -------------------------------------------- ------------------------ ------------------ -------------------
less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $200,000 3.50% 3.63% 3.10%
$200,000 but less than $400,000 3.00% 3.09% 2.70%
$400,000 but less than $600,000 2.50% 2.56% 2.25%
$600,000 but less than $800,000 2.00% 2.04% 1.75%
$800,000 but less than $1,000,000 1.50% 1.52% 1.30%
$1,000,000 and up 0.50% 0.50% 0.40%
</TABLE>
* Rounded to the nearest one-hundredth percent.
FFSI's commission is the sales charge shown above less any applicable
discount reallowed to selected brokers and dealers (including banks and bank
affiliates purchasing shares as principal or agent). Normally, FFSI will reallow
discounts to selected brokers and dealers in the amounts indicated in the table
above. From time to time, however, FFSI may elect to reallow the entire sales
charge to selected brokers or dealers for all sales with respect to which orders
are placed with FFSI during a particular period. The dealers' reallowance may be
changed from time to time.
In addition, from time to time and at its own expense, FFSI may provide
compensation, including financial assistance, to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging;
(2) tickets for entertainment events; and (3) merchandise.
No sales charge will be assessed on purchases made for investment purposes
by: (1) any bank, trust company, savings association or similar institution with
whom FFSI has entered into a share purchase agreement acting on behalf of the
institution's fiduciary customer accounts or any account maintained by its trust
department (including a pension, profit sharing or other
33
<PAGE>
employee benefit trust created pursuant to a qualified retirement plan); (2) any
registered investment adviser with whom FFSI has entered into a share purchase
agreement and which is acting on behalf of its fiduciary customer accounts; (3)
any registered investment adviser which is acting on behalf of its fiduciary
customer accounts and for which it provides additional investment advisory
services; (4) any broker-dealer with whom FFSI has entered into a Selected
Dealer Agreement and a Fee-Based or Wrap Account Agreement and which is acting
on behalf of its fee-based program clients; (5) directors and officers of the
Trust; directors, officers and full-time employees of the Advisers, FFSI, any of
their affiliates or any organization with which FFSI has entered into a selected
dealer or processing agent agreement; the spouse, sibling, direct ancestor or
direct descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the benefit
of any such person or relative; or the estate of any such person or relative;
(6) any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and completes a
reinstatement form upon investment; (7) persons who exchange into a Fund from a
mutual fund other than a fund of the Trust that participates in the Trust's
exchange program, See "Purchases and Redemptions of Shares - Exchanges"; and (8)
employee benefit plans qualified under Section 401 of the Internal Revenue Code
of 1986. The Trust may require appropriate documentation from an investor
concerning that investor's eligibility to purchase Fund shares without a sales
charge. Any shares so purchased may not be resold except to the Fund.
REDUCED SALES CHARGES. For an investor to qualify for a reduced sales
charge as described below, the investor must notify FSS at the time of purchase.
Programs for reduced sales charges may be modified or terminated at any time and
are subject to confirmation of an investor's holdings.
RIGHTS OF ACCUMULATION. An investor's purchase of additional shares of a
Fund may qualify for rights of accumulation ("ROA") wherein the applicable sales
charge will be based on the total of the investor's current purchase and the net
asset value (at the end of the previous Business Day) of shares of a Fund held
by the investor. For example, if an investor owned shares of a Fund worth
$400,000 at the then current net asset value and purchased shares of the Fund
worth an additional $50,000, the sales charge for the $50,000 purchase would be
at the 2.50% rate applicable to a single $450,000 purchase, rather than at the
4.0% rate. To qualify for ROA on a purchase, the investor must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based
on cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of a Fund. Each purchase of shares under a LOI will be made
at the public offering price applicable at the time of the purchase to a single
transaction of the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the
full amount indicated. Shares purchased with the first 5% of the amount
indicated in the LOI will be held subject to a registered pledge (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased within 13 months. Pledged shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the shares will be released from
pledge. Share certificates are not issued for shares purchased under an LOI.
Investors wishing to enter into an LOI can obtain a form of LOI from their
broker or financial institution or by contacting FSS.
34
<PAGE>
EXCHANGES
Fund shareholders are entitled to exchange their shares for shares of
any other fund of the Trust or any other fund that participates in the exchange
program and whose shares are eligible for sale in the shareholder's state of
residence. Exchanges may only be made between accounts registered in the same
name. A completed account application must be submitted to open a new account in
a Fund through an exchange if the shareholder requests any shareholder privilege
not associated with the existing account. Exchanges are subject to the fees
charged by, and the restrictions listed in the prospectus for, the fund into
which a shareholder is exchanging, including minimum investment requirements.
The Fund does not charge for exchanges, and there is currently no limit on the
number of exchanges a shareholder may make.
The Trust (and Federal tax law) treats an exchange as a redemption of the
shares owned and the purchase of the shares of the fund being acquired.
Redemptions and purchases are effected at the respective net asset values of the
two funds as next determined following receipt of proper instructions and all
necessary supporting documents by the fund whose shares are being exchanged.
If a shareholder exchanges into a fund that imposes a sales charge,
that shareholder is required to pay the difference between that fund's sales
charge and any sales charge the shareholder has previously paid in connection
with the shares being exchanged. For example, if a shareholder paid a 2% sales
charge in connection with the purchase of the shares of a fund and then
exchanged those shares into another fund with a 3% sales charge, that
shareholder would pay an additional 1% sales charge on the exchange. Shares
acquired through the reinvestment of dividends and distributions are deemed to
have been acquired with a sales charge rate equal to that paid on the shares on
which the dividend or distribution was paid. The exchange privilege may be
modified materially or terminated by the Trust at any time upon 60 days' notice
to shareholders.
EXCHANGES BY MAIL. Exchanges may be accomplished by written
instructions to FSS accompanied by any stock certificate that may have been
issued to the shareholder. All written requests for exchanges must be signed by
the shareholder (a signature guaranteed is not required) and all certificates
submitted for exchange must be endorsed by the shareholder with signature
guaranteed.
EXCHANGES BY TELEPHONE. Exchanges may be accomplished by telephone by
any shareholder that has elected telephone exchange privileges by calling FSS at
(207) 879-0001 or 800-94FORUM (800-943-6786) and providing the shareholder's
account number, the exact name in which the shareholder's shares are registered
and the shareholder's social security or taxpayer identification number.
RETIREMENT PROGRAMS
INDIVIDUAL RETIREMENT ACCOUNTS
A single Fund should not be considered as a complete investment vehicle
for the assets held in individual retirement accounts ("IRAs"). The minimum
initial investment for an IRA is $1,000, and the minimum subsequent investment
is $250. There are limits on the amount of tax-deductible contributions
individuals may make into the various types of IRAs. Individuals should consult
their tax advisers with respect to their specific tax situations as well as with
respect to state and local taxes and read any materials supplied by the Funds
concerning Fund sponsored IRAs.
EMPLOYEE BENEFIT PLANS
A Fund may be a suitable investment vehicle for part of the assets held
in various employee benefit plans, including 401(k) plans, 403(b) plans and
SARSEPs.
35
<PAGE>
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealer banks,
trust companies and their affiliates, and other financial institutions,
including affiliates of the FSS. Certain financial institutions (i.e. selected
brokers and dealers) may receive as a dealer's reallowance a portion of the
sales charge paid by their customers who purchase Fund shares. In addition,
financial institutions may charge their customers a fee for their services and
are responsible for promptly transmitting purchase, redemption and other
requests to the Fund. The Trust is not responsible for the failure of any
institution to promptly forward these requests.
Investors who purchase shares through a financial institution may be
charged a fee if they effect transactions in Fund shares through a broker or
agent and will be subject to the procedures of their financial institution,
which may include limitations, investment minimums, cutoff times and
restrictions in addition to, or different from, those applicable to shareholders
who invest in a Fund directly. These investors should acquaint themselves with
their financial institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their financial
institution. Customers who purchase Fund shares through a financial institution
may or may not be the shareholder of record and, subject to their financial
institution's and a Fund's procedures, may have Fund shares transferred into
their name. Under their arrangements with the Trust, broker-dealer financial
institutions are not generally required to deliver payment for purchase orders
until several business days after a purchase order has been received by a Fund.
Certain other financial institutions may also enter purchase orders with payment
to follow.
Certain shareholder services may not be available to shareholders who have
purchased shares through a financial institution. These shareholders should
contact their financial institution for further information. The Trust may
confirm purchases and redemptions of a financial institution's customers
directly to the financial institution, which in turn will provide its customers
with such confirmations and periodic statements as may be required by law or
agreed to between the financial institution and its customers. The Trust is not
responsible for the failure of any financial institution to carry out its
obligations to its customer. Certain states permit shares of a Fund to be
purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
8. DISTRIBUTIONS AND TAX MATTERS
THE FUNDS
DISTRIBUTIONS
Distributions of each Fund's net investment income are declared and
paid annually. Distributions of net realized long-term capital gain are
distributed annually by each Fund.
Shareholders may have all distributions reinvested in additional shares
of the Fund in which they invest or received in cash. In addition, shareholders
may have distributions of net capital gain reinvested in additional shares of
the Fund in which they invest and distributions of net investment income paid in
cash. All distributions are treated in the same manner for Federal income tax
purposes whether received in cash or reinvested in shares of a Fund.
All distributions are reinvested unless another option is selected. All
distributions will be reinvested at a Fund's net asset value as of the payment
date of the dividend.. All distributions not reinvested will be paid to the
shareholder in cash and may be paid more than seven days following the date on
which dividends would otherwise be reinvested.
36
<PAGE>
TAXES
Each Fund intends to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Funds will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to their shareholders.
Because each Fund intends to distribute all of their net investment income and
net capital gain each year, each Fund should avoid all Federal income and excise
taxes.
Distributions paid by each Fund out of its net investment income
(including realized net short-term capital gain) are taxable to the shareholders
of the Fund as ordinary income. Distributions of net capital gain (i.e., the
excess of net gain from capital assets held for more than one year over net
losses from capital assets held for no more than one year) will be treated in
the hands of the shareholders as long-term capital gain, regardless of how long
a shareholder has held shares in a Fund. If Fund shares are sold at a loss after
being held for six months or less, the loss will be treated as long-term capital
loss to the extent of any distribution of net capital gain received on those
shares.
Any distribution received by a shareholder reduces the net asset value of
the shareholder's shares by the amount of the distribution. To the extent that
the income or gain comprising adistribution was accrued by a Fund before the
shareholder purchased the shares, the distribution would be in effect a return
of capital to the shareholder. All distributions, including those that operate
as a return of capital, however, are taxable as described above to the
shareholder receiving them regardless of the length of time he may have held
shares prior to the distribution.
It is expected that a portion of the distributions paid by Investors
Equity Fund, Equity Index Fund, and Small Company Opportunities Fund will
qualify for the dividends received deduction for corporations.
The Funds may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by a Fund
will be mailed to shareholders shortly after the close of each year.
EFFECT OF FOREIGN TAXES. With respect to each Fund that invests in
foreign securities, foreign governments may impose taxes on the Fund or
Portfolio and its investments, which generally reduce the Fund's income.
However, an offsetting tax credit or deduction may be available to you. If so,
your tax statement will show more taxable income than was actually distributed
by the Fund but will also show the amount of the available offsetting credit or
deduction.
If International Equity Fund and Emerging Markets Fund are eligible to
do so, each intends to elect to permit its shareholders to take a credit (or a
deduction) for the Fund's share of foreign income taxes paid by the Portfolio in
which the Fund invests. If a Fund does make such an election, its shareholders
would include as gross income in their federal income tax returns both: (1)
distributions received from the Fund; and (2) the amount that the Fund advises
is their pro rata portion of foreign income taxes paid with respect to or
withheld from, dividends and interest paid to the Fund or Portfolio from its
foreign investments. Shareholders then would be entitled, subject to certain
limitations, to take a foreign tax credit against their federal income tax
liability for the amount of such foreign taxes or else to deduct
37
<PAGE>
such foreign taxes as an itemized deduction from gross income.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisors.
THE PORTFOLIOS
The Portfolios are not required to pay Federal income taxes on their
net investment income and capital gain, as they are treated as partnerships for
Federal income tax purposes. All interest, dividends and gain and losses of a
Portfolio are deemed to have been "passed through" to the Fund in proportion to
its holdings of the Portfolio, regardless of whether such interest, dividends or
gain have been distributed by the Portfolio. Investment income received by a
Fund from sources within foreign countries may be subject to foreign income or
other taxes, with respect to which shareholders may be entitled to claim a
credit or deduction.
9. OTHER INFORMATION
PERFORMANCE INFORMATION
Each Fund's performance may be quoted in advertising in terms of yield or
total return. Both types are based on historical results and are not intended to
indicate future performance. A Fund's yield measures the rate of income earned
by the Fund as a percentage of the Fund's share price. Yield is calculated by
dividing the net investment income of a Fund for the stated period by the
average number of shares entitled to receive dividends and expressing the result
as an annualized percentage rate based on the Fund's share price at the end of
the period. Total return refers to the average annual compounded rates of return
over some representative period that would equate an initial amount invested at
the beginning of a stated period to the ending redeemable value of the
investment, after giving effect to the reinvestment of all dividends and
distributions and deductions of expenses during the period. A Fund also may
advertise its total return over different periods of time or by means of
aggregate, average, year by year, or other types of total return figures.
Because average annual returns tend to smooth out variations in a Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results. A computation of yield or total return that does not take
into account the sales load paid by an investor will be higher than a
computation based on the public offering price of the shares purchased that does
take into account payment of a sales load.
Each Fund's advertisements may reference ratings and rankings among
similar funds by independent evaluators such as Morningstar, Lipper Analytical
Services, Inc. or IBC/Donoghue, Inc. In addition, the performance of a Fund may
be compared to recognized indices of market performance. The comparative
material found in a Fund's advertisements, sales literature or reports to
shareholders may contain performance ratings. These are not to be considered
representative or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate to
purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FAdS would permit a bank or bank affiliate to
perform sub-transfer agent or similar services for the Trust and its
shareholders. If a bank or bank affiliate were prohibited from performing all or
a part of the foregoing services, its shareholder customers would be permitted
to remain shareholders of the Trust and alternative means for continuing to
service them would be sought. It is not expected that shareholders would suffer
adverse financial consequences as a result of any changes in bank or bank
affiliate service arrangements.
38
<PAGE>
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of a Fund as of 4:00
p.m., Eastern Time, on each Business Day by dividing the value of the Fund's net
assets (I.E., the value of its portfolio securities and other assets less its
liabilities) by the number of that Fund's shares outstanding at the time the
determination is made. Securities owned by a Fund or Portfolio for which market
quotations are readily available are valued at current market value or, in their
absence, at fair value as determined by the Board, the Core Trust Board or the
Schroder Core Board, as applicable, or pursuant to procedures approved by the
Board, the Core Trust Board, or the Schroder Core Board, as applicable.
THE TRUST AND ITS SHARES
The Trust was originally incorporated in Maryland on March 24, 1980 and
assumed the name of Forum Funds, Inc. on March 16, 1987. On January 5, 1996,
Forum Funds, Inc. was reorganized as a Delaware business trust under the name
Forum Funds. The Trust has an unlimited number of authorized shares of
beneficial interest. The Board may, without shareholder approval, divide the
authorized shares into an unlimited number of separate portfolios or series
(such as the Fund) and may in the future divide portfolios or series into two or
more classes of shares (such as Investor and Institutional Shares). Currently
the authorized shares of the Trust are divided into 23 separate series.
Generally, shares will be voted in the aggregate without reference to a
particular portfolio or class, except if the matter affects only one portfolio
or class or voting by portfolio or class is required by law, in which case
shares will be voted separately by portfolio. Delaware law does not require the
Trust to hold annual meetings of shareholders, and it is anticipated that
shareholder meetings will be held only when specifically required by Federal or
state law. Shareholders (and Trustees) have available certain procedures for the
removal of Trustees. There are no conversion or preemptive rights in connection
with shares of the Trust. All shares when issued in accordance with the terms of
the offering will be fully paid and nonassessable. Shares are redeemable at net
asset value, at the option of the shareholders, subject to any contingent
deferred sales charge that may apply. A shareholder in a portfolio is entitled
to the shareholder's pro rata share of all dividends and distributions arising
from that portfolio's assets and, upon redeeming shares, will receive the
portion of the portfolio's net assets represented by the redeemed shares.
From time to time, certain shareholders may own a large percentage of the
shares of the Fund. Accordingly, those shareholders may be able to greatly
affect (if not determine) the outcome of a shareholder vote. As of September 1,
1998, Bank of New Hampshire may be deemed to have controlled Investors Equity
Fund, Peoples Heritage Bank may be deemed to have controlled Equity Index Fund
through investments in the Funds by their customers. As of the same date,
Donaldson, Lufkin & Jenrette Sec Corp. may be deemed to have controlled
International Equity Fund, Small Company Opportunities Fund and Emerging Markets
Fund through investments in the Funds by their clients. As of this date, Forum
Administrative Services, LLC and/or its affiliates had controlling interests in
International Equity Fund, Small Company Opportunities Fund and Emerging Markets
Fund.
CORE AND GATEWAY(R) STRUCTURE
THE PORTFOLIOS
Each of Equity Index Fund, International Equity Fund and Emerging
Markets Fund seeks to achieve its investment objective by investing all of its
investable assets in a Portfolio, which has substantially the same investment
objective and policies as the Fund. Small Company Opportunities Fund currently
seeks to achieve its investment objective by investing in several Portfolios.
Accordingly, the Portfolios directly acquire their
39
<PAGE>
own securities and the Funds acquire an indirect interest in those securities.
Index Portfolio, International Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio and Small Cap Value
Portfolio are separate series of Core Trust, a business Trust organized under
the laws of the State of Delaware in September 1994. Schroder EM Core Portfolio
is a separate series of Schroder Core, a business trust organized under the laws
of the State of Delaware in September 1995. Each of Core Trust and Schroder Core
is registered as an open-end, management, investment company. Core Trust
currently has 21 separate portfolios and Schroder Core currently has eight
separate portfolios. The assets of each Portfolio, belong only to, and the
liabilities of each Portfolio are borne solely by, the Portfolio and no other
portfolio of the respective trust.
The investment objective and fundamental investment policies of the
Funds and the Portfolios can be changed only with shareholder approval. See
"Investment Objectives and Policies" and "Management" for a complete description
of the Portfolios' investment objective, policies, restrictions, management, and
expenses.
The Funds' investment in the Portfolios is in the form of a
non-transferable beneficial interest. As of the date of this Prospectus, each of
the Portfolios has at least one other open-end management investment company
that invests in the Portfolio. The Portfolios may permit other investment
companies or institutional investors to invest in them. All investors in a
Portfolio will invest on the same terms and conditions as the Fund and will pay
a proportionate share of the Portfolio's expenses.
The Portfolios normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in a Portfolio will be entitled to vote
in proportion to its relative beneficial interest in the Portfolio. On most
issues subject to a vote of investors, as required by the Act and other
applicable law, a Fund will solicit proxies from shareholders of the Fund and
will vote its interest in the Portfolio in proportion to the votes cast by its
shareholders. If there are other investors in a Portfolio, there can be no
assurance that any issue that receives a majority of the votes cast by Fund
shareholders will receive a majority of votes cast by all investors in the
Portfolio; indeed, if other investors hold a majority interest in a Portfolio,
they could hold have voting control of the Portfolio.
The Portfolios will not sell their shares directly to members of the
general public. Another investor in a Portfolio, such as an investment company,
that might sell its shares to members of the general public would not be
required to sell its shares at the same public offering price as a Fund
investing in the Portfolio, and could have different advisory and other fees and
expenses than the Fund. Therefore, Fund shareholders may have different returns
than shareholders in another investment company that invests in a Portfolio.
Information regarding the funds that invest in the Schroder EM Core Portfolio
and any such funds in the future will be available from Schroder Core by calling
FFSI at (800) 290-9826. Information regarding the funds that invests in the
other Portfolios and any such funds in the future will be available from Core
Trust by calling FFSI at (207) 879-1900.
Under the Federal securities laws, any person or entity that signs a
registration statement may be liable for a misstatement or omission of a
material fact in the registration statement. Both Core Trust and Schroder Core,
their respective Trustees and certain of their officers are required to sign the
registration statement of the Trust and the registration statements of certain
other publicly-offered investors in the Portfolio. In addition, under the
Federal securities laws, Core Trust and Schroder Core could be liable for a
misstatements or omissions of a material fact in any proxy soliciting material
of a publicly-offered investor in Core Trust or Schroder Core, including the
Fund
40
<PAGE>
Under the Trust Instrument for Core Trust, each investor in Index Portfolio or
International Portfolio, including the Trust, indemnifies Core Trust and its
Trustees and officers ("Core Trust Indemnitees") against certain claims.
Likewise, under the Trust Instrument for the Schroder Core, each investor in the
Schroder EM Core Portfolio, including the Trust, indemnifies Schroder Core and
its Trustees and officers ("Schroder Core Indemnitees") against certain claims.
Indemnified claims are those brought against Core Trust Indemnitees or Schroder
Core Indemnitees but based on a misstatement or omission of a material fact in
the investor's registration statement or proxy materials, except to the extent
such claim is based on a misstatement or omission of a material fact relating to
information about Core Trust or Schroder Core in the investor's registration
statement or proxy materials that was supplied to the investor by Core Trust or
Schroder Core. Similarly, Core Trust and Schroder Core indemnify each investor
in their respective Portfolios, including the Funds, for any claims brought
against the investor with respect to the investor's registration statement or
proxy materials, to the extent the claim is based on a misstatement or omission
of a material fact relating to information about Core Trust or Schroder Core
that is supplied to the investor by Core Trust or Schroder Core. In addition,
each registered investment company investor in a Portfolio indemnifies each Core
Trust Indemnitee or Schroder Core Indemnitee, as applicable, against any claim
based on a misstatement or omission of a material fact relating to information
about a series of the registered investment company that did not invest in the
Core Trust or Schroder Core. The purpose of these cross-indemnity provisions is
principally to limit the liability of each of Core Trust and Schroder Core to
information that it knows or should know and can control. With respect to other
prospectuses and other offering documents and proxy materials of investors in
Core Trust or in Schroder Core, Core Trust's and Schroder Core's liability is
similarly limited to information about and supplied by Core Trust or Schroder
Core, respectively.
CERTAIN RISKS OF INVESTING IN THE PORTFOLIOS
A Fund's investment in a Portfolio may be affected by the actions of
other large investors in the Portfolio, if any. For example, if a Portfolio had
a large investor other than the Fund that redeemed its interest in the
Portfolio, the Portfolio's remaining investors (including the Fund) might, as a
result, experience higher pro rata operating expenses, thereby producing lower
returns.
A Fund may withdraw its entire investment from a Portfolio at any time,
if the Board determines that it is in the best interests of the Fund and its
shareholders to do so. A Fund might withdraw, for example, if there were other
investors in a Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Board.
A withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio. That distribution could result
in a less diversified portfolio of investments for the Fund and could affect
adversely the liquidity of the Fund's portfolio. If the Fund decided to convert
those securities to cash, it would incur brokerage fees or other transaction
costs. If a Fund withdrew its investment from a Portfolio, the Board would
consider what action might be taken, including the management of the Fund's
assets in accordance with its investment objective and policies by the Fund's
Adviser, or another investment adviser or the investment of Fund's assets in
another pooled investment entity. The inability of a Fund to find a suitable
replacement investment, in the event that the Fund's Adviser did not manage the
Fund's assets directly, could have a significant impact on shareholders of the
Fund.
Each investor in a Portfolio, including a Fund, will be liable for all
obligations of the Portfolio,
41
<PAGE>
but not any other portfolio of Core Trust or Schroder Core, as applicable. The
risk to an investor in a Portfolio of incurring financial loss on account of
such liability, however, would be limited to circumstances in which the
Portfolio was unable to meet its obligations. Upon liquidation of a Portfolio,
investors, including the Fund, would be entitled to share pro rata in the net
assets of the Portfolio available for distribution to investors.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE SAI AND THE
FUNDS' OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE FUNDS'
SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER
MAY NOT LAWFULLY BE MADE.
42
<PAGE>
Account Application
<PAGE>
Account Application (cont.)
<PAGE>
EQUITY INDEX FUND
INVESTORS EQUITY FUND
SMALL COMPANY OPPORTUNITIES FUND
INTERNATIONAL EQUITY FUND
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
Account Information and
Shareholder Servicing: Distributor:
Forum Shareholder Services, LLC Forum Financial Services, Inc.
P.O. Box 446 Two Portland Square
Portland, Maine 04112 Portland, Maine 04101
207-879-0001 207-879-1900
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectus dated October 1,
1998, as amended from time to time, offering shares of Equity Index Fund,
Investors Equity Fund, Small Company Opportunities Fund, International Equity
Fund and Emerging Markets Fund (each, a "Fund" and collectively, the "Funds")
and should be read only in conjunction with the Prospectus, a copy of which may
be obtained by an investor without charge by contacting the Trust's Distributor
at the address listed above.
Each Fund, except for Investors Equity Fund, currently seeks to achieve its
investment objective by holding the securities of one or more separate
portfolios of registered open-end management investment company.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
TABLE OF CONTENTS
PAGE
1. General......................................................
2. Investment Policies..........................................
3. Additional Investment Policies...............................
4. Performance Data.............................................
5. Management...................................................
6. Determination of Net Asset Value.............................
7. Portfolio Transactions.......................................
8. Additional Purchase and
Redemption Information....................................
9. Tax Matters..................................................
10. Other Information............................................
Appendix A - Control Persons and Principal Holders of Securities A-1
Appendix B - Description of Securities Ratings.............. B-1
Appendix C - Additional Advertising Materials............... C-1
<PAGE>
1. GENERAL
THE TRUST. The Trust is registered with the SEC as an open-end, management
investment company and was organized as a business trust under the laws of the
State of Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to
the assets and liabilities of Forum Funds, Inc. Forum Funds, Inc. was
incorporated on March 24, 1980 and assumed the name of Forum Funds, Inc. on
March 16, 1987. The Board of Trustees (the "Board"), without shareholder
approval, has the authority to issue an unlimited number of shares of beneficial
interest of separate series with no par value per share and to create separate
classes of shares within each series. The Trust currently has authorized shares
of twenty-three series, including series that have not commenced operation as of
the date of this SAI. The series of the Trust are as follows:
<TABLE>
<S><C> <C>
Investors High Grade Bond Fund Austin Global Equity Fund
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Quadra Growth Fund
Maine Municipal Bond Fund Quadra Value Equity Fund
New Hampshire Bond Fund Equity Index Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Government Obligations Fund Investors Growth Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Treasury Obligations Fund International Equity Fund
Daily Assets Municipal Fund Emerging Markets Fund
Payson Value Fund Polaris Global Value Fund
Payson Balanced Fund
</TABLE>
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when required by Federal or state law. Shareholders (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
As of September 1, 1998, the officers and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of each Fund. Also as of that date,
Appendix A identifies all shareholders who own of record 5% or more of the
outstanding shares of any of the Registrant's series.
DEFINITIONS. As used in this Statement of Additional Information, the following
terms shall have the meanings listed:
"Board" means the Board of Trustees of Forum Funds.
"CFTC" means the Commodity Futures Trading Commission.
"Core Trust" means Core Trust (Delaware), a Delaware business trust.
"Core Trust Board" means the Board of Trustees of Core Trust (Delaware).
2
<PAGE>
"Core Trust Portfolio" means Index Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio and Small Cap Value
Portfolio, each, a series of Core Trust.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FSS" means Forum Shareholder Services, LLC.
"FFSI" means Forum Financial Services, Inc.
"Forum Advisors" means Forum Investment Advisors, LLC.
"Fund" means Equity Index Fund, Investors Equity Fund, Small Company
Opportunities Fund, International Equity Fund or Emerging Markets Fund.
"Fund Business Day" has the meaning ascribed thereto in the Funds' current
Prospectus.
"NRSRO" means a nationally recognized statistical rating organization.
"Norwest" means Norwest Investment Management, Inc.
"Norwest Bank" means Norwest Bank Minnesoata, N.A.
"Peoples" means Peoples Heritage Bank
"Portfolio" means Index Portfolio, , International Portfolio, Schroder EM Core
Portfolio, Small Cap Index Portfolio, Small Company Stock Portfolio, Small
Company Value Portfolio or Small Cap Value Portfolio.
"SAI" means this Statement of Additional Information.
"SCMI" means Schroder Capital Management International, Inc.
"SEC" means the U.S. Securities and Exchange Commission.
"Schroder Core" means Schroder Capital Funds, a Delaware business trust.
"Schroder Core Board" means the Board of Trustees of Schroder Core.
"Schroder Core Portfolio" means International Portfolio and Schroder EM Core
Portfolio.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
2. INVESTMENT POLICIES
INTRODUCTION
The following information supplements the discussion found under "Investment
Objective and Policies" in the Prospectus. Investors Equity seeks to achieve its
investment objective by investing directly in portfolio securities. Each of
Equity Index Fund, International Equity Fund and Emerging Markets Fund currently
seeks to achieve its investment objective by investing all of its investment
assets in a Portfolio, that has substantially the same investment objective and
policies. Because each Fund has substantially the same investment policies as
the Portfolio in which it invests and currently invests all of its assets in
that Portfolio, investment policies for these Funds and the Portfolios in which
they invest are generally discussed in reference to the Fund. Small Company
Opportunities Fund currently seeks to achieve its investment objective by
investing its assets in two or more Portfolios. Accordingly, that Fund may
invest in certain of the instruments described below through the Portfolios in
which it invests.
Each of International Fund and Emerging Markets Fund normally invests at least
65% of its total assets in equity securities of companies domiciled outside the
United States, including common and preferred stock, convertible securities,
depository receipts, and warrants or rights to purchase such equity securities.
Investments also may be made in debt obligations of foreign governments,
corporations and international or supranational organizations (and their
agencies or instrumentalities).
For temporary defensive purposes, to accumulate cash for investments, or to meet
anticipated redemptions, each Fund may invest in (or enter into repurchase
agreements with banks and broker dealers with respect to) short-term debt
securities, including Treasury bills and other U.S. Government securities, and
certificates of deposit and bankers' acceptances of U.S. banks. Each Fund may
also hold cash and time deposits in foreign banks, denominated in any major
foreign currency. In anticipation of foreign exchange requirements and to avoid
losses due to adverse movements in foreign currency exchange rates,
International Equity Fund and Emerging Markets Fund also may enter into forward
contracts to purchase and sell foreign currencies. See "Forward Foreign Currency
Exchange Contracts" below.
ILLIQUID AND RESTRICTED SECURITIES
No Fund may invest may invest more than 15% of its net assets in illiquid
investments. "Illiquid and Restricted Securities" under "Investment Policies" in
the Prospectus sets forth the circumstances in which a Fund may invest in
"restricted securities". In connection with the Funds' original purchase of
restricted securities, it may negotiate rights with the issuer to have such
securities registered for sale at a later time. Further, the registration
expenses of illiquid restricted securities may also be negotiated by a Fund with
the issuer at the time such securities are purchased by the Fund. When
registration is required, however, a considerable period may elapse between the
decision to sell the securities and the time the Fund would be permitted to sell
such securities. A similar delay might be experienced in attempting to sell such
securities pursuant to an exemption from registration. Thus, a Fund may not be
able to obtain as favorable a price as that prevailing at the time of the
decision to sell.
LOANS OF PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities subject to the restrictions stated
in the Prospectus. Under applicable regulatory requirements (which are subject
to change), the loan collateral must: (1) on each business day, at least equal
the market value of the loaned securities; and (2) must consist of cash, bank
letters of credit, U.S. Government securities, or other cash equivalents in
which the Fund is permitted to invest. To be acceptable as collateral, letters
of credit must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund's investment advisor. When lending portfolio
securities, a Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan plus the interest on the collateral securities (less any finders' or
administrative fees the Fund pays in arranging the loan). A Fund may share the
interest it receives on the collateral
4
<PAGE>
securities with the borrower as long as it realizes at least a minimum amount of
interest required by the lending guidelines established by the Board. A Fund
will not lend its portfolio securities to any officer, director, employee or
affiliate of the Fund or the investment adviser to the Fund. The terms of a
Fund's loans must meet certain tests under the Internal Revenue Code and permit
the Fund to reacquire loaned securities on five business days' notice or in time
to vote on any important matter.
