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PROSPECTUS
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[Picure graphics on left half
of cover of globe, entrance to Equity
fortress, coins and postage stamp.] Index Fund
Investors
Equity Fund
Small Company
Opportunities
Fund
International
Equity Fund
FORUM
FUNDS
JANUARY 11, 1999
<PAGE>
FORUM FUNDS
EQUITY INDEX FUND
INVESTORS EQUITY FUND
SMALL COMPANY OPPORTUNITIES FUND
INTERNATIONAL EQUITY FUND
PROSPECTUS
January 11, 1999
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ACCOUNT INFORMATION AND SHAREHOLDER SERVICING:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
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This Prospectus offers shares of Equity Index Fund, Investors Equity Fund, Small
Company Opportunities Fund, and International Equity 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 and International Equity 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 Price Index ("S&P 500 Index") with minimum tracking
error, while also minimizing transaction costs. Under normal circumstances,
the Fund has a policy of selecting and weighting portfolio securities to
approximate the composition 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.
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
January 11, 1999, 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
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 OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Page Page
1. Prospectus Summary........................... 2 6. Management................................ 17
2. Financial Highlights......................... 7 7. Purchases and Redemptions of Shares....... 23
3. Investment Objectives and Policies........... 8 8. Distributions and Tax Matters............. 30
4. Additional Investment Policies............... 12 9. Other Information......................... 31
5. Risk Considerations.......................... 16 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 first page. Investors Equity Fund
invests directly in portfolio securities. Each of Equity Index Fund and
International Equity 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
Index Portfolio and International Portfolio are series of Core Trust (Delaware)
("Core Trust").
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
invest:
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. Schroder Capital Management International
Inc. ("SCMI") serves as International 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.
2
<PAGE>
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."
MANAGEMENT
The administrator of the Funds is Forum Administrative Services, LLC
("FAdS") and the distributor of their shares is Forum Fund Services, LLC ("FFS")
(Forum Financial Services, Inc. ("FFSI") until February 28, 1999. 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 policy of International Equity 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.
International Equity 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 foreign 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
3
<PAGE>
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. "Market capitalization" is the total
market value of a company's outstanding common stock.
By pooling their assets in one or more Portfolios with other
institutional investors, Equity Index Fund, Small Company Opportunities Fund,
and International Equity Fund may achieve certain efficiencies and economies of
scale. Nonetheless, these investments 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>
Small
Equity Investors Company International
Index Equity Opportunities Equity
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%
Exchange Fee......................... None None None None
ANNUAL FUND OPERATING
EXPENSES(2)
(as a percentage of average
net assets)
Management Fees
(after fee waivers)(3)............. 0.15% 0.28% 0.79% 0.44%
12b-1 Fees........................... None None None None
Other Expenses
(after fee waivers and
expense reimbursements)(4)......... 0.10% 0.82% 0.70% 0.96%
----- ----- ----- -----
Total Fund Operating
Expenses(4)........................ 0.25% 1.10% 1.49% 1.40%
</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 estimated annualized expenses for the
Fund's fiscal year ending May 31, 1999. 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 rata
portion of all expenses of its corresponding Portfolio(s), which are borne
indirectly by the Fund's shareholders.
(3) Absent estimated fee waivers, Management Fees for Investors Equity Fund,
Small Company Opportunities Fund, and International Equity Fund would be 0.65%,
1.04%, and 0.45%, 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 estimated expense reimbursements and fee waivers, Other Expenses
and Total Fund Operating Expenses would be 1.01% and 1.16%, respectively, for
Equity Index Fund, 0.82% and 1.47%, respectively, for Investors Equity Fund,
1.16% and 2.20%, respectively, for Small Company Opportunities Fund, and 1.11%
and 1.56%, respectively, for International Equity 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 $54 $71
Investors Equity Fund $51 $74 $98 $169
Small Company Opportunities Fund $55 $86 $119 $212
International Equity Fund $54 $83 $114 $201
</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>
SMALL COMPANY
INVESTORS EQUITY INDEX OPPORTUNITIES INTERNATIONAL
EQUITY FUND (A) FUND (A) FUND (A) EQUITY FUND(A)
---------------- ------------- -------------- ---------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, 1998 MAY 31, 1998 MAY 31, 1998 MAY 31, 1998
---------------- ------------- -------------- ---------------
Net Asset Value, Beginning of Period $10.00 $10.00 $10.00 $10.00
---------------- ------------- -------------- ---------------
Investment Operations:
Net Investment Income (Loss) 0.00 0.07 (0.01) 0.04
Net Realized and Unrealized Gain
(Loss) on Investments ---------------- -------------- -------------- ---------------
1.43 1.62 (0.29) 1.98
Total from Investment Operations 1.43 1.69 (0.30) 2.02
Net Asset Value, End of Period $11.43 $11.69 $9.70 $12.02
================ ============== ============== ===============
Total Return(b) 14.30%(c) 16.90%(c) (3.00%)(c) 20.20%(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's $30,090 $5,038 $5 $9
omitted)
Ratios to Average Net Assets:
Expenses Including 1.10% 0.25% 1.87% 1.36%
Reimbursement/Waiver(d)
Expenses Excluding 2.09% 2.25% 1,836.34% 675.46%
Reimbursement/Waiver(d)
Net Investment Income (Loss) Including
Reimbursement/Waiver(d) 0.09% 1.41% (0.93%) 0.98%
Average Commission Rate(e) $0.0549 $0.0339(f) N/A(g) $0.0194(f)
Portfolio Turnover Rate 11.35% $6.68%(f) N/A(h) 36.96%(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, and International Equity 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 or 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.
Although the descriptions of the investment policies of Equity Index
Fund, Small Company Opportunities Fund, and International Equity Fund discuss
the investment policies of those of the Portfolios in which they invest (and the
responsibilities of Core Trust's Board of Trustees (the "Core Trust Board")),
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 similar policies as
the Fund.
INVESTMENT POLICIES
The Portfolio is designed to replicate the return of the S&P 500 Index
with minimum tracking error and to minimize transaction costs. Under normal
circumstances, the Portfolio holds stocks representing 100% or more of the
capitalization-weighted market values of the S&P 500 Index. The Adviser
generally executes portfolio transactions for the Portfolio only to replicate
the composition of the S&P 500 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 to facilitate
payment of the Portfolio's expenses or redemptions and may invest in index
futures contracts to a limited extent. For these and other reasons, the
Portfolio's performance can be expected to approximate but not be equal to that
of the S&P 500 Index.
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 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.
8
<PAGE>
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.
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 the current allocation
among the Portfolios on or about the date of this Prospectus.
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%
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.
9
<PAGE>
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. The Adviser generally executes portfolio transactions only to
replicate 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 to facilitate 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 that of
the S&P Small Cap 600 Index.
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 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 dominant firms in their respective industries.
S&P does not sponsor, sell, promote, or endorse 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. The Portfolio invests primarily in the common
stock of small- and medium-size domestic companies that have Market
Capitalizations 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 are less than the largest stock in the Russell 2000 Index (an
index of smaller capitalization companies with a broader base of companies than
the S & P Small Cap 600 Index) or approximately $1.4 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 as compared to long-term overall market growth.
The Portfolio invests in companies that may be in a relatively early stage of
development or may produce goods and services that have favorable prospects for
growth due to increasing demand or developing markets. Frequently, such
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 offers a greater opportunity for capital
appreciation than an investment in larger, more established companies.
10
<PAGE>
The Portfolio may invest up to 20% of its total assets in foreign
companies. The Portfolio 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 or approximately $1.4 billion.
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 and offer potential
for capital appreciation as a stock gains favor among other investors and its
stock price rises.
SMALL CAP VALUE PORTFOLIO. Small Cap Value Portfolio seeks capital
appreciation by investing in common stocks of smaller companies. The Portfolio
will normally 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, which range from approximately $221.9
million to approximately $1.4 billion. 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 Adviser
uses both quantitative and fundamental analysis. Among other 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 the same investment objective and substantially similar
policies as the Fund.
INVESTMENT POLICIES
The Portfolio seeks to provide long-term capital appreciation by
investing directly or indirectly in high quality companies based outside the
United States. The Portfolio selects its investments on the basis of their
potential for capital appreciation without regard to current income. The
Portfolio also may invest in the securities of domestic closed-end investment
companies that invest 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 Portfolio'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 Portfolio will invest only in
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securities of companies and governments in countries that the Adviser, in its
judgment, considers both politically and economically stable. The Portfolio 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 Portfolio
concentrates its assets in a foreign country, it will incur greater risks. See
"Risk Considerations - Foreign Investments."
Under normal circumstances, the Portfolio will invest substantially all
of its assets, but not less than 65%, in equity securities domiciled outside the
United States. The Portfolio 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 Portfolio 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. Although such contracts may reduce
the risk of loss to the Portfolio from adverse movements in currency values, the
contracts also limit possible gains from favorable movements. See "Additional
Investment Policies - Foreign Exchange Contracts."
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 Fund
or Portfolio may be changed by the Board or Core Trust Board, where 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, the discussion below of the investment
policies of a Fund investing in a single Portfolio also refers to the investment
policies of the Portfolio.
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
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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.
BORROWING
As a fundamental policy, each Fund may borrow money for temporary or
emergency purposes, including the meeting of redemption requests, but not in
excess of 33 1/3% of the value of the Fund's total assets (computed immediately
after the borrowing). 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 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 has no limitation 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. This policy is fundamental for Investors Equity Fund
an non-fundamental for the other Funds. 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 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 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.
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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
International Equity 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.
The Fund will not seek to benefit from anticipated short-term fluctuations in
currency exchange rates. When investing in foreign securities, the Fund, will
usually effect currency exchange transactions on a spot (I.E., cash) basis at
the spot rate prevailing in the foreign exchange market. The Fund incurs foreign
exchange expenses in converting assets from one currency to another.
The Fund 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 Fund does 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. The 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. The Fund has no present intention to enter into
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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 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." A Fund may only write covered options. 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 Futures Contracts" in the SAI.
DEBT SECURITIES
Each 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 objective of long-term capital appreciation. Such income can be used,
however, to offset the operating expenses of the Funds. The debt securities in
which the Funds invest may be unrated. See "Risk Considerations - Debt
Securities."
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 has assumed a temporary defensive position, it may not be
pursuing its investment objective. Prime quality instruments are those that are
rated in one of the two highest short-term rating categories 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 International
Equity Fund may invest in foreign issuers, it may also hold cash and bank
instruments denominated in any major foreign currency.
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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 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
or the Core Trust Board, to provide that the commissions are comparable to those
charged by unaffiliated qualified broker-dealers. No specific portion of a
Fund's or Portfolio'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 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 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.
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CURRENCY FLUCTUATIONS AND DEVALUATIONS
Because International Equity Fund will invest heavily in non-U.S.
currency denominated securities, changes in foreign currency exchange rates will
affect the value of the its 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 the Fund's investments
are denominated against the dollar will result in a corresponding decline in the
dollar value of the Fund's assets. 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
International Equity Fund may invest more than 25% of its total assets
in issuers located in any one country. To the extent it invests in issuers
located in one country, the 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 the Fund's
assets may fluctuate more widely than the value of shares of a comparable fund
with a lesser degree of geographic concentration.
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. 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 Small Company Opportunities 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 Fund 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 the
Fund may purchase when they are offered to the public for the first time) may
have a limited trading market which can adversely affect their sale by the Fund
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 Fund 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
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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. Additional information
regarding the Trustees and the respective executive officers of the Trust and
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 November 30, 1998,
Payson had approximately $1.2 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 $9.8 billion and Peoples and its affiliates
managed assets in their trust departments with a value of approximately $939
million. Payson pays an investment subadvisory fee to Peoples for its
sub-advisory services at an annual rate of 0.25% of the Fund's average daily net
assets. This fee is borne solely by Payson and does not increase the fee paid by
shareholders of the Fund.
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 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
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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. Norwest Bank is a subsidiary of Wells Fargo & Company
("Wells Fargo"), a national bank holding company. As of August 1, 1998, Wells
Fargo and its subsidiaries managed more than $63 billion in assets.
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 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 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
September 30, 1998, Forum Advisors provided investment advisory services to
registered investment companies with assets of approximately $2.1 billion.
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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, 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, 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 30, 1998, Smith
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<PAGE>
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
Schroder Capital Management International Inc. manages the investment
and reinvestment of the assets of International Portfolio. SCMI continuously
reviews, supervises and administers the Portfolio's investments. In this regard,
it is the responsibility of SCMI to make decisions relating to the 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 under the
investment advisory agreements between SCMI and Core Trust, SCMI is entitled to
receive advisory fees at the annual rates of 0.45% of the average daily net
assets of the Portfolio.
International Equity Fund pays a pro rata portion of the investment
advisory fees paid to SCMI by International Portfolio.
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.
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 September 30, 1998, FAdS and its affiliates provided management,
administration and distribution services to registered investment companies with
assets of approximately $60.4 billion. As of the date of this Prospectus each of
FAdS, FFS, 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
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<PAGE>
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 and Core Trust.
THE DISTRIBUTOR
Pursuant to a distribution agreement with the Trust, Forum Fund
Services, LLC acts as distributor of the Funds' shares (Forum Financial
Services, Inc. until February 28, 1999). FFS acts as the agent of the Trust in
connection with the offering of shares of the Funds. FFS receives, and may
reallow to certain financial institutions, the sales charge paid by the
purchasers of the Funds' shares. FFS may enter into arrangements with banks,
broker-dealers or other financial institutions through which investors may
purchase or redeem shares. FFS 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. The distributor is a registered
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
SHAREHOLDER SERVICING
Shareholder inquiries and communications concerning a Fund may be
directed to Forum Shareholder Services, LLC, the Funds' transfer agent and
dividend disbursing agent. Pursuant to a transfer agency and services agreement,
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 "Purchases 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 Fund'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.
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<PAGE>
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 and Euro issues 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 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 FFS
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, acceptance 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
23
<PAGE>
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.
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 FFS.
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:
24
<PAGE>
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 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
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<PAGE>
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) transactions in which the proceeds are not being sent to the address
of record, preauthorized bank account, or preauthorized brokerage firm account;
(6) transactions in which proceeds are to be paid to someone other than the
registered owners or to an account with a different registration; or (7) change
of automatic investment or redemption, dividend election, telephone redemption
or exchange option election or any other option election in connection with the
shareholder's account.
Signature guarantees may be provided by any eligible institution
acceptable to FSS, including a bank, a broker, a dealer, a national securities
exchange, a credit union, or a savings association that is authorized to
guarantee signatures. Whenever a signature guarantee is required, the signature
of each person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost, all
distributions on the account will be reinvested in additional shares of 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.
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<PAGE>
SALES CHARGES
The public offering price for shares of a Fund is the sum of the net
asset value of the shares being purchased and 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.
FFS'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, FFS will reallow
discounts to selected brokers and dealers in the amounts indicated in the table
above. From time to time, however, FFS may elect to reallow the entire sales
charge to selected brokers or dealers for all sales with respect to which orders
are placed with FFS during a particular period. The reallowance may be changed
from time to time.
In addition, from time to time and at its own expense, FFS 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 FFS has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or other
employee benefit trust created pursuant to a qualified retirement plan); (2) any
registered investment adviser with whom FFS 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 FFS 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, FFS, any of
their affiliates or any organization with which FFS 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
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<PAGE>
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.
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
28
<PAGE>
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.
PURCHASES AND REDEMPTIONS THROUGH FINANCIAL INSTITUTIONS
Shares may be purchased and redeemed through certain broker-dealers,
banks, trust companies and their affiliates, and other financial institutions,
including affiliates of the 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,
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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 capital gain are distributed annually by
each Fund.
Shareholders may have all distributions of net investment income
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.
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 its 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.
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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 a distribution 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 is eligible to do so, it 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 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.
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
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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(R), 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.
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 or the Core Trust Board, as
applicable, or pursuant to procedures approved by the Board or the Core Trust
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. Currently the authorized shares of the Trust are divided
into 22 separate series.
Generally, shares will be voted in the aggregate without reference to a
particular portfolio or
<PAGE>
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.
CORE AND GATEWAY(R) STRUCTURE
THE PORTFOLIOS
Each of Equity Index Fund and International Equity Fund seeks to
achieve its investment objective by investing all of its investable assets in a
Portfolio, which has the same investment objective and substantially the same
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 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. Core Trust is registered as an open-end, management,
investment company. Core Trust currently has 22 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 Funds' and 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
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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 invests in the other Portfolios and any
such funds in the future will be available from Core Trust by calling FFS 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. Core Trust, its respective Trustees
and certain of its 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 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 ,
including the Fund. 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. Indemnified claims are those brought against Core Trust
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 in the investor's registration statement or proxy
materials that was supplied to the investor by Core Trust. Similarly, Core Trust
indemnifies 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 that is supplied to the investor by Core Trust. In addition, each
registered investment company investor in a Portfolio indemnifies each Core
Trust 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. The purpose
of these cross-indemnity provisions is principally to limit the liability of
each of Core Trust 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, Core Trust's liability is similarly
limited to information about and supplied by Core Trust, 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
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<PAGE>
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, but not any other portfolio of Core Trust. 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.