U.S. GOVERNMENT SECURITIES
Each Fund may invest in obligations issued or guaranteed by the U.S. Government
or its agencies, instrumentalities or government-sponsored enterprises that have
remaining maturities not exceeding one year. Agencies and instrumentalities that
issue or guarantee debt securities and that have been established or sponsored
by the U.S. Government include the Bank for Cooperatives, the Export-Import
Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the Federal
Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Federal National Mortgage Association, the Government
National Mortgage Association and the Student Loan Marketing Association. Except
for obligations issued by the U.S. Treasury and the Government National Mortgage
Association, none of the obligations of the other agencies or instrumentalities
referred to above are backed by the full faith and credit of the U.S.
Government.
BANK OBLIGATIONS
Each Fund may invest in obligations of U.S. banks (including certificates of
deposit and bankers' acceptances ) having total assets at the time of purchase
in excess of $1 billion. Such banks must be members of the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance Corporation.
Each Fund also may invest in certificates of deposit issued by foreign banks,
denominated in any major foreign currency. Each Fund will invest in instruments
issued by foreign banks which, in the view of its investment adviser and the
Trustees of the Trust, Core Trust or Schroder Core, are of credit-worthiness and
financial stature in their respective countries comparable to U.S. banks used by
the Fund.
A certificate of deposit is an interest-bearing negotiable certificate issued by
a bank against funds deposited in the bank. A bankers' acceptance is a
short-term draft drawn on a commercial bank by a borrower, usually in connection
with an international commercial transaction. Although the borrower is liable
for payment of the draft, the bank unconditionally guarantees to pay the draft
at its face value on the maturity date.
SHORT-TERM DEBT SECURITIES
The Funds may invest in commercial paper, that is, short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations
and finance companies. The commercial paper purchased by a Fund for temporary
defensive purposes consists of direct obligations of domestic issuers which, at
the time of investment, are rated "P-1" by Moody's Investors Service, Inc.
("Moody's") or "A-1" by Standard & Poor's Corporation ("S&P"), or securities
that, if not rated, are issued by companies having an outstanding debt issue
currently rated "Aa" by Moody's or "AAA" or "AA" by S&P. The rating "P-1" is the
highest commercial paper rating assigned by Moody's, and the rating "A-1" is the
highest commercial paper ratings assigned by S&P.
REPURCHASE AGREEMENTS
Each Fund may invest in securities subject to repurchase agreements maturing in
seven days or less with U.S. banks or broker-dealers. In a typical repurchase
agreement, the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed-upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed-upon
interest rate effective for the period the buyer owns the security subject to
repurchase. The agreed-upon rate is unrelated to the interest rate on that
security. Each Fund's investment adviser will monitor the value of the
underlying security at the time the transaction is entered into and at all times
during the term of the repurchase agreement to insure that the value of the
security always equals or exceeds the repurchase price. In the event of default
by the seller under the repurchase agreement, a Fund may have difficulties in
5
<PAGE>
exercising its rights to the underlying securities and may incur costs and
experience time delays in connection with the disposition of such securities. To
evaluate potential risks, the investment adviser reviews the credit-worthiness
of those banks and dealers with which the Fund enters into repurchase
agreements.
CONVERTIBLE SECURITIES
The Funds may invest in convertible preferred stocks and convertible debt
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. Convertible securities rank
senior to common stocks in a corporation's capital structure and, therefore,
carry less risk than the corporation's common stock. The value of a convertible
security is a function of its "investment value" (its value as if it did not
have a conversion privilege), and its "conversion value" (the security's worth
if it were to be exchanged for the underlying security, at market value,
pursuant to its conversion privilege).
DEBT-TO-EQUITY CONVERSIONS
Emerging Markets Fund may invest up to 5% of its net assets in debt-to-equity
conversions incident to corporate reorganizations. Debt-to-equity conversion
programs are sponsored in varying degrees by certain emerging market countries,
particularly in Latin America, and permit investors to use external debt of a
country to make equity investments in local companies. Many conversion programs
relate primarily to investments in transportation, communication, utilities and
similar infrastructure-related areas. The terms of the programs vary from
country to country, but include significant restrictions on the application of
proceeds received in the conversion and on the repatriation of investment
profits and capital. When inviting conversion applications by holders of
eligible debt, a government usually specifies the minimum discount from par
value that it will accept for conversion. SCMI believes that debt-to-equity
conversion programs may offer investors opportunities to invest in otherwise
restricted equity securities that have a potential for significant capital
appreciation and intends to invest assets of the Portfolio to a limited extent
in such programs under appropriate circumstances. There can be no assurance that
debt-to-equity conversion programs will continue or be successful or that the
Portfolio will be able to convert all or any of its emerging market debt
portfolio into equity investments.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
To hedge against adverse price movements in the securities held in its portfolio
and the currencies in which they are denominated (as well as in the securities
it might wish to purchase and their denominated currencies), International
Equity Fund and Emerging Markets Fund may engage in transactions in forward
foreign currency contracts.
A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell a currency at a future date (which may be any
fixed number of days from the date of the contract agreed upon by the parties)
at a price set at the time of the contract. International Equity Fund and
Emerging Markets Fund may each enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
Currently, only a limited market, if any, exists for hedging transactions
relating to currencies in many emerging market countries or to securities of
issuers domiciled or principally engaged in business in emerging market
countries. This may limit a Fund's ability to effectively hedge its investments
in those emerging markets. Hedging against a decline in the value of a currency
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Such transactions also limit
the opportunity for gain if the value of the hedged currencies should rise. In
addition, it may not be possible for a Fund to hedge against a devaluation that
is so generally anticipated that the Fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates.
A Fund will enter into forward contracts under certain instances. When a Fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may, for example, wish to secure the price of the security
in U.S. dollars or some other foreign currency which the Portfolio is
temporarily holding in its portfolio. By entering into a forward contract for
the purchase or sale (for a fixed amount of dollars or other currency) of the
6
<PAGE>
amount of foreign currency involved in the underlying security transactions, a
Fund will be able to protect itself against possible loss (resulting from
adverse changes in the relationship between the U.S. dollar or other currency
being used for the security purchase and the foreign currency in which the
security is denominated) during the period between the date on which the
security is purchased or sold and the date on which payment is made or received.
In addition, when a Fund anticipates purchasing securities at some future date,
and wishes to secure the current exchange rate of the currency in which those
securities are denominated against the U.S. dollar or some other foreign
currency, it may enter into a forward contract to purchase an amount of currency
equal to part or all of the value of the anticipated purchase, for a fixed
amount of U.S. dollars or other currency.
In all of the above instances, if the currency in which a Fund's portfolio
securities (or anticipated portfolio securities) are denominated rises in value
with respect to the currency which is being purchased, then the Fund will have
realized fewer gains than if the Fund had not entered into the forward
contracts. Furthermore, 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.
To the extent that a Fund enters into forward foreign currency contracts to
hedge against a decline in the value of portfolio holdings denominated in a
particular foreign currency resulting from currency fluctuations, there is a
risk that the Fund may nevertheless realize a gain or loss as a result of
currency fluctuations after such portfolio holdings are sold should the Fund be
unable to enter into an "offsetting" forward foreign currency contract with the
same party or another party. A Fund may be limited in its ability to enter into
hedging transactions involving forward contracts by the Internal Revenue Code
requirements relating to qualifications as a regulated investment company (see
"Taxation").
A Fund is not required to enter into such transactions with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by SCMI. Generally, a Fund will not enter into a forward contract
with a term of greater than one year.
OPTIONS AND HEDGING
As discussed in the Prospectus, certain Funds (and Portfolios) may write covered
call options against securities held in its portfolio and covered put options on
eligible portfolio securities and may purchase options of the same series to
effect closing transactions; and may hedge against potential changes in the
market value of its investments (or anticipated investments) by purchasing put
and call options on portfolio (or eligible portfolio) securities (and the
currencies in which they are denominated) and engaging in transactions involving
futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on various
foreign currencies are listed on several U.S. and foreign securities exchanges
and are written in over-the-counter transactions ("OTC Options"). Listed options
are issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives a Fund the right to buy from the OCC (in the U.S.) or
other clearing corporation or exchange, the underlying security or currency
covered by the option at the stated exercise price (the price per unit of the
underlying security or currency) by filing an exercise notice prior to the
expiration date of the option. The writer (seller) of the option would then have
the obligation to sell, to the OCC (in the U.S.) or other clearing corporation
or exchange, the underlying security or currency at that exercise price prior to
the expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give a Fund the right to sell the
underlying security or currency to the OCC (in the U.S.) or other clearing
corporation or exchange at the stated exercise price. Upon notice of exercise of
the put option, the writer of the option would have the obligation to purchase
the underlying security or currency from the OCC (in the U.S.) or other clearing
corporation or exchange at the exercise price.
The OCC or other clearing corporation or exchange that issues listed options
ensures that all transactions in such options are properly executed. OTC options
are purchased from or sold (written) to dealers or financial institutions
7
<PAGE>
which have entered into direct agreements with a Fund. With OTC options,
variables such as expiration date exercise price and premium will be agreed
between a Fund and the transacting dealer. If the transacting dealer fails to
make or take delivery of the securities or amount of foreign currency underlying
an option it has written, a Fund would lose the premium paid for the option as
well as any anticipated benefit of the transaction. A Fund will engage in OTC
option transactions only with member banks of the Federal Reserve System or
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million.
OPTIONS ON FOREIGN CURRENCIES. International Equity Fund and Emerging Markets
Fund may purchase and write options on foreign currencies for purposes similar
to those involved with investing in forward foreign currency exchange contracts.
For example, in order to protect against declines in the dollar value of
portfolio securities which are denominated in a foreign currency, a Fund may
purchase put options on an amount of such foreign currency equivalent to the
current value of the portfolio securities involved. As a result, a Fund would be
able to sell the foreign currency for a fixed amount of U.S. dollars, thereby
securing the dollar value of the portfolio securities (less the amount of the
premiums paid for the options). Conversely, a Fund may purchase call options on
foreign currencies in which securities it anticipates purchasing are denominated
to secure a set U.S. dollar price for such securities and protect against a
decline in the value of the U.S. dollar against such foreign currency. A Fund
may also purchase call and put options to close out written option positions.
A Fund may also write covered call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated in
foreign currencies. If the U.S. dollar value of the portfolio securities falls
as a result of a decline in the exchange rate between the foreign currency in
which it is denominated and the U.S. dollar, then a loss to a Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, a Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. A Fund may also write options to close out long call
option positions. A covered put option on a foreign currency would be written by
the Fund for the same reason it would purchase a call option, namely, to hedge
against an increase in the U.S. dollar value of a foreign security which the
Fund anticipates purchasing. Here, the receipt of the premium would offset, to
the extent of the size of the premium, any increased cost to a Fund resulting
from an increase in the U.S. dollar value of the foreign security. However, a
Fund could not benefit from any decline in the cost of the foreign security
which is greater than the price of the premium received. A Fund may also write
options to close out long put option positions.
Markets in foreign currency options are relatively new and a Fund's ability to
establish and close out positions on such options is subject to the maintenance
of a liquid secondary market. Although a Fund will not purchase or write such
options unless and until, in the opinion of the SCMI, the market for them has
developed sufficiently to ensure that their risks are not greater than the risks
in connection with the underlying currency, there can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
In addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar: as a result, the price of the option
position may vary with changes in the value of either or both currencies and may
have no relationship to the investment merits of a foreign security, including
foreign securities held in a "hedged" investment portfolio. 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, investors 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.
There is no systematic reporting of last sale information for foreign currencies
or any 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 and thus may not reflect relatively smaller transactions (i.e.,
less than $1 million) where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market. To the extent that the
U.S. options markets are
8
<PAGE>
closed while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that are not
reflected in the options market.
COVERED CALL WRITING. Emerging Markets Fund is permitted to write covered call
options on portfolio securities and on the U.S. dollar and foreign currencies in
which they are denominated, without limit. Equity Index Fund and Investors
Equity Fund may write covered calls on up to 100% of their total assets if the
calls are listed on a domestic securities or commodities exchange. Generally, a
call option is "covered" if a Fund owns (or has the right to acquire without
additional cash consideration (or for additional cash consideration held for the
Fund by its Custodian in a segregated account) the underlying security
(currency) subject to the option. In the case of call options on U.S. Treasury
Bills, however, the Fund might own U.S. Treasury Bills of a different series
from those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the security (currency) deliverable under the call option. A call option is also
covered if a Fund holds a call on the same security as the underlying security
(currency) of the written option, where the exercise price of the call used for
coverage is equal to or less than the exercise price of the call or greater than
the exercise price of the call written if the mark to market difference is
maintained by a Fund in cash, U.S. Government securities or other high grade
debt obligations which the Portfolio holds in a segregated account maintained
with its custodian.
A Fund will receive a premium from the purchaser in return for a call it has
written. Receipt of such premiums may enable a Fund to earn a higher level of
current income than it would earn from holding the underlying securities
(currencies) alone. Moreover, the premium received will offset a portion of the
potential loss incurred by a Fund if the securities (currencies) underlying the
option are ultimately sold (exchanged) by the Fund at a loss. Furthermore, a
premium received on a call written on a foreign currency will ameliorate any
potential loss of value on the portfolio security due to a decline in the value
of the currency. However, during the option period, the covered call writer has,
in return for the premium, given up the opportunity for capital appreciation
above the exercise price should the market price of the underlying security (or
the exchange rate of the currency in which it is denominated) increase, but has
retained the risk of loss should the price of the underlying security (or the
exchange rate of the currency in which it is denominated) decline. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, a Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
With respect to listed options and certain OTC options, during the option period
a Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once a Fund
has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on an
outstanding call option, to prevent an underlying security (currency) from being
called, to permit the sale of an underlying security (or the exchange of the
underlying currency) or to enable a Fund to write another call option on the
underlying security (currency) with either a different exercise price or
expiration date or both. A Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, a Fund realizes a gain in the amount of
the premium on the option less the commission paid. Such a gain, however, may be
offset by depreciation in the market value of the underlying security (currency)
during the option period. If a call option is exercised, a Fund realizes a gain
or loss from the sale of the underlying security
9
<PAGE>
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency) plus
the premium received on the option less the commission paid.
Options written by a Fund will normally have expiration dates of up to eighteen
months from the date written. The exercised price of a call option may be below,
equal to or above the current market value of the underlying security at the
time the option is written.
COVERED PUT WRITING. As a writer of a covered put option, a Fund would incur an
obligation to buy the security underlying the option from the purchaser of the
put, at the option's exercise price at any time during the option period, at the
purchaser's election (certain listed and OTC put options written by a Fund will
be exercisable by the purchaser only on a specific date). A put is "covered" if
at all times a Fund maintains with its custodian (in a segregated account) cash,
U.S. Government securities or other high grade obligations in an amount equal to
at least the exercise price of the option. Similarly, a short put position could
be covered by a Fund by its purchase of a put option on the same security
(currency) as the underlying security of the written option, where the exercise
price of the purchased option is equal to or more than the exercise price of the
put written or less than the exercise price of the put written if the marked to
market difference is maintained by a Fund in cash, U.S. Government securities or
other high grade debt obligations which the Fund holds in a segregated account
maintained at its custodian. In writing puts, a Fund assumes the risk of loss
should the market value of the underlying security (currency) decline below the
exercise price of the option (any loss being decreased by the receipt of the
premium on the option written). In the case of listed options, during the option
period a Fund may be required, at any time, to make payment of the exercise
price against delivery of the underlying security (currency). The operation of
and limitations on covered put options in other respects are substantially
identical to those of call options.
A Fund will write put options for three purposes: (1) to receive the income
derived from the premiums paid by purchasers; (2) when the investment adviser
wishes to purchase the security (or a security denominated in the currency
underlying the option) underlying the option at a price lower than its current
market price (in which case it will write the covered put at an exercise price
reflecting the lower purchase price sought); and (3) to close out a long put
option position. The potential gain on a covered put option is limited to the
premium received on the option (less the commissions paid on the transaction)
while the potential loss equals the differences between the exercise price of
the option and the current market price of the underlying securities
(currencies) when the put is exercised, offset by the premium received (less the
commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. Equity Index Fund and Investors Equity Fund may
purchase put options ("puts") that relate to: (1) securities it holds; (2) Stock
Index Futures (whether or not it holds such Stock Index Futures in its
portfolio); or (3) broadly-based stock indices. The Fund may not sell puts other
than those it previously purchased, nor purchase puts on securities it does not
hold. The fund may purchase calls: (a) as to securities, broadly-based stock
indices or Stock Index Futures, or (b) to effect a "closing purchase
transaction" to terminate its obligation on a call it has previously written. A
call or put may be purchased only if, after such purchase, the value of all put
and call options held by the Fund would not exceed 5% of the Fund's total
assets. Emerging Markets Fund may purchase listed and OTC call and put options
in amounts equaling up to 5u of its total assets. A Fund may purchase a call
option in order to close out a covered call position (see "Covered Call Writing"
above), to protect against an increase in price of a security it anticipates
purchasing or, in the case of a call option on foreign currency, to hedge
against an adverse exchange rate move of the currency in which the security it
anticipates purchasing is denominated vis-a-vis the currency in which the
exercise price is denominated. The purchase of the call option to effect a
closing transaction on a call written over-the-counter may be a listed or an OTC
option. In either case, the call purchased is likely to be on the same
securities (currencies) and have the same terms as the written option. If
purchased over-the-counter, the option would generally be acquired from the
dealer or financial institution which purchased the call written by a Fund.
A Fund may purchase put options on securities (currencies) which it holds in its
portfolio to protect itself against a decline in the value of the security and
to close out written put option positions. If the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater then the premium paid for the option, a Fund would incur no
additional loss. In addition, a Fund may sell a put option it has previously
purchased prior to the sale of the securities (currencies) underlying such
option. Such a sale would result
10
<PAGE>
in a net gain or loss depending upon whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put option
that is sold. Any such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security (currency). If a put
option purchased by a Fund expired without being sold or exercised, the premium
would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call writer
has, in return for the premium on the option, given up the opportunity for
capital appreciation above the exercise price if the market price of the
underlying security (or the value of its denominated currency) increases, but
has retained the risk of loss if the price of the underlying security (or the
value of its denominated currency) declines. The writer has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price.
Prior to exercise or expiration, an option position can only be terminated by
entering into a closing purchase or sale transaction. If a covered call option
writer is unable to effect a closing purchase transaction or to purchase an
offsetting OTC option, it cannot sell the underlying security until the option
expires or the option is exercised. Accordingly, a covered call option writer
may not be able to sell an underlying security at a time when it might otherwise
be advantageous to do so. A covered put option writer who is unable to effect a
closing purchase transaction or to purchase an offsetting OTC option would
continue to bear the risk of decline in the market price of the underlying
security until the option expires or is exercised. In addition, a covered put
writer would be unable to utilize the amount held in cash or U.S. Government or
other high grade short-term obligations as security for the put option for other
investment purposes until the exercise or expiration of the option.
A Fund's ability to close out its position as a writer of an option is dependent
upon the existence of a liquid secondary market on option exchanges. There is no
assurance that such a market will exist, particularly in the case of OTC
options, since such options will generally only be closed out by entering into a
closing purchase transaction with the purchasing dealer. However, a Fund may be
able to purchase an offsetting option that does not close out its position as a
writer but constitutes an asset of equal value to the obligation under the
option written. If a Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on an
exchange are: (1) insufficient trading interest in certain options; (2)
restrictions on transactions imposed by an exchange; (3) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (4) interruption of the normal
operations on an exchange; (5) inadequacy of the facilities of an exchange or
the OCC to handle current trading volume; or (6) a decision by one or more
exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by a Fund, the
Fund could experience a loss of all or part of the value of the option.
Transactions will be entered into by a Fund only with brokers or financial
institutions deemed creditworthy by its investment adviser or subadviser.
Exchanges have established limitations governing the maximum number of options
on the same underlying security or futures contract (whether or not covered)
that may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). An exchange may order the liquidation of positions found
to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which a Fund may write.
11
<PAGE>
The hours of trading for options may not conform to the hours during which the
underlying securities are traded. If the option markets close before the markets
for the underlying securities, significant price and rate movements can take
place in the underlying markets that cannot be reflected in the option markets.
The extent to which a Fund may enter into transactions involving options may be
limited by the Internal Revenue Code's requirements for qualification as a
regulated investment company and a Fund's intention to qualify as such (see
"Taxation").
FUTURES CONTRACTS. Certain Funds may purchase and sell interest rate, currency,
and index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges, on such underlying securities as U.S. Treasury
bonds, notes and bills, and/or any foreign government fixed-income security
("interest rate" futures), on various currencies ("currency futures") and on
such indices of U.S. and foreign securities as may exist or come into being
("index futures").
A Fund will purchase or sell interest rate futures contracts for the purpose of
hedging some or all of the value of its portfolio securities (or anticipated
portfolio securities) against changes in prevailing interest rates. If the
investment adviser anticipates that interest rates may rise and, concomitantly,
the price of certain of its portfolio securities fall, a Fund may sell an
interest rate futures contract. If declining interest rates are anticipated, a
Fund may purchase an interest rate futures contract to protect against a
potential increase in the price of securities the Fund intends to purchase.
Subsequently, appropriate securities may be purchased by a Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
A Fund will purchase or sell index futures contracts for the purpose of hedging
some or all of its portfolio (or anticipated portfolio) securities against
changes in their prices. If it anticipates that the prices of securities it
holds may fall, a Fund may sell an index futures contract. Conversely, if a Fund
wishes to hedge against anticipated price rises in those securities which it
intends to purchase, the Fund may purchase an index futures contract.
A Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated for
the purposes of hedging against anticipated changes in currency exchange rates.
A Fund will enter into currency futures contracts for the same reasons as set
forth above for entering into forward foreign currency exchange contracts;
namely, to secure the value of a security purchased or sold in a given currency
vis-a-vis a different currency or to hedge against an adverse currency exchange
rate movement of a portfolio security's (or anticipated portfolio security's)
denominated currency vis-a-vis a different currency.
In addition to the above, interest rate, index and currency futures will be
bought or sold in order to close out short or long positions maintained by a
Fund in corresponding futures contracts.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without making or taking delivery. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that a Fund will be able to enter into a closing
transaction.
INTEREST RATE FUTURES CONTRACTS. When a Fund enters into an interest rate
futures contract, it is initially required to deposit with its custodian (in a
segregated account in the name of the broker performing the transaction) an
"initial margin" of cash or U.S. Government Securities or other high grade
short-term obligations equal to approximately 2% of the contract amount. Initial
margin requirements are established by the exchanges on which futures contracts
trade and may change. In addition, brokers may establish margin deposit
requirements in excess of those required by the exchanges.
12
<PAGE>
Initial margin in futures transactions is different from margin in securities
transactions in that initial margin does not involve the borrowing of money by a
brokers' client but is, rather, a good faith deposit on the futures contract
that will be returned to a Fund upon the proper termination of the futures
contract. The margin deposits made are marked to market daily and a Fund may be
required to make subsequent deposits of cash or U.S. Government Securities
(called "variation margin") with the Fund's futures contract clearing broker,
which are reflective of price fluctuations in the futures contract.
CURRENCY FUTURES. Generally, foreign currency futures provide for the delivery
of a specified amount of a given currency, on the exercise date, for a set
exercise price denominated in U.S. dollars or other currency. Foreign currency
futures contracts would be entered into for the same reason and under the same
circumstances as forward foreign currency exchange contracts. SCMI will assess
such factors as cost spreads, liquidity and transaction costs in determining
whether to use futures contracts or forward contracts in its foreign currency
transactions and hedging strategy.
Purchasers and sellers of foreign currency futures contracts are subject to the
same risks that apply generally to the buying and selling of futures. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, a Fund must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
INDEX FUTURES CONTRACTS. Each Fund, except International Equity Fund, may invest
in index futures contracts. An index futures contract sale creates an obligation
by a Fund, as seller, to deliver cash at a specified future time. An index
futures contract purchase would create an obligation by a Fund, as purchaser, to
take delivery of cash at a specified future time. Futures contracts on indices
do not require the physical delivery of securities, but provide for a final cash
settlement on the expiration date that reflects accumulated profits and losses
credited or debited to each party's account.
A Fund is required to maintain margin deposits with brokerage firms through
which it effects index futures contracts in a manner similar to that described
above for interest rate futures contracts. In addition, due to current industry
practice, daily variations in gains and losses on open contracts are required to
be reflected in cash in the form of variation margin payments. A Fund may be
required to make additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, a Fund may elect to
close the position by taking an opposite position, which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to a Fund and the Fund realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. A Fund may purchase and write call and put options
on futures contracts traded on an exchange and may enter into closing
transactions with respect to such options to terminate an existing position. 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 (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds, in case of
a call, or is less than, in the case of a put, the exercise price of the option
on the futures contract.
A Fund will purchase and write options on futures contracts for purposes
identical to those set forth above for the purchase of a futures contract
13
<PAGE>
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the investment
adviser wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Adviser seeks to hedge. Any premiums received in the writing of options on
futures contracts may provide a further hedge against losses resulting from
price declines in portions of a Fund's investment portfolio.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, a Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in SCMI's opinion, the market for such options has developed sufficiently
that the risks in connection with them are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. A Fund may not enter
into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of a Fund's total
assets, after taking into account unrealized gains and unrealized losses on such
contracts it has entered into, provided, however, that in the case of an option
that is in-the-money (the exercise price of the call (put) option is less (more)
than the market price of the underlying security) at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%. However, there is no
overall limitation on the percentage of a Fund's assets which may be subject to
a hedge position. In addition, in accordance with the regulations of the
Commodity Futures Trading Commission ("CFTC") under which a Fund is exempted
from registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions for purposes of
hedging a part or all of its portfolio. Except as described above, there are no
other limitations on the use of futures and options thereon by a Fund.
The writer of an option on a futures contract is required to deposit initial and
variation margin pursuant to requirements similar to those applicable to futures
contracts. Premiums received from the writing of an option on a futures contract
are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. A Fund may sell
a futures contract to protect against the decline in the value of securities (or
the currency in which they are denominated) held by a Fund. However, it is
possible that the futures market may advance and the value of a Fund's
securities (or the currency in which they are denominated) may decline. If this
occurs, a Fund will lose money on the futures contract and also experience a
decline in value of its portfolio securities. While this might occur for only a
very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If a Fund purchases a futures contract to hedge against the increase in value of
securities it intends to buy (or the currency in which they are denominated),
and the value of such securities (currencies) decreases, then a Fund may
determine not to invest in the securities as planned and will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities.
If a Fund has sold a call option on a futures contract, it will cover this
position by holding (in a segregated account maintained at its Custodian) cash,
U.S. Government Securities or other high grade debt obligations equal in value
(when added to any initial or variation margin on deposit) to the market value
of the securities (currencies) underlying the futures contract or the exercise
price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting a Fund to purchase the same contract at a price no higher than
the price at which the short position was established.
In addition, if a Fund holds a long position in a futures contract it will hold
cash, U.S. Government Securities or other high grade debt obligations equal to
the purchase price of the contract (less the amount of initial or variation
margin on deposit) in a segregated account maintained for a Fund by its
Custodian. Alternatively, a Fund could
14
<PAGE>
cover its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held by
the Fund.
Exchanges limit the amount by which the price of a futures contract may move on
any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, a Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if a Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, a Fund may be required to
take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
a Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon that are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges and brokerage
commissions, clearing costs and other transaction costs may be higher. Greater
margin requirements may limit a Fund's ability to enter into certain commodity
transactions on foreign exchanges. Moreover, differences in clearance and
delivery requirements on foreign exchanges may cause delays in the settlement of
a Fund's foreign exchange transactions.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by a Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by a Fund only with brokers
or financial institutions deemed creditworthy by the Fund's investment adviser.
While the futures contracts and options transactions to be engaged in by a Fund
for the purpose of hedging its portfolio securities are not speculative in
nature, there are risks inherent in the use of such instruments. One such risk
which may arise in employing futures contracts to protect against the price
volatility of portfolio securities (and the currencies in which they are
denominated) is that the prices of securities and indices subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of a Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which a Fund seeks a hedge. A correlation may
also be distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are generally
minor and would diminish as the contract approached maturity.
There may exist an imperfect correlation between the price movements of futures
contracts purchased by a Fund and the movements in the prices of the securities
(currencies) which are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions rather
than meet margin deposit requirements, distortions in the normal relationship
between the debt securities or currency markets and futures markets could
result. Price distortions could also result if investors in futures contracts
choose to make or take delivery of underlying securities rather than engage in
closing transactions due to the resultant reduction in the liquidity of the
futures market. In addition, because the deposit requirements in the futures
markets are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market can be anticipated with the
resulting speculation causing temporary price distortions. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of interest
rate trends may still not result in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which a Fund may invest. In the event a liquid
market does not exist, it may not be possible to close out a futures position,
and in the event of adverse price movements, a Fund would continue to be
required to make daily cash payments of
15
<PAGE>
variation margin. In addition, limitations imposed by an exchange or board of
trade on which futures contracts are traded may compel or prevent a Fund from
closing out a contract, which may result in reduced gain or increased loss to
the Fund. The absence of a liquid market in futures contracts might cause a Fund
to make or take delivery of the underlying securities (currencies) at a time
when it may be disadvantageous to do so.
The extent to which a Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such.
FOREIGN SECURITIES
Investment in the securities of foreign issuers may involve risks in addition to
those normally associated with investments in the securities of U.S. issuers.
There may be less publicly available information about foreign issuers than is
available for U.S. issuers, and foreign auditing, accounting and financial
reporting practices may differ from U.S. practices. Foreign securities markets
may be less active than U.S. markets, trading may be thin and consequently
securities prices may be more volatile. The Funds' investment adviser, will, in
general, invest only in securities of companies and governments of countries
which, in its judgment, are both politically and economically stable.
Nevertheless, all foreign investments are subject to risks of foreign political
and economic instability, adverse movements in foreign exchange rates, the
imposition or tightening of exchange controls or other limitations on the
repatriation of foreign capital and changes in foreign governmental attitudes
toward private investment, possibly leading to nationalization, increased
taxation, or confiscation of Portfolio assets. WARRANTS AND STOCK RIGHTS. A Fund
may invest in warrants, which are options to purchase an equity security at a
specified price (usually representing a premium over the applicable market value
of the underlying equity security at the time of the warrant's issuance). A Fund
may not invest more than 5% of its net assets (at the time of investment) in
warrants (other than those that have been acquired in units or attached to other
securities). No more than 2% of a Fund's net assets (at the time of investment)
may be invested in warrants that are not listed on the New York or American
Stock Exchanges. Investments in warrants involve certain risks, including the
possible lack of a liquid market for the resale of the warrants, potential price
fluctuations as a result of speculation or other factors and failure of the
price of the underlying security to reach a level at which the warrant can be
prudently exercised (in which case the warrant may expire without being
exercised, resulting in the loss of a Fund's entire investment therein). The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer.
In addition, a Fund may invest up to 5% of its assets (at the time of
investment) in stock rights. A stock right is an option given to a shareholder
to buy additional shares at a predetermined price during a specified time
period.
DEPOSITARY RECEIPTS
Investments in securities of foreign issuers may on occasion be in the form of
sponsored or unsponsored American Depositary Receipts ("ADRs") or European
Depositary Receipts ("EDRs"), or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued in the United States by a bank or
trust company, evidencing ownership of the underlying securities. EDRs are
typically issued in Europe under a similar arrangement. Generally, ADRs are
designed for use in the U.S. securities markets and EDRs are designed for use in
European securities markets.
Unsponsored depositary recepts may be created without the participation of the
foreign issuer. Holders of these receipts generally bear all the costs of the
depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depository of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
16
<PAGE>
USE OF FORWARD CONTRACTS IN FOREIGN EXCHANGE TRANSACTIONS
To protect or "hedge" against adverse movements in foreign currency exchange
rates, International Equity Fund and Emerging Markets Fund may invest in forward
contracts to purchase or sell an agreed-upon amount of a specified currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. Such
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. Although such contracts tend to minimize the risk of loss due
to a decline in the value of the currency which is sold, they expose a Fund to
the risk that the counterparty is unable to perform and they tend to limit
commensurately any potential gain which might result should the value of such
currency increase during the contract period.