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[Forum Funds Account Application]
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[Forum Funds Account Application cont.]
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[Picture graphics on right half of back
cover of glob ledger paper, coins and
paper money.]
[Logo]
SHAREHOLDER INFORMATION:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, ME 04112
207-879-0001 (IN PORTLAND, ME)
800-94FORUM (ELSEWHERE)
<PAGE>
EQUITY INDEX FUND
INVESTORS EQUITY FUND
SMALL COMPANY OPPORTUNITIES FUND
INTERNATIONAL EQUITY FUND
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<TABLE>
<S><C> <C>
Account Information and
Shareholder Servicing: Distributor:
Forum Shareholder Services, LLC Forum Fund Services, LLC (Forum
P.O. Box 446 Financial Services, Inc. until February 28, 1999)
Portland, Maine 04112 Two Portland Square
207-879-0001 Portland, Maine 04101
207-879-1900
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
JANUARY 11, 1999
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectus dated January 11,
1999, as amended from time to time, offering shares of Equity Index Fund,
Investors Equity Fund, Small Company Opportunities Fund, and International
Equity 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
2. Investment Policies.............................................. 4
3. Risk Considerations.............................................. 11
4. Additional Investment Policies................................... 13
5. Performance Data................................................. 19
6. Management....................................................... 21
7. Determination of Net Asset Value................................. 31
8. Portfolio Transactions........................................... 32
9. Additional Purchase and
Redemption Information........................................ 33
10. Tax Matters...................................................... 35
11. Other Information................................................ 37
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-two series, including series that have not commenced operation as of
the date of this SAI. The series of the Trust are as follows:
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 Equity Index Fund
New Hampshire Bond Fund Investors Equity Fund
Daily Assets Government Fund Investors Growth Fund
Daily Assets Government Obligations Fund Small Company Opportunities Fund
Daily Assets Cash Fund International Equity Fund
Daily Assets Treasury Obligations Fund Emerging Markets Fund
Daily Assets Municipal Fund Polaris Global Value Fund
Payson Value Fund
Payson Balanced Fund
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when required by Federal or state law. Shareholders (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
As of January 1, 1999, 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 that own of record 5% or more of the
outstanding shares of any of the Registrant's series.
DEFINITIONS. As used in this Statement of Additional Information, the following
terms shall have the meanings listed:
"Adviser" means H.M. Payson & Co., Peoples Heritage Bank, Forum Investment
Advisers LLC, Norwest Investment Management, Inc., Schroder Capital Management
International Inc., Crestone Capital Management, Inc., Peregrine Capital
Management, Inc., and Smith Asset Management, L.P.
"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
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"Core Trust Portfolio" means Index Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio, Small Cap Value
Portfolio and International Portfolio, each, a series of Core Trust.
"Crestone" means Crestone Capital Management, Inc.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FFS" means Forum Fund 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, and International Equity 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 Minnesota, N.A.
"Payson" means H.M. Payson & Co.
"Peoples" means Peoples Heritage Bank.
""Peregrine" means Peregrine Capital Management, Inc.
"Portfolio" means Index Portfolio, International 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.
"Smith" means Smith Asset Management Group, L.P.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means a security issued or guaranteed as to
principal or interest by the United States, or by a person controlled or
supervised by and acting as an intrumentallity of the government of the United
States pursuant to the authority granted by the Congress of the United States;
or any certificate of deposit for any of the foregoing.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
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2. INVESTMENT POLICIES
INTRODUCTION
The following information supplements the discussion found under "Investment
Objective and Policies" and "Additional Investment Policies" in the Prospectus.
Investors Equity Fund seeks to achieve its investment objective by investing
directly in portfolio securities. Each of Equity Index Fund and International
Equity 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.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities. Convertible securities are fixed
income securities, preferred stocks or other securities that may be converted
into or exchanged for a given amount of common stock of the same or a different
issuer during a specified period of time at a specified price or formula. A
convertible security entitles the holder to receive interest on debt or the
dividend paid on preferred stock until the convertible security matures, is
redeemed, or converted, or is exchanged. Before conversion, convertible
securities ordinarily provide a stream of income with generally higher yields
than those of common stock of the same or similar issuers, but lower than the
yield of nonconvertible debt. Convertible securities rank senior to common stock
in a comany's capital structure but are usually subordinate to comparable
nonconvertible securities. By investing in convertible securities, a Fund
obtains the right to benefit from the capital appreciation potential in the
underlying common stock upon the exercise of the conversion right, while earning
higher current income than could be available if the stock was purchased
directly.
In general, the value of a convertible security is the higher of its investment
value (its value as a fixed income security) and its conversion value (the value
of the underlying shares of common stock if the security is converted). As a
fixed income security, the value of a convertible security generally increases
when interest rates decline and generally decreases when interest rates rise.
The credit standing of the issuer and other factors also may have an effect on
the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. Generally, a convertible security's conversion value decreases as the
convertible security approaches maturity. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of
the convertible security will be increasingly influenced by its conversion
value. In addition, a convertible security generally will sell at a premium over
its conversion value determined by the extent to which investors place value on
the right to acquire the underlying common stock while holding a fixed income
security.
Because convertible securities are typically issued by smaller capitalized
companies whose stock price may be volatile, the price of a convertible security
may reflect variations in the price of the underlying common stock in a way that
nonconvertible debt does not. Also, while convertible securities generally have
higher yields than common stock, they have lower yields than comparable
nonconvertible securities. Convertible securities, however, are subject to less
fluctuations in value than underlying stock since they have fixed income
characteristics. A convertible security may be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security is called for redemption, a Fund
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock or sell it to a third party.
EQUITY-LINKED SECURITIES
All Funds (except Investors Equity Fund) may invest in equity-linked securities.
Equity-linked securities are securities whose interest and/or principal payment
obligations are linked to a specified index of equity securities, or determined
pursuant to specific formulas. A Fund may invest in these instruments when the
securities provide a higher amount of dividend income than is available from a
company's common stock. The amount received by an investor at maturity of these
securities is not fixed but is based on the price of the underlying common
stock, which may rise or fall. Adverse changes in the securities markets may
reduce interest payments made under, and/or the principal of, equity-linked
securities held by a Fund. In addition, it is not possible to predict how
equity-related securities will trade in the secondary market or whether the
market for the securities will be liquid.
WARRANTS
Each Fund may invest in warrants. Warrants are securities, typically issued with
preferred stock or bonds, that give the holder the right to purchase a given
number of shares of common stock at a specified price, usually during a
specified period of time. The price usually represents a premium over the
applicable market value of the common stock at the time of the warrant's
issuance. Warrants have no voting rights with respect to the common stock,
receive no dividends and have no rights with respect to the assets of the
issuer. Warrants do not pay a fixed dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for the resale
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of the warrants, potential price fluctuations as a result of speculation or
other factors and failure of the price of the common stock to rise. If the
warrant is not exercised within the specified time period, it becomes worthless.
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). and 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.
DEPOSITARY RECEIPTS
Each Fund (except Equity Index Fund) may invest in depositary receipts. A
depositary receipt is a receipt for shares of a foreign-based company that
entitles the holder to distributions on the underlying security. Depositary
receipts include sponsored or unsponsored American Depositary Receipts ("ADRs")
or European Depositary Receipts ("EDRs"), and other similar securities global
instruments. ADRs are typically issued by a U.S. bank or trust company, evidence
ownership of underlying securities issued by a foreign company and are designed
for use in U.S. securities markets. EDRs are receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, and are
designed for use in for use in European securities markets. A Fund invests in
depository receipts in order to obtain exposire to foreign securities markets.
Unsponsored depositary receipts 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.
FIXED INCOME SECURITIES
Each Fund, as indicated below, may invest in fixed income securities. Fixed
income securities include corporate debt obligations, U.S. Government
Securities, zero coupon securities, financial institution obligations and
participation interests.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government Securities.
U.S. Government Securities include securities issued by the U.S. Treasury and by
U.S. Government agencies and instrumentalities. U.S. Government Securities may
be supported by the full faith and credit of the United States (i.e.,
mortgage-related securities and certificates of the Government National Mortgage
Association and securities of Small Business Administration); by the right of
the issuer to borrow from the U.S. Treasury (i.e., Federal Home Loan Bank
securities); by the discretionary authority of the U.S. Treasury to lend to the
issuer (i.e., Fannie Mae (formerly the Federal National Mortgage Association)
securities); or solely by the creditworthiness of the issuer (i.e., Federal Home
Loan Mortgage Corporation Securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assess a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. No assurance can be given that the U.S. Government would provide
support if it is not obligated to do so by law. Neither the U.S. Government nor
any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt. The
corporate debt obligations in which a Fund may invest include corporate bonds,
debentures, notes, commercial paper and other similar corporate debt
instruments. These instruments are used by companies to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
must repay the amount borrowed at maturity. Commercial paper (short-term
unsecured promissory notes) is issued by companies to finance their current
obligations and normally has a maturity of less than 9 months.
ZERO-COUPON SECURITIES. Each Fund may invest in zero-coupon bonds. Zero-coupon
securities are debt obligations that are issued or sold at a significant
discount from their face value and do not pay current interest to
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holders prior to maturity, a specified redemption date or cash payment date. The
discount approximates the total interest the securities will accrue and compound
over the period to maturity or the first interest payment date at a rate of
interest reflecting the market rate of interest at the time of issuance. The
original issue discount on the zero-coupon securities must be included ratably
in the income of a Fund (and thus an investor's) as the income accrues, even
though payment has not been received. The Funds distribute all of their net
investment income, and may have to sell portfolio securities to distribute
imputed income, which may occur at a time when an Adviser would not have chosen
to sell such securities and which may result in a taxable gain or loss. Because
interest on zero-coupon securities is not paid on a current basis but is in
effect compounded, the value of these securities is subject to greater
fluctuations in response to changing interest rates, and may involve greater
credit risks, than the value of debt obligations which distribute income
regularly.
Zero-coupon securities may be securities that have been stripped of their
unmatured interest stream. Zero-coupon securities may be custodial receipts or
certificates, underwritten by securities dealers or banks, that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government Securities. The underwriters of these certificates or receipts
generally purchase a U.S. Government Security and deposit the security in an
irrevocable trust or custodial account with a custodian bank, which then issues
receipts or certificates that evidence ownership of the purchased unmatured
coupon payments and the final principal payment of the U.S. Government Security.
These certificates or receipts have the same general attributes as zero-coupon
stripped U.S. Treasury securities but are not supported by the issuer of the
U.S. Government Security. The risks associated with stripped securities are
similar to those of other zero-coupon securities, although stripped securities
may be more volatile, and the value of certain types of stripped securities may
move in the same direction as interest rates.
FINANCIAL INSTITUTION OBLIGATIONS. A Fund may invest in obligations of financial
institutions, including certificates of deposit, bankers' acceptances, time
deposits, and other short-term debt obligations Certificates of deposit
represent an institution's obligation to repay funds deposited with it that earn
a specified interest rate over a given period. Bankers' acceptances are
negotiable obligations of a bank to pay a draft which has been drawn by a
customer and are usually backed by goods in international trade. Time deposits
are non-negotiable deposits with a banking institution that earn a specified
interest rate over a given period. Certificates of deposit and fixed time
deposits, which are payable at the stated maturity date and bear a fixed rate of
interest, generally may be withdrawn on demand by a Fund but may be subject to
early withdrawal penalties which could reduce a Fund's performance. Although
fixed time deposits do not in all cases have a secondary market, there are no
contractual restrictions on a Fund's right to transfer a beneficial interest in
the deposits to third parties.
International Equity Fund may invest in Eurodollar certificates of deposit,
which are issued by offices of foreign and domestic banks located outside the
United States; Yankee certificates of deposit, which are issued by a U.S. branch
of a foreign bank and held in the United States; Eurodollar time deposits, which
are deposits in a foreign branch of a U.S. bank or a foreign bank; and Canadian
time deposits, which are issued by Canadian offices of major Canadian banks.
Each of these instruments is U.S. dollar denominated.
PARTICIPATION INTERESTS. A Fund may purchase participation interests in loans or
securities in which the Fund may invest directly that are owned by banks or
other institutions. A participation interest gives a Fund an undivided
proportionate interest in a loan or security determined by the Fund's
investment. Participation interests may carry a demand feature permitting the
holder to tender the interests back to the bank or other institution.
Participation interests, however, do not provide the Fund with any right to
enforce compliance by the borrower, nor any rights of set-off against the
borrower and the Fund may not directly benefit from any collateral supporting
the loan in which it purchased a participation interest. As a result, the Fund
will assume the credit risk of both the borrower and the lender that is selling
the participation interest. A Fund (except Investors Equity Fund) will not
invest more than 10% of its total assets in participation interests in which the
Fund does not have demand rights.
BORROWING
Each Fund may borrow money in accordance with its investment policies set forth
under "Investment Limitations." Interest costs on borrowings may offset or
exceed the return earned on borrowed funds (or the assets that were retained
rather than sold to meet the needs for which funds were borrowed). Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when investment considerations would
not favor such sales. A Fund's use of borrowed proceeds to make investments
would subject the Fund to risks of leveraging. Reverse repurhcase agreements and
other similar investments have characteristics similar to borrowing but are not
considered borrowing if a Fund maintains a segretated account.
REVERSE REPURCHASE AGREEMENTS
A reverse repurchase agreement is a transaction in which a Fund sells securities
and simultaneously commits to repurchase the security from the buyer at an
agreed upon date and price. The resale price in a reverse repurchase agreement
reflects a market rate of interest unrelated to the sold security. An investment
of a Fund's assets in reverse repurchase agreements will increase the volatility
of the Fund's net asset value per unit. For certain demand agreements, there is
no agreed upon repurhase date and interest payments are calculated daily, often
based upon the prevailing overnight repurchase rate.
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REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements. Repurchase agreements are
transactions in which a Fund purchases securities from a bank or securities
dealer and simultaneously commits to resell the securities to the bank or dealer
at an agreed-upon date and at a price reflecting a market rate of interest
unrelated to the purchased security. During the term of a repurchase agreement,
each Fund's custodian maintains possession of the purchased securities and any
underlying collateral, which is maintained at not less than 100% of the
repurchase price. Repurchase agreements allow a Fund to earn income on its
uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments. International Equity Fund may
enter into repurchase agreements with foreign entities.
LENDING PORTFOLIO SECURITIES
Each Fund may lend its portfolio securities subject to the restrictions stated
in the Prospectus. Securities loans must be continuously collateralized and the
collateral must have market value at least equal to value of the Fund's loaned
securities, plus accrued interest. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any fees (such
as finders or administrative fees) the Portfolio pays in arranging the loan. A
Fund may share the interest it receives on the collateral securities with the
borrower. The terms of a Fund's loans permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter. Loans are subject to termination at the option of a Fund or the borrower
at any time, and the borrowed securities must be returned when the loan is
terminated.
WHEN-ISSUED SECURITIES, DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase or sell portfolio securities on a "when-issued," "delayed
delivery" or "forward commitment" basis. When-issued securities may be purchased
on a "when, as and if issued" basis under which the issuance of the securities
depends upon the occurrence of a subsequent event. When these transactions are
negotiated, the price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement date, but
the Funds enter into these transactions only with the intention of actually
receiving securities or delivering them, as appropriate. The Funds may dispose
of the right to acquire these securities before the settlement date if deemed
advisable. During the period between the time of commitment and settlement, no
payment is made for the securities purchased and no interest or dividends on the
securities accrue to the purchaser. At the time a Fund makes a commitment to
purchase securities in this manner, the Fund immediately assumes the risk of
ownership, including price fluctuation. The use of when-issued transactions and
forward commitments enables a Fund to protect against anticipated changes in
interest rates and prices, but also tends to increase the volatility of the
Fund's asset value per share. Equity Index Fund and International Equity Fund
will not purchase securities on a when-issued, delayed delivery or forward
commitment basis if, as a result, more than 15% of the value of the Fund's total
assets would be committed to such transactions. The use of when-issued
transactions and forward commitments enables a Fund to hedge against anticipated
charges in interest rates and prices. If an Adviser were to forecast incorrectly
the direction of interest rate movements, however, a Portfolio may be required
to complete when-issued or forward transactions at prices inferior to the
current market values. At the time a Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund will record the
transaction as a purchase and thereafter reflect the value each day of such
securities in determining net asset value.
ILLIQUID AND RESTRICTED SECURITIES
No Fund may invest more than 15% of its net assets in illiquid investments.
Illiquid investments are investments that cannot be disposed of within seven
days in the ordinary course of business at approximately the amount at which the
Portfolio has valued the investment and include, among other instruments,
repurchase agreements not entitling the Portfolio to payment of principal within
seven days.