HIGH YIELD/JUNK BONDS
International Equity Fund may invest up to 5% of its assets in bonds rated below
"Baa" by Moody's or "BBB" by S&P (commonly known as "high yield/high risk
securities" or "junk bonds"). Emerging Markets Fund may invest up to 35% of its
assets in such high yield/high risk securities. Securities rated lower than
"Baa" by Moody's or "BBB" by S&P are classified as non-investment grade
securities and are considered speculative. Junk bonds may be issued as a
consequence of corporate restructurings (such as leveraged buyouts, mergers,
acquisitions, debt recapitalizations, or similar events) or by smaller or highly
leveraged companies. Although the growth of the high yield securities market in
the 1980's paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized that
an economic downturn or increase in interest rates is likely to have a negative
effect on: (1) the high yield bond market; (2) the value of high yield
securities; and (3) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goal, or to obtain additional financing. In addition, the market for high yield
securities, which is concentrated in relatively few market makers, may not be as
liquid as the market for investment grade securities. Under adverse market or
economic conditions, the market for high yield securities could contract
further, independent of any specific adverse changes in the condition of a
particular issuer. As a result, the Fund could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the Fund's net asset value.
In periods of reduced market liquidity, junk bond prices may become more
volatile and may experience sudden and substantial price declines. Also, there
may be significant disparities in the prices quoted for junk bonds by various
dealers. Under such conditions, a Fund may have to use subjective rather than
objective criteria to value its junk bond investments accurately and rely more
heavily on the judgment of the Fund's investment adviser.
Prices for junk bonds also may be affected by legislative and regulatory
developments. For example, new federal laws require the divestiture by federally
insured savings and loans associations of their investments in high yield bonds.
Also, from time to time, Congress has considered legislation to restrict or
eliminate the corporate tax deduction for interest payments or to regulate
corporate restructurings such as takeovers, mergers or leveraged buyouts. These
laws could adversely affect the Fund's net asset value and investment practices,
the market for high yield securities, the financial condition of issuers of
these securities, and the value of outstanding high yield securities.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's portfolio and increasing
the exposure of the Fund to the risks of high yield securities.
17
<PAGE>
SHORT SALES AGAINST-THE-BOX
After the Fund makes a short sale against-the-box, while the short position is
open, the Fund must own an equal amount of the securities sold short; or by
virtue of ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short.
Pursuant to the Taxpayer Relief Act of 1997, if a Fund has unrealized gain with
repsect to a security and enters into a short sale with respect to such
security, the Fund generally will be deemed yo have sold the appreciated
security and thus will recognize gain for tax purposes.
3. ADDITIONAL INVESTMENT POLICIES
The following investment limitations restate or are in addition to those
described under "Investment Objective and Policies" and "Additional Investment
Policies and Risk Considerations" in the Prospectus. Each Fund has adopted the
following investment limitations, which are fundamental policies of the Funds
unless otherwise stated. Each Fund that invests in a Portfolio has substantially
the same fundamental investment policies as the Portfolio in which it invests.
Thus, reference to any Fund that invests in a Portfolio generally refers also to
the Portfolio in which that Fund invests:
(a) Diversification:
No Fund (other than Emerging Markets Fund, which as a non-fundamental policy is
non-diversified) may, with respect to 75% of its assets, purchase a security if
as a result: (1) more than 5% of its assets would be invested in the securities
of any single issuer or (2) the Fund would own more than 10% of the outstanding
voting securities of any single issuer. This restriction does not apply to
securities issued by the U.S. Government, its agencies or instrumentalities.
(b) Illiquid Securities
No Fund (except for Emerging Markets Fund and Small Company Opportunities Fund)
will invest more than 10% of its assets in "illiquid securities", which are
securities that cannot be disposed of within seven days at their then current
value. For purposes of this limitation, "illiquid securities" includes, except
in those circumstances described below: (1) "restricted securities", which are
securities that cannot be resold to the public without registration under the
Federal securities laws and (2) securities of issuers having a record (together
with all predecessors) of less than three years of continuous operation.
As a nonfundamental policy, Emerging Markets Fund and Small Company
Opportunities Fund may not acquire securities or invest in repurchase agreements
with respect to any securities if, as a result, more than 15% of the Fund's net
assets (taken at current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days and in securities
which are not readily marketable, including securities that are not readily
marketable by virtue of restrictions on the sale of such securities to the
public without registration under the 1993 Act, as amended ("Restricted
Securities").
(c) Concentration
Investors Equity Fund may not purchase a security if, as a result, more than 25%
of the Fund's total assets would be invested in securities of issuers conducting
their principal business activities in the same industry; provided, however,
that there is no limit on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, municipal securities and issuers
domiciled in a single country; that financial service companies are classified
according to the end users of their services (for example, automobile finance,
bank finance and diversified finance); and that utility companies are classified
according to their services (for example, gas, gas transmission, electric and
gas, electric and telephone. Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or more investment
companies; provided that, except to the
18
<PAGE>
extent the Fund invests in other investment companies pursuant to Section
12(d)(1)(A) of the 1940 Act, the Fund treats the assets of the investment
companies in which it invests as its own for purposes of this policy.
Small Company Opportunities Fund may not purchase a security if, as a result,
more than 25% of the Fund's total assets would be invested in securities of
issuers conducting their principal business activities in the same industry;
provided, however, that there is no limit on investments in U.S. Government
Securities. Notwithstanding anything to the contrary, to the extent permitted by
the 1940 Act, the Fund may invest in one or more investment companies; provided
that, except to the extent the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund treats the assets of
the investment companies in which it invests as its own for purposes of this
policy.
Neither Equity Index Fund nor International Equity Fund may purchase securities
if, immediately after the purchase, more than 25% of the value of the Fund's
total assets would be invested in the securities of issuers conducting their
principal business activities in the same industry; provided, however that there
is no limit on investments in U.S. Government Securities, repurchase agreements
covering U.S. Government Securities, and issuers domiciled in a single country;
that financial service companies are classified according to the end users of
their services (for example, automobile finance, bank finance and diversified
finance); and that utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric and telephone).
Notwithstanding anything to the contrary, to the extent permitted by the 1940
Act, a Fund may invest in one or more investment companies; provided that,
except to the extent the Fund invests in other investment companies pursuant to
Section 12(d)(1)(A) of the 1940 Act, the Fund treats the assets of the
investment companies in which it invests as its own for purposes of this policy.
Emerging Markets Fund will not purchase a security if, as a result, more than
25% of the Fund's total assets would be invested in securities of issuers
conducting their principal business activities in the same industry. For
purposes of this limitation, there is no limit on: (1) investments in U.S.
Government Securities, in repurchase agreements covering U.S. Government
Securities, in securities issued by the states, territories or possessions of
the United States ("municipal securities") or in foreign government securities;
or (2) investment in issuers domiciled in a single jurisdiction. Notwithstanding
anything to the contrary, to the extent permitted by the 1940 Act, the Fund may
invest in one or more investment companies; provided that, except to the extent
the it invests in other investment companies pursuant to Section 12(d)(1)(A) of
the 1940 Act, the Fund treats the assets of the investment companies in which it
invests as its own for purposes of this policy.
(d) Underwriting Activities
No Fund (except Emerging Markets Fund and Small Company Opportunities Fund) will
underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under U.S. securities laws.
Neither Emerging Markets Fund nor Small Company Opportunities Fund may
underwrite securities of other issuers, except to the extent that a Fund may be
considered to be acting as an underwriter in connection with the disposition of
its portfolio securities.
(e) Borrowing
Equity Index Fund, Investors Equity Fund, Small Company Opportunities Fund and
International Equity Fund may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, but not in excess of 33 1/3% of
the value of each Fund's total assets (as computed immediately after the
borrowing).
Emerging Markets Fund will not borrow money if, as a result, outstanding
borrowings would exceed an amount equal to one third of the Fund's total assets.
As a non-fundamental policy, Equity Index Fund, Emerging Markets Fund,
International Equity Fund, Investors Equity Fund and Small Company Opportunities
Fund's borrowings for other than temporary or emergency purposes or meeting
redemption requests may not exceed an amount equal to 5% of each Fund's net
assets.
19
<PAGE>
(f) Pledging
International Fund may not pledge, mortgage or hypothecate its assets to an
extent greater than 10% of the value of the total assets of the Fund.
As a non-fundamental policy, Emerging Markets Fund, Equity Index Fund, Investors
Equity Fund and Small Company Opportunities Fund may not pledge, mortgage,
hypothecate or encumber any of its assets except to secure permitted borrowings
or to secure other permitted transactions.
(g) Margin and Short Sales
Emerging Markets Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short (short sales "against-the-box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling short.
International Equity Fund may not purchase securities on margin or sell short.
No Fund (other than Emerging Markets Fund, International Equity Fund and Small
Company Opportunities Fund) may: (1) purchase securities on margin; however, the
Fund may make margin deposits in connection with any Hedging Instruments, which
it may use as permitted by any of its other fundamental policies or (2) sell
securities short.
As non-fundamental policies, Small Company Opportunities Fund may not purchase
securities on margin, or make short sales of any securities (except short sales
against the box), except for the use of short-term credit necessary for the
clearance of purchases and sales of portfolio securities. Small Company
Opportunities Fund may make margin deposits in connection with permitted
transactions in options, futures contracts and options on futures contracts.
(h) Investing for Control
No Fund (except for Small Company Opportunities Fund) may make investments for
the purpose of exercising control or management; provided that investments by
Emerging Markets Fund in entities created under the law of a foreign country
solely to facilitate investment in that country are not deemed to be for the
purpose of exercising control or management under this limitation.
(i) Real Estate
No Fund (except for Emerging Markets Fund and Small Company Opportunities Fund)
may purchase or sell real estate, provided that the a Fund may invest in
securities issued by companies which invest in real estate or interests therein.
Small Company Opportunities Fund may not purchase or sell real estate or any
interest therein, except that it may invest in debt obligations secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein. As a non-fundamental policy, Small Company
Opportunities Fund may not invest in real estate limited partnerships.
Emerging Markets Fund may not purchase or sell real estate unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate business).
20
<PAGE>
(j) Lending
International Fund will not make loans to other persons, provided that for
purposes of this restriction, entering into repurchase agreements, acquiring
corporate debt securities and investing in U.S. Government obligations,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan.
Equity Index Fund and Investors Equity Fund will not lend money except in
connection with the acquisition of that portion of publicly-distributed debt
securities which the Fund's investment policies and restrictions permit it to
purchase (see "Investment Objective" and "Investment Policies" in the
Prospectus); the Funds may also make loans of portfolio securities (see "Loans
of Portfolio Securities") and enter into repurchase agreements (see "Repurchase
Agreements");
Neither Emerging Markets Fund nor Small Company Opportunities Fund may make
loans, except a Fund may enter into repurchase agreements, purchase debt
securities that are otherwise permitted investments and lend portfolio
securities.
Emerging Markets Fund will not lend money except in connection with the
acquisition of debt securities which the Fund's investment policies and
restrictions permit it to purchase (see "Investment Objective" and "Investment
Policies" in the Prospectus); the Portfolio may also make loans of portfolio
securities (see "Loans of Portfolio Securities") and enter into repurchase
agreements (see "Repurchase Agreements");
(k) Purchases and Sales of Commodities
International Equity Fund will invest in commodities; commodity contracts other
than foreign currency forward contracts; or oil, gas and other mineral resource,
lease, or arbitrage transactions.
Neither Emerging Markets Fund nor Small Company Opportunities Fund may purchase
or sell physical commodities unless acquired as a result of owning securities or
other instruments, but Emerging Markets Fund may purchase or sell options and
futures contracts or invest in securities or other instruments backed by
physical commodities, and Small Company Opportunities Fund may purchase, sell or
enter into financial options and futures and forward currency contracts and
other financial contracts or derivative instruments.
No Fund (other than Emerging Markets Fund, International Equity Fund and Small
Company Opportunities Fund) will invest in commodities or commodity contracts
(other than Hedging Instruments which it may use as permitted by any of its
other fundamental policies, whether or not any such Hedging Instrument is
considered to be a commodity or a commodity contract);
(l) Options and Futures Contracts
International Equity Fund may not write, purchase or sell options or puts,
calls, straddles, spreads, or combinations thereof.
No Fund (other than Emerging Markets Fund, International Equity Fund and Small
Company Opportunities Fund) may purchase or write puts or calls except as
permitted by any of its other fundamental investment policies.
(m) Warrants
No Fund (except for Emerging Markets Fund and Small Company Opportunities Fund)
may invest in warrants, valued at the lower of cost or market, more than 5% of
the value of the Fund's net assets (included within that amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants which are not
listed on the New York or American Stock Exchange. Warrants acquired by the Fund
in units or attached to securities may be deemed
21
<PAGE>
to be without value.) This policy is non-fundamental with respect to Emerging
Markets Fund, Equity Index Fund and Small Company Opportunities Fund.
(n) Other Investment Companies
As a non-fundamental policy, Emerging Markets Fund and Small Company
Opportunities Fund may not invest in securities of another investment company,
except to the extent permitted by the 1940 Act.
(o) Issuance of Senior Securities
Emerging Markets Fund and Small Company Opportunities Fund may not issue senior
securities except to the extent permitted by the 1940 Act.
(p) Lending of Portfolio Securities
As a non-fundamental policy, neither Emerging Markets Fund nor Small Company
Opportunities Fund may lend portfolio securities if the total value of all
loaned securities would exceed one-third or 25%, respectively, of the Fund's
total assets.
4. PERFORMANCE DATA
The Funds may quote performance in various ways. All performance information
supplied by the Funds in advertising is historical and is not intended to
indicate future returns. Each Fund's net asset value, yield and total return
will fluctuate in response to market conditions and other factors, and the value
of Fund shares when redeemed may be more or less than their original cost.
For the period beginning December 24, 1997 (the commencement of operations) to
May 31, 1998, Equity Index Fund, International Equity Fund, and Emerging Markets
Equity Fund, respectively, had unannualized total returns of 12.22%, 15.39%,
and (10.91%). For the period beginning December 17, 1997 (the commencement of
operations) to May 31, 1998, Investors Equity Fund had an unannualized total
return of 9.73%. For the period of March 31, 1998 (the commencement of
operations) to May 31, 1998, Small Company Opportunities Fund had an
unannualized total return of (6.88%). The total return figures take into
consideration the applicable maximum sales charge.
In performance advertising a Fund may compare any of its performance information
with data published by independent evaluators such as Morningstar, Lipper
Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). A Fund may also compare any of its performance information
with the performance of recognized stock, bond and other indices, including but
not limited to the Standard & Poor's 500 Composite Stock Price Index, the Dow
Jones Industrial Average, the Salomon Brothers Bond Index, the Shearson Lehman
Bond Index, U.S. Treasury bonds, bills or notes and changes in the Consumer
Price Index as published by the U.S. Department of Commerce. The Funds may refer
to general market performances over past time periods such as those published by
Ibbotson Associates. In addition, the Funds may refer in such materials to
mutual fund performance rankings and other data published by Fund Tracking
Companies. Performance advertising may also refer to discussions of the Fund and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Funds may, from time to time, include quotations of its average annual total
return in advertisements or reports to shareholders or prospective investors.
22
<PAGE>
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in a Fund
over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:
P (1+T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of Fund expenses (net of certain
reimbursed expenses) on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Quotations of total return will reflect only the performance of a hypothetical
investment in a Fund during the particular time period shown. Total return for a
Fund will vary based on changes in market conditions and the level of the Fund's
expenses, and no reported performance figure should be considered an indication
of performance which may be expected in the future.
In connection with communicating total return to current or prospective
investors, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
In addition to average annual total returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments and/or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted with or without taking into consideration a
Fund's front-end sales charge; excluding sales charges from a total return
calculation produces a higher return figure. Total returns, yields, and other
performance information may be quoted numerically or in a table, graph, or
similar illustration.
Period total return is calculated according to the following formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total
return above.
Investors who purchase and redeem shares of a Fund through a customer account
maintained at a Service Organization may be charged one or more of the following
types of fees as agreed upon by the Service Organization and the investor, with
respect to the customer services provided by the Service Organization: account
fees (a fixed amount per month or per year); transaction fees (a fixed amount
per transaction processed); compensating balance requirements (a minimum dollar
amount a customer must maintain in order to obtain the services offered); or
account maintenance fees (a periodic charge based upon a percentage of the
assets in the account or of the dividends paid on these assets). Such fees will
have the effect of reducing the average annual total return of the Fund for
those investors.
OTHER ADVERTISING MATTERS
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as
23
<PAGE>
funding retirement, paying for children's education and financially supporting
aging parents; (3) information (including charts and illustrations) showing the
effects of compounding interest (compounding is the process of earning interest
on principal plus interest that was earned earlier; interest can be compounded
at different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively; (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging; (6) background information regarding the Funds' Adviser and
biographical descriptions of the management staff of the Adviser; (7) summaries
of the views of the Adviser with respect to the financial markets; (8)
background information regarding the Trust; (9) the results of a hypothetical
investment in a fund over a given number of years, including the amount that the
investment would be at the end of the period; (10) the effects of investing in a
tax- deferred account, such as an individual retirement account or Section
401(k) pension plan; and (11) the net asset value, net assets or number of
shareholders of the Funds as of one or more dates.
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 55)
President, Forum Financial Group, LLC (mutual fund services company
holding company). Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
Costas Azariadis, Trustee (age 55)
Professor of Economics, University of California, Los Angeles, since
July 1992. His address is Department of Economics, University of
California, Los Angeles, 405 Hilgard Avenue, Los Angeles, California
90024.
James C. Cheng, Trustee (age 56)
President of Technology Marketing Associates (a marketing consulting
company) since September 1991. His address is 27 Temple Street,
Belmont, Massachusetts 02178.
J. Michael Parish, Trustee (age 54)
Partner at the law firm of Reid and Priest, LLP, since 1995. Prior
thereto, he was a partner at the law firm of Winthrop Stimson Putnam &
Roberts from 1989 to 1995. His address is 40 West 57th Street, New
York, New York 10019.
Mark D. Kaplan, Vice President, Assistant Treasurer and Assistant Secretary
(age 43)
Managing Director at Forum Financial Services, Inc. since September
1995. Prior thereto, Mr. Kaplan was Managing Director and Director of
Research at H.M. Payson & Co. His address is Two Portland Square,
Portland, Maine 04101.
24
<PAGE>
Stacey Hong, Treasurer (age 32)
Director, Fund Accounting, Forum Financial Group, LLC, with which he
has been associated since April 1992. Mr. Hong also serves as an
officer of other registered investment companies for which the Forum
Financial Group of Companies provides services. His address is Two
Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Secretary (age 34)
Assistant Counsel, Forum Financial Group, LLC with which she has been
associated since April 1998. Prior thereto, Ms. Klenk was Vice
President and Associate General Counsel of Smith Barney Inc. Ms.
Klenk also serves as an officer of other registered investment
companies for which the Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
Pamela Stutch, Assistant Secretary (age 31)
Fund Administrator, Forum Financial Group, LLC with which she has been
associated since May 1998. Prior thereto, Ms. Stutch attended Temple
University School of Law and graduated in 1997. Ms. Stutch was also a
legal intern for the Maine Department of the Attorney General. Ms.
Stutch also serves as an officer of other registered investment
companies for which the Forum Financial Group of Companies provides
services. Her address is Two Portland Square, Portland, Maine 04101.
TRUSTEE COMPENSATION. Each Trustee of the Trust (other than John Y. Keffer, who
is an interested person of the Trust) is paid $1,000 for each Board meeting
attended (whether in person or by electronic communication) and is paid $1,000
for each committee meeting attended on a date when a Board meeting is not held.
As of May 31, 1998, in addition to $1,000 for each Board meeting attended, each
Trustee receives $100 per active portfolio of the Trust. To the extent a meeting
relates to only certain portfolios of the Trust, Trustees are paid the $100 fee
only with respect to those portfolios. Trustees are also reimbursed for travel
and related expenses incurred in attending meetings of the Board. No officer of
the Trust is compensated by the Trust.
The following table provides the aggregate compensation paid to each independent
Trustee. The Trust has not adopted any form of retirement plan covering Trustees
or officers. Information is presented for the fiscal year ended May 31, 1998.
<TABLE>
<S> <C> <C> <C> <C>
ACCRUED ANNUAL
AGGREGATE PENSION BENEFITS UPON TOTAL
TRUSTEE COMPENSATION BENEFITS RETIREMENT COMPENSATION
------- ------------ -------- ---------- ------------
Mr. Keffer None None None None
Mr. Azariadis $640.69 None None $640.69
Mr. Cheng $649.69 None None $640.69
Mr. Parish $649.69 None None $640.69
</TABLE>
THE PORTFOLIOS
TRUSTEES AND OFFICERS OF CORE TRUST. The Trustees and officers of Core Trust and
their principal occupations during the past five years and ages are set forth
below. Each Trustee who is an "interested person" (as defined by the 1940 Act)
of Core Trust is indicated by an asterisk. Messrs. Keffer, Azariadis, Cheng and
Parish, Trustees of Core Trust, and Mr. Goldstein, Secretary of Core Trust, all
currently serve as Trustees and/or officers of the Trust. Accordingly, for
background information pertaining to these Trustees, see "Management-Trustees
and Officers -The Trust."
25
<PAGE>
John Y. Keffer,* Chairman and President.
Costas Azariadis, Trustee.
James C. Cheng, Trustee.
J. Michael Parish, Trustee.
Thomas G. Sheehan, Vice President (age 43)
Managing Director, Forum Financial Group, LLC with which he has been
associated since October 1993. Prior thereto, Mr. Sheehan was Special
Counsel to the Division of Investment Management of the SEC. Mr.
Sheehan also serves as an officer of other registered investment
companies for which the various
Forum Financial Group of Companies provides services. His address is
Two Portland Square, Portland, Maine 04101.
Stacey Hong Treasurer.
David I. Goldstein, Vice President and Secretary (age 37)
General Counsel, Forum Financial Group, LLC with which he has been
associated since 1991. Mr. Goldstein also serves as an officer of other
registered investment companies for which the Forum Financial Group of
Companies provides services. His address is Two Portland Square,
Portland, Maine 04101.
Pamela J. Wheaton, Assistant Treasurer (age 39)
Senior Manager, Fund Accounting, Forum Financial Group, LLC with which
she has been associated since April 1989. Ms. Wheaton also serves as
an officer of other registered investment companies for which the Forum
Financial Group of Companies provides services. Her address is Two
Portland Square, Portland, Maine 04101.
Leslie K. Klenk, Assistant Secretary.
Pamela Stutch, Assistant Secretary.
The following information relates to the principal occupations during the past
five years of each trustee and executive officer of Schroder Core and shows the
nature of any affiliation with SCMI. Except as noted, each of these individuals
currently serves in the same capacity for Schroder Capital Funds (Delaware),
Schroder Capital Funds II and Schroder Series Trust, other registered investment
companies in the Schroder family of funds. If no address is shown, the person's
address is that of the Trust, Two Portland Square. Portland, Maine 04101.
Peter E. Guernsey (age 75), Trustee of Schroder Core
Insurance Consultant since August 1986. His address is Schroder Core,
Two Portland Square, Portland, Maine.
John I. Howell (age 80), Trustee of Schroder Core
Private Consultant since February 1987; Honorary Director, American
International Group, Inc.; Director, American International Life
Assurance Company of New York. His address is c/o Schroder Core, Two
Portland Square, Portland, Maine.
26
<PAGE>
Clarence F. Michalis (age 75), Trustee of Schroder Core
Chairman of the Board of Directors, Josiah Macy, Jr. Foundation
(charitable foundation). His address is c/o Schroder Core, Two
Portland Square, Portland, Maine.
Hermann C. Schwab (age 77), Chairman and Trustee of Schroder Core
Retired since March, 1988. His address is c/o Schroder Core, Two
Portland Square, Portland, Maine.
Peter S. Knight (age 46), Trustee of Schroder Core
Partner, Wunder, Knight, Levine, Thelen & Forcey; Director, Comsat
Corp., Medicis Pharmaceutical Corp., and Whitman Education Group Inc.,
Formerly, Campaign Manager, Clinton/Gore `96. His address is c/o
Schroder Core, Two Portland Square, Portland, Maine.
Hon. David N. Dinkins (age 69), Trustee of Schroder Core
Professor, Columbia University School of International and Public
Affairs; Director, American Stock Exchange, Carver Federal Savings
Bank, Transderm Laboratory Corporation, and The Cosmetic Center, Inc.;
formerly, Mayor, The City of New York. His address is c/o Schroder
Core, Two Portland Square, Portland, Maine.
Sharon L. Haugh* (age 51), Trustee of Schroder Core
Chairman, Schroder Capital Management Inc. ("SCM"); Executive Vice
President and Director, SCMI; Chairman and Director, Schroder
Advisors. Her address is 787 Seventh Avenue, New York, New York.
Mark J. Smith* (age 35), President and Trustee of Schroder Core
Senior Vice President and Director of SCMI since April 1990; Director
and Senior Vice President, Schroder Advisors. His address is 33 Gutter
Lane, London, England.
Mark Astley (age 33), - Vice President of Schroder Core
First Vice President of SCMI. Prior thereto, employed by various
affiliates of SCMI in various positions in the investment research and
portfolio management areas since 1987. His address is 787 Seventh
Avenue, New York, New York.
Robert G. Davy (age 36), - Vice President of Schroder Core
Director of SCMI and Schroder Capital Management International Ltd.
since 1994; First Vice President of SCMI since July, 1992; prior
thereto, employed by various affiliates of SCMI in various positions
in the investment research and portfolio management areas since 1986.
His address is 787 Seventh Avenue, New York, New York.
Margaret H. Douglas-Hamilton (age 55), Vice President of Schroder Core
Secretary of SCM since July 1995; Senior Vice President (since April
1997) and General Counsel of Schroders U.S. Holdings Inc. since May
1987; prior thereto, partner of Sullivan & Worcester, a law firm. Her
address is 787 Seventh Avenue, New York, New York.
27
<PAGE>
Richard R. Foulkes (age 51), Vice President of Schroder Core
Deputy Chairman of SCMI since October 1995; Director and Executive
Vice President of Schroder Capital Management International Ltd. since
1989.His address is 787 Seventh Avenue, New York, New York.
Fergal Cassidy (age 28), Treasurer of Schroder Core
Acting Controller and Assistant Vice President of SCM and SCMI since
September 1997; Assistant Vice President of SCM and SCMI from April
1997 to September 1997; Associate, SCMI from August 1995 to March
1997; prior thereto, Senior Accountant of Concurrency Management,
Greenwich, Connecticut from November 1994 to August 1995; and Senior
Accountant, Schroder Properties, London from September 1990 to
November 1993. His address is 787 Seventh Avenue, New York, New York.
John Y. Keffer, Vice President of Schroder Core
Jane P. Lucas (age 35), Vice President of Schroder Core
Director and Senior Vice President SCMI; Director of SCM since
September 1995; Director of Schroder Advisors since September 1996;
Assistant Director Schroder Investment Management Ltd. since June 1991.
Her address is 787 Seventh Avenue, New York, New York.
Alan Mandel (age 41), Assistant Treasurer of Schroder Core
Vice President of SCMI since September 1998; prior thereto, Director
of Mutual Fund Administration for Salomon Brothers Asset Management
since 1995; prior thereto, Chief Financial Officer and Vice President
of Mutual Capital Management since 1991. His address is 787 Seventh
Avenue, New York, New York.
Carin Muhlbaum (age 36), Assistant Secretary of Schroder Core
Vice President of SCMI since 1998; prior thereto, as investment
management attorney at Seward and Kissel since 1998; prior thereto, an
investment management attorney with Gordon Altman Butowski Weitzen
Shalov & Wein since 1989. Her address is 787 Seventh Avenue, New York,
New York.
Catherine A. Mazza (age 37), Vice President of Schroder Core
President of Schroder Advisors since 1997; First Vice President of
SCMI and SCM since 1996; prior thereto, held various marketing
positions at Alliance Capital, an investment adviser, since July 1985.
Her address is 787 Seventh Avenue, New York, New York.
Michael Perelstein (age 41), Vice President of Schroder Core
Director since May 1997 and Senior Vice President of SCMI since
January 1997; prior thereto, Managing Director of MacKay - Shields
Financial Corp. His address is 787 Seventh Avenue, New York, New York.
Alexandra Poe (age 37), - Secretary and Vice President of Schroder Core
Vice President of SCMI since August 1996; Fund Counsel and Senior Vice
President of Schroder Advisors since August 1996; Secretary of
Schroder Advisors; prior thereto, an investment management attorney
with Gordon Altman Butowsky Weitzen Shalov & Wein since July 1994;
prior thereto counsel and Vice President of Citibank, N.A. since 1989.
Her address is 787 Seventh Avenue, New York, New York.
Fariba Talebi (age 36), Vice President of the Trust
Group Vice President of SCMI since April 1993, employed in various
positions in the investment research and portfolio management areas
since 1987; Director of SCM since April 1997. Her address is 787
Seventh Avenue, New York, New York.
John A. Troiano (age 38), Vice President of Schroder Core
Director of SCMI since April 1997; Chief Executive Officer, since July
1, 1997, of SCMI and Managing Director and Senior Vice President of
SCMI since October 1995; prior thereto, employed by various affiliates
of SCMI in various positions in the investment research and portfolio
management areas since 1981. His address is 787 Seventh Avenue, New
York, New York.
Ira L. Unschuld (age 31), Vice President of Schroder Core
Vice President of SCMI since April, 1993 and an Associate from July,
1990 to April, 1993. His address is 787 Seventh Avenue, New York, New
York.
28
<PAGE>
Nicholas Rossi (age 35), Assistant Secretary of Schroder Core
Associate of SCMI since October 1997 and Assistant Vice President
Schroder Advisors since March 1998; prior thereto Mutual Fund
Specialist, Willkie Farr & Gallagher since May 1996; prior thereto,
Fund Administrator with Furman Selz LLC since 1992. His address is 787
Seventh Avenue, New York, New York.
Thomas G. Sheehan, Assistant Treasurer and Assistant Secretary of Schroder Core
Cheryl O. Tumlin (age 32), Assistant Treasurer and Assistant Secretary of
Schroder Core
Assistant Counsel, Forum Financial Group, LLC since July 1996. Prior
thereto, Ms. Tumlin was an attorney with the U.S. Securities and
Exchange Commission, Division of Market Regulation. Her address is Two
Portland Square, Portland, Maine 04101.
THE INVESTMENT ADVISERS
INVESTORS EQUITY FUND
Pursuant to an Investment Advisory Agreement with the Trust, Payson serves as
investment adviser to Investors Equity Fund. Payson furnishes, at its own
expense, all services, facilities and personnel necessary in connection with
managing of the Fund's investments and effecting portfolio transactions for the
Fund. The Investment Advisory Agreement provides for an initial term of two
years from its effective date and shall continue in effect for successive twelve
month periods thereafter, provided that the Investment Advisory Agreement is
specifically approved at least annually (1) by the Board or by vote of the
majority of the Fund's shareholders, and, in either case, (2) by a majority of
the directors who are not party to the Investment Advisory Agreement or interest
persons of any such party (other than as trustees of the Trust).
The Investment Advisory Agreement is terminable without penalty by the Trust on
60 days' written notice when authorized either by vote of a majority of the
Fund's shareholders or directors, or by Payson on 60 days' written notice, and
will automatically terminate in the event of its assignment. The Investment
Advisory Agreement also provides that, with respect to the Fund, Payson shall
not be liable for any action or inaction except error of judgment or mistake of
law or for any act or omission in the performance of its duties to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties under the Investment Advisory Agreement. The Investment Advisory
Agreement provides that the Adviser may render services to others.
For its services, Payson receives an advisory fee at an annual rate of 0.65% of
Investor Equity Fund's average daily net assets. The following table shows the
dollar amount of fees payable to Payson for services rendered to the Fund under
the Investment Advisory Agreement, the amount of fees that was waived by Payson,
if any, and the actual fees received by Payson.
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $44,695 $30,943 $13,752
Payson has entered into an investment subadvisory agreement with Peoples to
exercise certain investment discretion over the assets (or a portion of assets)
of Investors Equity Fund. Subject to the general supervision of the Board,
Peoples is responsible for, among other things, developing a continuing
investment program for Investors Equity Fund in accordance with its investment
objective and reviewing the investment strategies and policies of Investors
Equity Fund. Peoples , located at One Portland Square, Portland, Maine 04101, is
a subsidiary of Peoples Heritage Financial Group, a multi-bank holding company.
As of June 30, 1998, Peoples Heritage Financial Group had assets of
approximately $9.8 billion and Peoples Heritage and its affiliates managed
assets with a value of approximately $939 million. Payson pays a fee to Peoples
for its subadviser services of 0.25% of Investors Equity
29
<PAGE>
Fund's average daily net assets. This fee is borne solely by Payson and does not
increase the fee paid by shareholders of Investors Equity Fund.