An institutional market has developed for certain securities that are not
registered under the 1933 Act. Institutional investors usually will not seek to
sell these instruments to the general public, but instead will often depend on
either
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an efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment of the
unregistered security. A security's contractual or legal restrictions on resale
to the general public or to certain institutions therefore may not be
determinative of the liquidity of such investments.
If unregistered securities are eligible for purchase by institutional buyers in
accordance with applicable exemptions under guidelines adopted by the Board, an
Adviser may determine that the securities are liquid. Under these guidelines,
the Advisers are required to take into account: (1) the frequency of trades and
quotations for the investment; (2) the number of dealers willing to purchase or
sell the investment; (3) the number of dealers that have undertaken to make a
market in the investment; (4) the number other potential purchasers; and (5) the
nature of the marketplace trades, including the time needed to dispose of the
investment, the method of soliciting offers and the mechanics of the transfer.
Illiquid investments may be more difficult to value than liquid investments and
the sale of illiquid investments generally may require more time and result in
higher selling expenses than the sale of liquid investments. A fund may not be
able to dispose of restricted or other securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions.
Restrictions on resale may have an adverse effect on the marketability of
illiquid investments and a Portfolio might also have to register certain
investments in order to dispose of them, resulting in expense and delay.
SHORT SALES AGAINST-THE-BOX
Each Fund may engage in short sales against-the-box. A shore sale is "against
the box" to the extent that 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. When a Fund sells short, it
establishes a margin account with the broker effecting the short sale and
deposits collateral with the broker. To make delivery to the purchaser in a
short sale, the broker borrows the securities sold on behalf of a Fund, and the
Portfolio is obligated to replace the securities borrowed at a date in the
future. Each Fund incurs transaction costs, including interest expense, in
connection with short sales against the box. A Fund may engage in short sales
against the box to defer recognition of gain or loss on the sale of securities
to a later tax period. Equity Index Fund and International Equity Fund may not
make short sales against the box if, as a result, more than 25% of the Fund's
total assets would be so invested or such a position would represent more than
2% of the outstanding voting securities of any single issuer or class of an
issuer.
Pursuant to the Taxpayer Relief Act of 1997, if a Fund has unrealized gain with
respect to a security and enters into a short sale with respect to such
security, the Fund generally will be deemed to have sold the appreciated
security and thus will recognize gain for tax purposes.
OPTIONS AND FUTURES CONTRACTS
A Fund may (1) purchase or sell (write) put and call options on securities to
enhance the Fund's performance and (2) seek to hedge against a decline in the
value of securities owned by the Fund or an increase in the price of securities
that the Fund plans to purchase through the writing and purchase of
exchange-traded and over-the-counter options on individual securities or
securities or financial indices and through the purchase and sale of futures
contracts and options on those futures contracts. A Fund may only write options
that are covered. To the extent a Fund invests in foreign securities, it may
also invest in options on foreign currencies, foreign currency futures contracts
and options on those futures contracts. These instruments are considered to be
derivatives. Use of these instruments is subject to regulation by the SEC, the
several options and futures exchanges on which futures and options are traded or
the CFTC. No assurance can be given that any hedging or option income strategy
will achieve its intended result. A Fund may enter into futures contracts only
if the aggregate of initial margin deposits for open futures contract positions
does not exceed 5% of the Fund's total assets.
COVER FOR OPTIONS AND FUTURES CONTRACTS. A Fund will hold securities,
currencies, or other options or futures positions whose values are expected to
offset ("cover") its obligations under the transactions. A Fund will enter into
a hedging strategy that exposes it to an obligation to another party only if the
Fund owns either (1) an offsetting ("covered") position in the underlying
security, currency or options or futures contract, or (2) cash, receivables and
liquid debt securities with a value sufficient at all times to cover its
potential obligations. Each Fund will comply with SEC guidelines with respect to
coverage of these strategies and, if the guidelines require, will set aside
cash, liquid debt securities and other permissible assets ("Segregated Assets")
in a segregated account with the Custodian
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in the prescribed amount. Segregated Assets cannot be sold or closed out while
the hedging or option income strategy is outstanding, unless the Segregated
Assets are replaced with similar assets. As a result, there is a possibility
that the use of cover or segregation involving a large percentage of a Fund's
assets could impede portfolio management or a Fund's ability to meet redemption
requests or other current obligations.
Equity Index Fund and International Equity Fund have no current intentions of
investing in futures conracts and options therein for purposes other than
hedging. Note that these Funds may not purchase any call or put option on a
futures contract if the premiums associated with all such options held by a Fund
would exceed 5% of the Fund's total assets as of the date the option is
purchased. No Fund may sell a put option if the exercise value of all put
options written by the Fund would exceed 50% of a Fund's total assets or sell a
call if the exercise value of all calls written by the Fund would exceed the
value of a Fund's assets. In addition, the current market value of all open
futures positions held by a Fund will not exceed 50% of its total assets.
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying security
upon exercise at the exercise price during the option period. The amount of
premium received or paid is based upon certain factors, including the market
price of the underlying assets, the relationship of the exercise price to the
market price, the historical price volatility of the underlying assets, the
option period, supply and demand and interest rates.
OPTIONS ON STOCK INDICES. Each Fund may invest in options on stock indices. A
stock index assigns relative values to the stock included in the index, and the
index fluctuates with changes in the market values of the stocks included in the
index. Stock index options operate in the same way as the more traditional
options on securities except that exercises of stock index options are effected
with cash payments and do not involve delivery of securities (i.e., stock index
options are settled exclusively in cash). Thus, upon exercise of stock index
options, the purchaser will realize and the writer will pay an amount based on
the differences between the exercise price and the closing price of the stock
index.
OPTIONS ON FUTURES CONTRACTS. Each Fund may invest in options on futures
contracts. Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract rather
than to purchase or sell stock, at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the delivery of the
futures position to the holder of the option will be accompanied by transfer to
the holder of an accumulated balance representing the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
the contract, at a specified date and at an agreed-upon price. A bond or stock
index futures contract involves the delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the securities comprising
the index is made. Generally, these futures contracts are closed out prior to
the expiration date of the contracts.
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FOREIGN CURRENCY TRANSACTIONS
International Equity Fund may conduct foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
exchange market or by entering into a forward foreign currency contract. A
forward foreign currency contract ("forward contract") involves an obligation to
purchase or sell a specific amount of a specific currency at a future date,
which may be any fixed number of days (usually less than one year) from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward contracts are considered to be "derivatives" -- financial
instruments whose performance is derived, at least in part, from the performance
of another asset (such as a security, currency or an index of securities). The
Fund enters into forward contracts in order to "lock in" the exchange rate
between the currency it will deliver and the currency it will receive for the
duration of the contract. In addition, the Fund may enter into forward contracts
to hedge against risks arising from securities the Fund own or anticipate
purchasing, or the U.S. dollar value of interest and dividends paid on those
securities. The Fund will not enter into forward contracts for speculative
purposes. The Fund does not intend to maintain a net exposure to forward
contracts that would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Funds' investment securities or other assets
denominated in that currency. The Fund will not have more than 25% of its total
assets committed to forward contracts.
If the Fund makes delivery of the foreign currency at or before the settlement
of a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. The Fund may close out a
forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities a Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
In addition, there is no systemic reporting of last sale information for foreign
currencies, and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
in a global around the clock market. Because foreign currency transactions
occuring in the interbank market involves substantially larger amounts than
those 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.
The Fund has no present intention to enter into currency futures or options
contracts, but may do so in the future. The Fund may take positions in options
on foreign currencies in order to hedge against the rest of foreign exchange
fluctuations on foreign securities the Fund holds in its portfolio of which it
intends to purchase.
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RISK CONSIDERATIONS
FIXED INCOME SECURITIES
GENERAL. The market value of the interest-bearing debt/fixed income securities
held by a Fund will be affected by changes in interest rates. There is normally
an inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. Changes in the ability of an issuer to make payments of interest and
principal and in the markets' perception of an issuer's creditworthiness will
also affect the market value of that issuer's debt securities. As a result, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk, which refers
to the change in total return on a security resulting from an extension or
abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK. The Funds' investments in fixed income securities are subject to
credit risk relating to the financial condition of the issuers of the securities
that each Fund holds. To limit credit risk, each Fund will generally buy debt
securities that are rated in the top four long-term rating categories by an
NRSRO or in the top two short-term rating categories by an NRSRO, Moody's,
Standard & Poor's and other NRSROs are private services that provide ratings of
the credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of securities by
several NRSROs is included in Appendix B. The Advisers may use these ratings to
determine whether to purchase, sell or hold a security. Ratings are not,
however, absolute standards of quality. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Consequently, similar securities with the same
rating may have different market prices. In addition, rating agencies may fail
to make timely changes in credit ratings and the issuer's current financial
condition may be better or worse than a rating indicates.
Each Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
Each Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
NON-INVESTMENT GRADE SECURITIES. Non-investment grade securities are securities
rated below the fourth highest rating category by an NRSRO or which are unrated
and judged by the Adviser to be comparable quality. Such high risk securities
(commonly referred to as "junk bonds") are not considered to be investment grade
and have speculative or predominantly speculative characteristics.
Non-investment grade, high risk securities provide poor protection for payment
of principal and interest but may have greater potential for capital
appreciation than do higher quality securities. These lower rated securities
involve greater risk of default or price changes due to changes in the issuers'
creditworthiness than do higher quality securities. The market for these
securities may be thinner and less active than that for higher quality
securities, which may affect the price at which the lower rated securities can
be sold. In addition, the market prices
11
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of lower rated securities may fluctuate more than the market prices of higher
quality securities and may decline significantly in periods of general economic
difficulty or rising interest rates. Under such conditions, a Fund may have to
use subjective rather than objective criteria to value its high yield/high risk
securities investments accurately and rely more heavily on the judgement of its
adviser.
Lower or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, a Fund's Adviser
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Fund experiences unexpected net
redemptions, the Fund's Adviser may be forced to sell 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 higher yield/high risk
securities.
COUNTERPARTY RISK
The Funds may be exposed to the risks of financial failure or insolvency of
another party. To help reduce those risks, the Advisers, subject to the Board's
supervision, monitor and evaluate the creditworthiness of counterparties to the
Funds' transactions and intend to enter into a transaction only when they
believe that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
The use of repurchase agreements, securities lending, reverse repurchase
agreements, forward commitments and forward contracts involving currencies
present particular counterparty risk. In the event that bankruptcy, insolvency
or similar proceedings were commenced against a counterparty while these
transactions remained open or a counterparty defaulted on its obligations, a
Fund may have difficulties in exercising its rights to the underlying securities
or currencies, as applicable, it may incur costs and expensive time delays in
disposing of the underlying securities and it may suffer a loss. Failure by the
other party to deliver a security or currency purchased by a Fund may result in
a missed opportunity to make an alternative investment. Counterparty insolvency
risk, however, with respect to repurchase agreements is reduced by favorable
insolvency laws that allow a Fund, among other things, to liquidate the
collateral held in the event of the bankruptcy of the counterparty. Those laws
do not apply to securities lending and reverse repurchase agreements, and
therefore, those transactions involve more risk than repurchase agreements. As a
result, a Fund may be exposed to greater fluctuations in the value of its assets
and net asset value per share if it participates securities lending or enters
into forward commitments ,reverse repurchase agreements, and forward contracts.
LEVERAGE
The Funds may use leverage in an effort to increase their returns. Leverage
involves special risks and may involve speculative investment techniques.
Leverage exists when cash made available to a Fund through an investment
technique is used to make additional investments. Borrowing for other than
temporary purposed, lending portfolio securities, entering into reverse
repurchase agreements, purchasing securities on a when-issued, delayed delivery
or forward commitment basis are transactions that result in leverage. The Funds
use these investment techniques only when the Adviser to a Fund (or Portfolio,
if applicable) believes that the leveraging and the returns available to the
Fund from investing the cash will provide shareholders a potentially higher
return.
Leverage creates the risk of magnified capital losses, which occur when losses
affect an asset base, enlarged by borrowings or the creation of liabilities,
that exceeds the equity base of the Fund. Leverage may involve the creation of a
liability that requires the Fund to pay interest (for instance, reverse
repurchase agreements) or the creation of a liability that does not entail any
interest costs (for instance, forward commitment transactions). The risks of
leverage include a higher volatility of the net asset value of a Fund's shares
and the relatively greater effect on the net asset value of the shares caused by
favorable or adverse market movements or changes in the cost of cash obtained by
leveraging and the yield obtained from investing the cash. So long as a Fund is
able to realize a net return on its investment portfolio that is higher than
interest expense incurred, if any, leverage will result in higher current net
investment income being realized by the Fund than if the Fund were not
leveraged. Changes in interest rates and related economic factors could cause
the relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to shareholders, the Fund's use of leverage would result
in a lower rate of return than if the Fund were not leveraged. Similarly, the
effect of leverage in a declining market could be a greater decrease in net
asset value per share than if a Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the
Portfolio's commitments under these
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<PAGE>
transactions. The use of a segregated account in connection with leveraged
transactions may result in a Fund's investment portfolio being 100% leveraged.
OPTIONS AND FUTURES CONTRACTS
A Fund's use of options and futures contracts subjects the Fund to certain
unique investment risks. These risks include: (1) dependence on an Adviser's
ability to correctly predict movements in the prices of individual securities
and fluctuations in interest rates, the general securities markets and other
economic factors; (2) imperfect correlations between movements in the prices of
options or futures contracts and movements in the price of the securities hedged
or used for cover which may cause a given hedge not to achieve its objective;
(3) the fact that the skills and techniques needed to trade these instruments
are different from those needed to select the other securities in which a
Portfolio invests; (4) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder a Fund's ability to limit exposures by closing its positions;
(5) the possible need to defer closing out certain options, futures contracts
and related options to avoid adverse tax consequences; and (6) the potential for
unlimited losses when investing in futures contracts or writing options for
which an offsetting position is not held.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. There are a limited number of options on
interest rate futures contracts and exchange-traded options contracts on fixed
income securities. The Portfolios may use various futures contracts that are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market in those contracts
will develop or continue to exist. A Portfolio's activities in the futures and
options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Portfolio's yield.
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" in the Prospectus. 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.
The Investment Objective and fundamental investment policies of the Fund may not
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. A majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act, means the lesser of: (1)
67% of the shares of the Fund present or represented at a shareholders meeting
at which the holders of more than 50% of the shares are present or represented;
or (2) more than 50% of the outstanding shares of the Fund. Investment policies
are not fundamental unless they are designated as fundamental. Non-fundamental
investment policies may be changed by the Trust's Board of Trustees without
shareholder approval
INVESTORS EQUITY FUND
FUNDAMENTAL POLICIES
DIVERSIFICATION: The Fund may not, 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.
CONCENTRATION: The 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, there is no limit on investments in U.S. Government Securities,
repurchase agreements covering
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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 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.
LIQUIDITY: The Fund will not invest more than 15% of its assets in "illiquid
securities," which are securities that cannot be disposed of within seven days
at their 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.
BORROWING: The Fund may borrow money for temporary or emergency purposes,
including the meeting of redemption requests, but not in excess of 33 1/3% of
the
value of each Fund's total assets (as computed immediately after the borrowing).
REAL ESTATE: The Fund may not purchase or sell real estate, provided that the
Fund may invest in securities issued by companies which invest in real estate
or interests therein.
LENDING: The Fund will not lend money except in connection with the acquisition
of that portion of publicly-distributed debt securities which the Fund's
investment policies and restrictions permit it to purchase; the Fund may also
make loans of portfolio securities and enter into repurchase agreements.
COMMODITIES: The Fund will not invest in commodities or commodity contracts
(other than hedging instruments which it may use as permitted by any of its
other fundamental policies, whether or not any such hedging instrument is
considered to be a commodity or a commodity contract).
UNDERWRITING: The Fund will not underwrite securities issued by other persons
except to the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under U.S. securities laws.
SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: The Fund may not borrow money or enter into leverage transactions if,
as a result, the total of borrowings and liabilities under leverage transactions
(other than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or otherwise acquire
any security if, the total of borrowings and liabilities under leverage
transactions, would exceed an amount equal to 5% of the Fund's total assets.
EXERCISING CONTROL OF ISSUERS: The Fund may not make investments for the purpose
of exercising control of an issuer. Investments by the Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
SHORT SALES AND PURCHASING ON MARGIN: The 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 securities short. The Fund may not purchase securities on
margin, except that the Fund may use short-term credit for the clearance of the
Fund's transactions, and provided that initial and variation margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
SECURITIES OF INVESTMENT COMPANIES: The Fund may not invest in the securities of
any investment company except to the extent permitted by the 1940 Act.