SMALL COMPANY OPPORTUNITIES FUND
Pursuant to an Investment Advisory Agreement with the Trust, Forum Advisors
serves as adviser to Small Company Opportunities Fund. Forum Advisors furnishes,
at its own expense, all services, facilities and personnel necessary in
connection with managing of the Fund's investments and effecting portfolio
transactions for the Fund. The Investment Advisory Agreement provides for an
initial term of two years from its effective date and shall continue in effect
for successive twelve month periods thereafter, provided that the Investment
Advisory Agreement is specifically approved at least annually (1) by the Board
or by vote of the majority of the Fund's shareholders, and, in either case, (2)
by a majority of the directors who are not parties to the Investment Advisory
Agreement or interest persons of any such parties.
The Investment Advisory Agreement is terminable without penalty by the Trust on
60 days' written notice when authorized either by vote of a majority of its
shareholders or directors, or by the Adviser on not more than 60 days' written
notice, and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that, with respect to the Fund,
Forum Advisors shall not be liable for any error of judgment or mistake of law
or in any event whatsoever, except for willful misfeasance, bad faith, wreckless
disregard, or gross negligence in the performance of its duties under the
Investment Advisory Agreement. The Investment Advisory Agreement provides that
Forum Advisors may render services to others.
Small Company Opportunities Fund invests its assets in four separate portfolios
of Core Trust: Small Cap Index Portfolio, Small Company Stock Portfolio, Small
Company Value Portfolio and Small Cap Value Portfolio. Pursuant to an Investment
Advisory Agreement with Core Trust, Norwest provides investment advisory
services to each of these Portfolios. The Investment Advisory Agreement provides
for an initial term of two years from its effective date and shall continue in
effect for successive twelve month periods thereafter, provided that the
Investment Advisory Agreement is specifically approved at least annually (1) by
the Core Trust Board or by vote of the majority of a Portfolio's shareholders,
and, in either case, (2) by a majority of the directors who are not parties to
the Investment Advisory Agreement or interest persons of any such parties.
The Investment Advisory Agreement is terminable without penalty by Core Trust on
60 days' written notice when authorized either by vote of a majority of its
shareholders or directors, or by the Adviser on not more than 60 days' written
notice, and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that, with respect to a Portfolio,
Norwest shall not be liable for any mistake of judgment, except for willful
misfeasance, bad faith, wreckless disregard, or gross negligence in the
performance of its duties under the Investment Advisory Agreement. The
Investment Advisory Agreement provides that Norwest may render services to
others.
For its services with respect to the Portfolios, Norwest receives an advisory
fee at an annual rate of 0.90% of the average daily net assets of Small Company
Stock Portfolio and Small Company Value Portfolio, 0.95% of the average daily
net assets of Small Cap Portfolio, and 0.25% of the average daily net assets of
the Small Cap Index Portfolio. The Small Company Opportunities Fund bears its
pro rata portion of the advisory fees for each Portfolio in which it invests.
For its services, Forum Advisors receives an advisory fee at an annual rate of
0.25% of Small Company Opportunities Fund's average daily net assets. The
following table shows the gross fees payable for advisory services rendered, the
amount of advisory fees waived, if any, and the actual advisory fees paid by the
Fund.
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $680 $2 $678
30
<PAGE>
To assist Norwest in carrying out its obligations, Norwest has retained the
services of the investment subadvisers described below. Each investment
subadviser makes investment decisions for the Portfolio to which it serves as
investment subadviser and continually reviews, supervises and administers the
Portfolio's investment program with respect to that portion, if any, of the
Portfolio's assets that Norwest believes should be managed by the investment
subadviser. Currently, each investment subadviser manages all of the assets of
the Portfolio that it subadvisers. Norwest (and not the Portfolios) pay each
investment subadviser a fee for its investment subadvisory services. This
compensation does not increase the amount paid by the Portfolios to Norwest for
investment advisory services.
Crestone, which is located at 7720 East Belleview Avenue, Suite 220, Englewood,
Colorado 80111, serves as investment subadviser to Small Company Stock
Portfolio. Crestone, an indirect investment subsidiary of Norwest Bank
Minnesota, N.A., provides investment advice regarding companies with small
market capitalization to various clients, including institutional investors. As
of June 30, 1998, Crestone managed assets with a value of approximately $325
million.
Peregrine, which is located at LaSalle Plaza, 800 LaSalle Avenue, Suite 1850,
Minneapolis, Minnesota 55402, serves as investment subadviser to Small Company
Value Portfolio. Peregrine, an indirect investment advisory subsidiary of
Norwest Bank, provides investment advisory services to corporate and public
pension plans, profit-sharing plans, savings-investment plans and 401(k) plans.
As of June 30, 1998, Peregrine managed approximately $5.8 billion in assets.
Smith, which is located at 500 Crescent Court, Suite 250, Dallas, Texas 75201,
is a registered investment adviser. Smith, an investment advisory affiliate of
Norwest Bank, provides investment management services to company retirement
plans, foundations, endowments, trust companies and high net worth individuals
using a disciplined equity style. As of June 13, 1998, Smith managed over
approximately $634 million in assets.
EQUITY INDEX FUND
Equity Index Fund invests its assets in Index Portfolio, a series of Core Trust.
Pursuant to an Investment Advisory Agreement with Core Trust, Norwest provides
investment advisory services to Index Portfolio. The Investment Advisory
Agreement provides for an initial term of two years from its effective date and
shall continue in effect for successive twelve month periods thereafter,
provided that the Investment Advisory Agreement is specifically approved at
least annually (1) by the Board or by vote of the majority of a Portfolio's
shareholders, and, in either case, (2) by a majority of the directors who are
not parties to the Investment Advisory Agreement or interest persons of any such
parties.
The Investment Advisory Agreement is terminable without penalty by Core Trust on
60 days' written notice when authorized either by vote of a majority of its
shareholders or directors, or by the Adviser on not more than 60 days' written
notice, and will automatically terminate in the event of its assignment. The
Investment Advisory Agreement also provides that, with respect to the Portfolio,
Norwest shall not be liable for any mistake of judgment, except for willful
misfeasance, bad faith, wreckless disregard, or gross negligence in the
performance of its duties under the Investment Advisory Agreement. The
Investment Advisory Agreement provides that Norwest may render services to
others.
For its services with respect to the Portfolio, Norwest receives an advisory fee
at an annual rate of 0.15% of the average daily net assets of Index Portfolio.
Equity Index Fund bears a pro rata portion of the advisory fees for Index
Portfolio. The following table shows the gross fees payable for advisory
services rendered, the amount of advisory fees waived, if any, and the actual
advisory fees paid by the Fund
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $2,990 $0 $2,990
31
<PAGE>
INTERNATIONAL EQUITY FUND AND EMERGING MARKETS FUND
International Equity Fund invests its assets in International Portfolio, a
series of Core Trust. Emerging Markets Fund invests its assets in Schroder EM
Core Portfolio, a series of Schroder Capital Funds. Pursuant to separate
Investment Advisory Agreements with Core Trust and Schroder Capital Funds, SCMI
serves as the adviser to both International Portfolio and Schroder EM Core
Portfolio. SCMI, the investment adviser to the Schroder Core Portfolios, is a
wholly owned U.S. subsidiary of Schroder U.S. Holdings Inc., which engages
through its subsidiary firms in the investment banking, asset management, and
securities businesses. Affiliates of Schroders U.S. Holdings Inc. (or their
predecessors) have been investment managers since 1927. SCMI and its United
Kingdom affiliate, Schroder Capital Management International, Ltd., have served
together as investment manager for approximately $28 billion as of September 30,
1997. Schroders U.S. Holdings Inc. is an indirect, wholly owned U.S. subsidiary
of Schroders plc, a publicly owned holding company organized under the laws of
England. Schroders plc and its affiliates engage in international merchant
banking and investment management businesses, and as of September 30, 1997, had
under management assets of over $175 billion. Schroder Advisors is a wholly
owned subsidiary of Schroder Capital Management International Inc. As investment
adviser, SCMI is entitled to monthly advisory fees at the annual rates of 1.00%
and 0.45%, respectively, of Schroder EM Core Portfolio's and International
Portfolio's average daily net assets.
The Investment Advisory Agreements between SCMI and Core Trust and SCMI and
Schroder Capital Funds each provide for an initial term of two years from its
effective date and shall continue in effect for successive twelve month periods
thereafter, provided that the Investment Advisory Agreement is specifically
approved at least annually (1) by their respective Boards or by vote of the
majority of a Portfolio's shareholders, and, in either case, (2) by a majority
of their respective directors who are not parties to the Investment Advisory
Agreement or interest persons of any such parties.
Each Investment Advisory Agreement is terminable without penalty by the
applicable Board on 60 days' written notice when authorized either by vote of a
majority of a Portfolios shareholders or directors, or by SCMI on 60 days'
written notice, and will automatically terminate in the event of its assignment.
The Investment Advisory Agreements also provide that, with respect to a
Portfolio, SCMI shall not be liable for any mistake of judgment or any event
whatsoever, except for willful misfeasance, bad faith, wreckless disregard, or
gross negligence in the performance of its duties under the Investment Advisory
Agreements. The Investment Advisory Agreements provide that SCMI may render
services to others.
For its services with respect to the Portfolios, SCMI receives an advisory fee
at an annual rate of 1.00% of the average daily net assets of Schroder EM Core
Portfolio and 0.45% of the average daily net assets of International Portfolio.
Emerging Markets Fund and International Equity Fund bears a pro rata proportion
of advisory fees of the Portfolios in which they invest. The following table
shows the gross fees payable for advisory services rendered, the amount of
advisory fees waived, if any, and the actual advisory fees paid by the Fund.
<TABLE>
EMERGING MARKETS FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $31 $28 $3
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $15 $1 $14
</TABLE>
32
<PAGE>
THE ADMINISTRATOR
THE FUNDS
Pursuant to an Administrative Agreement with the Trust, Forum Administrative
Services, LLC ("FAdS") acts as administrator of the Funds. As administrator,
FAdS provides management and administrative services necessary to the operation
of the Trust (which include, among other responsibilities, negotiation of
contracts and fees with, and monitoring of performance and billing of, the
transfer agent and custodian and arranging for maintenance of books and records
of the Trust), and provides the Trust with general office facilities. At the
request of the Board, FAdS provides persons satisfactory to the Board to serve
as officers of the Trust. Those officers as well as certain other employees and
Trustees of the Trust, may be directors, officers or employees of FAdS, Forum
Advisors, Norwest, SCMI, Payson, Peoples or their affiliates.
The Administration Agreement will remain in effect for a period of twelve months
with respect to a Fund and will continue in effect thereafter only if it is
specifically reapproved annually (1) by the Board or by majority vote of the
shareholders of a Fund and (2) by vote of a majority of the Trustees of the
Trust who are not party to the Administrative Agreement or interested persons of
any such party (other than as Trustees of the Trust).
The Administration Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to the Fund by vote of the Board or
by FAdS on 60 days' written notice. The Administration Agreement also provides
that FAdS shall not be liable for any action or inaction except for willful
misfeasance, bad faith, reckless disregard, or gross negligence in the
performance of its duties under the Administration Agreement.
For its administrative services, FAdS is entitled to receive a fee at the annual
rate of 0.20% or a Fund's average daily net assets.
THE CORE TRUST PORTFOLIOS
Pursuant to an Administrative Agreement with Core Trust, Forum Administrative
Services, LLC ("FAdS") acts as administrator of the Portfolios. As
administrator, FAdS provides management and administrative services necessary to
the operation of Core Trust (which include, among other responsibilities,
negotiation of contracts and fees with, and monitoring of performance and
billing of, the transfer agent and custodian and arranging for maintenance of
books and records of Core Trust), and provides the Core Trust with general
office facilities. At the request of the Board, FAdS provides persons
satisfactory to the Core Trust Board to serve as officers of Core Trust. Those
officers as well as certain other employees and Trustees of Core Trust, may be
directors, officers or employees of FAdS, Forum Advisors, Norwest, SCMI, Payson,
Peoples or their affiliates.
The Administration Agreement will remain in effect for a period of twelve months
with respect to a Fund and will continue in effect thereafter only if it is
specifically reapproved annually (1) by the Core Trust Board or by majority vote
of the shareholders of a Fund and (2) by vote of a majority of the Trustees of
Core Trust who are not party to the Administrative Agreement or interested
persons of any such party (other than as Trustees of the Trust).
The Administration Agreement terminates automatically if it is assigned and may
be terminated without penalty with respect to the Fund by vote of the Board or
by FAdS on 60 days' written notice. The Administration Agreement also provides
that FAdS shall not be liable for any action or inaction except for willful
misfeasance, bad faith, reckless disregard, or gross negligence in the
performance of its duties under the Administration Agreement.
For its administrative services, FAdS is entitled to receive from each portfolio
fees at the annual rates of 0.15% and 0.10%, respectively, of International
Portfolio and Index Portfolio's average daily net assets and 0.05% of the
average daily net assets of each of Small Company Stock Portfolio, Small Company
Value Portfolio, Small Cap Value Portfolio, and Small Cap Index Portfolio.
EM SCHRODER CORE PORTFOLIO
Pursuant to an Administration Agreement with Schroder Capital Funds and a
Subadministration Agreement with Schroder Fund Advisors Inc. ("Schroder
Advisors") located at 787 Seventh Avenue, New York, New York 10019, Schroder
Advisors and FAdS serves as administrator and subadministrator for the
Portfolio.
33
<PAGE>
Schroder Advisors is a wholly-owned subsidiary of SCMI and is a registered
broker-dealer organized to act as administrator and distributor of mutual funds.
Pursuant to their respective Administration Agreements, Schroder Advisors and
FAdS provides management and administrative services necessary to the operation
of a Portfolio including, among other things, the negotiation of contracts and
fees with, and monitoring of performance and billing of the transfer agent and
custodian and arranging for maintenance of books and records of the Portfolio.
At the request of the Board of Schroder Core, Schroder Advisors and FAdS also
provides Schroder Core with general office facilities and persons satisfactory
to the Board to serve as officers of Schroder Core. Those officers as well as
certain other employees and Trustees of Schroder Core, may be directors,
officers or employees of FAdS, Forum Advisors, Norwest, SCMI, Payson, Peoples or
their affiliates.
The respective Administration Agreements will remain in effect for a period of
twelve months and will continue in effect thereafter only if they are
specifically reapproved annually (1) by the Schroder Trust Board or by majority
vote of the shareholders of the Portfolio and (2) by vote of a majority of the
Trustees of Schroder Trust who are not party to the Administrative Agreement or
interested persons of any such party (other than as Trustees of Schroder Trust).
The Administration Agreements terminate automatically if it is assigned and may
be terminated without penalty with respect to a Portfolio by vote of the
Schroder Core Board, or by Schroder Advisors or FAdS, where applicable, on 60
days' written notice. The Administration Agreements also provides that Schroder
Advisors and FAdS shall not be liable for any action or inaction except for
willful misfeasance, bad faith, or gross negligence in the performance of its
duties under the applicable Administration Agreement.
For these services, Schroder Advisors and FAdS are each entitled to receive from
Schroder Core fees at the annual rates of 0.10% and 0.075%, respectively, of the
Portfolio's average daily net assets. Schroder Advisors and not the Portfolios
are responsible for paying the fee of FAdS.
To the extent that a Fund invests its assets in one or more Portfolios, the Fund
is responsible for its pro rate share of a Portfolios administrative expenses.
The following table shows the gross fees payable for administrative services
rendered, the amount of administrative fees waived, if any, and the actual
administrative fees paid by each Fund for the fiscal year ended May 31, 1998.
<TABLE>
INVESTORS EQUITY FUND
<S> <C> <C> <C<
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $13,752 $13,752 $0
EQUITY INDEX FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $118,051 $117,395 $656
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $44 $40 $4
34
<PAGE>
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $479 $7 $472
EMERGING MARKETS FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $317 $6 $311
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Forum Financial Services,
Inc. ("Forum"), an affiliate of FAdS, is the Trust's distributor and acts as the
agent of the Trust in connection with the offering of shares of the Funds. FFSI
is under no obligation to sell any specific amount of Fund shares. All
subscriptions of shares obtained by FFSI are directed to the Trust or acceptance
and are not binding on the Trust until accepted.
The Distribution Agreement will continue in effect with respect to a Fund for
twelve months from the date of its effectiveness and will continue in effect
thereafter only if its continuance is specifically approved at least annually by
the Board or by majority vote of a Fund's shareholders and in either case, by a
majority of the Trustees who: (1) are not parties to the Distribution Agreement;
(2) are not interested persons of any such party or of the Trust and (3) with
respect to any class for which the Trust has adopted a distribution plan, have
no direct or indirect financial interest in the operation of that distribution
plan or in the Distribution Agreement.
The Distribution Agreement terminates automatically upon assignment and may be
terminated with respect to a Fund without penalty (1) by the Board or by a
majority vote of its shareholders on 60 days' written notice to FFSI or by FFSI
on 60 days' written notice to the Trust. The Distribution Agreement provides
that Forum shall not be liable for any error of judgment or mistake of law or in
any event whatsoever, except for willful misfeasance, bad faith or gross
negligence in the performance of Forum's duties or by reason of reckless
disregard of its obligations and duties under the Distribution Agreement.
FFSI may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of a Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of a Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to a Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of a Fund in this manner should acquaint themselves with their
institution's procedures and should read this Prospectus in conjunction with any
materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
For these services, FFSI receives, and may reallow to certain financial
institutions, the sales charge paid by the purchasers of the Funds' shares. For
the fiscal year ended May 31, 1998, no sales charges were paid to FFSI in
connection with the purchases of the Funds.
35
<PAGE>
THE TRANSFER AGENT
Pursuant to a Transfer Agency and Services Agreement, Forum Shareholder
Services, LLC ("FSS") acts as transfer agent of the Trust. With respect to each
Fund, the Transfer Agency and Services Agreement provides for an initial term of
one year from its effective date and for its continuance in effect for
successive twelve-month periods thereafter, provided that the agreement is
specifically approved at least annually by the Board or by a majority vote of
the shareholders of that Fund, and in either case by a majority of the directors
who are not parties to the Transfer Agency and Services Agreement or interested
persons of any such party at a meeting called for the purpose of voting on the
Transfer Agency Agreement.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Fund may be effected and certain
other matters pertaining to the Fund; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying shareholder
signatures in connection with changes in the registration of shareholder
accounts; (6) furnishing periodic statements and confirmations of purchases and
redemptions; (7) arranging for the transmission of proxy statements, annual
reports, prospectuses and other communications from the Trust to its
shareholders; (8) arranging for the receipt, tabulation and transmission to the
Trust of proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and (9) providing such other related services as the
Trust or a shareholder may reasonably request.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation as custodian, investment manager, nominee, agent or fiduciary for
its customers or clients who are shareholders of the Fund with respect to assets
invested in the Fund. FSS or any sub-transfer agent or other processing agent
may elect to credit against the fees payable to it by its clients or customers
all or a portion of any fee received from the Trust or from FSS with respect to
assets of those customers or clients invested in the Fund. FSS, FAdS or
sub-transfer agents or processing agents retained by FSS may be Processing
Organizations (as defined in the Prospectus) and, in the case of sub- transfer
agents or processing agents, may also be affiliated persons of FSS or Forum.
For its services under the Transfer Agency and Services Agreement, FSS receives:
(1) a fee at an annual rate of 0.25% of the average daily net assets of a Fund;
(2) a fee of $24,000 per year; such amounts to be computed and paid monthly in
arrears by the Fund; and (3) Annual Shareholder Account Fees of $25.00 for a
retail and $125.00 for an institutional shareholder account; such fees to be
computed as of the last business day of the prior month.
FSS or any sub-transfer agent or processing agent may also act and receive
compensation for acting as custodian, investment manager, nominee, agent or
fiduciary for its customers or clients who are shareholders of the Fund with
respect to assets invested in the Fund.
FSS also is the Schroder Core Portfolio's transfer agent pursuant to a Transfer
Agency and Fund Accounting Agreement between Schroder Core and FSS. FSS is
compensated for those services in the amount of $12,000 per year plus certain
interestholder account fees.
To the extent that a Fund invests its assets in one or more Portfolios, the Fund
is responsible for its pro rata share of a Portfolio's transfer agency expenses,
if any. The following table shows the gross fees payable for transfer agency
services rendered, the amount of tranfer agency fees waived, if any, and the
actual transfer agency fees paid by each Fund for the fiscal year ended May 31,
1998.
36
<PAGE>
<TABLE>
INVESTORS EQUITY FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $22,715 $17,123 $5,592
EQUITY INDEX FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $10,295 $4,998 $5,297
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $2,037 $2 $2,035
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $5,282 $8 $5,274
EMERGING MARKETS FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $5,426 $8 $5,418
</TABLE>
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust, FAcS performs portfolio
accounting services for the Funds. Pursuant to the Fund Account Agreement, FAcS
prepares and maintains books and records of the Funds as required under the 1940
Act, calculates the net asset value per share of the Funds and dividends and
capital gain distributions and prepares period reports to shareholders and the
Securities and Exchange Commission.
The Fund Accounting Agreement will continue in effect with respect to a Fund for
twelve months from the date of its effectiveness and will continue in effective
if such continuance is specifically approved at least annually by the Board of
Trustees or by majority vote of a Fund's shareholders and in either case by a
majority of the Trustees who are not parties to the Fund Accounting Agreement or
interested persons of any such party, at a meeting called for the purpose of
voting on the Fund Accounting Agreement. For its services, FAcS receives from
the Trust an annual fee of $36,000 plus certain additional surcharges for the
number and type of portfolio transactions conducted with respect to the
Investors Equity Fund. In connection with the Small Company Opportunities Fund,
FAcS receives an annual fee of $24,000. As for each of the International Equity
Fund, Emerging Markets Fund, and the Equity Index Fund, FAcS receives an annual
fee of $12,000.
37
<PAGE>
FAcS also performs portfolio accounting services for the Core Trust Portfolios
pursuant to a Fund Accounting Agreement between Core Trust and FAcS. For its
services, FAcS receives a fee of $60,000 per year, plus additional surcharges
based upon total assets or security positions.
FSS performs transfer agency and portfolio accounting services for the Schroder
Core Portfolio pursuant to a Transfer Agency and Fund Accounting Agreement
between Schroder Core and FSS. For its portfolio accounting services, FSS is
entitled to receive a fee of $60,000 per year, plus additional surcharges based
upon total assets or security positions. For its transfer agency services, FSS
is entitled to receive a fee of $12,000 per year, plus per account charges.
To the extent that a Fund invests its assets in one or more Portfolios, the Fund
is responsible for its pro rate share of a Portfolio's fund accounting expenses.
The following table shows the gross fees payable for fund accounting fees, the
amount of fund accounting fees waived, if any, and the actual fund accounting
fees paid by each Fund for the fiscal year ended May 31, 1998.
<TABLE>
INVESTORS EQUITY FUND
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $18,452 $0 $18,452
EQUITY INDEX FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $32,094 $0 $32,094
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $6,118 $0 $6,118
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $7,305 $0 $7,305
EMERGING MARKETS FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $8,664 $0 $8,664
</TABLE>
38
<PAGE>
6. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of each Fund as of 4:00 p.m.,
Eastern Time, on each Business Day as defined in the Prospectus, by dividing the
value of a Fund's net assets (I.E., the value of its portfolio securities and
other assets less its liabilities) by the number of that Fund's shares
outstanding at the time the determination is made. Purchases and sales of a Fund
are effected at the next determination of the net asset value of that Fund
following the receipt of any purchase or redemption order.
Securities owned by a Fund or Portfolio listed on the recognized stock exchanges
are valued at the last reported trade price, prior to the time when the assets
are valued, on the exchange on which the securities are principally traded.
Listed securities traded on recognized stock exchanges where last trade prices
are not available are valued at mid-market prices. Securities traded in
over-the-counter markets, or listed securities for which no trade is reported on
the valuation date, are valued at the most recent reported mid-market price.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith using methods
approved by the Board.
Trading in securities on European and Far Eastern Securities exchanges and
over-the-counter markets may not take place on every day that the New York Stock
Exchange is open for trading. Furthermore, trading takes place in various
foreign markets on days on which a Portfolio's NAV is not calculated. If events
materially affecting the value of foreign securities occur between the time when
their price is determined and the time when net asset value is calculated, such
securities will be valued at fair value as determined in good faith by the
Schroder Core Board or the Board.
All assets and liabilities of a Portfolio or Fund denominated in foreign
currencies are converted to U.S. dollars at the mid price of such currencies
against U.S. dollars last quoted by a major bank prior to the time when NAV of
the Fund or Portfolio is calculated.
7. PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for each Portfolio and Fund and for the other investment
advisory clients of the investment advisers are made with a view to achieving
their respective investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular client
involved. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as is possible,
averaged as to price and allocated between such clients in a manner which in the
investment adviser's opinion is equitable to each and in accordance with the
amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
BROKERAGE AND RESEARCH SERVICES
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by a Fund or Portfolio of negotiated brokerage commissions. Such
commissions vary among different brokers. Also, a particular broker may charge
different commissions according to such factors as the difficulty and size of
the transaction. Transactions in foreign securities generally involve the
payment of fixed brokerage commissions, which are generally higher than those in
the United States. Since most brokerage transactions for the Schroder EM Core
Portfolio and International Portfolio will be placed with foreign
broker-dealers, certain portfolio transaction costs for these Portfolios may be
higher than fees for similar transactions executed on U.S. securities exchanges.
There is generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Funds or Portfolios usually
includes an undisclosed dealer commission or mark-up. In underwritten offerings,
the price paid by the Funds or
39
<PAGE>
Portfolios includes a disclosed, fixed commission or discount retained by the
underwriter or dealer. Brokerage commissions were not paid directly by Equity
Index, Small Company Opportunities Fund, International Equity Fund, and Emerging
Markets Fund as each of these series invest their assets directly in one or more
investment companies. For the fiscal year ended May 31, 1998, the aggregate
brokerage commissions paid by Investors Equity Fund were $4,512. For the fiscal
year ended May 31, 1998, $0.00 or 0.00% of aggregate brokerage commissions paid
was paid to an affiliated broker and 0.00% of the total dollar amount of
transactions involving payment of commissions was effected through an affiliated
broker. As of May 31, 1998, the Investors Equity Fund owned approximately
$273,000, $948,000, and $1,001,000, respectively of Merrill Lynch & Co., Inc.
Franklin Resources, Inc., and Norwest Corporation. Investors Equity Fund
utilizes these three entities and/or their affiliated broker-dealers, among
others, to affect transactions on its behalf.
The Investment Advisory Agreements authorize and direct the investment advisers
to place orders for the purchase and sale of assets with brokers or dealers
selected by the investment advisers in their discretion and to seek "best
execution" of such portfolio transactions. Each Adviser monitors the
creditworthiness of counterparties to the Funds' and Portfolios' transactions
and enters unto a transaction only when it believes that the counterparty
presents minimal credit risks and the benefits from the transaction justify the
attendant risks. An investment adviser places all such orders for the purchase
and sale of portfolio securities and buys and sells securities for a Fund or
Portfolio through a substantial number of brokers and dealers. In so doing, the
investment adviser uses its best efforts to obtain for the Fund or Portfolio the
most favorable price and execution available. The Fund or Portfolio may,
however, pay higher than the lowest available commission rates when the
investment adviser believes it is reasonable to do so in light of the value of
the brokerage and research services provided by the broker effecting the
transaction. In seeking the most favorable price and execution, the investment
adviser, having in mind the Fund's or Portfolio's best interests, considers all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealers
involved and the quality of service rendered by the broker-dealers in other
transactions.
It has for many years been a common practice in the investment advisory business
as conducted in certain countries, including the United States, for advisers of
investment companies and other institutional investors to receive research
services from broker-dealers which execute portfolio transactions for the
clients of such advisers. Consistent with this practice, and investment adviser
may receive research services from broker-dealers with which it places the
Fund's or Portfolio's portfolio transactions. These services, which in some
cases may also be purchased for cash, include such items as general economic and
security market reviews, industry and company reviews, evaluations of securities
and recommendations as to the purchase and sale of securities. Some of these
services are of value to the investment adviser in advising various of its
clients (including the Fund or Portfolio), although not all of these services
are necessarily useful and of value in managing the Portfolio. The investment
advisory fee paid by a Portfolio is not reduced because the investment adviser
and its affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the
"Act"), an investment adviser may cause a Fund or Portfolio to pay a
broker-dealer which provides "brokerage and research services" (as defined in
the Act) to it an amount of disclosed commission for effecting a securities
transaction in excess of the commission which another broker-dealer would have
charged for effecting that transaction. Although Investors Equity Fund and the
Portfolios do not currently engage in directed brokerage arrangements to pay
expenses, they may do so in the future. These arrangements, whereby brokers
executing a Fund's or Portfolio's portfolio transactions would agree to pay
designated expenses of the Fund or Portfolio if brokerage commissions generated
by the Fund or Portfolio reached certain levels, might reduce the Fund's
expenses or the Portfolio's expenses (and, indirectly, the Fund's expenses). As
anticipated, these arrangements would not materially increase the brokerage
commissions paid by the Fund or Portfolio.
SCMI places all orders for purchases and sales of Schroder EM Core Portfolio's
and International Portfolios' securities. In selecting broker-dealers, SCMI may
consider research and brokerage services furnished to it and its affiliates.
Schroder & Wertheim & Co. and Schroder Securities Limited, affiliates of SCMI,
may receive brokerage
40
<PAGE>
commissions from the Portfolios in accordance with procedures adopted by the
Trust's Trustees or Schroder Core Trustees under the 1940 Act which require
periodic review of these transactions. Subject to seeking the most favorable
price and execution available, SCMI may consider sales of shares of the Funds as
a factor in the selection of broker-dealers.
The annual portfolio turnover rate of a Fund (or Portfolio) may exceed 50% but
will not ordinarily exceed 100%.
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Detailed information pertaining to the purchase of shares of each Fund,
redemption of shares and the determination of the net asset value of Fund shares
is set forth in the Prospectus under "Purchases and Redemptions of Shares".
Shares of each Fund are sold on a continuous basis by the distributor.
Set forth below is an example of the method of computing the offering price of a
Fund's shares. The example assumes a purchase of shares of beneficial interest
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of a
Fund on May 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C>
Small Company
Investors Opportunities Emerging
Equity Fund Equity Index Fund International Markets Fund
Fund Equity Fund
-------------------------------------------------------------------------
Net Asset Value Per Share $11.43 $11.69 $9.70 $12.02 $9.28
Shares Charge, 4.00% of
offering price (4.17% of net
asset value per share) $0.48 $0.49 $0.40 $0.50 $0.39
Offering to Public $11.91 $12.18 $10.10 $12.52 $9.67
</TABLE>
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse a Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to a Fund's shares as provided in the
Prospectus.
The Trust has filed a formal election with the Securities and Exchange
Commission pursuant to which a Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.
REDEMPTION IN KIND
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the shareholder in
converting the securities to cash. An in kind distribution of portfolio
securities will be less liquid than cash. The shareholder may have difficulty in
finding a buyer for portfolio securities received in payment for redeemed
shares. Portfolio securities may decline in value between the time of receipt by
the shareholder and conversion to cash. A redemption in kind of a Fund's
portfolio securities could result in a less diversified portfolio of investments
for the Fund and could affect adversely the liquidity of the Fund's portfolio.
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of each Fund to exchange their
shares for shares of any other fund of the Trust or shares of certain other
portfolios of investment companies which retain FAdS or its affiliates as
investment adviser or distributor and which participate in the Trust's exchange
privilege program ("Participating
41
<PAGE>
Fund"). For Federal income tax purposes, exchange transactions are treated as
sales on which a purchaser will realize a capital gain or loss depending on
whether the value of the shares redeemed is more or less than his basis in such
shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FSS to be genuine.
The records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge may
be redeemed and the proceeds used to purchase, without a sales charge, shares of
any other Participating Fund otherwise sold with the same sales charge. If the
Participating Fund purchased in the exchange transaction imposes a higher sales
charge than was paid originally on the exchanged shares, the shareholder will be
responsible for the difference between the two sales charges. Shares acquired
through the reinvestment of dividends and distributions are deemed to have been
acquired with a sales charge rate equal to that paid on the shares on which the
dividend or distribution was paid.