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OPTIONS FUTURES CONTRACTS: The Fund may invest in futures or options contracts
regulated by the CFTC for (i) bona fide hedging purposes within the meaning of
the rules of the CFTC and (ii) for other purposes if, as a result, no more than
5% of the Fund's net assets would be invested in initial margin and premiums
(excluding amounts "in-the-money") required to establish the contracts. The Fund
(i) will not hedge more than 50% of its total assets by selling futures
contracts, buying put options, and writing call options (so called "short
positions"), (ii) will not buy futures contracts or write put options whose
underlying value exceeds 25% of the Fund's total assets, and (iii) will not buy
call options with a value exceeding 5% of the Fund's total assets.
EQUITY INDEX FUND
FUNDAMENTAL POLICIES
DIVERSIFICATION: The Fund may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of an investment
company) if as a result: (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.
CONCENTRATION: The 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, foreign government
securities, mortgage-related or housing-related 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.
BORROWING: The Fund may borrow money from a bank 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).
REAL ESTATE: The Fund may not purchase or sell real estate, any interest therein
or real estate limited partnership interests, except that the Funds 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.
LENDING: The Fund may not make loans, except the Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted investments
and lend portfolio securities.
COMMODITIES: The Fund may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities provided that currency and currency-related contracts and contracts
on indices are not be deemed to be physical commodities.
UNDERWRITING: The Fund may not underwrite securities of other issuers, except to
the extent that the Fund may be considered to be acting as an underwriter in
connection with the disposition of portfolio securities.
SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: Borrowing for other than temporary or emergency purposes of meeting
redemptions requests is limited to 5% of the value of the Fund's net assets.
Where the Fund establishes a segregated account to limit the amount of
leveraging with respect to certain investment techniques, the Fund does not
treat those techniques as involving borrowings for purposes of this limitation.
LIQUIDITY: The 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
15
<PAGE>
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 1933 Act, as amended ("restricted securities").
SECURITIES OF INVESTMENT COMPANIES: The Fund may not invest in securities of
another investment company, except to the extent permitted by the 1940 Act.
SHORT SALES AND MARGIN: The Fund may not purchase securities on margin or make
short sales of securities (except short sales against the box) except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities. The Fund may make margin deposits in connection with
permitted transactions in options, futures contracts and options on futures
contracts. The Fund may not enter into short sales if, as a result, more than
25% of the value of the Fund's total assets would be so invested m or such a
position would represent more than 2% of the outstanding voting securities of
any single issuer or class of an issuer.
UNSEASONED ISSUERS: The Fund may not invest in securities (other than
fully-collateralized debt obligations) issued by companies that have conducted
continuous operations for less than three years, including the operations of
predecessors, unless guaranteed as to principal and interest by an issuer in
whose securities the Fund could invest, if, as a result, more than 5% of the
value of the Fund's total assets would be so invested; provided, that the Fund
may invest all or a portion of its assets in another diversified, open-end
management company with substantially the same investment objective, policies
and restrictions as the Fund.
PLEDGING: The Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings.
LENDING OF PORTFOLIO SECURITIES: The Fund may not lend portfolio securities if
the total value of all loaned securities would exceed 33 1/3% of the Fund's
total assets.
OPTIONS AND FUTURES CONTRACTS: The Fund may not purchase an option, if, as a
result, more than 5% of the value of the Fund's total assets would be so
invested.
WARRANTS: The Fund may not invest in warrants if; (1) more than 5% of the value
of the Fund's net assets would be invested in warrants (valued at the lower of
cost or market)) or (2) more than 2% of the value of the Fund's net assets would
be invested in warrants which are not listed on the New York Stock Exchange or
American Stock Exchange; provided, that warrants acquired by the Fund attached
to securities are deemed to have no value.
SMALL COMPANY OPPORTUNITIES FUND
FUNDAMENTAL POLICIES
DIVERSIFICATION: The Fund may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of an investment
company) if, as a result: (i) more than 5% of the Fund's total assets would be
invested in the securities of a single issuer, or (ii) the Fund would own more
than 10% of the outstanding voting securities of any single issuer.
CONCENTRATION: The 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. For
purposes of this limitation, there is no limit on: (i) investments in U.S.
Government securities, in repurchase agreements covering U.S. Government
Securities, in tax-exempt securities issued by the states, territories or
possessions of the United States ("municipal securities") or in foreign
government securities or (ii) 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 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. For purposes of this policy (i) "mortgage related securities,"
as that term is defined in the Securities Act of 1934 (the "1934 Act"), are
treated as securities of an issuer in the industry of the primary type of asset
backing the security, (ii) financial service companies are classified according
to the end users of their services (for example, automobile finance, bank
finance
16
<PAGE>
and diversified finance) and (iii) utility companies are classified according to
their services (for example, gas, gas transmission, electric and gas, electric
and telephone).
BORROWING: The Fund may not borrow money if, as a result, outstanding borrowings
would exceed an amount equal to 33 1/3% of the Fund's total assets. As a
non-fundamental policy and for purposes of this limitation, there is no limit on
the following to the extent they are fully collateralized: (i) the delayed
delivery of purchased securities (such as the purchase of when-issued
securities), (ii) reverse repurchase agreements, (iii) dollar-roll transactions
and (iv) the lending of securities ("leverage transactions").
REAL ESTATE: The 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).
LENDING: The Fund may not make loans to other parties. For purposes of this
limitation, entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of loans.
COMMODITIES: The Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments (but this
shall not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities).
UNDERWRITING: The Fund may not underwrite (as that term is defined in the 1933
Act) securities issued by other persons except, to the extent that in connection
with the disposition of the Fund's assets, the Fund may be deemed to be an
underwriter.
SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: The Fund may not borrow money or enter into leverage transactions if,
as a result, the total of borrowings and liabilities under leverage transactions
(other than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or otherwise acquire
any security if, the total of borrowings and liabilities under leverage
transactions, would exceed an amount equal to 5% of the Fund's total assets.
LENDING: The Fund may not lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to 33 1/3% of the Fund's total assets,
as determined by SEC guidelines.
LIQUIDITY: The Fund may not invest more than 15% its net assets in illiquid
assets such as: (i) securities that cannot be disposed of within seven days at
their then-current value, (ii) repurchase agreements not entitling the holder to
payment of principal within seven days and (iii) securities subject to
restrictions on the sale of the securities to the public without registration
under the 1933 Act ("restricted securities") that are not readily marketable.
The Fund may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board of Trustees.
EXERCISING CONTROL OF ISSUERS: The Fund may not make investments for the purpose
of exercising control of an issuer. Investments by the Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
SHORT SALES AND MARGIN: The 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 securities short. The Fund may not purchase securities on margin, except
that the Fund may use short-term credit for the clearance of the Fund's
transactions, and provided that initial and variation margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.
SECURITIES OF INVESTMENT COMPANIES: The Fund may not invest in the securities of
any investment company except to the extent permitted by the 1940 Act.
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<PAGE>
OPTIONS, WARRANTS AND FUTURES CONTRACTS: The Fund may invest in futures or
options contracts regulated by the CFTC for (i) bona fide hedging purposes
within the meaning of the rules of the CFTC and (ii) for other purposes if, as a
result, no more than 5% of the Fund's net assets would be invested in initial
margin and premiums (excluding amounts "in-the-money") required to establish the
contracts. The Fund (i) will not hedge more than 50% of its total assets by
selling futures contracts, buying put options, and writing call options (so
called "short positions"), (ii) will not buy futures contracts or write put
options whose underlying value exceeds 25% of the Fund's total assets, and (iii)
will not buy call options with a value exceeding 5% of the Fund's total assets.
INTERNATIONAL EQUITY FUND
FUNDAMENTAL POLICIES
DIVERSIFICATION: The Fund may not, with respect to 75% of its assets, purchase a
security (other than a U.S. Government Security or a security of an investment
company) if, as a result: (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.
CONCENTRATION: The Fund may not purchase a security 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, or in 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).
BORROWING: The Fund may borrow money from a bank 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).
REAL ESTATE: The Fund may not purchase or sell real estate, any interest therein
or real estate limited partnership interests, except that the Fund 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.
LENDING: The Fund may not make loans , except the Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted investments
and lend portfolio securities.
COMMODITIES: The Fund may not purchase or sell physical commodities or
contracts, options or options on contracts to purchase or sell physical
commodities, provided that currency and currency-related contracts and contracts
on indices will not be deemed to be physical commodities.
UNDERWRITING: The Fund may not underwrite securities of other issuers, except to
the extent that the Fund may be considered to be acting as an underwriter in
connection with the disposition of portfolio securities.
SENIOR SECURITIES: The Fund may not issue senior securities except to the extent
permitted by the 1940 Act.
NON-FUNDAMENTAL POLICIES
BORROWING: Borrowing for other than temporary or emergency purposes of meeting
redemptions requests is limited to 5% of the value of the Fund's net assets.
Where the Fund establishes a segregated account to limit the amount of
leveraging of the Fund, the Fund does not treat those techniques as involving
borrowings for purposes of this limitation.
LIQUIDITY: The 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
18
<PAGE>
marketable by virtue of restrictions on the sale of such securities to the
public without registration under the 1933 Act, as amended ("restricted
securities").
LENDING: The Fund may not lend portfolio securities if the total value of all
loaned securities would exceed 331/3% of the Fund's total assets.
SECURITIES OF INVESTMENT COMPANIES: The Fund may not invest in securities of
another investment company, except to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES: The Fund may not purchase securities on margin or make
short sales of securities (except short sales against the box) except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities. The Fund may make margin deposits in connection with
permitted transactions in options and futures contracts . The Fund may not enter
into short sales if, as a result, more than 25% of the value of the Fund's total
assets would be so invested m or such a position would represent more than 2% of
the outstanding voting securities of any single issuer or class of an issuer.
UNSEASONED ISSUERS: The Fund may not invest in securities (other than
fully-collateralized debt obligations) issued by companies that have conducted
continuous operations for less than three years, including the operations of
predecessors, unless guaranteed as to principal and interest by an issuer in
whose securities the Fund could invest, if, as a result, more than 5% of the
value of the Fund's total assets would be so invested.
PLEDGING: The Fund may not pledge, mortgage, hypothecate or encumber any of its
assets except to secure permitted borrowings.
OPTIONS AND FUTURES CONTRACTS: The Fund may not purchase an option, if, as a
result, more than 5% of the value of the Fund's total assets would be so
invested.
WARRANTS: The Fund may not invest in warrants if; (1) more than 5% of the value
of the Fund's net assets would be invested in warrants (valued at the lower of
cost or market) or (2) more than 2% of the value of the Fund's net assets would
be invested in warrants which are not listed on the New York Stock Exchange or
American Stock Exchange; provided, that warrants acquired by the Fund attached
to securities are deemed to have no value.
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 and International 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
19
<PAGE>
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.
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.
20
<PAGE>
OTHER ADVERTISING MATTERS
The Funds may also include various information in their advertisements
including, but not limited to: (1) portfolio holdings and portfolio allocation
as of certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Funds' Adviser and biographical descriptions of the management staff of the
Adviser; (7) summaries of the views of the Adviser with respect to the financial
markets; (8) background information regarding the Trust; (9) the results of a
hypothetical investment in a fund over a given number of years, including the
amount that the investment would be at the end of the period; (10) the effects
of investing in a tax-deferred account, such as an individual retirement account
or Section 401(k) pension plan; and (11) the net asset value, net assets or
number of shareholders of the Funds as of one or more dates.
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 55)
President, Forum Financial Group, LLC (mutual fund services company
holding company). Mr. Keffer is a director and/or officer of various
registered investment companies for which the various Forum Financial
Group of Companies provides services. His address is Two Portland
Square, Portland, Maine 04101.
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.
21
<PAGE>
Mark D. Kaplan, Vice President (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.
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 Funds' 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>
22
<PAGE>
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."
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 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).
23
<PAGE>
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.
Payson is an investment management firm located at One Portland Square,
Portland, Maine 04101. Payson currently manages assets with a value in excess of
$1 billion.
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.
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $44,695 $30,943 $13,752
</TABLE>
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 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.
Forum Advisors was organized under the laws of Delaware in 1987 and is
registered under the Investment Advisers Act of 1940. As of November 30, 1998,
Forum Advisors managed assets of approximately $2.1 billion. Forum Advisers is
controlled by John Y. Keffer.
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, reckless
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
24
<PAGE>
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.
Norwest is a subsidiary of Norwest Bank, which is a subsidiary of Wells Fargo &
Company, a national bank holding company. As of August 1, 1998, Wells Fargo and
its subsidiaries managed more than $63 billion in assets.
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, reckless 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.
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $9 $2 $7
</TABLE>
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
25
<PAGE>
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, reckless 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. 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.
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $2,990 $0 $2,990
</TABLE>
INTERNATIONAL EQUITY FUND
International Equity Fund invests its assets in International Portfolio, a
series of Core Trust. Pursuant to an Investment Advisory Agreement with Core
Trust, SCMI serves as the adviser to International Portfolio. SCMI 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 $27 billion as of June 30, 1998. 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 June 30, 1998, had under management
assets of over $175 billion. Schroder Advisors is a wholly owned subsidiary of
SCMI.
The Investment Advisory Agreements between SCMI and Core Trust 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 the 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.
The Investment Advisory Agreement is terminable without penalty by the Core
Trust Board on 60 days' written notice when authorized either by vote of a
majority of the Portfolio's shareholders or directors, or by SCMI 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
Portfolio, SCMI shall not be liable for any mistake of judgment or any event
whatsoever, except for willful misfeasance, bad faith, reckless disregard, or
gross negligence in the performance of its duties under the Investment Advisory
Agreement. The Investment Advisory Agreement provides that SCMI may render
services to others.
For its services with respect to the Portfolio, SCMI receives an advisory fee at
an annual rate of 0.45% of the average daily net assets of International
Portfolio. International Equity Fund bears a pro rata portion of the advisory
fees of the 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.
26
<PAGE>
INTERNATIONAL EQUITY FUND
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $15 $1 $14
</TABLE>
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, 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 a 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 receives a fee at an annual rate of 0.20%
of 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 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 Portfolio 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 Core 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
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<PAGE>
average daily net assets of each of Small Company Stock Portfolio, Small Company
Value Portfolio, Small Cap Value Portfolio, and Small Cap Index Portfolio.
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 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.
INVESTORS EQUITY FUND
<TABLE>
<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 $5,154 $5,147 $7
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $2 $2 $0
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $12 $7 $5
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust , Forum Fund Services, LLC
("FFS") (Forum Financial Services, Inc. ("FFSI") until February 28, 1999), acts
as the Trust's distributor in connection with the offering of shares of the
Funds pursuant to a Distribution Agreement. FFS will serve as the Funds'
distributor underthe same terms and compensation as FFSI. FFS is under no
obligation to sell any specific amount of Fund shares. All subscriptions of
shares obtained by FFS are directed to the Trust for 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 FFS or by FFS on
60 days' written notice to the Trust. The Distribution Agreement provides that
FFS shall not be liable for
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<PAGE>
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 FFS's
duties or by reason of reckless disregard of its obligations and duties under
the Distribution Agreement.
FFS 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 the 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, FFS 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' shares.
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 and Services Agreement.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Fund may be effected and certain
other matters pertaining to the Fund; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying 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 financial
institutions such as selected brokers and/or dealers, banks, or bank affiliates
and, in the case of sub- transfer agents or processing agents, may also be
affiliated persons of FSS or FFS.
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
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<PAGE>
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.
The following table shows the gross fees payable for transfer agency services
rendered, the amount of transfer agency fees waived, if any, and the actual
transfer agency fees paid by each Fund for the fiscal year ended May 31, 1998.
INVESTORS EQUITY FUND
<TABLE>
<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
</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 Accounting 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 effect 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.
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<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.
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 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.
INVESTORS EQUITY FUND
<TABLE>
<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 $7,506 $0 $7,506
SMALL COMPANY OPPORTUNITIES FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $6,066 $0 $6,066
INTERNATIONAL EQUITY FUND
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $7,258 $0 $7,258
</TABLE>
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's shares 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.
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<PAGE>
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 Fund's or Portfolio's net asset value 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 Core Trust 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 net
asset value 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
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 International Portfolio
will be placed with foreign broker-dealers, certain portfolio transaction costs
for this Portfolio 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 Portfolios
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer. Brokerage commissions were not paid directly by Equity Index Fund,
Small Company Opportunities Fund, and International Equity 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 March 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 stock. Investors Equity Fund utilizes these three entities and/or
their affiliated broker-dealers, among others, to effect 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 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 Adviser
uses its best efforts to obtain for the Fund or Portfolio the most favorable
price and execution available. The Fund or Portfolio may,
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<PAGE>
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, an 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 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 Fund or Portfolio. The
investment advisory fee paid by a Fund or Portfolio is not reduced because the
Adviser and its affiliates receive such services.