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
9. TAX MATTERS
The Funds intend to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company the Fund intends to distribute to shareholders at
least 90% of its net investment income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net
long-term capital losses), and to meet certain diversification of assets, source
of income, and other requirements of the Code. By so doing, a Fund will not be
subject to Federal income tax on its net investment income and net capital gain
(the excess of net long-term capital gains over net short-term capital losses)
distributed to shareholders. If a Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation, and its distributions
will be taxable to shareholders as ordinary income to the extent of a Fund'd
earnings and profits.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a 4% nondeductible excise tax. To
prevent imposition of the excise tax, a Fund must distribute for each calendar
year an amount equal to the sum of (1) at least 98% its ordinary income
(excluding any capital gains or losses) for the calendar year, (2) at least 98%
of the excess of its capital gains over capital losses realized during the
one-year period ending October 31 of such year, and (3) all such ordinary income
and capital gains for previous years that were not distributed during such
years. A distribution will be treated as paid during the calendar year if it is
declared by the Fund in October, November or December of the year with a record
date in such month and paid by the Fund during January of the following year.
Such distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the Fund accrues interest or other receivable or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivable or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, gains or
losses on disposition of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition as well as gains
or losses from certain foreign currency transactions, generally are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may
42
<PAGE>
increase or decrease the amount of the Fund's net investment income to be
distributed to its shareholders as ordinary income.
Generally, the hedging transactions undertaken by the Fund may be deemed
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. The
hedging transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
The requirements applicable to regulated investment companies such as the Fund
may limit the extent to which the Fund will be able to engage in transactions in
options and forward contracts.
Distributions of net investment income (including realized net short-term
capital gain) are taxable to shareholders as ordinary income.
Distributions of net capital gain (i.e., the excess of net gain from capital
assets held for more than one year over net loss from capital assets held for
not more than one year) will be treated in the hands of shareholders as
long-term capital gain, regardless of how long a shareholder has held shares in
a Fund. Distributions of net capital gain are not eligible for the dividends
received deduction. A loss realized by a shareholder on the sale of shares of
the Fund held for six months or less with respect to which distributions of net
capital gain have been paid will, to the extent of such distributions, be
treated as long-term capital loss. Further, a loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced (whether by
reinvestment of distributions or otherwise) within a period of 61 days beginning
30 days before and ending 30 days after the date the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
All distributions are taxable to the shareholder whether reinvested in
additional shares or received in cash. Shareholders receiving distributions in
the form of additional shares will have a cost basis for Federal income tax
purposes in each share received equal to the net asset value of a share of the
Fund on the reinvestment date. Shareholders will be notified annually as to the
Federal tax status of distributions.
Distributions by a Fund reduce the net asset value of the Fund's shares. Should
a distribution reduce the net asset value below a shareholder's cost basis, such
distribution nevertheless would be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implications of buying shares just prior to a
distribution. The price of shares purchased at that time includes the amount of
the forthcoming distribution. Those purchasing just prior to a distribution will
receive a distribution which will nevertheless be taxable to them.
Upon redemption or sale of his shares, a shareholder will realize a taxable gain
or loss depending upon his basis in his shares. Such gain or loss generally will
be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. Such gain or loss generally will be long-term or short-term
depending upon the shareholder's holding period for the shares.
43
<PAGE>
The Funds will be required to report to the Internal Revenue Service (the "IRS")
all distributions as well as gross proceeds from the redemption of the Fund
shares, except in the case of certain exempt shareholders. All such
distributions and proceeds generally will be subject to withholding of Federal
income tax at a rate of 31% ("backup withholding") in the case of nonexempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions or proceeds,
whether reinvested in additional shares or taken in cash, will be reduced by the
amount required to be withheld. Any amounts withheld may be credited against the
shareholder's Federal income tax liability. Investors may wish to consult their
tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and their treatment under state and local income tax
laws may differ from the Federal income tax treatment. Shareholders should
consult their tax advisors with respect to particular questions of Federal,
state and local taxation. Shareholders who are not U.S. persons should consult
their tax advisors regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that certain distributions to them
would be subject to withholding of U.S. tax at a rate of 30% (or a lower rate
under a tax treaty).
10. OTHER INFORMATION
CORE TRUST AND SCHRODER CORE
Core Trust is a business trust organized under the law of the State of Delaware
in September 1994. Schroder Core is a business trust organized under the law of
the State of Delaware in September 1995. Core Trust and Schroder Core are each
registered under the Act as an open-end management investment company.
Currently, Core Trust has twenty-one separate portfolios, and Schroder Core has
eight separate portfolios. The assets of each Schroder Core Portfolio or Core
Trust, and of any other portfolios of each respective trust now existing or
created in the future, belong only to the Portfolio or those other portfolios,
as the case may be. The assets belonging to a portfolio are charged with the
liabilities of and all expenses, costs, charges and reserves attributable to
that portfolio. Under each of Core Trust's and Schroder Core's Trust Instrument,
the Trustees are authorized to issue beneficial interest in one or more separate
and distinct series. Investments in a Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Each investor in a Portfolio is entitled to a vote in proportion to
the amount of its investment therein. Investors in a Portfolio and other series
(collectively, the "portfolios") of Core Trust or Schroder Core will all vote
together in certain circumstances (e.g., election of the Trustees and
ratification of auditors, as required by the 1940 Act and the rules thereunder).
One or more portfolios could control the outcome of these votes. Investors do
not have cumulative voting rights, and investors holding more than 50% of the
aggregate interests in Core Trust or in Schroder Core or in a Portfolio, as the
case may be, may control the outcome of votes. The Trust is not required and has
no current intention to hold annual meetings of investors, but Core Trust and
Schroder Core each will hold special meetings of investors when (1) a majority
of the Trustees determines to do so or (2) investors holding at least 10% of the
interests in Core Trust or Schroder Core (or a Portfolio) request in writing a
meeting of investors in Core Trust or Schroder Core (or a Portfolio). Except for
certain matters specifically described in the Trust Instruments, the Trustees
may amend the Trust's Trust Instrument without the vote of investors.
Either Core Trust or Schroder Core may enter into a merger or consolidation with
respect to a Portfolio or sell all or substantially all of its assets, if
approved by the applicable Board (without approval of the interestholders of the
Portfolio). A Portfolio may be terminated (1) upon liquidation and distribution
of its assets, if approved by the vote of a majority of the Portfolio's
outstanding voting securities (as defined in the 1940 Act); or (2) by the
Trustees of Core Trust or Schroder Core on written notice to the Portfolio's
investors. Upon liquidation or dissolution of any Portfolio, the investors
therein would be entitled to share pro rata in its net assets available for
distribution to investors.
44
<PAGE>
Core Trust and Schroder Core are each organized as a business trust under the
law of the State of Delaware. Each trust's interestholders are not personally
liable for the obligations of the trust under Delaware law. The Delaware
Business Trust Act provides that an interestholder of a Delaware business trust
shall be entitled to the same limitation of liability extended to shareholders
of private corporations for profit. However, no similar statutory or other
authority limiting business trust interestholder liability exists in many other
states, including Texas. As a result, to the extent that Core Trust or Schroder
Core or an interestholder is subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law, and may thereby subject Core
Trust or Schroder Core to liability. To guard against this risk, the Trust
Instruments of Core Trust and Schroder Core disclaims liability for acts or
obligations of the trust and requires that notice of such disclaimer be given in
each agreement, obligation and instrument entered into by Core Trust, Schroder
Core or their respective Trustees, and provides for indemnification out of Trust
property of any interestholder held personally liable for the obligations of
Core Trust and Schroder Core. Thus, the risk of an interestholder incurring
financial loss beyond his investment because of shareholder liability is limited
to circumstances in which: (1) a court refuses to apply Delaware law; (2) no
contractual limitation of liability is in effect; and (3) Core Trust or Schroder
Core, as applicable, itself is unable to meet its obligations. In light of
Delaware law, the nature of the trusts' business, and the nature of its assets,
the Board believes that the risk of personal liability to a Trust interestholder
is remote.
PLACEMENT AGENT
Forum Financial Services, Inc., Two Portland Square, Portland, Maine 04101,
serves as Core Trust's and Schroder Core's placement agent. FFSI receives no
compensation for such placement agent services.
COUNSEL
Legal matters in connection with the issuance of beneficial interests of the
Trust are passed upon by the law firm of Seward & Kissel, 1200 G Street, N.W.
Washington, D.C. 20005.
Kirkpatrick & Lockhart, 1800 Massachusetts Avenue, N.W., Washington D.C. 20036,
counsel to Core Trust, passes upon certain legal matters in connection with Core
Trust.
Ropes & Gray, One International Place, Boston, Massachusetts, counsel to the
Schroder Core Portfolio, passes upon certain legal matters in connection with
the interests in the Portfolio.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, act as auditors for the Trust.
PricewaterhouseCoopers, LLP, One Post Office Square, Boston, Massachusetts
02019, ("Coopers") serves as independent accountants for the EM Schroder Core
Portfolio, International Portfolio, Small Company Stock Portfolio, and Small
Company Value Portfolio.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110, serves as
independent auditors for Small Cap Index Portfolio and Small Cap Value
Portfolio.
CUSTODIAN
Pursuant to a Custodian Agreement, BankBoston, N.A., 100 Federal Street, Boston,
MA 02106, acts as the custodian of the Funds' assets. The custodian's
responsibilities include safeguarding and controlling the Fund's cash and
securities, determining income and collecting interest on the Funds'
investments. The Fund's custodian employs foreign subcustodians to provide
custody of the Fund's foreign assets in accordance with applicable regulations.
Norwest Bank Minnesota, N.A., Sixth Street and Marquetts, Minneapolis, Minnesota
55479, acts as the custodian for Index Portfolio, Small Company Stock Portfolio,
Small Company Value Portfolio,
45
<PAGE>
Small Cap Value Portfolio, Small Cap Index Portfolio, and International
Portfolio. Norwest may appoint subcustodians for the foreign securities and
other assets held in foreign countries.
The Chase Manhattan Bank ("Chase"), through its Global Securities Services
division located in London, England, acts as custodian of Schroder EM Core
Portfolio's assets, but Chase plays no role in making decisions as to the
purchase or sale of portfolio securities for a Portfolio. Pursuant to rules
adopted under the 1940 Act, the Schroder Core Portfolio may maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Schroder Core Board following a consideration of a number of
factors, including (but not limited to) the reliability and financial stability
of the institution; the ability of the institution to perform capably custodial
services for the Portfolio; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and further risks of potential nationalization or
expropriation of portfolio assets.
FINANCIAL STATEMENTS
The financial statements of each Fund and of each Core Trust or Schroder Core
portfolio in which they invest, where applicable, for the fiscal year ended May
31, 1998, which are included in the Annual Report to Shareholders of the Trust
and delivered along with this Statement of Additional Information, are
incorporated herein by reference.
46
<PAGE>
APPENDIX A
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 1, 1998, the officers and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of each Fund. Also as of that date, the
shareholders listed below owned more than 5% of each Fund. Shareholders owning
25% or more of the shares of a Fund or of the Trust as a whole may be deemed to
be controlling persons. By reason of their substantial holdings of shares, these
persons may be able to require the Trust to hold a shareholder meeting to vote
on certain issues and may be able to determine the outcome of any shareholder
vote. As noted, certain of these shareholders are known to the Trust to hold
their shares of record only and have no beneficial interest, including the right
to vote, in the shares.
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
OAK HALL SMALL CAP CONTRARIAN FUND
Maryann Wolf 14.64% 40,946.955
55 Central Park West Apt 12-13
New York NY 10023
Jane Levy 6.30% 17,622.969
320 West 87th Street Apt. 3W
New York NY 10024
Bank of Boston, IRA Custodian 6.28% 17,553.097
FBO Maryann Wolf
55 Central Park West Apt. 12-13
New York NY 10023
WR Family Associates 401K Plan Option 6.11% 17,079.686
Attn: Olga M. Dimmini
122 East 42nd Street, Suite 2400 New York, NY 10168-002
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SHARES
H M Payson & Co. Custody Account 49.70% 17,756,098.610
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland ME 04112
H M Payson & Co. Trust Account 49.62% 17,727,418.810
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
DAILY ASSETS GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Bank of Boston, IRA Rollover Custodian 10.41% 833,430.130
FBO Merne E. Young Rollover
18751 San Rufino
Irvine, CA 92612
Casa Colina Centers for Rehabilitation 10.02% 802,054.250
Foundation Smith Family Care Fund
Attn: Kristy Hurley
2850 N. Garey Avenue
P.O. Box 6001
Pomona, CA 91769-6001 15.90% 795,276.550
Bank of Boston-IRA Custodian 6.99% 559,656.070
FBO F Herman Keller
15838 Marlinton Dr
Whittier, CA 90604-3503
Bank of Boston-IRA Custodian 6.41% 512,607.00
FBO Edward J. Keller
1302 North Idaho Street5
Lahabra, CA 90631-2611
Lansdowne Parking Associates LP 6.30% 504,199.840
c/o Meredith Management
29 Crafts Street #300
Newton, MA 02158
DAILY ASSETS GOVERNMENT FUND
INVESTORS SHARES
Forum Administrative Services, LLC 100% 101.99
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES
Allagash & Co. 43.81% 11,921,463.850
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
------------ -------------
DAILY ASSETS CASH FUND
INSTITUTIONAL SHARES CON'T
H M Payson & Co. Custody Account 33.32% 8,793,445.520
FBO Customer Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
H M Payson & Co. Trust Account 16.72% 4,550,030.200
FBO Trust Funds Under Mgmt
P.O. Box 31
Portland, ME 04112
Allagash & Co. 7.15% 1,944,122.500
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS CASH FUND
INSTITUTIONAL SERVICE SHARES
CRM Small Cap Value Fund 17.25% 1,008,840.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 17.05% 997,260.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Equity Income Fund 16.30% 953,220.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Cutler Approved List Equity Fund 15.25% 891,720.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Allagash & Co. 11.68% 683,029.550
c/o Bank Of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
CRM Large Cap Value Fund 7.97% 466,032.950
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
DAILY ASSETS CASH FUND
INVESTORS SHARES
Forum Financial Group 98.99% 10,024.940
Attn. Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
Allagash & Co. 64.24% 10,462,689.340
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Babb & Co. #02-6004105 35.56% 5,790,698.540
c/o Bank of New Hampshire
P.O Box 477
Concord NH 03302-0477
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Cutler Equity Income Fund 22.39% 652,083.950
C/O Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
Sound Shore Fund 20.65% 601,350.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
CRM Small Cap Value Fund 18.28% 532,200.000
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES-CON'T
CRM Large Cap Value Fund 16.00% 466,032.950
c/o Forum Financial Service Inc.
Two Portland Square
Portland, ME 04101
Dirigo Drywall Assoc. 12.83% 373,456.360
225 Riverside Street
Portland, ME 04103
Cutler Approved List Equity Fund 6.15% 179,214.880
c/o Forum Financial Services, Inc.
Two Portland Square
Portland, ME 04101
DAILY ASSETS GOVERNMENT OBLIGATIONS FUND
INVESTORS SHARES
Forum Financial Group 98.99% 10,024.450
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 54.97% 11,439,442.420
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Imperial Securities Corp. 23.13% 4,812,999.380
Attn: Jack Singer
9920 South La Cieniega Blvd 14th Fl
Inglewood, CA 90301
Allagash & Co. 21.90% 4,557,785.810
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS MUNICIPAL FUND
INSTITUTIONAL SERVICE SHARES
Forum Financial Group 99.95% 10,014.320
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF
SHARES OWNED SHARES OWNED
------------ ------------
DAILY ASSETS MUNICIPAL FUND
INVESTOR SHARES
Forum Financial Group 99.00% 10,012.670
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SHARES
Babb & Co. #02-6004105 61.84% 67,115,544.220
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302-0477
Allagash & Co. 38.16% 41,413,900.330
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INSTITUTIONAL SERVICE SHARES
Allagash & Co. 99.69% 3,299,339.030
c/o Bank of New Hampshire
P.O. Box 477
CONCORD, NH 03302-0477
DAILY ASSETS TREASURY OBLIGATIONS FUND
INVESTOR SHARES
Forum Financial Group 99.00% 10,024.840
Attn: Corporate Accounting
Portland, ME 04101
INVESTORS BOND FUND
Firstrust Co. 71.60% 5,615,875.030
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 11.56% 906,833.395
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks, PA 19456
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
INVESTORS BOND FUND CON'T ------------ -------------
SEI Trust Company 9.28% 727,898.651
C/O Irwin Union Bank & Trust
Attn: Mutual Fund Administrator
One Freedom Valley Drive
Oaks, PA 19456
TAXSAVER BOND FUND
Firstrust Co. 46.04% 1,698,923.696
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
SEI Trust Company 20.21% 745,758.539
c/o Irwin Union Bank & Trust
Attn: Mutual Funds Administrator
One Freedom Valley Drive
Oaks PA 19456
Leonore Zusman Trustee 5.73% 211,554.575
Leonore Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Ct.
Englewood OH 45322
Mitchell Singer 5.29% 195,037.219
5045 North Main Street
Suite 250
Dayton, OH 45415-3637
Lawrence L. Zusman Trustee 5.14% 189,611.425
Lawrence L. Zusman Living Trust U/A/D 2/3/93
6439 Woodacre Court
Englewood OH 45322
HIGH GRADE BOND FUND
Babb & Co. #02-6004105 99.72% 3,461,677.275
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
NEW HAMPSHIRE BOND FUND
Independence Trust 45.62% 565,735.702
Attn: Linda Feliciano
200 Bedford Street 5th
Manchester, NH 03101
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
PAYSON BALANCED FUND
ALA & Co. 15.10% 253,660.261
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
Payse & Co. 14.83% 249,140.428
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
PAYSON VALUE FUND
Payse & Co. 22.30% 212,560.364
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
ALA & Co. 18.33% 174,716.944
c/o H.M. Payson & Co.
PO Box 31
Portland ME 04112
INVESTORS EQUITY FUND
Babb & Co. #02-6004105 94.12% 2,320,036.988
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 5.44% 134,084.041
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
INTERNATIONAL EQUITY FUND
Forum Financing 67.80% 500.000
Attn: Corporate Accounting
Forum Financial Group
Two Portland Square
Portland ME 04101
Donaldson, Lufkin & Jenrette Sec Corp. 32.20% 237.417
Mutual Funds Dept. - 5th Floor
PO Box 2052
Jersey City NJ 07303
</TABLE>
A-8
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF SHARES AMOUNT OF SHARES
OF FUND OWNED OF FUND OWNED
------------- -------------
INVESTORS GROWTH FUND
Firstrust Co. 99.91% 3,000,887.117
National City Bank Trust Dept.
227 Main Street
Evansville IN 47708
EQUITY INDEX FUND
Allagash & Co. 97.83% 440,772.554
c/o Bank of New Hampshire
PO Box 477
Concord NH 03302
SMALL COMPANY OPPORTUNITIES FUND
Forum Administrative Services, LLC 69.41% 500.000
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donaldson Lufkin & Jenrette Sec Corp. 30.59% 220.403
Mutual Funds Dept. - 5th Floor
P.O. Box 2052
Jersey City, NJ 07303
EMERGING MARKETS FUND
Forum Financing 65.52% 500.00
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
Donald, Lufkin & Jenrette Securities Corp. 34.48% 263.158
Mutual Funds Dept.-5th Floor
P.O. Box 2052
Jersey City, NJ 07303
QUADRA VALUE EQUITY FUND
Holly Melosi & Arturo R. Melosi TRUSTEE 81.07% 414,500.069
FBO Atrgur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
HMK Enterprises, Inc. 8.28% 42,337.003
800 South Street
Suite 355
Waltham MA 02154
</TABLE>
A-9
<PAGE>
<TABLE>
<S> <C> <C>
PERCENTAGE OF AMOUNT OF SHARES
SHARES OWNED OF FUND OWNED
QUADRA GROWTH FUND ------------ -------------
Holly Melosi & Arturo R. Melosi TRUSTEE 77.65% 454,742.476
FBO Arthur & Holly Magill Foundation
36 Woodland Way Circle
Greenville, SC 29601
John E. Rosenthal 12.44% 73,322.092
1212 West Street
Carlisle, MA 01741-1428
POLARIS GLOBAL VALUE FUND
David Solomont 11.28% 271,791.712
P.O. Box 67385
Chestnut Hill, MA 02467
DCGT TR 5.30% 127,724.287
FBO Audrey Lewis-REG IRA
10 Rogers Street
Cambridge, MA 02142
AUSTIN GLOBAL EQUITY FUND
Bear Stearns Sec Corp 91.72% 1,003,764.045
1 Metrotech Center North
Brooklyn, NY 11202-3859
</TABLE>
A-10
<PAGE>
APPENDIX B
DESCRIPTION OF SECURITIES RATINGS
1. CORPORATE BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Bonds which are rated Aaa are judged by Moody's to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Note: Those bonds in the Aa and A groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa1 and A1.
STANDARD AND POOR'S CORPORATION ("S&P")
Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
Bonds rated AA have a very strong capacity to pay interest and repay principal
and differ from the highest rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt rated in higher rated
categories.
Note: The ratings for AA and A may be modified by the addition of a plus (+) or
minus (-) sign to show the relative standing within the rating category.
FITCH IBCA, INC.. ("FITCH")
AAA Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, shorter-term debt of these issuers is generally rate F-1+.
B-1
<PAGE>
A Bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA categories.
2. COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC.
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
o -- Leading market positions in well-established industries.
o -- High rates of return on funds employed.
o -- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
o -- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
o -- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S CORPORATION
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH IBCA, INC..
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues assigned
F-1+ or F-1 ratings.
B-2
<PAGE>
APPENDIX C
ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which is currently in use is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 149
mutual funds for 17 different fund managers, with more than $38 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 275 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
C-1
<PAGE>
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has 4 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals withdecades of experience with some of the country's major financial
institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over $27 billion as of June 30, 1998.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1.05 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.9 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against
C-2
<PAGE>
market volatility. These funds offer regular income, ready access to your money,
and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
C-3
<PAGE>
PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 149 funds with
more than $38 billion in assets. Forum manages mutual funds for independent
investment advisors such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment advisor with approximately
$1.9 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1.05 billion in assets under management and $388 million in
non-managed custodial accounts. The Payson Value Fund and Payson
Balanced Fund are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment advisor, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
C-4
<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisors and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*ADMINISTRATION AND DISTRIBUTION SERVICES: Regulatory, compliance,
expense accounting, budgeting for all funds
*FUND ACCOUNTING SERVICES: Portfolio valuation, accounting, dividend
declaration, and tax advice
*SHAREHOLDER SERVICES: Preparation of statements, distribution
support, inquiries and processing of trades
*CLIENT ASSETS UNDER ADMINISTRATION AND DISTRIBUTION: $38 billion
*CLIENT ASSETS PROCESSED BY FUND ACCOUNTING: $49 billion
*CLIENT FUNDS UNDER ADMINISTRATION AND DISTRIBUTION: 149 mutual funds with 226
share classes
*INTERNATIONAL VENTURES:
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*FORUM EMPLOYEES: United States -200 Poland - 71, Bermuda - 4
FORUM CONTACTS:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment
Advisors, LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
C-5
<PAGE>
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.05 Billion
*Custody Income Assets: $388 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 13 shareholders; 12 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial
Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
C-6
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements
Prospectus: Financial Highlights.
Statement of Additional Information: Not Applicable
(b) Exhibits
(1) Trust Instrument of Registrant dated August 29, 1995
(see note 1).
(2) By-Laws of Registrant (see note 2).
(3) None.
(4) See the following Sections in the Trust Instrument
filed as Exhibit(1): Sections 2.04 and 2.06.
(5)(a) Investment Advisory Agreement between Registrant and
H.M. Payson & Co. relating to Payson Value Fund and
Payson Balanced Fund dated December 18, 1995 (see note
3).
(b) Investment Advisory Agreement between Registrant and
Quadra Capital Partners, L.P. relating to Quadra Value
Equity Fund dated as of December 20, 1996 (see note 4).
(c) Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and Carl Domino Associates, L.P.
relating to Quadra Value Equity Fund dated as of
October 18, 1996 (see note 4).
(d) Investment Advisory Agreement between Registrant and
Austin Investment Management, Inc. relating to Austin
Global Equity Fund dated as of June 14, 1996 (see note
3).
(e) Investment Advisory Agreement between Registrant and
Oak Hall Capital Advisors, Inc. relating to Oak Hall
Small Cap Contrarian Fund dated as of June 14, 1996
(see note 3).
(f) Investment Advisory Agreement between Registrant and
Forum Investment Advisors, LLC relating to Investors
Bond Fund, TaxSaver Bond Fund, Investors High Grade
Bond Fund, Maine Municipal Bond Fund, New Hampshire
Bond Fund and Investors Growth Fund dated as of January
2, 1998 (see note 5).
(g) Investment Subadvisory Agreement between Quadra Capital
Partners, L.P. and Smith Asset Management Group, L.P.
relating to Quadra Growth Fund dated as of November 1,
1997 (see note 6).
(h) Investment Advisory Agreement between Registrant and
Polaris Capital Management, Inc. (see note 11).
<PAGE>
(i) Investment Advisory Agreement between Registrant and
H.M. Payson & Co. relating to Investors Equity Fund
dated as of December 5, 1997 (filed herewith).
(j) Investment Subadvisory Agreement between H.M. Payson &
Co. and Peoples Heritage Bank relating to Investors
Equity Fund (see Note 12).
(k) Investment Advisory Agreement between Registrant and
Forum Investment Advisors, LLC relating to Small
Company Opportunities Fund dated as of March 30, 1998
(filed herewith).
(6)(a) Selected Dealer Agreement between Forum Financial
Services, Inc. and securities brokers (see note 3).
(b) Bank Affiliated Selected Dealer Agreement between Forum
Financial Services, Inc. and bank affiliates (see note
3).
(c) Distribution Agreement between Registrant and Forum
Financial Services, Inc. relating to Quadra Value
Equity Fund, Quadra Growth Fund, Investors Bond Fund,
TaxSaver Bond Fund, Investors High Grade Bond Fund,
Maine Municipal Bond Fund, New Hampshire Bond Fund,
Equity Index Fund, Small Company Opportunities Fund,
International Equity Fund, Emerging Markets Fund,
Investors Equity Fund, Investors Growth Fund, Payson
Balanced Fund, Payson Value Fund, Oak Hall Small Cap
Contrarian Fund, Austin Global Equity Fund, Polaris
Global Value Fund and Investor Shares, Institutional
Shares and Institutional Service Shares of Daily Assets
Government Fund, Daily Assets Treasury Obligations
Fund, Daily Assets Government Obligations Fund, Daily
Assets Cash Fund and Daily Assets Municipal Fund dated
as of June 19, 1997 (see note 3).
(7) None.
(8)(a) Transfer Agency and Services Agreement between
Registrant and Forum Shareholder Services, LLC relating
to Quadra Value Equity Fund, Quadra Growth Fund,
Investors Bond Fund, TaxSaver Bond Fund, Investors High
Grade Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Equity Index Fund, Small Company
Opportunities Fund, International Equity Fund, Emerging
Markets Fund, Investors Equity Fund, Investors Growth
Fund, Payson Balanced Fund, Payson Value Fund, Oak Hall
Small Cap Contrarian Fund, Austin Global Equity Fund,
Polaris Global Value Fund and Investor Shares,
Institutional Shares and Institutional Service Shares
of Daily Assets Government Fund, Daily Assets Treasury
Obligations Fund, Daily Assets Government Obligations
Fund, Daily Assets Cash Fund and Daily Assets Municipal
Fund dated May 19, 1998 (see Note 3).
(b) Custodian Agreement between Registrant and BankBoston
N.A., relating to, Quadra Value Equity Fund, Quadra
Growth Fund, Investors Bond Fund, TaxSaver Bond Fund,
Investors High Grade Bond Fund, Maine Municipal Bond
Fund, New Hampshire Bond Fund, Equity Index Fund, Small
Company Opportunities Fund, International Equity Fund,
Emerging Markets Fund, Investors Equity Fund, Investors
Growth Fund, Payson Balanced Fund, Payson Value Fund,
Oak Hall Small Cap Contrarian Fund, Austin Global
Equity Fund, Polaris Global Value Fund and Investor
Shares, Institutional Shares and Institutional Service
Shares of Daily Assets Government Fund, Daily Assets
Treasury Obligations Fund, Daily Assets Government
<PAGE>
Obligations Fund, Daily Assets Cash Fund and Daily
Assets Municipal Fund dated as of May 19, 1998 (see
Note 12).
(9)(a) Administration Agreement between Registrant and Forum
Administrative Services, LLC relating to Quadra Value
Equity Fund, Quadra Growth Fund, Investors Bond Fund,
TaxSaver Bond Fund, Investors High Grade Bond Fund,
Maine Municipal Bond Fund, New Hampshire Bond Fund,
Equity Index Fund, Small Company Opportunities Fund,
International Equity Fund, Emerging Markets Fund,
Investors Equity Fund, Investors Growth Fund, Payson
Balanced Fund, Payson Value Fund, Oak Hall Small Cap
Contrarian Fund, Austin Global Equity Fund, Polaris
Global Value Fund and Investor Shares, Institutional
Shares and Institutional Service Shares of Daily Assets
Government Fund, Daily Assets Treasury Obligations
Fund, Daily Assets Government Obligations Fund, Daily
Assets Cash Fund and Daily Assets Municipal Fund dated
as of June 19, 1997 and amended as of December 5, 1997
(see note 3).
(b) Shareholder Service Plan of Registrant relating to
Quadra Funds dated June 19, 1997, amended September 22,
1997 and Form of Shareholder Service Agreement relating
to Quadra Funds (see note 7).
(c) Shareholder Service Plan of Registrant dated September
22, 1997 and Form of Shareholder Service Agreement
dated December 5, 1997 relating to the Daily Assets
Treasury Fund, Daily Assets Cash Fund, Daily Assets
Government Fund, Daily Assets Municipal Fund and Daily
Assets Treasury Obligations Fund (see note 8).
(d) Shareholder Service Plan of Registrant dated March 18,
1998 and Form of Shareholder Service Agreement relating
to Polaris Global Value Fund (filed herewith).
(e) Shareholder Service Plan of Registrant dated December
5, 1997 and Form of Shareholder Service Agreement
relating to Oak Hall Small Cap Contrarian Fund (filed
herewith).
(10) Opinion of Seward & Kissel dated January 5, 1996 (see
note 9)
(11)(a) Consent of Independent Auditors - Deloitte & Touche,
LLP (filed herewith).
(b) Consent of Independent Auditors -KPMG Peat Marwick LP
(filed herewith).
(c) Consent of Independent Auditors -
PricewaterhouseCoopers LLP (filed herewith).
(12) None.
(13) Investment Representation letter of Reich & Tang,
Inc. as original purchaser of shares of Registrant
(see note 3).
(14) Form of Disclosure Statement and Custodial Account
Agreement applicable to individual retirement
accounts (see note 3).
(15) Form of Rule 12b-1 Plan adopted by Registrant (see
note 3).
(16) Schedule of Sample Performance Calculations (see note
10) relating to:
<PAGE>
<TABLE>
<S><C> <C>
Investors High Grade Bond Fund Payson Balanced Fund
Investors Bond Fund Austin Global Equity Fund
TaxSaver Bond Fund Oak Hall Small Cap Contrarian Fund
Maine Municipal Bond Fund Quadra Value Equity Fund
New Hampshire Bond Fund Quadra Growth Fund
Daily Assets Treasury Obligations Fund Equity Index Fund
Daily Assets Government Fund Investors Equity Fund
Daily Assets Government Obligations Fund Investors Growth Fund
Daily Assets Cash Fund Small Company Opportunities Fund
Daily Assets Municipal Fund International Equity Fund
Payson Value Fund Emerging Markets Fund
</TABLE>
(17) Financial Data Schedules (filed herewith)
(18) 18f-3 plan adopted by Registrant (see note 3).
Other Exhibits:
Power of Attorney for James C. Cheng (see note 1).
Power of Attorney for Costas Azariadis (see note 1).
Power of Attorney for J. Michael Parish (see note 1).
Power of Attorney for John Y. Keffer (filed herewith).
---------------
Note (1) Exhibit incorporated by reference as filed in PEA No. 34 via
EDGAR on May 9, 1996, accession number 0000912057-96-008780.
(2) Exhibit incorporated by reference as filed in PEA No. 43 via
EDGAR on July 31, 1997, accession number 0000912057-97-025707.
(3) Exhibit incorporated by reference as filed in PEA No. 62 via
EDGAR on May 26, 1998, accession number 0001004402-98-000307.
(4) Exhibit incorporated by reference as filed in PEA No. 41 via
EDGAR on December 31, 1996, accession number
0000912057-96-030646.
(5) Exhibit incorporated by reference as filed in PEA 56 via EDGAR on
December 31, 1997, accession number 0001004402-97-000281.
(6) Exhibit incorporated by reference as filed in PEA No. 48 via
EDGAR on October 31, 1997, accession number 0001004402-97-000152.
(7) Exhibit incorporated by reference as filed in PEA No. 49 via
EDGAR on November 5, 1997, accession number 0001004402-97-000163.
(8) Exhibit incorporated by reference as filed in PEA No. 50 via
EDGAR on November 12, 1997, accession no. 0001004402-97-000189.
(9) Exhibit incorporated by reference as filed in PEA No. 33 via
EDGAR on January 5, 1996, accession number 0000912057-96-000216.
(10) Exhibit incorporated by reference as filed in PEA No. 61 via
EDGAR on May 8, 1998, accession number 0001004402-98-000295.
<PAGE>
(11) Exhibit incorporated by reference as filed in PEA No. 62 via
EDGAR on June 8, 1998, accession number 0001004402-98-000339.
(12) Exhibit incorporated by reference as filed in PEA No. 64 via
EDGAR on July 31, 1998, accession number 0001004402-98-000421.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<S> <C>
------------------------------------------------------------------------- --------------------------------
Title of Class Number of Recordholders
as of July 1, 1998
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Investors High Grade Bond Fund 3
------------------------------------------------------------------------- --------------------------------
Investors Bond Fund 61
------------------------------------------------------------------------- --------------------------------
TaxSaver Bond Fund 40
------------------------------------------------------------------------- --------------------------------
Maine Municipal Bond Fund 390
------------------------------------------------------------------------- --------------------------------
New Hampshire Bond Fund 75
------------------------------------------------------------------------- --------------------------------
Daily Assets Treasury Obligations Fund
------------------------------------------------------------------------- --------------------------------
Institutional Service 4
------------------------------------------------------------------------- --------------------------------
Institutional 3
------------------------------------------------------------------------- --------------------------------
Investor 2
------------------------------------------------------------------------- --------------------------------
Daily Assets Government Fund
------------------------------------------------------------------------- --------------------------------
Institutional Service 145
------------------------------------------------------------------------- --------------------------------
Institutional 4
------------------------------------------------------------------------- --------------------------------
Investor 1
------------------------------------------------------------------------- --------------------------------
Daily Assets Government Obligations Fund
------------------------------------------------------------------------- --------------------------------
Institutional Service 10
------------------------------------------------------------------------- --------------------------------
Institutional 5
------------------------------------------------------------------------- --------------------------------
Investor 2
------------------------------------------------------------------------- --------------------------------
Daily Assets Cash Fund
------------------------------------------------------------------------- --------------------------------
Institutional Service 26
------------------------------------------------------------------------- --------------------------------
Institutional 5
------------------------------------------------------------------------- --------------------------------
Investor 2
------------------------------------------------------------------------- --------------------------------
Daily Assets Municipal Fund
------------------------------------------------------------------------- --------------------------------
Institutional Service 2
------------------------------------------------------------------------- --------------------------------
Institutional 5
------------------------------------------------------------------------- --------------------------------
Investor 2
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Payson Value Fund 369
------------------------------------------------------------------------- --------------------------------
Payson Balanced Fund 394
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Austin Global Equity Fund 14
------------------------------------------------------------------------- --------------------------------
Oak Hall Small Cap Contrarian Fund 159
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Quadra Value Equity Fund 17
------------------------------------------------------------------------- --------------------------------
Quadra Growth Fund 14
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
------------------------------------------------------------------------- --------------------------------
Polaris Global Value Fund 177
------------------------------------------------------------------------- --------------------------------
<PAGE>
------------------------------------------------------------------------- --------------------------------
Equity Index Fund 3
------------------------------------------------------------------------- --------------------------------
Investors Equity Fund 7
------------------------------------------------------------------------- --------------------------------
Investors Growth Fund 4
------------------------------------------------------------------------- --------------------------------
Small Company Opportunities Fund 2
------------------------------------------------------------------------- --------------------------------
International Equity Fund 2
------------------------------------------------------------------------- --------------------------------
Emerging Markets Fund 2
------------------------------------------------------------------------- --------------------------------
</TABLE>
ITEM 27. INDEMNIFICATION
In accordance with Section 3803 of the Delaware Business Trust Act,
Section 5.2 of Registrant's Trust Instrument provides as follows:
"5.2. INDEMNIFICATION.
"(a) Subject to the exceptions and limitations contained in Section
(b) below:
"(i) Every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, 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;
"(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
<PAGE>
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:
"4. We shall expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we
agree as an inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or and to our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
Section 8 of the Distribution Agreement provides:
(a) The Trust will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls
the Distributor within the meaning of section 15 of the Securities Act
<PAGE>
or section 20 of the 1934 Act ("Distributor Indemnitees") free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character
(including the cost of investigating or defending such claims, demands,
actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out
of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectuses or arising
out of or based upon any alleged omission to state a material fact
required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished in writing to the Trust in connection with the preparation of
the Registration Statement or exhibits to the Registration Statement by
or on behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Trust shall indemnify and hold each Distributor Indemnitee
free and harmless from and against any Distributor Claim; provided,
that the term Distributor Claim for purposes of this sentence shall
mean any Distributor Claim related to the matters for which the
Distributor has requested amendment to the Registration Statement and
for which the Trust has not filed a Required Amendment, regardless of
with respect to such matters whether any statement in or omission from
the Registration Statement was made in reliance upon, or in conformity
with, information furnished to the Trust by or on behalf of the
Distributor.
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the
Trust and approved by the Distributor, which approval shall not be
withheld unreasonably. The Trust shall advise the Distributor that it
will assume the defense of the suit and retain counsel within ten (10)
days of receipt of the notice of the claim. If the Trust assumes the
defense of any such suit and retains counsel, the defendants shall bear
the fees and expenses of any additional counsel that they retain. If
the Trust does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Trust or has been
advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust
will reimburse any Distributor Indemnitee named as defendant in such
suit for the reasonable fees and expenses of any counsel that person
retains. A Distributor Indemnitee shall not settle or confess any claim
without the prior written consent of the Trust, which consent shall not
be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its
several officers and trustees (collectively, the "Trust Indemnitees"),
free and harmless from and against any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent
that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other
expenses result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus or any alleged omission of a
material fact required to be stated or necessary to make the statements
therein not misleading, if such statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust in writing in connection with the preparation of the Registration
Statement or Prospectus by or on behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement ("Trust Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Trust Claim and may retain counsel of good standing chosen
by the Distributor and approved by the Trust, which approval shall not
be withheld unreasonably. The Distributor shall advise the Trust that
it will assume the defense of the suit and retain counsel within ten
(10) days of receipt of the notice of the claim. If the Distributor
<PAGE>
assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel
that they retain. If the Distributor does not assume the defense of any
such suit, or if Trust does not approve of counsel chosen by the
Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to
the Distributor, the Distributor will reimburse any Trust Indemnitee
named as defendant in such suit for the reasonable fees and expenses of
any counsel that person retains. A Trust Indemnitee shall not settle or
confess any claim without the prior written consent of the Distributor,
which consent shall not be unreasonably withheld or delayed.
(e) The Trust's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Trust or the
Distributor receiving notice of any action brought against a
Distributor Indemnitee or Trust Indemnitee, respectively, by the person
against whom such action is brought within twenty (20) days after the
summons or other first legal process is served. Such notice shall refer
to the person or persons against whom the action is brought. The
failure to provide such notice shall not relieve the party entitled to
such notice of any liability that it may have to any Distributor
Indemnitee or Trust Indemnitee except to the extent that the ability of
the party entitled to such notice to defend such action has been
materially adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
Distributor Indemnitee or Trust Indemnitee and shall survive the sale
and redemption of any Shares made pursuant to subscriptions obtained by
the Distributor. The indemnification provisions of this Section will
inure exclusively to the benefit of each person that may be a
Distributor Indemnitee or Trust Indemnitee at any time and their
respective successors and assigns (it being intended that such persons
be deemed to be third party beneficiaries under this Agreement).
(g) Each party agrees promptly to notify the other party of the
commencement of any litigation or proceeding of which it becomes aware
arising out of or in any way connected with the issuance or sale of
Shares.
(h) Nothing contained herein shall require the Trust to take any action
contrary to any provision of its Organic Documents or any applicable
statute or regulation or shall require the Distributor to take any
action contrary to any provision of its Articles of Incorporation or
Bylaws or any applicable statute or regulation; provided, however, that
neither the Trust nor the Distributor may amend their Organic Documents
or Articles of Incorporation and Bylaws, respectively, in any manner
that would result in a violation of a representation or warranty made
in this Agreement.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or its security holders
to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Forum Investment Advisors, LLC
The description of Forum Investment Advisors, LLC (investment
adviser to each of Daily Assets Treasury Obligations Fund,
Daily Assets Government Fund, Daily Assets Government
Obligations Fund, Daily Assets Cash Fund, Daily Assets
Municipal Fund, Investors High Grade Bond Fund, Investors Bond
Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund and Investors Growth Fund) in the
Prospectuses and Statements of Additional Information,
constituting certain of Parts A and B, respectively, of this
Registration Statement, are incorporated by reference herein.
<PAGE>
The following are the members of Forum Investment Advisors,
LLC, Two Portland Square, Portland, Maine 04101, including
their business connections which are of a substantial
nature.
Forum Holdings Corp. I., Member.
Forum Trust, LLC., Member.
Both Forum Holdings Corp. I. and Forum Trust are controlled
indirectly by John Y. Keffer, Chairman and President of the
Registrant. Mr. Keffer is President of Forum Trust and 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's operating subsidiaries
provide services.
The following are the officers of Forum Investment Advisors,
LLC, including their business connections that are of a
substantial nature. Each officer may serve as an officer of
various registered investment companies for which the Forum
Financial Group provides services.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Sara M. Morris Treasurer Forum Investment Advisors, LLC.
--------------------------------- --------------------------------
Chief Financial Officer Forum Financial Group, LLC.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Officer Other Forum affiliated
companies
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
David I. Goldstein Secretary Forum Investment Advisors, LLC.
--------------------------------- --------------------------------
General Counsel Forum Financial Group, LLC.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Officer Other Forum affiliated
companies
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Leslie C. Berthy Managing Director Forum Investment Advisors, LLC.
------------------------------- --------------------------------- --------------------------------
</TABLE>
(b) H.M. Payson & Co.
The description of H.M. Payson & Co. in the Prospectuses and
Statements of Additional Information, with respect to the
Payson Value Fund, Payson Balanced Fund and Investors Equity
Fund, constituting certain of Parts A and B, respectively, of
this Registration Statement, are incorporated by reference
herein.
The following are the directors and principal executive
officers of H.M. Payson & Co., including their business
connections which are of a substantial nature. The address of
H.M. Payson & Co. is One Portland Square, Portland, Maine
04101.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Adrian L. Asherman Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John C. Downing Managing Director, Treasurer H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
William A. Macleod Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
<PAGE>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Thomas M. Pierce Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Peter E. Robbins Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John H. Walker Managing Director, President H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Teresa M. Esposito Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John C. Knox Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Harold J Dixon Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Laura McDill Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Michael R. Rurrie Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
William O. Hall, III Managing Director H.M. Payson & Co.
------------------------------- --------------------------------- --------------------------------
</TABLE>
(c) Austin Investment Management, Inc.
The description of Austin Investment Management, Inc. in the
Prospectus and Statement of Additional Information with
respect to the Austin Global Equity Fund, constituting certain
of Parts A and B, respectively, of this Registration
Statement, are incorporated by reference herein.
The following is the director and principal executive officer
of Austin Investment Management, Inc. 375 Park Avenue, New
York, New York 10152, including his business connections which
are of a substantial nature.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Peter Vlachos Director, President, Treasurer, Austin Investment Management
Secretary Inc.
------------------------------- --------------------------------- --------------------------------
</TABLE>
(d) Oak Hall Capital Advisors, LLP
The description of Oak Hall Capital Advisors, LLP in the
Prospectus and Statement of Additional Information with
respect to Oak Hall Small Cap Contrarian Fund, constituting
part of Parts A and B, respectively, of this Registration
Statement are incorporated by reference herein.
The following are the directors and principal executive
officers of, Oak Hall Capital Advisors, Inc. 122 East 42nd
Street, New York, New York 10168, including their business
connections which are of a substantial nature.
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Alexander G. Anagnos Director, Portfolio Manager Oak Hall Capital Advisors, LLP
--------------------------------- --------------------------------
Consultant American Services Corporation
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Financial Advisor WR Family Associates
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Lewis G. Cole Director Oak Hall Capital Advisors, LLP
--------------------------------- --------------------------------
Partner The Law Firm of Strook, Strook
& Lavan
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John J. Hock Executive Vice President Oak Hall Capital Advisors, LLP
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Charles D. Klein Portfolio Manager Oak Hall Capital Advisors, LLP
--------------------------------- --------------------------------
Director American Services Corporation
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Financial Advisor WR Family Associates
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
David P. Steinmann Executive Vice President Oak Hall Capital Advisors, LLP
--------------------------------- --------------------------------
Secretary, Treasurer American Securities Corporation
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Administrator WR Family Associates
------------------------------- --------------------------------- --------------------------------
</TABLE>
(e) Carl Domino Associates, L.P.
The description of Carl Domino Associates, L.P. in the
Prospectus and Statement of Additional Information with
respect to the Quadra Value Equity Fund, constituting certain
of Parts A and B, respectively, of this Registration
Statement, are incorporated by reference herein.
The following are the directors and principal executive
officers of, Carl Domino Associates, L.P., 580 Village Blvd.,
West Palm Beach, FL 33409 including their business connections
which are of a substantial nature.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Carl J. Domino Managing Partner, Portfolio Carl Domino Associates, L.P.
Manager
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Paul Scoville, Jr. Senior Portfolio Manager Carl Domino Associates, L.P.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Ann Fritts Syring Senior Portfolio Manager Carl Domino Associates, L.P.
------------------------------- --------------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John Wagstaff-Callahan Senior Portfolio Manager Carl Domino Associates, L.P.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Trustee formerly of Batterymarch
Financial Management
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Stephen Krider Kent, Jr. Senior Portfolio Manager Carl Domino Associates, L.P.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Senior Portfolio Manager formerly of Gamble, Jones
Holbrook & Brent
------------------------------- --------------------------------- --------------------------------
</TABLE>
(f) Smith Asset Management Group, L.P.
The description of Smith Asset Management Group, L.P. in the
Prospectus and Statement of Additional Information with
respect to the Quadra Growth Fund, constituting certain of
Parts A and B, respectively, of this Registration Statement,
are incorporated by reference herein.
The following are the directors and principal executive
officers of Smith Asset Management Group, L.P., including
their business connections which are of a substantial nature.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Stephen S. Smith Chief Executive Officer Smith Asset Management Group
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Partner Discovery Management
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Stephen J. Summers Partner Smith Asset Management Group
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Chief Executive Officer Discovery Management
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Sarah C. Castleman Partner/Portfolio Manager Smith Asset Management Group
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Partner/Portfolio Manager Discovery Management
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John D. Brim Vice President/Portfolio Manager Smith Asset Management Group
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Vice President/Portfolio Manager Discovery Management
------------------------------- --------------------------------- --------------------------------
</TABLE>
(g) Norwest Investment Management, Inc.
The description of Norwest Investment Management, Inc. ("NIM")
in the Prospectus and Statement of Additional Information for
Equity Index Fund, constituting certain of Parts A and B,
respectively, of this Registration Statement, are incorporated
by reference herein.
The following are the directors and principal executive
officers of NIM, including their business connections which
are of a substantial nature. The address of Norwest
Corporation, the parent of Norwest Bank Minnesota, N.A.
("Norwest Bank"), which is the parent of NIM, is Norwest
Center, Sixth Street and Marquette Avenue, Minneapolis, MN
55479. Unless otherwise indicated below, the principal
business address of any company with which the directors and
principal executive officers are connected is also Sixth
Street and Marquette Avenue, Minneapolis, MN 55479.
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
P. Jay Kiedrowski Chairman, Chief Executive Norwest Investment Management,
Officer, President Inc.
--------------------------------- --------------------------------
Executive Vice President, Norwest Bank Minnesota, N.A.
Employee
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Director Crestone Capital Management,
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Chairman Galliard Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
James W. Paulsen Senior Vice President, Chief Norwest Investment Management,
Invest Officer Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Stephen P. Gianoli Senior Vice President, Chief Norwest Investment Management,
Executive Officer Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Director Crestone Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
David S. Lunt Vice President, Senior Norwest Investment Management,
Portfolio Manager Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Richard C. Villars Vice President, Senior Norwest Investment Management,
Portfolio Manager Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Lee K. Chase Senior Vice President Norwest Investment Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Andrew Owen Vice President Norwest Investment Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
------------------------------- --------------------------------- --------------------------------
</TABLE>
(h) Schroder Capital Management International Inc.
The description of Schroder Capital Management International
Inc. ("SCMI") in the Prospectus and Statement of Additional
Information relating to International Equity Fund and
Emerging Markets Fund, constituting certain of Parts A and
B, respectively, of this Registration Statement, are
incorporated by reference herein.
The following are the directors and principal officers of
SCMI, including their business connections of a substantial
nature. The address of each company listed, unless otherwise
noted, is 787 Seventh Avenue, 34th Floor, New York, New York
10019. Schroder Capital Management International Limited
("Schroder Ltd.") is a United Kingdom affiliate of SCMI
which provides investment management services to
international clients located principally in the United
States.
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
David M. Salisbury Chairman, Director SCMI
--------------------------------- --------------------------------
Chief Executive, Director Schroder Ltd.*
--------------------------------- --------------------------------
Director Schroders plc.*
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
--------------------------------- --------------------------------
Deputy Chairman Schroder Ltd.*
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John A. Troiano Chief Executive, Director SCMI
---------------------------------
--------------------------------
Chief Executive, Director Schroder Ltd.*
--------------------------------- --------------------------------
--------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Sharon L. Haugh Executive Vice President, SCMI
Director
--------------------------------
--------------------------------- --------------------------------
Director, Chairman Schroder Fund Advisors Inc
--------------------------------- --------------------------------
Director Schroder Ltd.*
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Chairman, Director Schroder Capital Management
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
--------------------------------- --------------------------------
Director Schroder Ltd.*
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Mark J. Smith Senior Vice President, Director SCMI
--------------------------------- --------------------------------
Senior Vice President, Director Schroder Ltd.*
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Director Schroder Fund Advisors Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------- --------------------------------- --------------------------------
<PAGE>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Robert G. Davy Senior Vice President, Director SCMI
--------------------------------- --------------------------------
Director Schroder Ltd.*
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Jane P. Lucas Senior Vice President, Director SCMI
--------------------------------- --------------------------------
Director Schroder Fund Advisors Inc.
--------------------------------- --------------------------------
Director Schroder Capital Management
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
David R. Robertson Group Vice President SCMI
--------------------------------- --------------------------------
Senior Vice President Schroder Fund Advisors Inc.
--------------------------------
---------------------------------
Director of Institutional Oppenheimer Funds, Inc.
Business resigned 2/98
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Michael M. Perelstein Senior Vice President, Director SCMI
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Senior Vice President, Director Schroders Ltd.*
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Managing Director MacKay Shields Financial
Corporation
resigned 11/96
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Louise Croset First Vice President, Director SCMI
--------------------------------- --------------------------------
First Vice President Schroder Ltd.*
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Ellen B. Sullivan Group Vice President, Director SCMI
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Director Schroder Capital Management
Inc.
------------------------------- --------------------------------- --------------------------------
<PAGE>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Catherine A. Mazza Group Vice President SCMI
--------------------------------- --------------------------------
President, Director Schroder Fund Advisors Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Director Schroder Capital Management
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Trustee and Officer Certain open end
management investment companies
for which SCMI and/or its
affiliates provide investment
services.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Heather F. Crighton First Vice President, Director SCMI
--------------------------------- --------------------------------
--------------------------------- --------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------- --------------------------------- --------------------------------
------------------------------- ---------------------------------- --------------------------------
Ira Unschuld Group Vice President SCMI
---------------------------------- --------------------------------
Officer Certain open end management
investment companies for
which SCMI and/or its
affiliates provide investment
services.
------------------------------- ---------------------------------- --------------------------------
------------------------------- ---------------------------------- --------------------------------
Paul M. Morris Senior Vice President SCMI
---------------------------------- --------------------------------
---------------------------------- --------------------------------
Director Schroder Capital Management
Inc.
---------------------------------- --------------------------------
---------------------------------- --------------------------------
Principal, Senior Portfolio Weiss, Peck & Greer LLC
Manager resigned 12/96
------------------------------- ---------------------------------- --------------------------------
------------------------------- ---------------------------------- --------------------------------
Susan B. Kenneally First Vice President, Director SCMI
---------------------------------- --------------------------------
---------------------------------- --------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------- ---------------------------------- --------------------------------
------------------------------- ---------------------------------- --------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
---------------------------------- --------------------------------
---------------------------------- --------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------- ---------------------------------- --------------------------------
</TABLE>
*Schroder Ltd. and Schroders plc. are located at 31 Gresham St., London
EC2V 7QA, United Kingdom.
(i) Polaris Capital Management, Inc.
The description of Polaris Capital Management, Inc.
("Polaris") under the caption "Management -Investment Adviser
and Portfolio Manager." in the Prospectus for Polaris Global
<PAGE>
Value Fund and "Management - Investment Adviser and Portfolio
Manager" in the Statement of Additional Information relating
to that fund, constituting certain of Parts A and B,
respectively, of the Registration Statement, are incorporated
by reference herein.
The following are the directors and principal officers of
Polaris, including their business connections of a substantial
nature. The address of the company is 125 Summer Street,
Boston, Massachusetts 02110.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Bernard R. Horn, Jr. President, Portfolio Manager Polaris Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
</TABLE>
(j) Quadra Capital Partners, L.P.
The description of Quadra Capital Partners, L.P. ("Quadra")
under the caption "Management - The Adviser" in the Prospectus
for Quadra Value Equity Fund and Quadra Growth Fund and
"Management - Advisers" in the Statement of Additional
Information relating to those funds, constituting certain of
Parts A and B, respectively, of the Registration Statement,
are incorporated by reference herein.
The following are the principals of Quadra, including their
business connections of a substantial nature. The address of
the company is 270 Congress Street, Boston, MA 02210.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Eileen Delasandro Chief Executive Officer Quadra Capital Partners, Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Donald Levi Chief Operating Officer Quadra Capital Partners, Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Howard Stevenson Chairman Quadra Capital Partners, Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Sarofim-Rock Professor Harvard Business School
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Philip Hamilton Director of Strategic Planning, Quadra Capital Partners, Inc.
Compliance Officer
------------------------------- --------------------------------- --------------------------------
</TABLE>
(k) Peoples Heritage Bank
The description of Peoples Heritage Bank ("Peoples") in the
Prospectus and Statement of Additional Information, with
respect to the Investors Equity Fund, constituting certain
of Parts A and B, respectively, of this Registration
Statement, are incorporated by reference herein.
The following are the officers of Peoples Trust and
Investment Group, including their business connections which
are of a substantial nature who provide investment advisory
related services. Unless otherwise indicated below, the
principal business address of Peoples with which these are
connected is One Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>?
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Gary L. Robinson Senior Vice President Peoples
------------------------------- --------------------------------- --------------------------------
<PAGE>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Dorothy M. Wentworth Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Stephen L. Eddy Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Dana R. Mitiguy Chief Investment Officer Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Larry D. Pelletier Vice President Peoples
217 Main Street
Lewiston, Maine 04240
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Carolyn B. May Vice President Peoples
217 Main Street
Lewiston, Maine 04240
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Kevin K. Brown Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Donald W. Smith Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John W. Gibbons Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Joseph M. Pratt Vice President Peoples
74 Hammond Street
Bangor, Maine 04401
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Lucy L. Tucker Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Nancy W. Bard Assistant Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Douglas P. Adams Trust Officer Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Melanie L. Bishop Trust Officer Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Jeffrey Oldfield Vice President Peoples
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Janet E. Milley Assistant Vice President Peoples
74 Hammond Street
Bangor, Maine 04401
------------------------------- --------------------------------- --------------------------------
</TABLE>
(l) Crestone Capital Management, Inc.
The description of Crestone Capital Management, Inc.
("Crestone") in the Prospectus and in the Statement of
Additional Information relating to the Small Company Stock
Fund, constituting certain of Parts A and B, respectively, of
the Registration Statement, is incorporated by reference
herein.
The following are the directors and principal executive
officers of Crestone, including their business connections
which are of a substantial nature. The address of Crestone is
7720 East Belleview Avenue, Suite 220, Englewood Colorado
80111-2614 and, unless otherwise indicated below, that address
is the principal business address of any company with which
the directors and principal executive officers are connected.
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name (Address if Different) Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Kirk McCown President, Director Crestone Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
P. Jay Kiedrowski Director Crestone Capital Management,
Inc.
--------------------------------- --------------------------------
Sixth and Marquette Ave. Chairman, Chief Executive Norwest Investment Management,
Minneapolis, MN 55479 Officer, President Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Executive Vice President, Norwest Bank Minnesota, N.A.
Employee
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Chairman Galliard Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Stephen P. Gianoli Director Crestone Capital Management,
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Sixth and Marquette Ave. Senior Vice President, Chief Norwest Investment Management,
Minneapolis, MN 55479 Executive Officer Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Susan Koonsman Director Crestone Capital Management,
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
1740 Broadway President Norwest Investments & Trust
Denver, CO 80274
------------------------------- --------------------------------- --------------------------------
</TABLE>
(m) Peregrine Capital Management, Inc.
The description of Peregrine Capital Management, Inc.
("Peregrine") in the Prospectus and in the Statement of
Additional Information relating to Small Company Value
Portfolio, constituting certain of Parts A and B,
respectively, of the Registration Statement, is incorporated
by reference herein.
The following are the directors and principal executive
officers of Peregrine, including their business connections
which are of a substantial nature. The address of Peregrine is
LaSalle Plaza, 800 LaSalle Avenue, Suite 1850, Minneapolis,
Minnesota 55402 and, unless otherwise indicated below, that
address is the principal business address of any company with
which the
directors and principal executive officers are connected.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name (Address if Different) Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
James R. Campbell Director Peregrine Capital Management,
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Sixth and Marquette Ave. President, Chief Executive Norwest Bank
Minneapolis, MN 55479-0116 Officer, Director
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Patricia D. Burns Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name (Address if Different) Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Tasso H. Coin Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John S. Dale Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Julie M. Gerend Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
William D. Giese Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Daniel J. Hagen Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Ronald G. Hoffman Senior Vice President, Secretary Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Frank T. Matthews Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Jeannine McCormick Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Barbara K. McFadden Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Robert B. Mersky Chairman, President, Chief Peregrine Capital Management,
Executive Inc.
Officer
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Gary E. Nussbaum Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
James P. Ross Vice President Peregrine Capital Management,
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Vice President Norwest Bank (prior to
November, 1996)
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Jonathan L. Scharlau Assistant Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Jay H. Strohmaier Senior Vice President Peregrine Capital Management,
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Senior Vice President/Managed Voyageur Asset Management
Accounts (prior to September, 1996)
------------------------------- --------------------------------- --------------------------------
<PAGE>
------------------------------- --------------------------------- --------------------------------
Name (Address if Different) Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Paul E. von Kuster Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Janelle M. Walter Assistant Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Paul R. Wurm Senior Vice President Peregrine Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
J. Daniel Vendermark Vice President Peregrine Capital Management,
Sixth and Marquette Avenue Inc.
Minneapolis, MN 55479-1013
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Albert J. Edwards Senior Vice President Peregrine Capital Management,
Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Vice President/Marketing U.S. Trust Company of
California (prior to June 9,
1997)
------------------------------- --------------------------------- --------------------------------
</TABLE>
(n) Galliard Capital Management, Inc.
The description of Galliard Capital Management, Inc.
("Galliard") in the Prospectus and constituting certain of
Parts A and B, respectively, of the Registration Statement,
is incorporated by reference herein.
The following are the directors and principal executive
officers of Galliard, including their business connections
which are of a substantial nature. The address of Galliard is
LaSalle Plaza, Suite 2060, 800 LaSalle Avenue, Minneapolis,
Minnesota 55479 and, unless otherwise indicated below, that
address is the principal business address of any company with
which the
directors and principal executive officers are connected.
<TABLE>
<S> <C> <C>
------------------------------- --------------------------------- --------------------------------
Name (Address if Different) Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
P. Jay Kiedrowski Chairman Galliard Capital Management,
Inc.
--------------------------------- --------------------------------
Sixth and Marquette Ave., Chairman, Chief Executive Norwest Investment Management,
Minneapolis, MN 55479 Officer, President Inc.
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Executive Vice President, Norwest Bank Minnesota, N.A.
Employee
--------------------------------- --------------------------------
--------------------------------- --------------------------------
Director Crestone Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Richard Merriam Principal, Senior Portfolio Galliard Capital Management,
Manager Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
John Caswell Principal, Senior Portfolio Galliard Capital Management,
Manager Inc.
------------------------------- --------------------------------- --------------------------------
<PAGE>
------------------------------- --------------------------------- --------------------------------
Name Title Business Connection
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Karl Tourville Principal, Senior Portfolio Galliard Capital Management,
Manager Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Laura Gideon Senior Vice President of Galliard Capital Management,
Marketing Inc.
------------------------------- --------------------------------- --------------------------------
------------------------------- --------------------------------- --------------------------------
Leela Scattum Vice President of Operations Galliard Capital Management,
Inc.
------------------------------- --------------------------------- --------------------------------
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Forum Financial Services, Inc., Registrant's underwriter,
serves as underwriter for the following investment companies
registered under the Investment Company Act of 1940, as
amended:
The CRM Funds The Cutler Trust Forum Funds Memorial Funds
Monarch Funds Norwest Advantage Funds Norwest Select Funds
Sound Shore Fund, Inc.
(b) The following directors and officers of Forum Financial
Services, Inc. hold the following positions with Registrant.
Their business address is Two Portland Square, Portland, Maine
04101.
<TABLE>
<S> <C> <C>
-------------------------- ------------------------------- -----------------------------
Name Position with Underwriter Position with Registrant
-------------------------- ------------------------------- -----------------------------
-------------------------- ------------------------------- -----------------------------
John Y. Keffer President Chairman, President
-------------------------- ------------------------------- -----------------------------
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained at the offices of Forum
Administrative Services, LLC and Forum Shareholder Services, LLC, Two
Portland Square, Portland, Maine 04101. The records required to be
maintained under Rule 31a-1(b)(1) with respect to journals of receipts
and deliveries of securities and receipts and disbursements of cash are
maintained at the offices of the Registrant's custodian, BankBoston,
100 Federal Street, Boston, Massachusetts 02106. The records required
to be maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at
the offices of the Registrant's adviser or subadviser, as listed in
Item 28 hereof.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meetes all of the
requirements for effectiveness of this registration statement under rule 485(b)
under the Securities Act and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Portland, and State of Maine on the 30th day of September, 1998.
FORUM FUNDS
By: /S/ John Y. Keffer
-------------------------------
John Y. Keffer, President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registrant's Registration Statement has been signed below by the following
persons on the 30th day of September, 1998.
(a) Principal Executive Officer
/s/ John Y. Keffer
----------------------------
John Y. Keffer
President and Chairman
(b) Principal Financial and Accounting Officer
/s/ Stacey Hong
----------------------------
Stacey Hong
Treasurer
(c) A majority of the Trustees
/s/ John Y. Keffer
----------------------------
John Y. Keffer
Trustee
James C. Cheng,* Trustee
J. Michael Parish,* Trustee
Costas Azariadis,* Trustee
*By: /s/ John Y. Keffer
-----------------------------
John Y. Keffer
Attorney in Fact
<PAGE>
SIGNATURES
On behalf of Core Trust (Delaware), being duly authorized, I have duly caused
this amendment to the Registration Statement of Forum Funds to be signed in the
City of Portland, State of Maine on the 30th day of September, 1998.
CORE TRUST (DELAWARE)
By:/s/ John Y. Keffer
------------------------
John Y. Keffer
President
This amendment to the Registration Statement of Forum Funds has been signed
below by the following persons in the capacities indicated on the 30th day of
September, 1998.