As permitted by Section 28(e) of the 1934 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 International Portfolios'
securities. In selecting broker-dealers, SCMI may consider research and
brokerage services furnished to it and its affiliates. Schroder & Co. and
Schroder Securities Limited, affiliates of SCMI, may receive brokerage
commissions from the Portfolio in accordance with procedures adopted by the Core
Trust's Board 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 Fund 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 the
Fund on May 31, 1998.
33
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Investors Equity Small Company International
Equity Index Opportunities Equity
Fund Fund Fund Fund
---- ---- ---- ----
Net Asset Value Per Share $11.43 $11.69 $9.70 $12.02
Shares Charge, 4.00% of
offering price (4.17% of net
asset value per share) $0.48 $0.49 $0.40 $0.50
Offering to Public $11.91 $12.18 $10.10 $12.52
</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.
REDEMPTION IN KIND
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 ("in-kind") 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.
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 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.
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<PAGE>
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
9. TAX MATTERS
The Funds intend to qualify as regulated investment companies under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, each 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 the Fund's
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 receivables 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 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.
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<PAGE>
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.
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).
36
<PAGE>
10. OTHER INFORMATION
ADDITIONAL INFORMATION ABOUT THE TRUST
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder 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 shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder 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 the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder 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) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
CORE AND GATEWAY STRUCTURE
Certain Funds seek to achieve their investment objectives by investing all of
their investable assets in Portfolios. Accordingly, the Portfolios directly
acquires portfolio securities and the Funds acquire an indirect interest in
those securities. The Portfolios are separate series of Core Trust, a business
trust organized under the laws of the State of Delaware in 1994. The assets of
each Portfolio belong only to, and the liabilities of each Portfolio are borne
solely by, that Portfolio and no other series of Core Trust.
THE PORTFOLIOS. The Funds' investments in the Portfolios are in the form of
non-transferable beneficial interests. All investors in a Portfolio will invest
on the same terms and conditions and will pay a proportionate share of the
Portfolio's expenses.
A Portfolio 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. When required
by the 1940 Act and other applicable law, a Fund investing in a Portfolio will
solicit proxies from its shareholders and will vote its interest in the
Portfolio in proportion to the votes cast by its shareholders.
Portfolios do not sell shares directly to members of the general public. Other
investors in Portfolios, such as other investment companies, that might sell
their shares to the public are not be required to sell their shares at the same
public offering price as the Funds, and could have different advisory and other
fees and expenses than the Funds. Therefore, Fund shareholders may have
different returns than shareholders in other investment companies that invest in
the Portfolios. Information regarding any such funds is available by calling FFS
at (207) 879-0001.
CERTAIN RISKS OF INVESTING IN PORTFOLIOS. The Funds' investment in the
Portfolios may be affected by the actions of other large investors in the
Portfolios. For example, if a Portfolio had a large investor other than a Fund
that redeemed its interest, the Portfolio's remaining investors (including the
Fund) might, as a result, experience higher pro rata operating expenses, thereby
producing lower returns. As there may be other investors in a Portfolio, there
can be no assurance that any issue that receives a majority of the votes cast by
a Fund's shareholders will receive a majority of votes cast by all investors in
the Portfolio; indeed, other investors holding a majority interest in a
Portfolio could have voting control of the Portfolio.
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 the Portfolio with power to, and who did by a vote 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
the Fund withdrew its investment from the Portfolio, the Board would consider
what action might be taken, including the management of the Fund's assets
directly by the Adviser or the investment of the Fund's assets in another pooled
investment entity. The inability of the Fund to find a suitable replacement
investment, in the event the Board decided not to permit the Adviser to manage
the Fund's assets directly, could have a significant impact on shareholders of
the Fund.
PLACEMENT AGENT
Forum Financial Services, Inc., Two Portland Square, Portland, Maine 04101,
serves as the Portfolios' 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.
37
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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.
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, act as auditors for the Trust.
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, currently serves as
independent auditors for Small Cap Index Portfolio, Small Cap Value Portfolio,
International Portfolio, Small Company Stock Portfolio, and Small Company Value
Portfolio. Through the fiscal year ended May 31, 1998, PricewaterhouseCoopers
LLP, One Post Office Square, Boston, Massachusetts 02019, served as independent
accountants for International Portfolio, Small Company Stock Portfolio, and
Small Company Value Portfolio.
CUSTODIAN
Pursuant to a Custodian Agreement, Investors Bank and Trust Company, 200
Clarendon Street, 16th Floor, Boston, MA 02116, 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.
Norwest Bank Minnesota, N.A., Sixth Street and Marquette, Minneapolis, Minnesota
55479, acts as the custodian for Index Portfolio, Small Company Stock Portfolio,
Small Company Value Portfolio, 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.
FINANCIAL STATEMENTS
The financial statements of each Fund and of each Core Trust 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.
38
<PAGE>
APPENDIX A
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 1, 1999, 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.
Small Company Opportunities Fund and International Equity Fund have relatively
few investors and minimal assets. It is, therefore, unlikely that the current
25% shareholders will continue to potentially control the Funds once they
experience an increase in assets and shareholders.
<TABLE>
<S> <C> <C>
- ----------------------------------------- -------------------------------------- --------------------------------------
Fund Percentage of Shares Owned Amount of Shares of Fund Owned
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
INVESTORS EQUITY FUND
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Babb & Co. #02-6004105 93.30% 2,458,816.956
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Allagash & Co. (Special) 6.01% 158,416.355
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
EQUITY INDEX FUND
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Allagash & Co. (Special) 67.95% 445,895.66
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Allagash & Co. 31.76% 208,369.863
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
SMALL COMPANY OPPORTUNITIES FUND
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Lynn B. Hughes & Tracey Thompson 38.13% 456.53
11 Saccarappa Lane
Scarborough, ME 04074
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Forum Administrative Services, LLC 41.81% 500.66
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
- ----------------------------------------- -------------------------------------- --------------------------------------
A-1
<PAGE>
- ----------------------------------------- -------------------------------------- --------------------------------------
AMOUNT OF SHARES OF FUND OWNED
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
SMALL COMPANY OPPORTUNITIES FUND CON'T
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Donaldson Lufkin & Jenrette Sec Corp. 20.05% 240.10
(Record Holder Only)
P,O. Box 2052
Jersey City, NJ 07303
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
INTERNATIONAL EQUITY FUND
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Forum Financing 67.96% 504
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
- ----------------------------------------- -------------------------------------- --------------------------------------
- ----------------------------------------- -------------------------------------- --------------------------------------
Gary Robinson 32.04% 237
One Royal Meadow Road
Yarmouth, ME 04096
- ----------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
A-2
<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, A DIVISION OF THE MCGRAW HILL COMPANIES ("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+.
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.
B-1
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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
Moody's two highest ratings for short-term debt, including commercial paper, are
Prime-1 and Prime-2. Both are judged investment grade, to indicate the relative
repayment ability of rated issuers.
Issuers rated Prime-1 have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate relianc
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 by Moody's have a strong ability for repayment of senior
short-term debt obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
S&P
S&P's two highest commercial paper ratings are A and B. Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are delineated with the numbers 1, 2 and 3 to indicate the
relative degree of safety. An A-1 designation indicates that the degree of
safety regarding timely payment is either overwhelming or very strong. Those
issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. The capacity for timely payment on issues with
an A-2 designation is strong. However, the relative degree of safety is not as
high as for issues designated A-1. A-3 issues have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations. Issues rated B are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
FITCH
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 12 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.
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.
C-1
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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 with decades of experience with some of the country's major
financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed approximately $175 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 $1.2 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 $2.1 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 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.
C-2
<PAGE>
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
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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 124 funds with
more than $47.7 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
$2.1 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 $1.2 billion in assets under management and $400 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.
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FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
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: $60.4 billion
*Client Assets Processed by Fund Accounting: $47.7 billion
*Client Funds under Administration and Distribution: 124 mutual funds with 175
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 -209 Poland - 76, 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
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H.M. PAYSON & CO.:
- ------------------
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.2 Billion
*Custody Income Assets: $400 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
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FORUM FUNDS
EMERGING MARKETS FUND
PROSPECTUS
January 11, 1999
- --------------------------------------------------------------------------------
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 Emerging Markets Fund (the "Fund"), a series of
Forum Funds (the "Trust"), a registered, open-end, management investment
company. The Fund seeks to achieve its investment objective by investing all of
its investable assets in Schroder EM Core Portfolio (the "Portfolio"), a series
of Schroder Capital Funds ("Schroder Core), another registered, open-end,
management investment company with the same investment objective. Accordingly,
the Fund's investment experience will correspond directly with the Portfolio's
investment experience. See "Other Information - Core and Gateway(R) Structure."
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.
There can be no assurance that the Fund's objective will be achieved. Shares of
the Fund are offered to investors at a price equal to the next determined net
asset value plus a maximum sales charge of 4.0% of the total public offering
price (4.17% of the amount invested).
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. The Trust has filed with the
Securities and Exchange Commission ("SEC") a Statement of Additional Information
dated January 11, 1999, as may be amended from time to time (the "SAI"), which
contains more detailed information about the Trust and the Fund and is available
along with other related materials for reference on the SEC's Internet Web Site
(http://www.sec.gov). The SAI, which is incorporated by reference into this
Prospectus, is also available without charge by contacting Forum Shareholder
Services, LLC, the Fund's transfer agent, at the address and telephone numbers
printed above.
INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Page Page
1. Prospectus Summary.......................... 2 6. Management................................12
2. Financial Highlights........................ 5 7. Purchases and Redemptions of Shares.......14
3. Investment Objectives and Policies.......... 5 8. Distributions and Tax Matters.............20
4. Additional Investment Policies 9. Other Information.........................21
and Risk Considerations................. 6 Account Application
5. Investment Restrictions.....................12
</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
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital
appreciation. The Fund invests primarily 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 seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. Accordingly, the investment experience
of the Fund will correspond directly with the investment experience of the
Portfolio. See "Other Information - Core and Gateway(R) Structure."
INVESTMENT ADVISER
Schroder Capital Management International Inc. ("SCMI") serves as the
Portfolio's investment adviser. SCMI is a wholly owned U.S. subsidiary of
Schroders U.S. Holdings Inc., an indirect wholly owned U.S. subsidiary of
Schroders plc, a publicly owned holding company organized under the laws of
England. For a description of SCMI and its fees, see "Management - Investment
Adviser.
MANAGEMENT
The administrator of the Fund is Forum Administrative Services, LLC
("FAdS") and the distributor of its shares is Forum Fund Services, LLC ("FFS")
(Forum Financial Services, LLC ("FFSI") until February 28, 1999). Forum
Shareholder Services, LLC ("FSS") serves as the Fund's transfer agent, dividend
disbursing agent and shareholder servicing agent while Forum Accounting
Services, LLC ("FAcS") provides portfolio accounting services for the Fund. See
"Management." Each of these companies is located at Two Portland Square,
Portland, Maine 04101.
PURCHASES AND REDEMPTIONS
Shares of the Fund are offered at the next-determined net asset value
per share plus any applicable sales charge. Shares may be purchased or redeemed
by mail, by bank-wire and through an investor's broker-dealer or other financial
institution. The minimum initial investment is $2,000, ($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 Fund are not offered for sale in every state. To
determine whether the Fund is available for purchase in a particular state,
contact FSS at the numbers listed on the first page of this Prospectus.
EXCHANGE PROGRAM
Shareholders 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. 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."
2
<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS
There can be no assurance that the Fund will achieve its investment
objective; the 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. The Fund is not a complete investment program. See
"Investment Objectives and Policies" and "Additional Investment Policies."
The Fund's policy 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. The 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 foreign and/or emerging
market securities. See "Investment Objectives and Policies" and "Additional
Investment Policies."
EXPENSES OF INVESTING IN THE FUND
The purpose of the following table is to assist investors in understanding
the expenses that an investor in shares of the Fund will bear directly or
indirectly.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage
of public offering price) (1)...............................................4.0%
Exchange Fee................................................................None
ANNUAL FUND OPERATING EXPENSES (2)
(as a percentage of average net assets after applicable expense
reimbursements and fee waivers)
Management Fees (3)........................................................0.09%
12b-1 Fees..................................................................None
Other Expenses (4).........................................................1.62%
Total Fund Operating Expenses............................................1.71%
(1) Certain shareholders may be eligible for reduced sales charges. Se
"Purchases and Redemptions of Shares - Reduced Sales Charges."
(2) For a further description of the various expenses incurred in the
operation of the Fund, see "Management." Expense reimbursements and fee waivers
are voluntary and may be reduced or eliminated at any time. The amount of fees
and expenses of the Fund is based on estimated annualized expenses for the
Fund's fiscal year ending May 31, 1999. The Fund's expenses include its pro rata
portion of all expenses of the Portfolio, which are borne indirectly by the
Fund's shareholders.
(3) Absent estimated fee waivers, Management Fees for the Fund would be
1.00%. Management Fees are the investment advisory fees of the Fund and the
Portfolio in which it invests.
(4) Absent estimated expense reimbursements and fee waivers, Other Expenses
and Total Fund Operating Expenses would be 2.24% and 3.24%, respectively for the
Fund.
EXAMPLE
Following is a hypothetical example that indicates the dollar amount of
expenses that an investor in the Fund would pay assuming: (1) a $1,000
investment in the Fund; (2) a 5% annual return; (3) the reinvestment of all
distributions; (4) the payment of the maximum initial sales charge and (5) full
redemption at the end of each period:
3
<PAGE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$56 $88 $124 $222
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 Fund's projected return; rather it is
required by government regulation.
4
<PAGE>
2. FINANCIAL HIGHLIGHTS
The following information represents selected data for a single share
outstanding of the Fund. The information has been audited in connection with an
audit of the Fund's financial statements by Deloitte & Touche LLP, independent
auditors. The financial statements and the independent auditors' report thereon
are incorporated by reference into the SAI. Further information about the Fund's
performance is contained in the Fund's annual report to shareholders, which may
be obtained from the Trust, without charge, by contacting FSS.
EMERGING MARKETS
FUND (A)
PERIOD ENDED MAY 31,
1998
--------------------
Net Asset Value, Beginning of Period $10.00
--------------------
Investment Operations:
Net Investment Income (Loss) 0.04
Net Realized and Unrealized Gain (Loss) on Investments
(0.76)
--------------------
Total from Investment Operations (0.72)
Net Asset Value, End of Period $9.28
====================
Total Return(b) (7.20%)(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's omitted) $7
Ratios to Average Net Assets:
Expenses Including Reimbursement/Waiver(d) 1.69%
Expenses Excluding Reimbursement/Waiver(d) 602.84%
Net Investment Income (Loss) Including
Reimbursement/Waiver(d)
1.05%
Average Commission Rate(e) $0.0039(f)
Portfolio Turnover Rate 20.09%(f)
(a) The 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 or sale of equity securities.
(f) Information presented is that of the Portfolio in which the Fund invests.
3. INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation. The Fund seeks to achieve this objective by investing primarily 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 "non-diversified."
The Fund seeks to achieve its investment objective by investing all of
its assets in the Portfolio, which has the same investment objective and
substantially similar policies as the Fund.
An "emerging market" country is any country not included at the time of
investment in the Morgan Stanley Capital International World Index (the "Index")
of major world economies. Those economies currently include: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany,
5
<PAGE>
Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States
of America
The Fund normally invests at least 65% of its assets in equity
securities of issuers determined by SCMI to be emerging market issuers. Equity
securities include common stocks, preferred stocks, securities convertible into
common or preferred stocks, and rights or warrants to purchase any of the
foregoing. They may also include American Depositary Receipts, European
Depositary Receipts, and other similar instruments providing for indirect
investment in securities of emerging market issuers. The Fund may also invest in
securities of closed-end investment companies that invest in turn primarily in
foreign securities, including emerging market issuers.
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 assets in
debt securities, including lower-quality, high-yielding debt securities, which
entail certain risks. See "Additional Investment Practices and Risk
Considerations -- Debt Securities."
An issuer of a security will be considered to be an emerging market
issuer if SCMI 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) at least 50% of its assets are situated in
emerging market countries. The Fund may consider investment companies to be
located in the country or countries in which SCMI determines they focus their
investments.
There is no limit on the amount of the Fund's assets that may be
invested in securities of issuers domiciled in any one country. When the Fund
has invested a substantial portion of its assets in the securities of companies
domiciled in a single country, it will be more susceptible to the risks of
investing in that country than would a fund investing in a geographically more
diversified portfolio.
4. ADDITIONAL INVESTMENT POLICIES AND RISK CONSIDERATIONS
The investment objective and all investment policies of the Fund and
the Portfolio that are designated as fundamental may not be changed without
approval of the holders of a majority of the outstanding voting securities of
the Fund or the interests of the 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
Fund are not fundamental and may be changed by the Trust's Board of Trustees
(the "Board") without approval by shareholders of the Fund. Likewise,
nonfundamental investment policies of the Portfolio may be changed by Schroder
Core's Board of Trustees (the "Schroder Core Board") 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 the Fund also refers to the investment policies of the
Portfolio. Each of these policies involves special risks. The SAI contains more
detailed information about these practices (some of which may be considered
"derivative" investments), including limitations designed to reduce these risks.