(a) Principal Executive Officer
/s/ John Y. Keffer
---------------------------
John Y. Keffer
Chairman and President
(b) Principal Financial and Accounting Officer
/s/ Stacey Hong
---------------------------
Stacey Hong
Treasurer
(c) A Majority of the Trustees
/s/ John Y. Keffer
---------------------------
John Y. Keffer
Chairman
J. Michael Parish,* Trustee
James C. Cheng,* Trustee
Costas Azariadis,* Trustee
*By: /s/ John Y. Keffer
--------------------------
John Y. Keffer
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
(5)(i) Investment Advisory Agreement between Registrant and H.M. Payson & Co.
relating to Investors Equity Fund dated as of December 5, 1997.
(5)(k) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC relating to Small Companies Opportunites Fund dated as
of March 30, 1998.
(9)(d) Shareholder Service Plan of Registrant dated March 18, 1998 and Form
of Shareholder Service Agreement relating to Polaris Global Value
Fund.
(9)(e) Shareholder Service Plan of Registrant dated December 5, 1997 and Form
of Shareholder Service Agreement relating to Oak Hall Small Cap
Contrarian Fund.
(11)(a) Consent of Independent Auditors - Deloitte & Touche, LLP (filed
herewith).
(11)(b) Consent of Independent Auditors -KPMG Peat Marwick LP (filed
herewith).
(11)(c) Consent of Independent Auditors - PricewaterhouseCoopers LLP (filed
herewith).
(17) Financial Data Schedules.
Other Exhibits
Power of Attorney for John Y. Keffer.
Exhibit (5)(i)
FORUM FUNDS
INVESTMENT ADVISORY AGREEMENT
WITH
H.M. PAYSON & CO.
AGREEMENT made as of the 5th day of December, 1997, between Forum Funds
(the "Trust"), a business trust organized under the law of the State of Delaware
with its principal place of business at Two Portland Square, Portland, Maine
04101, and H.M. Payson & Co. (the "Adviser "), a corporation organized under the
law of the State of Maine with its principal place of business at One Portland
Square, Portland, Maine.
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended, (the "Act") as an open-end management investment company and
is authorized to issue its shares in separate series and classes; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advice and is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended ("Adviser Act"); and
WHEREAS, the Trust desires that the Adviser perform investment advisory
and other services as specified in this Agreement for the investment portfolio
or portfolios of the Trust listed on Schedule A hereto (the "Fund" or "Funds"),
each a separate series of the Trust, and the Adviser is willing to provide those
services on the terms and conditions set forth in this Agreement.
NOW THEREFORE, the Trust and the Adviser agree as follows:
SECTION 1. APPOINTMENT AND DELIVERY OF DOCUMENTS
(a) The Trust hereby appoints the Adviser as investment adviser for the
Fund(s) for the period and on the terms set forth in this Agreement. The Adviser
accepts this appointment and agrees to render its services as investment adviser
for the compensation set forth herein.
(b) The Trust has delivered copies of each of the following documents
and will from time to time furnish the Adviser with any supplements or
amendments to such documents:
(1) the Trust Instrument of the Trust, as in effect on the
date hereof and as amended from time to time ("Trust Instrument");
(2) the Bylaws of the Trust as in effect on the date hereof
and as amended from time to time ("Bylaws");
<PAGE>
(3) the Registration Statement under the Act and the
Securities Act of 1933 (the "Securities Act"), as filed with the Securities and
Exchange Commission (the "Commission"), relating to the Fund and its shares and
all amendments thereto ("Registration Statement");
(4) the prospectus(es) and statement(s) of additional
information relating to the Fund(s) ("Prospectus"); and,
(5) all proxy statements, reports to shareholders, advertising
or other materials prepared for distribution to Fund shareholders or the public,
that refer to the Adviser or its clients.
The Trust shall furnish the Adviser with any further documents,
materials or information that the Adviser may reasonably request to enable it to
perform its duties under this Agreement.
SECTION 2. DUTIES OF THE ADVISER
(a) Subject to the direction, control and supervision of the Board of
Trustees of the Trust ("Board"), the Adviser shall direct the investments of the
Fund and shall make decisions with respect to all purchases and sales of
securities and other investment assets in the Fund. To carry out such duties,
the Adviser is hereby authorized, as agent and attorney-in-fact for the Trust,
for the account of, and in the name of the Trust, to place orders and issue
instructions with respect to those transactions of the Fund. In all purchases,
sales and other transactions in securities for the Fund, the Adviser is
authorized to exercise full discretion and act for the Trust in the same manner
and with the same force and effect as the Trust might or could do with respect
to such purchases, sales or other transactions, as well as with respect to all
other things necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions.
(b) The Adviser will report to the Board at each meeting thereof all
changes in the Fund since the prior report and will also keep the Board informed
of important developments affecting the Trust, the Fund and the Adviser, and on
its own initiative, will furnish the Board from time to time with such
information as the Adviser may believe appropriate for this purpose, whether
concerning the individual companies whose securities are included in the Fund's
holdings, the industries in which they engage, or the economic, social or
political conditions prevailing in each country in which the Fund maintains
investments. The Adviser will also furnish the Board with such statistical and
analytical information with respect to securities in the Fund as the Adviser may
believe appropriate or as the Board reasonably may request.
(c) In making purchases and sales of securities for the Fund, and
otherwise performing its duties hereunder, the Adviser will comply with the Act
and the rules and regulations thereunder, all other applicable federal and state
laws and regulations, the policies set from time to time by the Board as well as
the limitations imposed by the Trust's Trust Instrument, Bylaws, Registration
Statement under the Act and the Securities Act, the limitations in the Act and
in the Internal Revenue Code of 1986, as amended, in respect of regulated
<PAGE>
investment companies and the investment objective, policies and restrictions of
the Fund. Without limiting the foregoing, the Adviser agrees that, in placing
orders with broker-dealers for the purchase or sales of portfolio securities, it
shall attempt to obtain quality execution at favorable security prices; provided
that, consistent with section 28(e) of the Securities and Exchange Act of 1934
(the "Exchange Act"), the exercise of the Adviser's fiduciary duties under this
Advisory Agreement, and any other applicable law, the Adviser may allocate
brokerage on behalf of the Trust to broker-dealers who provide research services
and may cause the Fund to pay these broker-dealers a higher amount of commission
than may be charged by other broker-dealers, subject to the Adviser's
determining in good faith that such commission is reasonable in terms either of
the particular transaction or of the overall responsibility of the Adviser to
the Fund and its other clients and that the total commissions paid by the Fund
will be reasonable in relation to the benefits to the Fund over the long term.
In no instance will portfolio securities be purchased from or sold to the
Adviser, or any affiliated person thereof, except in accordance with the federal
securities laws and the rules and regulations thereunder. The Adviser may
aggregate sales and purchase orders of the assets of the Fund with similar
orders being made simultaneously for other accounts advised by the Adviser or
its affiliates. Whenever the Adviser simultaneously places orders to purchase or
sell the same security on behalf of the Fund and one or more other accounts
advised by the Adviser, the orders will be allocated as to price and amount
among all such accounts in a manner believed to be equitable over time to each
account.
(d) The Adviser may from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(e) The Adviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the Act. The Adviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Adviser under this Agreement
required to be prepared and maintained by the Trust under the Act and the rules
and regulations thereunder, the rules and regulations of any national, state, or
local government entity with jurisdiction over the Trust, including the
Commission and the Internal Revenue Service, including but not limited to,
records relating to Fund transactions and the placing and allocation of
brokerage orders. The books and records pertaining to the Trust that are in
possession of the Adviser shall be the property of the Trust. The Trust, or the
Trust's authorized representatives, shall have access to such books and records
at all times during the Adviser's normal business hours. Upon the reasonable
request of the Trust, copies of any such books and records shall be provided
promptly by the Adviser to the Trust or the Trust's authorized representatives.
(f) The Adviser shall provide the Trust's custodian and fund accountant
on each business day with such information relating to all transactions
concerning the Fund's assets as the custodian and fund accountant may reasonably
require. In accordance with procedures adopted by the Board, as amended from
time to time, the Adviser is responsible for assisting in the fair valuation of
all portfolio securities and will use its reasonable efforts to arrange for the
<PAGE>
provision of a price(s) from a party(ies) independent of the Adviser for each
portfolio security for which the custodian does not obtain prices in the
ordinary course of business from an automated pricing service.
(g) To the extent consistent with all applicable federal and/or state
laws and regulations, the Adviser shall authorize and permit any of its
directors, officers and employees who may be elected as Trustees or officers of
the Trust to serve in the capacities in which they are elected.
SECTION 3. EXPENSES
(a) The Adviser shall waive its fee to ensure that the Fund's expense
ratio does not exceed any expense limit described in the prospectus or
applicable to the Fund under the laws or regulations of any state in which Fund
shares are qualified for sale (reduced pro rata for any portion of less than a
year).
(b) If the Fund's expense ratio exceeds the expense limits described in
subsection (a) above after the Adviser has waived its fees, the Adviser shall be
responsible for that portion of the Fund's net expenses that exceed any expense
limit described in the prospectus and the Fund's net expenses (except interest,
taxes, brokerage, fees and other expenses paid by the Fund in accordance with an
effective plan under Rule 12b-1 under the Act and organization expenses, all to
the extent such exceptions are permitted by applicable state law and regulation)
incurred by the Fund during each of the Fund's fiscal years or portion thereof
that this Agreement is in effect that, as to the Fund, in any such year exceeds
any expense limits applicable to the Fund under the laws or regulations of any
state in which Fund shares are qualified for sale (reduced pro rata for any
portion of less than a year).
(c) The Trust hereby confirms that, subject to the foregoing, the Trust
shall be responsible and shall assume the obligation for payment of all the
Trust's other expenses, including: (1) interest charges, taxes, brokerage fees
and commissions; (2) certain insurance premiums; (3) fees, interest charges and
expenses of the Trust's custodian, transfer agent and dividend disbursing agent;
(4) telecommunications expenses; (5) the fees and expenses of the Trust's
independent auditors and of the outside legal counsel appointed by the Board;
(6) costs of the Trust's formation and maintaining its existence; (7) costs of
preparing and printing the Trust's prospectuses, statements of additional
information, account application forms and shareholder reports and delivering
them to existing and prospective shareholders; (8) costs of maintaining books of
original entry for portfolio and fund accounting and other required books and
accounts and of calculating the net asset value of shares of the Trust; (9)
costs of reproduction, stationery and supplies; (10) compensation of the Trust's
Trustees, officers, employees and other personnel performing services for the
Trust who are not officers of the Adviser, of Forum Financial Services, Inc. or
of affiliated persons of either; (11) costs of corporate meetings; (12)
registration fees and related expenses for registration with the Commission and
the securities regulatory authorities of other countries in which the Trust's
shares are sold; (13) state securities law registration fees and related
expenses; (14) the fee payable hereunder and fees and out-of-pocket expenses
payable to Forum Financial Services,
<PAGE>
Inc. under any distribution, management or similar agreement; (15) and all other
fees and expenses paid by the Trust under any distribution or shareholder
service plan adopted under Rule 12b-1 under the Act or otherwise.
SECTION 4. STANDARD OF CARE
The Adviser shall use its best judgment and efforts in rendering the
services described in this Agreement. The Adviser shall not be liable to the
Trust for any action or inaction of the Adviser in the absence of bad faith,
willful misconduct or gross negligence or based upon information, instructions
or requests with respect to the Fund made to the Adviser by a duly authorized
officer of the Trust. The Adviser shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement caused
by circumstances beyond its reasonable control.
SECTION 5. COMPENSATION
In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to the Fund, a fee at an annual rate as listed in Appendix A
hereto. These fees shall be accrued by the Trust daily and shall be payable
monthly in arrears on the first (1st) business day of each calendar month for
services performed hereunder during the prior calendar month. The Adviser's
reimbursement, if any, of the Fund's expenses as provided in Section 4 hereof,
shall be estimated and accrued daily and paid to the Trust monthly in arrears,
at the same time as the Trust's payment to the Adviser for such month.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) With respect to the Fund, this Agreement shall become effective
upon the date first written above; provided that it shall not take effect until
approved by: (1) a majority of the Trust's Trustees, including a majority of the
Trustees who are not interested persons of the Trust; and (2) to the extent
required under section 15(a) of the Act, a majority of the outstanding voting
securities of the Fund to which this Agreement pertains, voting separately by
Fund.
(b) This Agreement shall remain in effect for a period of twenty four
(24) months from the date of its effectiveness and shall continue in effect for
successive twelve-month periods (computed from each anniversary date of
approval) or for such shorter period as may be specified by the Board in giving
its approval as provided below; provided that such continuance is specifically
approved at least annually: (1) by the Board or by the vote of a majority of the
outstanding voting securities of the Fund; and in either case, (2) by a majority
of the Trust's Trustees who are not parties to this Agreement or interested
persons of any such party (other than as Trustees of the Trust); provided
further, however, that if the continuation of this Agreement is not approved,
the Adviser may continue to render the services described herein in the manner
and to the extent permitted by the Act and the rules and regulations thereunder.
The annual approvals provided for herein shall be effective to continue this
Agreement from year to year (or such shorter period referred to above) if given
within a period beginning not more than sixty (60) days prior to such
anniversary, notwithstanding the fact that more than three hundred sixty-five
<PAGE>
(365) days may have elapsed since the date on which such approval was last
given. The Trust shall prompty notify Payson should the Agreement not be renewed
pursuant to the procedures set forth in this paragraph.
(c) This Agreement may be terminated at any time, without the payment
of any penalty: (1) by the Board, or by a vote of a majority of the outstanding
voting securities of the Fund on sixty (60) days' written notice to Adviser; or
(2) by the Adviser on sixty (60) days' written notice to the Trust, with copies
to each of the Trust's Trustees at their respective addresses set forth in the
Trust's Registration Statement or at such other address as such persons may
specify to the Adviser. This Agreement shall terminate automatically and
immediately upon assignment by either party.
SECTION 7. ACTIVITIES OF ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's officers, directors, trustees or employees who may
also be a Trustee, officer or employee of the Trust, or persons otherwise
affiliated with the Trust, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, trust, firm, individual or association.
SECTION 8. REPRESENTATIONS OF ADVISER.
The Adviser represents, warrants and agrees as follows:
(a) The Adviser: (1) is (A) registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect or (B) exempt from registration as an investment
adviser under the Advisers Act; (2) is not prohibited by the Act or the Advisers
Act or otherwise from performing the services contemplated by this Agreement;
(3) has met, and will seek to continue to meet for so long as this Agreement
remains in effect, any other applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory agency,
necessary to be met in order to perform the services contemplated by this
Agreement; (4) has the authority to enter into and perform the services
contemplated by this Agreement; and (5) will promptly notify Trust of the
occurrence of any event that would disqualify the Adviser from serving as an
investment adviser of an investment company under Section 9(a) of the Act or
otherwise.
(b) The Adviser has adopted ,or will adopt within forty-five (45) days,
a written code of ethics complying with the requirements of Rule 17j-1 under the
Act and will provide the Board with a copy of such code of ethics, together with
evidence of its adoption. Within fifteen (15) days of the end of the last
calendar quarter of each year that this Agreement is in effect, the president or
a vice-president of the Adviser shall certify that the Adviser has complied with
the requirements of Rule 17j-1 during the previous year and that there has been
no violation of the Adviser's code of ethics or, if such a violation has
occurred, that appropriate action was taken in
<PAGE>
response to such violation. Upon the written request of the Trust, the Adviser
shall permit the Trust, its employees or its agents or the appropriate
regulatory authority to examine the reports required to be made to the Adviser
by Rule 17j-1 (c) (1) and all other records relevant to the Adviser's code of
ethics.
(c) The Adviser has provided the Trust with a copy of its Form ADV as
most recently filed with the Securities and Exchange Commission ("SEC") and
promptly will furnish a copy of all amendments to the Trust at least annually.
(d) The Adviser will notify the Trust of any change of control of the
Adviser, including any change of its general partners or twenty-five percent
(25%) of its shareholders, as applicable, and any changes in the key personnel
who are either the portfolio manager(s) of the Fund or senior management of the
Adviser, in each case prior to or promptly after such change.
SECTION 9 . SUBADVISERS
At its own expense, the Adviser may carry out any of its obligations
under this Agreement by employing, subject to the Adviser's supervision, one or
more persons who are registered as investment advisers under the Advisers Act or
who are exempt from registration thereunder ("Subadvisers"). Each Subadviser's
employment will be evidenced by a separate written agreement approved by the
Board and, if required, by the shareholders of the applicable Fund.
SECTION 10. NOTICES
Any notice or other communication required to be given under this
Agreement shall be in writing or by telex and shall be effective upon receipt.
Notices and communications shall be given, if to the Trust, at:
Forum Funds
Two Portland Square
Portland, ME 04101
Attn: Secretary
and if to the Adviser, at:
H.M. Payson & Co.
One Portland Square
P.O. Box 31
Portland, ME 04112
Attn: John C. Downing
<PAGE>
SECTION 11. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trust's Trustees, in their individual capacities, and Fund
shareholders shall not be liable for any obligations of the Trust or of the Fund
under this Agreement, and the Adviser agrees that, in asserting any rights or
claims under this Agreement, it shall look only to the assets and property of
the Trust or the Fund to which the Adviser's rights or claims relate in
settlement of such rights or claims, and not to the Trustees of the Trust, in
their individual capacities, or Fund shareholders.
SECTION 12. MISCELLANEOUS
(a) No provision of this Agreement with respect to the Fund may be
amended or modified in any manner except by a written agreement properly
authorized and executed by both parties hereto and, if required by the Act, by a
vote of a majority of the outstanding voting securities of the Fund.
(b) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(c) This Agreement shall be governed by and shall be construed in
accordance with the laws of the State of Delaware .
(d) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
FORUM FUNDS
_/s/ Mark Kaplan_______________________
Mark Kaplan
Vice President
H.M. PAYSON & CO.
_/s/ John C. Downing_______________________
John C. Downing
Managing Director
<PAGE>
FORUM FUNDS
INVESTMENT ADVISORY AGREEMENT
WITH
H.M. PAYSON & CO.
SCHEDULE A
AS OF DECEMBER 5, 1997
Fee as a % of the
Annual Average Daily Net Assets
Funds of the Fund
----- -----------
Investors Equity Fund 0.65%
Exhibit (5)(k)
FORUM FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 30th day of March, 1998, by and between Forum
Funds, a Delaware business trust, with its principal office and place of
business at Two Portland Square, Portland, Maine 04101 (the "Trust"), and Forum
Investment Advisors, LLC, a Corporation organized under the laws of the State of
Delaware with its principal place of business at Two Portland Square, Portland,
Maine (the "Adviser").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end, management investment company
and may issue its shares of beneficial interest, no par value (the "Shares"), in
separate series; and
WHEREAS, the Trust desires that the Adviser perform investment advisory
services for each series of the Trust listed in Appendix A hereto (each, a
"Fund" and collectively, the "Funds"), and the Adviser is willing to provide
those services on the terms and conditions set forth in this Agreement;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Trust and the Adviser hereby agree as follows:
SECTION 1. APPOINTMENT; DELIVERY OF DOCUMENTS
(a) The Trust hereby employs the Adviser, subject to the direction and
control of the Board, to manage the investment and reinvestment of the assets in
each Fund and, without limiting the generality of the foregoing, to provide
other services as specified herein. The Adviser accepts this employment and
agrees to render its services for the compensation set forth herein.
(b) In connection therewith, the Trust has delivered to the Adviser
copies of: (i) the Trust's Trust Instrument and Bylaws (collectively, as amended
from time to time, "Organic Documents"); (ii) the Trust's Registration Statement
and all amendments thereto filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement"); (iii) the
Trust's current Prospectuses and Statements of Additional Information of each
Fund (collectively, as currently in effect and as amended or supplemented, the
"Prospectus"); and (iv) all procedures adopted by the Trust with respect to the
Funds (i.e., repurchase agreement procedures), and shall promptly furnish the
Adviser with all amendments of or supplements to the foregoing. The Trust shall
deliver to the Adviser: (x) a certified copy of the resolution of the Board of
Trustees of the Trust (the "Board") appointing the Adviser and authorizing the
execution and delivery of this Agreement; (y) a copy of all proxy statements and
related materials relating to the Funds;
<PAGE>
and (z) any other documents, materials or information that the Adviser shall
reasonably request to enable it to perform its duties pursuant to this
Agreement.
(c) The Adviser has delivered, or will deliver within 45 days, to the
Trust: (i) a copy of its Form ADV as most recently filed with the SEC; and (ii)
a copy of its code of ethics complying with the requirements of Rule 17j-1 under
the 1940 Act (the "Code"). The Adviser shall promptly furnish the Trust with all
amendments of or supplements to the foregoing at least annually.
SECTION 2. DUTIES OF THE TRUST
In order for the Adviser to perform the services required by this
Agreement, the Trust: (i) shall cause all service providers to the Trust to
furnish information to the Adviser and to assist the Adviser as may be required;
and (ii) shall ensure that the Adviser has reasonable access to all records and
documents maintained by the Trust or any service provider to the Trust.
SECTION 3. DUTIES OF THE ADVISER
(a) The Adviser will make decisions with respect to all purchases and
sales of securities and other investment assets in each Fund. To carry out such
decisions, the Adviser is hereby authorized, as agent and attorney-in-fact for
the Trust, for the account of, at the risk of and in the name of the Trust, to
place orders and issue instructions with respect to those transactions of the
Funds. In all purchases, sales and other transactions in securities and other
investments for the Funds, the Adviser is authorized to exercise full discretion
and act for the Trust in the same manner and with the same force and effect as
the Trust might or could do with respect to such purchases, sales or other
transactions, as well as with respect to all other things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions. Among other things, the Adviser shall make all decisions with
respect to the allocation of the Fund's investments in various securities or
other assets, in investment styles and, if applicable, in other investment
companies or pooled vehicles in which the Fund may invest.
Consistent with Section 28(e) of the Securities and Exchange Act of
1934, as amended, the Adviser may allocate brokerage on behalf of the Funds to
broker-dealers who provide research services. The Adviser may aggregate sales
and purchase orders of the assets of the Funds with similar orders being made
simultaneously for other accounts advised by the Adviser or its affiliates.
Whenever the Adviser simultaneously places orders to purchase or sell the same
asset on behalf of a Fund and one or more other accounts advised by the Adviser,
the orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable over time to each account.
(b) The Adviser will report to the Board at each meeting thereof as
requested by the Board all material changes in each Fund since the prior report,
and will also keep the Board informed of important developments affecting the
Trust, the Funds and the Adviser, and on its own initiative, will furnish the
Board from time to time with such information as the Adviser
<PAGE>
may believe appropriate for this purpose, whether concerning the individual
companies whose securities are included in the Funds' holdings, the industries
in which they engage, the economic, social or political conditions prevailing in
each country in which the Funds maintain investments, or otherwise. The Adviser
will also furnish the Board with such statistical and analytical information
with respect to investments of the Funds as the Adviser may believe appropriate
or as the Board reasonably may request. In making purchases and sales of
securities and other investment assets for the Funds, the Adviser will bear in
mind the policies set from time to time by the Board as well as the limitations
imposed by the Organic Documents and Registration Statement, the limitations in
the 1940 Act, the Securities Act, the Internal Revenue Code of 1986, as amended,
and other applicable laws and the investment objectives, policies and
restrictions of the Funds.
(c) The Adviser will from time to time employ or associate with such
persons as the Adviser believes to be particularly fitted to assist in the
execution of the Adviser's duties hereunder, the cost of performance of such
duties to be borne and paid by the Adviser. No obligation may be incurred on the
Trust's behalf in any such respect.
(d) The Adviser will report to the Board all material matters related
to the Adviser. On an annual basis, the Adviser shall report on its compliance
with its Code to the Board and upon the written request of the Trust, the
Adviser shall permit the Trust, or its representatives to examine the reports
required to be made to the Adviser under the Code. The Adviser will notify the
Trust of any change of control of the Adviser and any changes in the key
personnel who are either the portfolio manager(s) of the Fund or senior
management of the Adviser, in each case prior to or promptly after such change.
(e) The Adviser will maintain records relating to its portfolio
transactions and placing and allocation of brokerage orders as are required to
be maintained by the Trust under the 1940 Act. The Adviser shall prepare and
maintain, or cause to be prepared and maintained, in such form, for such periods
and in such locations as may be required by applicable law, all documents and
records relating to the services provided by the Adviser pursuant to this
Agreement required to be prepared and maintained by the Adviser or the Trust
pursuant to applicable law. To the extent required by law, the books and records
pertaining to the Trust which are in possession of the Adviser shall be the
property of the Trust. The Trust, or its representatives, shall have access to
such books and records at all times during the Adviser's normal business hours.
Upon the reasonable request of the Trust, copies of any such books and records
shall be provided promptly by the Adviser to the Trust or its representatives.
(f) The Adviser will cooperate with each Fund's independent public
accountants and shall take reasonable action to make all necessary information
available to those accountants for the performance of the accountants' duties.
(g) The Adviser will provide the Funds' custodian and fund accountant
on each business day with such information relating to all transactions
concerning the Funds' assets as the custodian and fund accountant may reasonably
require. In accordance with procedures adopted by the Board, the Adviser is
responsible for assisting in the fair valuation of all Fund
<PAGE>
assets and will use its reasonable efforts to arrange for the provision of
prices from parties who are not affiliated persons of the Adviser for each asset
for which the Funds' fund accountant does not obtain prices in the ordinary
course of business.
(h) The Adviser shall authorize and permit any of its directors,
officers and employees who may be duly elected as Trustees or officers of the
Trust to serve in the capacities in which they are elected.
(i) The Adviser shall have no duties or obligations pursuant to this
Agreement (other than the continuation of its preexisting duties and
obligations) during any period in which the Fund invests all (or substantially
all) of its investment assets in a registered, open-end management investment
company, or separate series thereof, in accordance with Section 12(d)(1)(E)
under the 1940 Act.
SECTION 4. COMPENSATION; EXPENSES
(a) In consideration of the foregoing, the Trust shall pay the Adviser,
with respect to each of Fund, a fee at an annual rate as listed in Appendix A
hereto. Such fees shall be accrued by the Trust daily and shall be payable
monthly in arrears on the first day of each calendar month for services
performed hereunder during the prior calendar month. If fees begin to accrue in
the middle of a month or if this Agreement terminates before the end of any
month, all fees for the period from that date to the end of that month or from
the beginning of that month to the date of termination, as the case may be,
shall be prorated according to the proportion that the period bears to the full
month in which the effectiveness or termination occurs. Upon the termination of
this Agreement with respect to a Fund, the Trust shall pay to the Adviser such
compensation as shall be payable prior to the effective date of termination.
(b) The Adviser shall reimburse expenses of each Fund or waive its fees
to the extent necessary to maintain a Fund's expense ratio at an agreed-upon
amount for a period of time specified in a separate letter of agreement. The
Adviser's reimbursement of a Fund's expenses shall be estimated and paid to the
Trust monthly in arrears, at the same time as the Trust's payment to the Adviser
for such month.
(c) No fee shall be payable hereunder with respect to a Fund during any
period in which the Fund invests all (or substantially all) of its investment
assets in a registered, open-end, management investment company, or separate
series thereof, in accordance with Section 12(d)(1)(E) under the 1940 Act.
(d) The Trust shall be responsible for and assumes the obligation for
payment of all of its expenses, including: (i) the fee payable under this
Agreement; (ii) the fees payable to each administrator under an agreement
between the administrator and the Trust; (iii) expenses of issue, repurchase and
redemption of Shares; (iv) interest charges, taxes and brokerage fees and
commissions; (v) premiums of insurance for the Trust, its trustees and officers,
and fidelity bond premiums; (vi) fees and expenses of third parties, including
the Trust's independent public accountant, custodian, transfer agent, dividend
disbursing agent and fund accountant; (vii) fees of
<PAGE>
pricing, interest, dividend, credit and other reporting services; (viii) costs
of membership in trade associations; (ix) telecommunications expenses; (x)
funds' transmission expenses; (xi) auditing, legal and compliance expenses;
(xii) costs of forming the Trust and maintaining its existence; (xiii) costs of
preparing, filing and printing the Trust's Prospectuses, subscription
application forms and shareholder reports and other communications and
delivering them to existing shareholders, whether of record or beneficial; (xiv)
expenses of meetings of shareholders and proxy solicitations therefor; (xv)
costs of maintaining books of original entry for portfolio and fund accounting
and other required books and accounts, of calculating the net asset value of
Shares and of preparing tax returns; (xvi) costs of reproduction, stationery,
supplies and postage; (xvii) fees and expenses of the Trust's trustees and
officers; (xviii) the costs of personnel (who may be employees of the Adviser,
an administrator or their respective affiliated persons) performing services for
the Trust; (xix) costs of Board, Board committee, shareholder and other
corporate meetings; (xx) SEC registration fees and related expenses; (xxi)
state, territory or foreign securities laws registration fees and related
expenses; and (xxii) all fees and expenses paid by the Trust in accordance with
any distribution or service plan or agreement related to similar matters.
SECTION 5. STANDARD OF CARE
(a) The Trust shall expect of the Adviser, and the Adviser will give
the Trust the benefit of, the Adviser's best judgment and efforts in rendering
its services to the Trust. The Adviser shall not be liable hereunder for error
of judgment or mistake of law or in any event whatsoever, except for lack of
good faith, provided that nothing herein shall be deemed to protect, or purport
to protect, the Adviser against any liability to the Trust or to the Trust's
security holders to which the Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties hereunder, or by reason of the Adviser's reckless disregard of
its obligations and duties hereunder.
(b) The Adviser shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties (other than those related to the Adviser's
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
SECTION 6. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to a Fund
immediately upon approval by a majority of the outstanding voting securities of
the Fund.
(b) This Agreement shall remain in effect with respect to a Fund for a
period of two years from the date of its effectiveness and shall continue in
effect for successive annual periods with respect to the Fund; provided that
such continuance is specifically approved at least annually: (i) by the Board or
by the vote of a majority of the outstanding voting securities of the Fund, and,
in either case; (ii) by a majority of the Trust's trustees who are not parties
to this
<PAGE>
Agreement or interested persons of any such party (other than as trustees of the
Trust); provided further, however, that if the continuation of this Agreement is
not approved as to a Fund, the Adviser may continue to render to that Fund the
services described herein in the manner and to the extent permitted by the 1940
Act and the rules and regulations thereunder.
(c) This Agreement may be terminated with respect to a Fund at any
time, without the payment of any penalty: (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Adviser; or (ii) by the Adviser on 60 days' written notice to the
Trust. This Agreement shall terminate immediately upon its assignment.
SECTION 7. ACTIVITIES OF THE ADVISER
Except to the extent necessary to perform its obligations hereunder,
nothing herein shall be deemed to limit or restrict the Adviser's right, or the
right of any of the Adviser's directors, officers or employees to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 8. REPRESENTATIONS OF ADVISER.
The Adviser represents and warrants that: (i) it is either registered
as an investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act") (and will continue to be so registered for so long as this
Agreement remains in effect) or exempt from registration under the Advisers Act;
(ii) is not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement; (iii) has met, and will seek to
continue to meet for so long as this Agreement remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement; and (iv) will promptly notify the Trust of the
occurrence of any event that would disqualify the Adviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the 1940
Act or otherwise.
SECTION 9. SUBADVISERS
At its own expense, the Adviser may carry out any of its obligations
under this Agreement by employing, subject to the direction and control of the
Board, one or more persons who are registered as investment advisers pursuant to
the Advisers Act or who are exempt from registration thereunder ("Subadvisers").
Each Subadviser's employment will be evidenced by a separate written agreement
approved by the Board and, if required, by the shareholders of the applicable
Fund. The Adviser shall not be liable hereunder for any act or omission of any
Subadviser, except to exercise good faith in the employment of the Subadviser
and except with respect to matters as to which the Adviser assumes
responsibility in writing.
<PAGE>
SECTION 10. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under this Agreement,
and the Adviser agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust or the
Fund to which the Adviser's rights or claims relate in settlement of such rights
or claims, and not to the Trustees of the Trust or the shareholders of the
Funds.
SECTION 11. MISCELLANEOUS
(a) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties hereto and, if required by the 1940 Act, by a vote of a majority of the
outstanding voting securities of any Fund thereby affected.
(b) No amendment to this Agreement or the termination of this Agreement
with respect to a Fund shall affect this Agreement as it pertains to any other
Fund, nor shall any such amendment require the vote of the shareholders of any
other Fund.
(c) Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement.
(d) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of New York.
(e) This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement between those parties with respect to
the subject matter hereof, whether oral or written.
(f) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(h) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
<PAGE>
(i) Notices, requests, instructions and communications received by the
parties at their respective principal places of business, or at such other
address as a party may have designated in writing, shall be deemed to have been
properly given.
(j) Notwithstanding any other provision of this Agreement, the parties
agree that the assets and liabilities of each Fund of the Trust are separate and
distinct from the assets and liabilities of each other Fund and that no Fund
shall be liable or shall be charged for any debt, obligation or liability of any
other Fund, whether arising under this Agreement or otherwise.
(k) No affiliated person, employee, agent, director, officer or manager
of the Adviser shall be liable at law or in equity for the Adviser's obligations
under this Agreement.
(l) The terms "vote of a majority of the outstanding voting
securities", "interested person", "affiliated person," "control" and
"assignment" shall have the meanings ascribed thereto in the 1940 Act.
(m) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof and each
party hereto warrants and represents that this Agreement, when executed and
delivered, will constitute a legal, valid and binding obligation of the party,
enforceable against the party in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
FORUM FUNDS
/s/John Y. Keffer
----------------------------
John Y. Keffer
President
FORUM INVESTMENT ADVISERS, LLC
/s/Mark Kaplan
----------------------------
Mark Kaplan
Managing Director
<PAGE>
FORUM FUNDS
INVESTMENT ADVISORY AGREEMENT
Appendix A
(a) INVESTMENT ADVISORY FEES
FUNDS OF THE TRUST FEE AS A % OF THE ANNUAL
AVERAGE DAILY NET ASSETS OF THE FUND
Small Company Opportunities Fund .90%
(b) SECTION 12(D)(1)(E) ("MASTER-FEEDER") STRUCTURES
No fee shall be payable hereunder with respect to a Fund during any period in
which the Fund invests all (or substantially all) of its investment assets in a
registered, open-end, management investment company, or separate series thereof,
in accordance with and reliance upon Section 12(d)(1)(E) under the Act.
(c) FUND-OF-FUNDS STRUCTURES
The fee payable hereunder with respect to a Fund shall be 0.25% of the Fund's
annual average daily net assets during any period in which the Fund invests: (1)
some or all of its investment assets in two or more registered, open-end
management investment companies, or separate series thereof; or (2) some of its
investment assets in a registered, open-end management investment company, or
separate series thereof, in each case, in accordance with Section 12(d)(1)(H)
under the Act, the rules thereunder or an exemptive order issued by the
Commission exempting the Fund from the provisions of Section 12(d)(1)(A) under
the Act (a "Fund-of-Funds structure").
In addition to the fee payable under the preceding paragraph, to the extent a
Fund invests in a Fund-of-Funds structure and invests a portion of the Fund's
assets directly in portfolio securities or other assets, the fee payable
hereunder with respect to that portion of the Fund's assets invested directly in
portfolio securities or other assets shall be the fee as stated in paragraph (a)
of this Appendix A.
Exhibit (9)(d)
FORUM FUNDS
SHAREHOLDER SERVICES PLAN
March 18, 1998
This Shareholder Services Plan (the "Plan") is adopted by Forum Funds
(the "Trust") with respect to the shares of beneficial interest ("Shares") of
each Fund identified in the Appendix hereto (each, a "Fund").
SECTION 1. ADMINISTRATOR
The Trust has entered into an Administration Agreement (the
"Agreement") with Forum Administration Services, LLC ("Forum") whereby Forum
provides certain administrative services for the Trust and for each Fund.
SECTION 2. SERVICE AGREEMENTS; PAYMENTS
(a) Forum is authorized to enter into Shareholder Service Agreements
(the "Agreements") with financial institutions and other persons who provide
services for and maintain shareholder accounts ("Service
Providers") as set forth in this Plan.
(b) Pursuant to the Agreements, as compensation for the services
described in Section 4 below, Forum may pay each Service Provider, on behalf of
the Trust, a fee at an annual rate of up to 0.25% of the average daily net
assets of each Fund held by shareholder accounts for which the Service Provider
maintains a service relationship (the "Payments"); PROVIDED, however, that no
Fund shall directly or indirectly pay any amounts, whether Payments or
otherwise, that exceed any applicable limits imposed by law or the National
Association of Securities Dealers, Inc.
(c) To the extent practicable, eEach Agreement shall contain a
representation by the Service Provider that any compensation payable to the
Service Provider in connection with an investment in any Fund of the assets of
its customers will (i) be disclosed by the Service Provider to its customers,
(ii) be authorized by its customers, and (iii) not result in an excessive fee to
the Service Provider.
SECTION 3. SHAREHOLDER SERVICE FEE.
Pursuant to this Plan, the Trust shall daily accrue and monthly pay
Forum a Shareholder Service Fee for each Fund equal to the combined Payments
made by Forum with respect to the Fund for the month.
SECTION 4. SERVICE ACTIVITIES
<PAGE>
Shareholder service activities may include: (a) establishing and
maintaining accounts and records relating to clients of the Service Provider;
(b) answering client inquiries regarding the manner in which purchases,
exchanges and redemptions of shares of a Fund or Class may be effected and other
matters pertaining to the Trust's services; (c) providing necessary personnel
and facilities to establish and maintain client accounts and records; (d)
assisting clients in arranging for processing purchase, exchange and redemption
transactions; (e) arranging for the wiring of funds; (f) guaranteeing
shareholder signatures in connection with redemption orders and transfers and
changes in shareholder-designated accounts; (g) integrating periodic statements
with other client transactions; and (h) providing such other related services as
the client may request. The Service Provider shall not be obligated to perform
any specific service for its clients. The Service Provider's appointment shall
be nonexclusive, and Forum may enter into similar agreements with other persons.
SECTION 5. AMENDMENT AND TERMINATION
(a) Any material amendment to the Plan shall be effective only upon
approval of the Board of Trustees of the Trust, including a majority of the
Trustees Directors who are not interested persons of the Trust as defined in the
Investment Company Act of 1940 (the "Disinterested TrusteesDirectors"), pursuant
to a vote cast in person at a meeting called for the purpose of voting on the
amendment to the Plan.
(b) The Plan may be terminated without penalty at any time by a vote of
a majority of the Disinterested TrusteesDirectors.
<PAGE>
FORUM FUNDS
SHAREHOLDER SERVICE PLAN
APPENDIX A:
FUNDS TO WHICH SHAREHOLDER SERVICE PLAN APPLIES
Fund Date Subject to Plan
---- --------------------
Polaris Global Value Fund March 18, 1998
<PAGE>
[FORM OF]
FORUM FUNDS
SHAREHOLDER SERVICE AGREEMENT
AGREEMENT made this ____ day of ____________, 1997, between Forum
Administrative Services, LLC ("FAdS"), a limited liability company organized
under the laws of State of Delaware with its principal place of business at Two
Portland Square, Portland, ME 04101 and the institution executing this document
below (the "Institution").
WHEREAS, FAdS acts as administrator for Forum Funds (the "Trust"), a
Delaware business trust registered under the Investment Company Act of 1940, as
amended (the "Act") as an open-end management investment company, which may
issue its shares of beneficial interest("Shares") in separate series (each, a
"Fund") and classes thereof (each, a "Class"); and
WHEREAS, the Trust has adopted a Services Plan with respect to Shares
of the Funds and Classes listed on Appendix A hereto (the "Plan") that
authorizes FAdS to pay fees to Iinstitutions for maintaining and providing
services to client accounts in the Funds and Classes of the Trust; and
WHEREAS, FAdS desires that the Institution perform certain service
activities on behalf of FAdS and the Trust with respect to each Fund or Class,
and the Institution is willing to perform those services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the representations,
covenants and promises contained herein and other valuable consideration, the
undersigned parties do hereby agree as follows:
SECTION 1. SERVICE ACTIVITIES
In connection with providing services and maintaining client accounts
in each Fund or Class for its clients, the Institution may provide services
including: (a) establishing and maintaining accounts and records relating to
clients of the Institution; (b) answering client inquiries regarding the manner
in which purchases, exchanges and redemptions of shares of a Fund or Class may
be effected and other matters pertaining to the Trust's services; (c) providing
necessary personnel and facilities to establish and maintain client accounts and
records; (d) assisting clients in arranging for processing purchase, exchange
and redemption transactions; (e) arranging for the wiring of funds; (f)
guaranteeing client signatures in connection with redemption orders and
transfers and changes in client-designated accounts; (g) integrating periodic
statements with other client transactions; and (h) providing such other related
services as the client may request. The Institution shall not be obligated to
perform any specific service for its clients. The Institution's appointment
shall be nonexclusive, and FAdS may enter into similar agreements with other
persons.
SECTION 2. COMPENSATION
(a) As compensation for the Institution's service activities with
respect to each Fund or Class, FAdS shall pay the Institution fees in the
amounts listed on Appendix B to this Agreement (the "Payments"); provided,
however, that in no event will FAdS be required to make any payments for service
activities in an amount greater than that which FAdS is paid by the respective
Fund or Class for such services.
(b) The Payments shall be accrued daily and paid monthly or at such
other interval as FAdS and the Institution shall agree.
(c) On behalf of each Fund or Class, the Institution may spend such
amounts and incur such expenses as it deems appropriate or necessary on any
service activities. Such expenses may include compensation to employees and
expenses, including overhead and telephone and other communication expenses, of
the Institution.
The Institution shall be solely liable for any expenses it incurs.
<PAGE>
SECTION 3. REPRESENTATIONS OF THE INSTITUTION
The Institution represents that:
(a) the compensation payable to it under this Agreement in connection
with the investment in any Fund or Class of the assets of its clients: (i) will
be disclosed by the Institution to its clients, and (ii) will not result in an
excessive fee to the Institution;
(b) if it is a member of the National Association of Securities
Dealers, Inc. ("NASD"), it shall abide by the Conduct Rules of the NASD;
(c) it will, in connection with sales and offers to sell Shares,
furnish to or otherwise insure that each client to whom any such sale or offer
is made receives a copy of the applicable Fund's or Funds' then current
prospectus;
(d) it will purchase Shares only from FAdS as agent of the Trust and
will purchase Shares only for the purpose of covering purchase orders already
received or for its own bona fide investment purposes;
(e) the performance of all its obligations hereunder will comply with
all applicable laws and regulations, including any applicable federal securities
laws and any requirements to deliver confirmations to its clients, the
provisions of its charter documents and bylaws and all material contractual
obligations binding upon the Institution; and
(f) it will promptly inform the Trust of any change in applicable laws
or regulations (or interpretations thereof) or in its charter or bylaws or
material contracts that would prevent or impair full performance of any of its
obligations hereunder.
SECTION 4. TRUST LITERATURE
The Institution is not authorized to make any representations
concerning Shares of any Fund or Class except those contained in the Fund's then
current prospectus and statement of additional information ("SAI") and printed
information issued by the Trust or by FAdS as information supplemental to the
prospectus. FAdS will supply the Institution upon its request with prospectuses,
SAIs, reasonable quantities of supplemental sales literature and additional
information. The Institution agrees not to use other advertising or sales
material relating to a Fund or Class unless approved in writing by FAdS in
advance of such use. Any printed information furnished by FAdS other than the
then current prospectus and SAI, periodic reports and proxy solicitation
materials are FAdS's sole responsibility and are not the responsibility of the
Trust, and the Trust shall have no liability or responsibility to the
Institution in these respects unless expressly assumed in connection therewith.
The Institution shall have no responsibility with regard to the accuracy or
completeness of any of the printed information furnished by FAdS and shall be
held harmless by FAdS from and against any cost or loss arising therefrom.
SECTION 5. REPORTS
The Institution shall prepare and furnish to FAdS, at FAdS's request,
written reports setting forth all amounts expended by the Institution and
identifying the activities for which the expenditures were made.
SECTION 6. INDEMNIFICATION
The Institution agrees to indemnify and hold harmless FAdS and the
Trust from any claims, expenses, or liabilities incurred by FAdS or the Trust as
a result of any act or omission of the Institution in connection with its
services under this Agreement.
<PAGE>
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date hereof and, upon
its effectiveness, shall supersede all previous agreements between the parties
covering the subject matter hereof.
(b) This Agreement may be terminated as follows:
(i) at any time, without the payment of any penalty,
by the vote of a majority of the Trustees of the Trust;
(ii) automatically in the event of the termination of the
Administration or Distribution agreements between the Trust and FAdS or
the Plan;
(iii) automatically in the event of the assignment of this
Agreement as defined in the Act; and
(iv) by either party to the Agreement without cause by giving
the other party at least sixty (60) days' written notice of its
intention to terminate.
SECTION 8. NOTICES
Any notice under this Agreement shall be in writing and shall be
addressed and delivered, or mailed postage prepaid, to the other party's
principal place of business, or to such other place as shall have been
previously specified by written notice given to the other party.
SECTION 9. AMENDMENTS
Subject to approval of material amendments to the form of this
Agreement by the Trust's Board of Trustees, this Agreement may be amended by the
parties at any time. In addition, this Agreement may be amended by FAdS from
time to time by the following procedure: FAdS will mail a copy of the amendment
to the Institution at its principal place of business or such other address as
the Institution shall in writing provide to FAdS. If the Institution does not
object to the amendment within thirty (30) days after its receipt, the amendment
will become part of the Agreement. The Institution's objection must be in
writing and be received by FAdS within the thirty days.
SECTION 10. USE OF THE TRUST'S NAME
The Institution shall not use the name of the Trust on any checks, bank
drafts, bank statements or forms for other than internal use in a manner not
approved by the Trust prior thereto in writing; provided however, that the
approval of the Trust shall not be required for the use of the Trust's name
which merely refers in accurate and factual terms to the Trust in connection
with the Institution's role hereunder or which is required by any appropriate
regulatory, governmental or judicial authority; and further provided that in no
event shall such approval be unreasonably withheld or delayed.
SECTION 11. MISCELLANEOUS
(a) This Agreement shall be construed in accordance with the laws of
the State of Delaware.
(b) If any provision of this Agreement shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
INSTITUTION:
______________________________
Name of Institution
By:___________________________
Name:_________________________
Title:________________________
FORUM ADMINISTRATIVE SERVICES, LLC
By:___________________________
David I. Goldstein
Managing Director
<PAGE>
FORUM FUNDS
SHAREHOLDER SERVICE AGREEMENT
APPENDIX A
FUNDS AND CLASSES OF FORUM FUNDS
--------------------------------
Polaris Global Value Fund
<PAGE>
FORUM FUNDS
SHAREHOLDER SERVICE AGREEMENT
APPENDIX B
PAYMENTS PURSUANT TO THE PLAN
FUND CLASS FEE
---- ----- ---
Polaris Global Value Fund N/A 0.25%
Exhibit (9)(e)
FORUM FUNDS
SHAREHOLDER SERVICE PLAN
December 5, 1997
This Shareholder Service Plan (the "Plan") is adopted by Forum Funds
(the "Trust") with respect to the each of the series of the Trust identified in
Appendix A (individually a "Fund" and collectively the "Funds").
SECTION 1. ADMINISTRATOR
The Trust has entered into an Administrative Services Agreement (the
"Agreement") with Forum Administrative Services, LLC ("Forum") whereby Forum
provides certain administrative services for the Trust and for each Fund.
SECTION 2. SERVICE AGREEMENTS; PAYMENTS
(a) Forum is authorized to enter into Shareholder Service Agreements
(the "Agreements"), the form of which shall be approved by the Board of Trustees
of the Trust (the "Board"), with financial institutions and other persons who
provide services for and maintain shareholder accounts ("Service Providers") as
set forth in this Plan.
(b) Pursuant to the Agreements, as compensation for the services
described in Section 4 below, Forum may pay each Service Provider, on behalf of
the Trust, a fee at an annual rate of up to .25% of the average daily net assets
of each Fund held by shareholder accounts for which the Service Provider
maintains a service relationship; PROVIDED, however, that no Fund shall directly
or indirectly pay any amounts, whether payments or otherwise, that exceed any
applicable limits imposed by law or the National Association of Securities
Dealers, Inc.
(c) Each Agreement shall contain a representation by the Service
Provider that any compensation payable to the Service Provider in connection
with an investment in any Fund of the assets of its customers will (i) be
disclosed by the Service Provider to its customers, (ii) be authorized by its
customers, and (iii) not result in an excessive fee to the Service Provider.
SECTION 3. SHAREHOLDER SERVICE FEE.
Pursuant to this Plan, the Trust shall daily accrue and monthly pay
Forum a Shareholder Service Fee for each Fund equal to the combined Payments
made by Forum with respect to the Fund for the month.
<PAGE>
SECTION 4. SERVICE ACTIVITIES
Service activities include (a) establishing and maintaining accounts
and records relating to clients of Service Provider; (b) answering shareholder
inquiries regarding the manner in which purchases, exchanges and redemptions of
shares of the Trust may be effected and other matters pertaining to the Trust's
services; (c) providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; (d) assisting shareholders in
arranging for processing purchase, exchange and redemption transactions; (e)
arranging for the wiring of funds; (f) guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder-designated accounts; (g) integrating periodic statements with other
shareholder transactions; and (h) providing such other related services as the
shareholder may request.
SECTION 5. AMENDMENT AND TERMINATION
(a) Any material amendment to the Plan shall be effective only upon
approval of the Board, including a majority of the Trustees who are not
interested persons of the Trust as defined in the Investment Company Act of 1940
(the "Disinterested Trustees"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the amendment to the Plan.
(b) The Plan may be terminated without penalty at any time by a vote of
a majority of the Disinterested Trustees.
<PAGE>
<PAGE>
FORUM FUNDS
SHAREHOLDER SERVICE PLAN
APPENDIX A
FUNDS TO WHICH SHAREHOLDER SERVICE PLAN APPLIES
December 5, 1997
Oak Hall Small Cap Contrarian Fund
<PAGE>
FORUM FUNDS
SHAREHOLDER SERVICE PLAN
APPENDIX A
FUNDS TO WHICH SHAREHOLDER SERVICE PLAN APPLIES
December 5, 1997
Oak Hall Small Cap Contrarian Fund
[FORM OF]
FORUM FUNDS
SHAREHOLDER SERVICE AGREEMENT
AGREEMENT made this ____ day of ____________, 1997, between Forum
Administrative Services, LLC ("FAdS"), a limited liability company organized
under the laws of State of Delaware with its principal place of business at Two
Portland Square, Portland, ME 04101 and the institution executing this document
below (the "Institution").
WHEREAS, FAdS acts as administrator for Forum Funds (the "Trust"), a
Delaware business trust registered under the Investment Company Act of 1940, as
amended (the "Act") as an open-end management investment company, which may
issue its shares of beneficial interest("Shares") in separate series (each, a
"Fund") and classes thereof (each, a "Class"); and
WHEREAS, the Trust has adopted a Services Plan with respect to Shares
of the Funds and Classes listed on Appendix A hereto (the "Plan") that
authorizes FAdS to pay fees to Iinstitutions for maintaining and providing
services to client accounts in the Funds and Classes of the Trust; and
WHEREAS, FAdS desires that the Institution perform certain service
activities on behalf of FAdS and the Trust with respect to each Fund or Class,
and the Institution is willing to perform those services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the representations,
covenants and promises contained herein and other valuable consideration, the
undersigned parties do hereby agree as follows:
SECTION 1. SERVICE ACTIVITIES
In connection with providing services and maintaining client accounts
in each Fund or Class for its clients, the Institution may provide services
including: (a) establishing and maintaining accounts and records relating to
clients of the Institution; (b) answering client inquiries regarding the manner
in which purchases, exchanges and redemptions of shares of a Fund or Class may
be effected and other matters pertaining to the Trust's services; (c) providing
necessary personnel and facilities to establish and maintain client accounts and
records; (d)
<PAGE>
assisting clients in arranging for processing purchase, exchange and redemption
transactions; (e) arranging for the wiring of funds; (f) guaranteeing client
signatures in connection with redemption orders and transfers and changes in
client-designated accounts; (g) integrating periodic statements with other
client transactions; and (h) providing such other related services as the client
may request. The Institution shall not be obligated to perform any specific
service for its clients. The Institution's appointment shall be nonexclusive,
and FAdS may enter into similar agreements with other persons.
SECTION 2. COMPENSATION
(a) As compensation for the Institution's service activities with
respect to each Fund or Class, FAdS shall pay the Institution fees in the
amounts listed on Appendix B to this Agreement (the "Payments"); provided,
however, that in no event will FAdS be required to make any payments for service
activities in an amount greater than that which FAdS is paid by the respective
Fund or Class for such services.
(b) The Payments shall be accrued daily and paid monthly or at such
other interval as FAdS and the Institution shall agree.
(c) On behalf of each Fund or Class, the Institution may spend such
amounts and incur such expenses as it deems appropriate or necessary on any
service activities. Such expenses may include compensation to employees and
expenses, including overhead and telephone and other communication expenses, of
the Institution. The Institution shall be solely liable for any expenses it
incurs.
SECTION 3. REPRESENTATIONS OF THE INSTITUTION
The Institution represents that:
(a) the compensation payable to it under this Agreement in connection
with the investment in any Fund or Class of the assets of its clients: (i) will
be disclosed by the Institution to its clients, and (ii) will not result in an
excessive fee to the Institution;
(b) if it is a member of the National Association of Securities
Dealers, Inc. ("NASD"), it shall abide by the Conduct Rules of the NASD;
(c) it will, in connection with sales and offers to sell Shares,
furnish to or otherwise insure that each client to whom any such sale or offer
is made receives a copy of the applicable Fund's or Funds' then current
prospectus;
(d) it will purchase Shares only from FAdS as agent of the Trust and
will purchase Shares only for the purpose of covering purchase orders already
received or for its own bona fide investment purposes;
<PAGE>
(e) the performance of all its obligations hereunder will comply with
all applicable laws and regulations, including any applicable federal securities
laws and any requirements to deliver confirmations to its clients, the
provisions of its charter documents and bylaws and all material contractual
obligations binding upon the Institution; and
(f) it will promptly inform the Trust of any change in applicable laws
or regulations (or interpretations thereof) or in its charter or bylaws or
material contracts that would prevent or impair full performance of any of its
obligations hereunder.
SECTION 4. TRUST LITERATURE
The Institution is not authorized to make any representations
concerning Shares of any Fund or Class except those contained in the Fund's then
current prospectus and statement of additional information ("SAI") and printed
information issued by the Trust or by FAdS as information supplemental to the
prospectus. FAdS will supply the Institution upon its request with prospectuses,
SAIs, reasonable quantities of supplemental sales literature and additional
information. The Institution agrees not to use other advertising or sales
material relating to a Fund or Class unless approved in writing by FAdS in
advance of such use. Any printed information furnished by FAdS other than the
then current prospectus and SAI, periodic reports and proxy solicitation
materials are FAdS's sole responsibility and are not the responsibility of the
Trust, and the Trust shall have no liability or responsibility to the
Institution in these respects unless expressly assumed in connection therewith.
The Institution shall have no responsibility with regard to the accuracy or
completeness of any of the printed information furnished by FAdS and shall be
held harmless by FAdS from and against any cost or loss arising therefrom.
SECTION 5. REPORTS
The Institution shall prepare and furnish to FAdS, at FAdS's request,
written reports setting forth all amounts expended by the Institution and
identifying the activities for which the expenditures were made.
SECTION 6. INDEMNIFICATION
The Institution agrees to indemnify and hold harmless FAdS and the
Trust from any claims, expenses, or liabilities incurred by FAdS or the Trust as
a result of any act or omission of the Institution in connection with its
services under this Agreement.
SECTION 7. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective on the date hereof and, upon
its effectiveness, shall supersede all previous agreements between the parties
covering the subject matter hereof.
(b) This Agreement may be terminated as follows:
<PAGE>
(i) at any time, without the payment of any penalty,
by the vote of a majority of the Trustees of the Trust;
(ii) automatically in the event of the termination
of the Administration or Distribution agreements between the
Trust and FAdS or the Plan;
(iii) automatically in the event of the assignment of
this Agreement as defined in the Act; and
(iv) by either party to the Agreement without cause by giving
the other party at least sixty (60) days' written notice of its
intention to terminate.
SECTION 8. NOTICES
Any notice under this Agreement shall be in writing and shall be
addressed and delivered, or mailed postage prepaid, to the other party's
principal place of business, or to such other place as shall have been
previously specified by written notice given to the other party.
SECTION 9. AMENDMENTS
Subject to approval of material amendments to the form of this
Agreement by the Trust's Board of Trustees, this Agreement may be amended by the
parties at any time. In addition, this Agreement may be amended by FAdS from
time to time by the following procedure: FAdS will mail a copy of the amendment
to the Institution at its principal place of business or such other address as
the Institution shall in writing provide to FAdS. If the Institution does not
object to the amendment within thirty (30) days after its receipt, the amendment
will become part of the Agreement. The Institution's objection must be in
writing and be received by FAdS within the thirty days.
SECTION 10. USE OF THE TRUST'S NAME
The Institution shall not use the name of the Trust on any checks, bank
drafts, bank statements or forms for other than internal use in a manner not
approved by the Trust prior thereto in writing; provided however, that the
approval of the Trust shall not be required for the use of the Trust's name
which merely refers in accurate and factual terms to the Trust in connection
with the Institution's role hereunder or which is required by any appropriate
regulatory, governmental or judicial authority; and further provided that in no
event shall such approval be unreasonably withheld or delayed.
SECTION 11. MISCELLANEOUS
(a) This Agreement shall be construed in accordance with the laws of
the State of Delaware.
<PAGE>
(b) If any provision of this Agreement shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
INSTITUTION:
_______________________________
Name of Institution
By:____________________________
Name:__________________________
Title:_________________________
FORUM ADMINISTRATIVE SERVICES, LLC
By:____________________________
David I. Goldstein
Managing Director
<PAGE>
FORUM FUNDS
SHAREHOLDER SERVICE AGREEMENT
APPENDIX A
FUNDS AND CLASSES OF FORUM FUNDS
--------------------------------
Oak Hall Small Cap Contrarian Fund
<PAGE>
FORUM FUNDS
SHAREHOLDER SERVICE AGREEMENT
APPENDIX B
PAYMENTS PURSUANT TO THE PLAN
FUND CLASS FEE
---- ----- ---
Oak Hall Small Cap Contrarian Fund N/A 0.25%
Exhibit (11)(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amending No.
67 to Registration Statement (No. 2-67052) of Forum Funds on behalf of Investors
Equity Fund, Equity Index Fund, Small Company Opportunities Fund, International
Equity Fund, and Emerging Markets Fund of our report dated July 21, 1998 in the
Statement of Additional Information, which is a part of such Registration
Statement and to reference to us under the heading "Financial Highlights"
appearing in the prospectus, which is also a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
September 30, 1998
Exhibit (11)(b)
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of
Forum Funds:
We consent to the use of our report dated July 21, 1998 for Small Cap Index
Portfolio and Small Cap Value Portfolio, Portfolios of Core Trust (Delaware),
incorporated herein by reference into the Statement of Additional Information
and to the reference to our Firm under the heading, "Independent Accountants" in
the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
September 30, 1998
Exhibit (11)(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Forum Funds:
We hereby consent to the following with respect to Post-Effective Amendment No.
65 the Registration Statement on Form N-1A (File No. 2-67052) of Forum Funds:
1. The incorporation by reference of our report dated July 21, 1998 on our
audits of the financial statements and financial highlights of Core Trust
(Delaware) (consisting of Index Portfolio, Small Company Stock Portfolio,
Small Company Value Portfolio, Small Company Growth Portfolio and
International Portfolio) for the year ended May 31, 1998, which are
incorporated by reference in the Statement of Additional Information.
2. The reference to our Firm under the heading, "Independent Accountants" in
the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 28, 1998
Other Exhibits
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John Y. Keffer constitutes and
appoints David I. Goldstein, Anthony C. J. Nuland, and Leslie K. Klenk, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement on Form N-1A and any
or all amendments thereto of Forum Funds, and to file the same with the
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: August 24, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORUM FUNDS ANNUAL REPORT DATED MAY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 028
<NAME> INVESTORS EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 15,185,353
<INVESTMENTS-AT-VALUE> 30,076,551
<RECEIVABLES> 41,088
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,093
<TOTAL-ASSETS> 30,120,732
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,389
<TOTAL-LIABILITIES> 30,389
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,467,824
<SHARES-COMMON-STOCK> 2,631,444
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,923
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 725,398
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,891,198
<NET-ASSETS> 30,090,343
<DIVIDEND-INCOME> 68,964
<INTEREST-INCOME> 12,448
<OTHER-INCOME> 0
<EXPENSES-NET> 75,559
<NET-INVESTMENT-INCOME> 5,853
<REALIZED-GAINS-CURRENT> 725,398
<APPREC-INCREASE-CURRENT> 194,080
<NET-CHANGE-FROM-OPS> 925,331
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,869,882
<NUMBER-OF-SHARES-REDEEMED> 1,704,870
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 30,090,343
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44,695
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 143,995
<AVERAGE-NET-ASSETS> 15,210,970
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.43
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.43
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORUM FUNDS ANNUAL REPORT DATED MAY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 029
<NAME> INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 7,566
<INVESTMENTS-AT-VALUE> 8,885
<RECEIVABLES> 6,833
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,675
<TOTAL-ASSETS> 21,393
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,532
<TOTAL-LIABILITIES> 12,532
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,500
<SHARES-COMMON-STOCK> 737
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 33
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,319
<NET-ASSETS> 8,861
<DIVIDEND-INCOME> 60
<INTEREST-INCOME> 17
<OTHER-INCOME> 2
<EXPENSES-NET> 46
<NET-INVESTMENT-INCOME> 33
<REALIZED-GAINS-CURRENT> 9
<APPREC-INCREASE-CURRENT> 1,319
<NET-CHANGE-FROM-OPS> 1,361
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8,861
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22,974
<AVERAGE-NET-ASSETS> 7,747
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.98
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.02
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORUM FUNDS ANNUAL REPORT DATED MAY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> EQUITY INDEX FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 4,476,971
<INVESTMENTS-AT-VALUE> 5,038,846
<RECEIVABLES> 8,885
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,407
<TOTAL-ASSETS> 5,050,138
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,532
<TOTAL-LIABILITIES> 12,532
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,447,400
<SHARES-COMMON-STOCK> 430,967
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 28,354
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 561,875
<NET-ASSETS> 5,037,606
<DIVIDEND-INCOME> 29,516
<INTEREST-INCOME> 3,005
<OTHER-INCOME> 769
<EXPENSES-NET> 4,936
<NET-INVESTMENT-INCOME> 28,354
<REALIZED-GAINS-CURRENT> (23)
<APPREC-INCREASE-CURRENT> 561,875
<NET-CHANGE-FROM-OPS> 590,206
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,452,945
<NUMBER-OF-SHARES-REDEEMED> 5,545
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,037,606
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45,119
<AVERAGE-NET-ASSETS> 4,607,722
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 1.62
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORUM FUNDS ANNUAL REPORT DATED MAY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 370
<NAME> SMALL COMPANY OPPORTUNITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 5,009
<INVESTMENTS-AT-VALUE> 4,859
<RECEIVABLES> 3,014
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,079
<TOTAL-ASSETS> 12,952
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,100
<TOTAL-LIABILITIES> 8,100
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,000
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (8)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (150)
<NET-ASSETS> 4,852
<DIVIDEND-INCOME> 6
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> 16
<NET-INVESTMENT-INCOME> (8)
<REALIZED-GAINS-CURRENT> 10
<APPREC-INCREASE-CURRENT> (150)
<NET-CHANGE-FROM-OPS> (148)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,746
<AVERAGE-NET-ASSETS> 5,048
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> (.29)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORUM FUNDS ANNUAL REPORT DATED MAY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<SERIES>
<NUMBER> 376
<NAME> EMERGING MARKETS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 7,698
<INVESTMENTS-AT-VALUE> 7,091
<RECEIVABLES> 10,200
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,324
<TOTAL-ASSETS> 19,615
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,532
<TOTAL-LIABILITIES> 12,532
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,500
<SHARES-COMMON-STOCK> 763
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 33
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 157
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (607)
<NET-ASSETS> 7,083
<DIVIDEND-INCOME> 70
<INTEREST-INCOME> 16
<OTHER-INCOME> 0
<EXPENSES-NET> 53
<NET-INVESTMENT-INCOME> 33
<REALIZED-GAINS-CURRENT> 157
<APPREC-INCREASE-CURRENT> (607)
<NET-CHANGE-FROM-OPS> (417)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 7,083
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,881
<AVERAGE-NET-ASSETS> 7,218
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> (.76)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 1.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