FOREIGN SECURITIES
Investments in foreign securities entail certain risks. There may be a
possibility of nationalization or expropriation of assets, confiscatory
taxation, political or financial instability, and diplomatic developments that
could affect the value of the Fund's investments in certain foreign countries.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Fund's assets may be affected favorably or
unfavorably by currency exchange rates, currency exchange control regulations,
foreign withholding taxes and restrictions or prohibitions on the repatriation
of foreign
6
<PAGE>
currencies. There may be less information publicly available about a foreign
issuer than about a U.S. issuer, and foreign issuers are not generally subject
to accounting, auditing, and financial reporting standards and practices
comparable to those in the United States. The securities of some foreign issuers
are less liquid and at times more volatile than securities of comparable U.S.
issuers. Foreign brokerage commissions and other fees are also generally higher
than in the United States. Foreign settlement procedures and trade regulations
may involve certain risks (such as delay in payment or delivery of securities or
in the recovery of the Fund's assets held abroad) and expenses not present in
the settlement of domestic investments.
In addition, legal remedies available to investors in certain foreign
countries may be more limited than those available with respect to investments
in the United States or in other foreign countries. The willingness and ability
of sovereign issuers to pay principal and interest on government securities
depends on various economic factors, including without limitation the issuer's
balance of payments, overall debt level, and cash-flow considerations related to
the availability of tax or other revenues to satisfy the issuer's obligations.
If a foreign governmental entity is unable or unwilling to meet its obligations
on the securities in accordance with their terms, the Fund may have limited
recourse available to it in the event of default. The laws of some foreign
countries may limit the Fund's ability to invest in securities of certain
issuers located in those foreign countries. Special tax considerations apply to
foreign securities. Except as otherwise provided in this Prospectus, there is no
limit on the amount of the Fund's assets that may be invested in foreign
securities.
If the Fund purchases securities denominated in foreign currencies, a
change in the value of any such currency against the U.S. dollar will result in
a change in the U.S. dollar value of the Fund's assets and the Fund's income
available for distribution. In addition, although at times most of the Fund's
income may be received or realized in these currencies, the Fund will be
required to compute and distribute its income in U.S. dollars. Therefore, if the
exchange rate for any such currency declines after the Fund's income has been
earned and translated into U.S. dollars but before payment, the Fund could be
required to liquidate portfolio securities to make such distributions.
Similarly, if an exchange rate declines between the time the Fund incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such
currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were incurred. The Fund may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
In determining whether to invest in debt securities of foreign issuers,
SCMI considers the likely impact of foreign taxes on the net yield available to
the Fund and its shareholders. Income received by the Fund from sources within
foreign countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Any such taxes paid by the Fund will reduce its
net income available for distribution to shareholders. In certain circumstances,
the Fund may be able to pass through to shareholders credits for foreign taxes
paid. See "Distribution and Tax Matters".
The Fund primarily invests in securities of issuers in emerging market
countries. The securities' prices and relative currency values of emerging
market investments are subject to greater volatility than those of issuers in
many more developed countries. Investments in emerging market countries are
subject to the same risks applicable to foreign investments generally, although
those risks may be increased due to conditions in such countries. For example,
the securities markets and legal systems in emerging market countries may only
be in a developmental stage and may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed countries.
Although many of the securities in which the Fund may invest are traded on
securities exchanges, they may trade in limited volume, and the exchanges may
not provide all of the conveniences or protections provided by securities
exchanges in more developed markets. The Fund may also invest a substantial
portion of its assets in securities traded in the over-the-counter markets in
such countries and not on any exchange, which may affect the liquidity of the
investment and expose the Fund to the credit risk of its counterparties in
trading those investments. Emerging market countries may experience extremely
high rates of inflation, which may adversely affect these countries' economies
and securities markets.
7
<PAGE>
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Changes in currency exchange rates will affect the U.S. dollar values
of securities denominated in foreign currencies. Exchange rates between the U.S.
dollar and other currencies fluctuate 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. The Fund may engage in foreign currency exchange
transactions to protect against uncertainty in the level of future exchange
rates. Although the strategy of engaging in foreign currency exchange
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 Fund will not necessarily engage in foreign currency
exchange transactions at any time or under all market conditions, and
appropriate currency exchange transactions may not be available in all markets
or with respect to all investments made by the Fund.
In particular, the Fund may enter into foreign currency exchange
transactions to protect against a change in exchange ratios that may occur
between the date on which the Fund contracts to trade a security and the
settlement date ("transaction hedging") in anticipation of placing a trade
("anticipation hedging"); to "lock in" the U.S. dollar value of interest and
dividends to be paid in a foreign currency; or to hedge against the possibility
that a foreign currency in which portfolio securities are denominated or quoted
may suffer a decline against the U.S. dollar ("position hedging").
SCMI may seek to enhance the Fund's investment return through active
currency management. SCMI may buy or sell currencies of the Fund, on a spot or
forward basis, in an attempt to profit from inefficiencies in the pricing of
various currencies or of debt securities denominated in those currencies. When
investing in foreign securities, the Fund usually effects currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign exchange market. The Fund incurs foreign exchange expenses in converting
assets from one currency to another.
The Fund may also enter into forward currency contracts. 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. Forward
contracts do not eliminate fluctuations in the underlying prices of securities
and expose the Fund to the risk that the counterparty is unable to perform.
Forward contracts are not exchange traded, and there can be no
assurance that a liquid market will exist at a time when the Fund seeks to close
out a forward contract. Currently, only a limited market, if any, exists for
exchange transactions relating to currencies in certain emerging markets or to
securities of issuers domiciled or principally engaged in business in certain
emerging markets. This may limit the Fund's ability to hedge its investments in
those markets. These contracts involve a risk of loss if SCMI fails to predict
accurately changes in relative currency values, the direction of stock prices or
interest rates, and other economic factors.
From time to time, the Fund's currency hedging transactions may call
for the delivery of one foreign currency in exchange for another foreign
currency and may at times involve currencies in which its portfolio securities
are not then denominated ("cross hedging"). From time to time, the Fund may also
engage in "proxy" hedging; whereby the Fund would seek to hedge the value of
portfolio holdings denominated in one currency by entering into an exchange
contract on a second currency, the valuation of which SCMI believes correlates
to the value of the first currency. Cross hedging and proxy hedging transactions
involve the risk of imperfect correlation between changes in the values of the
currencies to which such transactions relate and changes in the value of the
currency or other asset or liability that is the subject of the hedge.
8
<PAGE>
DEBT SECURITIES
The Fund may invest in debt securities. The Fund may invest in debt
securities either to earn investment income or to benefit from changes in the
market values of such securities. Debt securities are subject to market risk
(the risk of fluctuation of market value in response to changes in interest
rates) and to credit risk (the risk that the issuer may become unable or
unwilling to make timely payments of principal and interest).
The Fund also may invest in lower-quality, high-yielding debt
securities rated below investment grade. Lower-rated debt securities (commonly
called "junk bonds") are considered to be of poor standing and predominantly
speculative. Securities in the lowest rating categories may have extremely poor
prospects of attaining any real investment standing, and some of those
securities in which the Fund may invest may be in default. The rating services'
descriptions of securities in the lower rating categories, including their
speculative characteristics, are set forth in the SAI. The rating services'
descriptions of securities in the lower rating categories, including their
speculative characteristics, are set forth in the Appendix to this Prospectus.
In addition, lower-rated securities reflect a greater possibility that
adverse changes in the financial condition of the issuer, or in general economic
conditions, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. Changes by
recognized rating services in their ratings of any fixed-income security and in
the ability or perceived ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
The Fund may at times invest in so-called "zero coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity, rather than at intervals
during the life of the security. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. The values of zero-coupon bonds and payment-in-kind bonds are
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest currently, and may involve greater credit risk
than such bonds. From time to time, 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. Brady Bonds have been issued only recently and,
therefore, do not have a long payment history.
The Fund will not necessarily dispose of a security when its debt
rating is reduced below its rating at the time of purchase, although SCMI will
monitor the investment to determine whether continued investment in the security
will assist in meeting the Fund's investment objective.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may engage in a variety of transactions involving the use of
options and futures contracts for purposes of increasing its investment return
or hedging against market changes. The Fund may engage in such transactions for
hedging purposes or, to the extent permitted by applicable law, to increase
investment return.
The Fund may seek to increase its current return by writing covered
call options and covered put options on its portfolio securities or other
securities in which it may invest. The Fund receives a premium from writing a
call or put option, which increases the Fund's return if the option expires
unexercised or is closed out at a net profit. The Fund may also buy and sell put
and call options on such securities for hedging purposes. When the Fund writes a
call option on a portfolio security, it gives up the opportunity to profit from
any increase in the price of the security above the exercise price of the
option; when it writes a put option, the Fund takes the risk that it will be
required to purchase a security from the option holder at a price above the
current market price of the security. The Fund may terminate an option that it
has written prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms as the option
written. The Fund may also from time to time buy and sell combinations of put
and call options on the same underlying security to earn additional income.
9
<PAGE>
The Fund may buy and sell futures contracts. An "index future" is a
contract to buy or sell units of a particular index at an agreed price on a
specified future date. Depending on the change in value of the index between the
time when the Fund enters into and terminates an index future transaction, the
Fund may realize a gain or loss. The Fund may also purchase warrants, issued by
banks or other financial institutions, whose values are based on the values from
time to time of one or more securities indices.
The Fund may buy and sell futures contracts on U.S. government
obligations or other debt securities. A futures contract on a debt security is a
contract to by and sell a certain amount of the debt security at an agreed price
on a specified future date. Depending on the change in the value of the security
when the Fund enters into and terminates a futures contract, the Fund realizes a
gain or loss.
The Fund may purchase or sell options on futures contracts or on
securities indices in addition to or as an alternative to purchasing and selling
futures contracts.
The Fund may purchase and sell put and call options on foreign
currencies, futures contracts on foreign currencies, and options on foreign
currency futures contracts as an alternative, or in addition to, the foreign
currency exchange transactions described above. Such transactions are similar to
options and futures contracts on securities, except that they typically
contemplate that one party to a transaction will deliver one foreign currency to
the other in return for another currency (which may or may not be the U.S.
dollar).
RISK FACTORS IN OPTIONS AND FUTURES TRANSACTIONS
Options and futures transactions involve costs and may result in
losses. The use of options and futures involves certain special risks, including
the risks that the Fund may be unable at times to close out such positions, that
hedging transactions may not accomplish their purpose because of imperfect
market correlations, or that SCMI may not forecast market movements correctly.
The effective use of options and futures strategies is dependent on,
among other things, the Fund's ability to terminate options and futures
positions at times when SCMI deems it desirable to do so. Although the Fund will
enter into an option or futures contract position only if SCMI believes that a
liquid secondary market exists for that option or futures contract, there is no
assurance that the Fund will be able to effect closing transactions at any
particular time or at an acceptable price.
The Fund generally expects that its options and futures contract
transactions will be conducted on recognized exchanges. In certain instances,
however, the Fund may purchase and sell options in the over-the-counter markets.
The Fund's ability to terminate options in the over-the-counter markets may be
more limited than for exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Fund. The Fund will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of SCMI, the pricing mechanism and
liquidity of the over-the-counter markets are satisfactory and the participants
are responsible parties likely to meet their contractual obligations. The Fund
will treat over-the-counter options (and, in the case of options sold by the
Fund, the underlying securities held by the Fund) as illiquid investments as
required by applicable law.
The use of options and futures strategies also involves the risk of
imperfect correlation between movements in the prices of options and futures
contracts and movements in the value of the underlying securities or index, or
currency, or in the prices of the securities or currency that are the subject of
a hedge. The successful use of these strategies further depends on the ability
of SCMI to forecast market movements correctly.
Because the markets for certain options and futures contracts in which
the Fund will invest (including markets located in foreign countries) are
relatively new and still developing and may be subject to regulatory restraints,
the Fund's ability to engage in transactions using such investments may be
limited. The Fund's ability to engage in hedging transactions may be limited by
certain regulatory and tax considerations. The Fund's hedging transactions may
affect the character or amount of its distributions.
10
<PAGE>
The tax consequences of certain hedging transactions have been modified by the
Taxpayer Relief Act of 1997.
For more information about any of the options or futures portfolio
transactions described above, see the SAI.
SHORT SALES AGAINST THE BOX
The Fund may make short sales "against-the-box", which are transactions
in which the Fund sells a security that it owns in anticipation of a decline in
the market value of that security. The proceeds of the short sale are held by a
broker until the settlement date, at which time the Fund delivers the security
to close the short position. The Fund receives the net proceeds from the short
sale. It is anticipated that the Fund will make short sales against-the-box to
protect the value of its net assets. Further information regarding limits of
short sales is contained in the SAI.
NON-DIVERSIFICATION AND GEOGRAPHIC CONCENTRATION
The Fund is a "non-diversified" series of an investment company, and
may invest its assets in a more limited number of issuers than may other
investment companies. Under the Internal Revenue Code, however, an investment
company, including a non-diversified investment company, generally may not
invest more than 25% of its total assets in obligations of any one issuer other
than U.S. Government obligations and, with respect to 50% of its total assets,
the Fund may not invest more than 5% of its total assets in the securities of
any one issuer ( except U.S. Government obligations). Thus, the Fund may invest
up to 25% of its total assets in the securities of each of any two issuers. This
practice involves an increased risk of loss to the Fund if the market value of a
security should decline or its issuer were otherwise not to meet its
obligations.
The Fund may invest more than 25% of its total assets in issuers
located in any one country. To the extent that it does so, the Fund is
susceptible to a range of factors that could adversely affect that country,
including political and economic developments and foreign exchange rate
fluctuations as discussed above. As a result of investing substantially in one
country, the value of the Fund's assets may fluctuate more widely than the value
of shares of a comparable fund with a lesser degree of geographic concentration.
SECURITIES LOANS, REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Fund may lend portfolio securities to brokers, dealers and
financial institutions meeting specified credit conditions and may enter into
repurchase agreements without limit. The percentage limitation on the amount of
the Fund's total assets that may be loaned in accordance with the approved
procedures is 33 1/3%. These transactions must be fully collateralized at all
times but involve some risk to the Fund if the other party should default on its
obligation and the Fund is delayed or prevented from recovering its assets or
realizing on the collateral. The Fund may also purchase securities for future
delivery, which may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the settlement date.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Pursuant to the 1940 Act, the Fund may invest in the shares of other
investment companies that invest in securities in which the Fund is permitted to
invest, subject to the limits and conditions required under the 1940 Act or any
orders, rules or regulations thereunder. When investing through investment
companies, the Fund may pay a premium 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.
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<PAGE>
LIQUIDITY
The Fund will not invest more than 15% of its net assets in securities
determined by SCMI to be illiquid. Certain securities that are restricted as to
resale may nonetheless be resold by the Fund in accordance with Rule 144A under
the Securities Act of 1933, as amended. Such securities may be determined by
SCMI to be liquid for purposes of compliance with the limitation on the Fund's
investment in illiquid securities. There can, however, be no assurance that the
Fund will be able to sell such securities at any time when SCMI deems it
advisable to do so or at prices prevailing for comparable securities that are
more widely held.
ALTERNATIVE INVESTMENTS
At times, SCMI may judge that market conditions make pursuing the
Fund's basic investment strategy inconsistent with the best interests of its
shareholders. At such times, SCMI may temporarily use alternative strategies,
primarily designed to reduce fluctuations in the values of the Fund's assets. In
implementing these "defensive" strategies, the Fund may invest without limit in
U.S. government obligations and other high-quality debt instruments and any
other investment SCMI considers to be consistent with such defensive strategies,
and may hold any portion of its assets in cash.
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. The investment policies of
the Fund may lead to frequent changes in the Fund's investments, particularly in
periods of volatile market movements. A change in the securities held by the
Fund is known as "portfolio turnover." Portfolio turnover generally involves
some expense to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and reinvestment in other
securities. Such securities sales may result in realization of taxable capital
gains.
5. INVESTMENT RESTRICTIONS
The following fundamental investment restrictions on the Fund are
designed to reduce its exposure in specific situations.
1. The Fund may not concentrate investments in any particular industry;
therefore, the Fund will not purchase the securities of companies in
any one industry if, thereafter, 25% or more of the Fund's total assets
would consist of securities of companies in that industry. This
restriction does not apply to obligations issued or guaranteed by the
U.S. Government, its agencies, instrumentalities or
government-sponsored enterprises.
2. Although the Fund may borrow money, it will limit borrowings to
amounts not in excess of one third of the value of its total assets.
Borrowing for other than temporary or emergency purposes or meeting
redemption requests is not expected to exceed 5% of the value of the
Fund's assets. Certain transactions, such as reverse repurchase
agreements, that are similar to borrowings are not treated as
borrowings to the extent that they are fully collateralized.
3. The Fund will not make investments for the purpose of exercising
control or management. Investments by the Fund in wholly owned
investment entities created under the laws of certain countries will
not be deemed the making of investments for the purpose of exercising
control or management.
The percentage restrictions described above and in the Statement of
Additional Information apply only at the time of investment and require no
action by the Fund as a result of subsequent changes in value of the investments
or the size of the Fund.
12
<PAGE>
6. MANAGEMENT
The business and affairs of the Fund 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 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 ADVISER
Schroder Capital Management International Inc. manages the investment
and reinvestment of the assets of the Portfolio. SCMI continuously reviews,
supervises and administers the Portfolio's investments. In this regard, it is
the responsibility of SCMI to make decisions relating to the 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 under the
investment advisory agreements between SCMI and Schroder Core, SCMI is entitled
to receive advisory fees at the annual rate of 1.00% of the Portfolio's average
daily net assets. The Fund's expenses include its pro rata portion of the
Portfolio's advisory fees.
SCMI, located at 787 Seventh Avenue, New York, New York 10019, is a
wholly owned U.S. subsidiary of Schroders U.S. Holdings Inc., an indirect wholly
owned U.S. subsidiary of Schroders plc, a publicly owned holding company
organized under the laws of England. Schroders plc is the holding company parent
of a large worldwide 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 worldwide. The investment
management subsidiaries of the Schroder Group had, as of June 30, 1998, assets
under management of approximately $175 billion.
The Portfolio's current investment manager is John A. Troiano, a Vice
President of Schroder Core, who has managed the Portfolio's assets since its
inception. He is 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 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 Fund, the Trust has entered into an administration
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 the Fund a fee at an annual rate
of 0.20% of the Fund's average daily net assets.
As of September 30, 1998, FAdS and its affiliates provided management
administration and distribution services to registered investment companies with
assets of approximately $60.4 billion. As of the date of this Prospectus each of
FAdS, FFS, 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 the 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 the Portfolio at an annual
rate of 0.075% of the Portfolio's average daily net assets.
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<PAGE>
Forum Accounting Services, LLC ("FAcS") performs portfolio accounting
services for the Fund and the Portfolio, including determination of the Fund's
and Portfolio's net asset value, pursuant to separate agreements between FAcS
and each of the Trust and Schroder Core.
THE DISTRIBUTOR
Pursuant to a distribution agreement with the Trust, Forum Fund
Services, Inc. acts as distributor of the Fund's shares (Forum Financial
Services, Inc. ("FFSI") until February 28, 1999). FFS acts as the agent of the
Trust in connection with the offering of shares of the Fund. FFS receives, and
may reallow to certain financial institutions, the sales charge paid by the
purchasers of the Fund's shares. FFS may enter into arrangements with banks,
broker-dealers or other financial institutions through which investors may
purchase or redeem shares. FFS may, at its own expense and from its own
resources, compensate certain persons who provide services in connection with
the sale or expected sale of shares of the Fund. Investors purchasing shares of
the Fund through another financial institution should read any materials and
information provided by the financial institution to acquaint themselves with
its procedures and any fees that it may charge. The distributor is a registered
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
SHAREHOLDER SERVICING
Shareholder inquiries and communications concerning the Fund may be
directed to FSS, the Fund's transfer agent and dividend disbursing agent.
Pursuant to a transfer agency and services agreement, 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 the
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 "Purchases 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 Fund's expenses
comprise Trust expenses attributable to the Fund and expenses not attributable
to any particular portfolio of the Trust, which are allocated among the Fund and
the other portfolios in proportion to their average net assets. The Fund's
expenses include the Fund's pro rata share of the operating expenses of the
Portfolio, if any, in which it invests, which are borne indirectly by the Fund's
shareholders. The Fund's expenses also 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 Fund'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.
SCMI 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 the Fund's performance for the period during which the
waiver was in effect and would not be recouped at a later date.
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<PAGE>
YEAR 2000 AND EURO
The Fund could be adversely affected if the computer systems used by
SCMI and other service providers (and in particular foreign service providers)
to the Fund 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 Fund's investments. SCMI and FAdS are taking steps to address the
Year 2000 and Euro issues with respect to the computer systems that they use and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the Fund from this
problem.
7. PURCHASES AND REDEMPTIONS OF SHARES
GENERAL INFORMATION
Investments in the Fund may be made either by an investor directly or
through certain brokers and financial institutions of which the investor is a
customer. All transactions in Fund shares are effected through FSS, which
accepts orders for purchases and redemptions from shareholders of record and new
investors. Shareholders of record will receive from the Trust periodic
statements listing all account activity during the statement period. The Trust
reserves the right in the future to modify, limit or terminate any shareholder
privilege upon appropriate notice to shareholders and charge a fee for certain
shareholder services, although no such fees are currently contemplated.
PURCHASES
Fund shares are sold at a price equal to their net asset value
next-determined after receipt of an order in proper form plus any applicable
sales charge on all weekdays except days when the New York Stock Exchange (the
"Exchange") is closed ("Business Day"). Normally, the 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. The Fund's net asset value is calculated at the close of the Exchange
(normally, 4:00 p.m., Eastern Time) on each Business Day. Fund shares become
entitled to receive dividends on the same Business Day that the order is
accepted.
The Fund reserves the right to reject any subscription for the purchase
of its 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 the Fund's net asset value following receipt by FSS of the
redemption order in proper form (and any supporting documentation, which FSS 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 acceptance 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 Exchange is
closed (or when trading thereon is restricted) for any reason other than its
customary weekend or holiday closings or under any emergency or other
circumstance as determined by the Securities and Exchange Commission.
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<PAGE>
Proceeds of redemptions normally are paid in cash. However, payments
may be made wholly or partially in portfolio securities if the Board determines
that payment in cash would be detrimental to the best interests of the Fund. The
Trust will only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's net assets,
whichever is less, during any 90-day period.
The Trust employs reasonable procedures to 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.
Due to the cost to the Trust of maintaining smaller accounts, the Trust
reserves the right to redeem, upon not less than 60 days' written notice, all
shares in any Fund account with an aggregate net asset value of less than
$1,000. The Trust will not redeem accounts that fall below that amount solely as
a result of a reduction in net asset value.
PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures and shareholder
services apply to investors who invest in the Fund directly. These investors may
open an account by completing the 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 the 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 the 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 FFS.
For individual or Uniform Gift to Minors Act accounts, the check or
money order used to purchase shares of the 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 the 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 the Fund using the wire
system for transmittal of money among banks, an investor should first telephone
the Trust at (207) 879-0001 or 800-94FORUM (800-943-6786) to obtain an account
number. The investor should then instruct a bank to wire the investor's money
immediately to:
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<PAGE>
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 an Automated Clearing House member. Under the program, existing
shareholders may authorize amounts of $250 or more to be debited from their bank
account and invested in the Fund monthly or quarterly. Shareholders wishing to
participate in this program may obtain the applicable forms from FSS.
Shareholders may terminate their automatic investments or change the amount to
be invested at any time by written notification to FSS.
REDEMPTION OF SHARES
Shareholders that wish to redeem shares by telephone or 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.
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<PAGE>
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 Fund against
fraud, signatures on certain requests must have a signature guarantee. Requests
must be made in writing and include a signature guarantee for any of the
following transactions: (1) any endorsement on a stock certificate; (2) written
instruction to redeem shares whose value exceeds $50,000; (3) instructions to
change a shareholder's record name and address; (4) redemption in an account in
which the account address or account registration has changed within the last 30
days; (5) transactions in which the proceeds are not being sent to the address
of record, preauthorized bank account, or preauthorized brokerage firm account;
(6) transactions in which the proceeds are to be paid to someone other than the
registered owners or to an account with a different registration; or (7) change
of automatic investment or redemption, dividend election, telephone redemption
or exchange option election or any other option election in connection with the
shareholder's account.
Signature guarantees may be provided by any eligible institution
acceptable to FSS, including a bank, a broker, a dealer, a national securities
exchange, a credit union, or a savings association that is authorized to
guarantee signatures. Whenever a signature guarantee is required, the signature
of each person required to sign for the account must be guaranteed. A notarized
signature is not sufficient.
FSS will deem a shareholder's account "lost" if correspondence to the
shareholder's address of record is returned as undeliverable, unless FSS
determines the shareholder's new address. When an account is deemed lost, all
distributions on the account will be reinvested in additional shares of the
Fund. In addition, the amount of any outstanding (unpaid for six months or more)
checks for distributions that have been returned to FSS will be reinvested and
the checks will be canceled.
SALES CHARGES
The public offering price for shares of the Fund is the sum of the net
asset value of the shares being purchased and any applicable sales charge. No
sales charge is assessed on the reinvestment of dividends or other
distributions. The sales charge is assessed for the Fund as follows:
<TABLE>
<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.
FFS'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, FFS will reallow
discounts to selected brokers and dealers in the amounts indicated in the table
above. From time to time, however, FFS may elect to reallow the entire sales
charge to selected brokers or dealers for all sales with respect to which orders
are placed with FFS during a particular period. The reallowance may be changed
from time to time.
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<PAGE>
In addition, from time to time and at its own expense, FFS 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 FFS has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or other
employee benefit trust created pursuant to a qualified retirement plan); (2) any
registered investment adviser with whom FFS 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 FFS 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 SCMI, FFS, any of their
affiliates or any organization with which FFS 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 the Fund from
a mutual fund other than a Fund of the Trust that participates in the Trust's
exchange program, See "Purchases and Redemptions of Shares - 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
the Fund may qualify for rights of accumulation ("ROA") wherein the applicable
sales charge will be based on the total of the investor's current purchase and
the net asset value (at the end of the previous Business Day) of shares of the
Fund held by the investor. For example, if an investor owned shares of the Fund
worth $400,000 at the then current net asset value and purchased shares of the
Fund worth an additional $50,000, the sales charge for the $50,000 purchase
would be at the 2.50% rate applicable to a single $450,000 purchase, rather than
at the 4.0% rate. To qualify for ROA on a purchase, the investor must inform FSS
and supply sufficient information to verify that each purchase qualifies for the
privilege or discount.
LETTER OF INTENT. Investors may also obtain reduced sales charges based
on cumulative purchases by means of a written Letter of Intent ("LOI"), which
expresses the investor's intention to invest $100,000 or more within a period of
13 months in shares of the Fund. Each purchase of shares under a LOI will be
made at the public offering price applicable at the time of the purchase to a
single transaction of the dollar amount indicated in the LOI.
An LOI is not a binding obligation upon the investor to purchase the
full amount indicated. Shares purchased with the first 5% of the amount
indicated in the LOI will be held subject to a registered pledge (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not purchased within 13 months. Pledged shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the shares will be released from
pledge. Share certificates are not issued for shares purchased under an LOI.
Investors wishing to enter into an LOI can obtain a form of LOI from their
broker or financial institution or by contacting FSS.
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<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
the 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 the 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 guarantee 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
The Fund should not be considered as a complete investment vehicle for
the assets held in individual retirement accounts ("IRAs"). The minimum initial
investment for an IRA is $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 Fund concerning
Fund sponsored IRAs.
EMPLOYEE BENEFIT PLANS
The 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.
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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 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 the Fund directly. These investors should acquaint themselves with
their financial institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their 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 the 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 the
Fund. Certain other financial institutions may also enter purchase orders with
payment to follow.
Certain shareholder services may not be available to shareholders that
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 the Fund to be
purchased and redeemed only through registered broker-dealers, including the
Fund's distributor.
8. DISTRIBUTIONS AND TAX MATTERS
DISTRIBUTIONS
Distributions of the Fund's net investment income are declared and paid
annually. Distributions of net capital gain are distributed at least annually by
the Fund.
Shareholders may have all distributions of net investment income
reinvested in additional shares of the Fundt or received in cash. In addition,
shareholders may have distributions of net capital gain reinvested in additional
shares of the Fund in or 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 the Fund.
All distributions are reinvested unless another option is selected. All
distributions will be reinvested at the 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.
TAXES
The Fund intends to qualify for each fiscal year to be taxed as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended. As such, the Fund will not be liable for Federal income taxes on the
net investment income and net capital gain distributed to its shareholders.
Because the Fund intends to distribute all of its net investment income and net
capital gain each year, each Fund should avoid all Federal income and excise
taxes.
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Distributions paid by the 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 the Fund. If Fund shares are sold at a loss
after being held for six months or less, the loss will be treated as long-term
capital loss to the extent of any distribution of net capital gain received on
those shares.
Any 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 a distribution was accrued by the 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.
The Fund may be required by Federal law to withhold 31% of reportable
payments (which may include dividends, capital gain distributions and redemption
proceeds) paid to individuals and certain other non-corporate shareholders.
Withholding is not required if a shareholder certifies that the shareholder's
social security or tax identification number provided to the Fund is correct and
that the shareholder is not subject to backup withholding.
Reports containing appropriate information with respect to the Federal
income tax status of dividends and distributions paid during the year by the
Fund will be mailed to shareholders shortly after the close of each year.
EFFECT OF FOREIGN TAXES. With respect to the Fund's investment in
foreign securities, foreign governments may impose taxes on the Fund 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 the Fund is eligible to do so, it 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. If the 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 its 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 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 Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. Prospective investors are urged to consult their tax advisors.
THE PORTFOLIO
The Portfolio is not required to pay Federal income taxes on its net
investment income and capital gain, it is treated as a partnership for Federal
income tax purposes. All interest, dividends and gain and losses of the
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.
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9. OTHER INFORMATION
PERFORMANCE INFORMATION
The Fund's performance may be quoted in advertising in terms of yield
or total return. Both types are based on historical results and are not intended
to indicate future performance. The Fund's yield measures the rate of income
earned by the Fund as a percentage of the Fund's share price. Yield is
calculated by dividing the net investment income of the Fund for the stated
period by the average number of shares entitled to receive dividends and
expressing the result as an annualized percentage rate based on the Fund's share
price at the end of the period. Total return refers to the average annual
compounded rates of return over some representative period that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, after giving effect to the reinvestment of
all dividends and distributions and deductions of expenses during the period.
The Fund 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 the
Fund's returns, shareholders should recognize that they are not the same as
actual year-by-year results. A computation of yield or total return that does
not take into account the sales load paid by an investor will be higher than a
computation based on the public offering price of the shares purchased that does
take into account payment of a sales load.
The Fund's advertisements may reference ratings and rankings among
similar funds by independent evaluators such as Morningstar(R), Lipper
Analytical Services, Inc. or IBC/Donoghue, Inc. In addition, the performance of
the Fund may be compared to recognized indices of market performance. The
comparative material found in the Fund's advertisements, sales literature or
reports to shareholders may contain performance ratings. These are not to be
considered representative or indicative of future performance.
BANKING LAW MATTERS
Banking laws and regulations generally permit a bank or bank affiliate
to purchase shares of an investment company as agent for and upon the order of a
customer and in the view of FAdS would permit a bank or bank affiliate to
perform sub-transfer agent or similar services for the Trust and its
shareholders. If a bank or bank affiliate were prohibited from performing all or
a part of the foregoing services, its shareholder customers would be permitted
to remain shareholders of the Trust and alternative means for continuing to
service them would be sought. It is not expected that shareholders would suffer
adverse financial consequences as a result of any changes in bank or bank
affiliate service arrangements.
DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of
the close of the Exchange (normally, 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 the 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 or the Schroder Core Board, as applicable, or pursuant
to procedures approved by the 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. Currently the authorized shares of the Trust are divided
into 22 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.
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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.
CORE AND GATEWAY(R) STRUCTURE
THE PORTFOLIO
The Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio, which has the same investment objective
and substantially the same policies as the Fund. Accordingly, the Portfolio
directly acquires its own securities and the Fund acquires an indirect interest
in those securities. The Portfolio is a separate series of Schroder Core, a
business trust organized under the laws of the State of Delaware in September
1995. Schroder Core is registered as an open-end, management, investment
company. 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 Schroder Core.
The investment objective and fundamental investment policies of the
Fund and the Portfolio can be changed only with shareholder approval.
The Fund's investment in the Portfolio is in the form of a
non-transferable beneficial interest. As of the date of this Prospectus, the
Portfolio had at least one other open-end management investment company that
invests in the Portfolio. The Portfolio may permit other investment companies or
institutional investors to invest in them. All investors in the Portfolio will
invest on the same terms and conditions as the Fund and will pay a proportionate
share of the Portfolio's expenses.
The Portfolio normally will not hold meetings of investors except as
required by the 1940 Act. Each investor in the 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, the 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 the 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 the Portfolio,
they could have voting control of the Portfolio.
The Portfolio will not sell its shares directly to members of the
general public. Another investor in the 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 the 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 the Portfolio.
Information regarding the funds that invest in the Portfolio and any such funds
in the future will be available from Schroder Core by calling FFS at (800)
290-9826.
CERTAIN RISKS OF INVESTING IN THE PORTFOLIO
The Fund's investment in the Portfolio may be affected by the actions
of other large investors in the Portfolio, if any. For example, if the 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.
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The Fund may withdraw its entire investment from the Portfolio at any
time, if the Board determines that it is in the best interests of the Fund and
its shareholders to do so. The Fund might withdraw, for example, if there were
other investors in the 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. The inability of the Fund to find a suitable replacement investment could
have a significant impact on shareholders of the Fund.
Each investor in the Portfolio, including the Fund, will be liable for
all obligations of the Portfolio, but not for any other portfolio of Schroder
Core. The risk to an investor in the 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 the
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
FUND'S OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFERING OF THE FUND'S
SHARES, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER
MAY NOT LAWFULLY BE MADE.
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APPENDIX A
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
Fixed-Income Security Ratings
"Aaa" Fixed-income securities, which are rated "Aaa", are judged 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.
"Aa" Fixed-income securities, 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
fixed-income securities. They are rated lower than the best
fixed-income securities 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.
"A" Fixed-income securities which are rated "A" possess many
favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment
sometime in the future.
"Baa" Fixed-income securities, which are rated "Baa", are considered
as medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable
over any great length of time. Such fixed-income securities
lack outstanding investment characteristics and in fact have
speculative characteristics as well. Fixed-income securities
rated "Aaa", "Aa", "A" and "Baa" are considered investment
grade.
"Ba" Fixed-income securities which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate, and therefore not well
safeguarded during both good and bad times in the future.
Uncertainty of position characterizes bonds in this class.
"B" Fixed-income securities which are rated "B" generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be
small.
"Caa" Fixed-income securities which are rated "Caa" are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
"Ca" Fixed-income securities which are rated "Ca" present
obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings.
"C" Fixed-income securities which are rated "C" are the lowest
rated class of fixed-income securities, and issues so rated
can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, "1", "2", and "3" in
each generic rating classification from "Aa" through "B" in its municipal
fixed-income security rating system. The modifier "1" indicates that the
security ranks in the higher end of its generic rating category; the modifier
"2" indicates a mid-range ranking; and a modifier "3" indicates that the issue
ranks in the lower end of its generic rating category.
A-1
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay punctually
promissory obligations not having an original maturity in excess of nine months.
The ratings apply to Municipal Commercial Paper as well as taxable Commercial
Paper. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
"Prime-1", "Prime-2", "Prime-3".
Issuers rated "Prime-1" have a superior capacity for repayment of short-term
promissory obligations. Issuers rated "Prime-2" have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated "Prime-3" have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated "Not Prime" do not fall within any of the Prime rating categories.
STANDARD & POOR'S, A DIVISION OF THE MCGRAW HILL COMPANIES ("STANDARD & POOR'S")
Fixed-Income Security Ratings
A Standard & Poor's fixed-income security rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. The ratings are
based, in varying degrees, on the following considerations: (1) likelihood of
default-capacity and willingness of the obligor as to the timely payment of
interest and repayment of principal in accordance with the terms of the
obligation; (2) nature of and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
"AAA" Fixed-income securities rated "AAA" have the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
"AA" Fixed-income securities rated "AA" have a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
"A" Fixed-income securities 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 fixed-income securities in
higher-rated categories.
"BBB" Fixed-income securities rated "BBB" are regarded as having an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for fixed-income securities in this category than for
fixed-income securities in higher-rated categories.
Fixed-income securities rated "AAA", "AA", "A" and "BBB" are
considered investment grade.
"BB" Fixed-income securities rated "BB" have less near-term
vulnerability to default than other speculative grade
fixed-income securities. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions, which could lead to inadequate capacity or
willingness to pay interest and repay principal.
"B" Fixed-income securities rated "B" have a greater vulnerability
to default but presently have the capacity to meet interest
payments and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
A-2
<PAGE>
"CCC" Fixed-income securities rated "CCC" have a current identifiable
vulnerability to default, and the obligor is dependent upon
favorable business, financial and economic conditions to meet
timely payments of interest and repayments of principal. In the
event of adverse business, financial or economic conditions, it
is not likely to have the capacity to pay interest and repay
principal.
"CC" The rating "CC" is typically applied to fixed-income securities
subordinated to senior debt, which is assigned an actual or
implied "CCC" rating.
"C" The rating "C" is typically applied to fixed-income securities
subordinated to senior debt, which is assigned an actual or
implied "CCC-" rating.
"CI" The rating "CI" is reserved for fixed-income securities on
which no interest is being paid.
"D" The rating "D" is reserved for fixed-income securities when
the issue is in payment default, or the obligor has filed for
bankruptcy. The D rating category is used when interest
payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless
S&P believes that such payments will made during such grace
period.
"NR" Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation
as a matter of policy.
Fixed-income securities rated "BB", "B", "CCC", "CC" and "C" are regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest degree of speculation. While such fixed-income securities will
likely have some quality and protective characteristics, these are out-weighed
by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The rating from "AA" TO "CCC" may be modified by the
addition of a plus or minus sign to show relative standing with the major
ratings categories.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Ratings are applicable to both taxable and tax-exempt commercial paper.
Issues assigned "A" ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
"1", "2", and "3" to indicate the relative degree of safety.
"A-1" Indicates that the degree of safety regarding timely payment is
very strong.
"A-2" Indicates capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as
overwhelming as for issues designated "A-1".
"A-3" Indicates a satisfactory capacity for timely payment.
Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
A-3
<PAGE>
EMERGING MARKETS FUND
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<TABLE>
<S><C> <C>
Account Information and
Shareholder Servicing: Distributor:
Forum Shareholder Services, LLC Forum Fund Services, LLC (Forum Financial
P.O. Box 446 Services LLC through February 28, 1999)
Portland, Maine 04112 Two Portland Square
207-879-0001 Portland, Maine 04101
207-879-1900
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 11, 1999
Forum Funds (the "Trust") is a registered open-end investment company. This
Statement of Additional Information supplements the Prospectus dated January 11,
1999, as amended from time to time, offering shares of Emerging Markets Fund
(the "Fund") and should be read only in conjunction with the Prospectus, a copy
of which may be obtained by an investor without charge by contacting the Trust's
Distributor at the address listed above.
The Fund currently seeks to achieve its investment objective by investing all of
its investable assets in Schroder EM Core Portfolio (the "Portfolio"), a series
of Schroder Capital Funds ("Schroder Core"), another registered, open-ended,
management investment company with the same investment objective
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
2. Investment Policies.............................................. 4
3. Additional Investment Policies................................... 14
4. Performance Data................................................. 15
5. Management....................................................... 17
6. Determination of Net Asset Value................................. 26
7. Portfolio Transactions........................................... 26
8. Additional Purchase and
Redemption Information........................................ 28
9. Tax Matters...................................................... 29
10. Other Information................................................ 31
Appendix A - Control Persons and Principal Holders of Securities A-1
Appendix B - Additional Advertising Materials.................. B-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-two series, including series that have not commenced operation as of
the date of this SAI. The series of the Trust are as follows:
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 Equity Index Fund
New Hampshire Bond Fund Investors Equity Fund
Daily Assets Government Fund Investors Growth Fund
Daily Assets Government Obligations Fund Small Company Opportunities Fund
Daily Assets Cash Fund International Equity Fund
Daily Assets Treasury Obligations Fund Emerging Markets Fund
Daily Assets Municipal Fund Polaris Global Value Fund
Payson Value Fund
Payson Balanced Fund
Each share of each fund of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency and administration expenses) are borne solely by those shares
and each class votes separately with respect to the provisions of any Rule 12b-1
plan which pertain to the class and other matters for which separate class
voting is appropriate under applicable law. Generally, shares will be voted in
the aggregate without reference to a particular portfolio or class, except if
the matter affects only one portfolio or class or voting by portfolio or class
is required by law, in which case shares will be voted separately by portfolio
or class, as appropriate. Delaware law does not require the Trust to hold annual
meetings of shareholders, and it is anticipated that shareholder meetings will
be held only when required by Federal or state law. Shareholders (and Trustees)
have available certain procedures for the removal of Trustees. There are no
conversion or preemptive rights in connection with shares of the Trust. All
shares when issued in accordance with the terms of the offering will be fully
paid and nonassessable. Shares are redeemable at net asset value, at the option
of the shareholders, subject to any contingent deferred sales charge that may
apply. A shareholder in a portfolio is entitled to the shareholder's pro rata
share of all dividends and distributions arising from that portfolio's assets
and, upon redeeming shares, will receive the portion of the portfolio's net
assets represented by the redeemed shares.
As of January 11, 1999, 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 that 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.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FFSI" means Forum Financial Services, Inc.
2
<PAGE>
"FFS" means Forum Fund Services, LLC.
"FSS" means Forum Shareholder Services, LLC.
"Fund" Emerging Markets Fund.
"Fund Business Day" has the meaning ascribed thereto in the Fund's current
Prospectus.
"NRSRO" means a nationally recognized statistical rating organization.
"Portfolio" means Schroder EM Core 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 Schroder EM Core Portfolio.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means a security issued or guaranteed as to
principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States; or
any certificate of deposit for any of the foregoing.
"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" and "Additional Investment Policies" in the Prospectus.
The Fund currently seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio, which has the same investment objective.
Because the Fund has substantially the same investment policies and currently
invests all of its assets in the Portfolio, investment policies for the Fund and
the Portfolio are generally discussed in reference to the Fund.
OPTIONS
The Fund may purchase and sell covered put and call options on its portfolio
securities to enhance investment performance and to protect against changes in
market prices.
COVERED CALL OPTIONS. The Fund may write covered call options on its securities
to realize a greater current return through the receipt of premiums than it
would realize on its securities alone. Such option transactions may also be used
as a limited form of hedging against a decline in the price of securities owned
by the Fund.
A call option gives the holder the right to purchase, and obligates the writer
to sell, a security at the exercise price at any time before the expiration
date. A call option is "covered" if the writer, at all times while obligated as
a writer, either owns the underlying securities (or comparable securities
satisfying the cover requirements of the securities exchanges), or has the right
to acquire such securities through immediate conversion of securities.
In return for the premium received when it writes a covered call option, the
Fund gives up some or all of the opportunity to profit from an increase in the
market price of the securities covering the call option during the life of the
option. The Fund retains the risk of loss should the price of such securities
decline. If the option expires unexercised, the Fund realizes a gain equal to
the premium, which may be offset by a decline in price of the underlying
security. If the option is exercised, the Fund realizes a gain or loss equal to
the difference between the Fund's cost for the underlying security and the
proceeds of sale (exercise price minus commissions) plus the amount of the
premium.
The Fund may terminate a call option that it has written before it expires by
entering into a closing purchase transaction. The Fund may enter into closing
purchase transactions in order to free itself to sell the underlying security or
to write another call on the security, realize a profit on a previously written
call option, or protect a security from being called in an unexpected market
rise. Any profits from a closing purchase transaction may be offset by a decline
in the value of the underlying security. Conversely, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing purchase
transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
COVERED PUT OPTIONS. The Fund may write covered put options in order to enhance
its current return. Such options transactions may also be used as a limited form
of hedging against an increase in the price of securities that the Fund plans to
purchase. A put option gives the holder the right to sell, and obligates the
writer to buy, a security at the exercise price at any time before the
expiration date. A put option is "covered" if the writer segregates cash and
high-grade short-term debt obligations or other permissible collateral equal to
the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from terminating
such options in closing purchase transactions, the Fund also receives interest
on the cash and debt securities maintained to cover the exercise price of the
option. By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise price higher than
its then current market value, resulting in a potential capital loss unless the
security later appreciates in value.
4
<PAGE>
The Fund may terminate a put option that it has written before it expires by a
closing purchase transaction. Any loss from this transaction may be partially or
entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. The Fund may also purchase put options to
protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Fund, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit the Fund might have realized had it sold
the underlying security instead of buying the put option.
The Fund may purchase call options to hedge against an increase in the price of
securities that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security.
The Fund may purchase call options to hedge against an increase in the price of
securities that the Fund wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. These costs will reduce any profit the Fund might have
realized had it bought the underlying security at the time it purchased the call
option.
The Fund may also purchase put and call options to enhance its current return.
OPTIONS ON FOREIGN SECURITIES. The Fund may purchase and sell options on foreign
securities if in SCMI's opinion the investment characteristics of such options,
including the risks of investing in such options, are consistent with the Fund's
investment objectives. It is expected that risks related to such options will
not differ materially from risks related to options on U.S. securities. However,
position limits and other rules of foreign exchanges may differ from those in
the U.S. In addition, options markets in some countries, many of which are
relatively new, may be less liquid than comparable markets in the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve certain
risks, including the risks that SCMI will not forecast interest rate or market
movements correctly, that the Fund may be unable at times to close out such
positions, or that hedging transactions may not accomplish their purpose because
of imperfect market correlations. The successful use of these strategies depends
on the ability of SCMI to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. If no secondary market were to exist, it would be
impossible to enter into a closing transaction to close out an option position.
As a result, the Fund may be forced to continue to hold, or to purchase at a
fixed price, a security on which it has sold an option at a time when SCMI
believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Fund's use of
options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Fund may be considered
such a group. These position limits may restrict the Fund's ability to purchase
or sell options on particular securities.
Options that are not traded on national securities exchanges may be closed out
only with the other party to the option transaction. For that reason, it may be
more difficult to close out unlisted options than listed options. Furthermore,
5
<PAGE>
unlisted options are not subject to the protection afforded purchasers of listed
options by The Options Clearing Corporation.
FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes, the Fund may
buy and sell futures contracts on debt securities of the type in which the Fund
may invest and on indexes of debt securities. In addition, the Fund may purchase
and sell stock index futures to hedge against changes in stock market prices.
The Fund may also, to the extent permitted by applicable law, buy and sell
futures contracts and options on futures contracts to increase the Fund's
current return. All such futures and related options will, as may be required by
applicable law, be traded on exchanges that are licensed and regulated by the
CFTC.
FUTURES ON DEBT SECURITIES AND RELATED OPTIONS. A futures contract on a debt
security is a binding contractual commitment which, if held to maturity, will
result in an obligation to make or accept delivery, during a particular month,
of securities having a standardized face value and rate of return. By purchasing
futures on debt securities -- assuming a "long" position -- the Fund will
legally obligate itself to accept the future delivery of the underlying security
and pay the agreed price. By selling futures on debt securities -- assuming a
"short" position -- it will legally obligate itself to make the future delivery
of the security against payment of the agreed price.
Positions taken in the futures markets are not normally held to maturity, but
are instead liquidated through offsetting transactions that may result in a
profit or a loss. While futures positions taken by the Fund will usually be
liquidated in this manner, the Fund may instead make or take delivery of the
underlying securities whenever it appears economically advantageous to the Fund
to do so. A clearing corporation associated with the exchange on which futures
are traded assumes responsibility for such closing transactions and guarantees
that the Fund's sale and purchase obligations under closed-out positions will be
performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more certainly
than would otherwise be possible the effective rate of return on portfolio
securities. The Fund may, for example, take a "short" position in the futures
market by selling contracts for the future delivery of debt securities held by
the Fund (or securities having characteristics similar to those held by the
Fund) in order to hedge against an anticipated rise in interest rates that would
adversely affect the value of the Fund's portfolio securities. When hedging of
this character is successful, any depreciation in the value of portfolio
securities may substantially be offset by appreciation in the value of the
futures position.
On other occasions, the Fund may take a "long" position by purchasing futures on
debt securities. This would be done, for example, when the Fund expects to
purchase particular securities when it has the necessary cash, but expects the
rate of return available in the securities markets at that time to be less
favorable than rates currently available in the futures markets. If the
anticipated rise in the price of the securities should occur (with its
concomitant reduction in yield), the increased cost to the Fund of purchasing
the securities may be offset, at least to some extent, by the rise in the value
of the futures position taken in anticipation of the subsequent securities
purchase.
Successful use by the Fund of futures contracts on debt securities is subject to
SCMI's ability to predict correctly movements in the direction of interest rates
and other factors affecting markets for debt securities. For example, if the
Fund has hedged against the possibility of an increase in interest rates which
would adversely affect the market prices of debt securities held by it and the
prices of such securities increase instead, the Fund will lose part or all of
the benefit of the increased value of its securities which it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities to
meet daily maintenance margin requirements. The Fund may have to sell securities
at a time when it may be disadvantageous to do so.
The Fund may purchase and write put and call options on certain debt futures
contracts, as they become available. Such options are similar to options on
securities except that options on futures contracts give 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 period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option
6
<PAGE>
of the same series. There is no guarantee that such closing transactions can be
effected. The Fund will be required to deposit initial margin and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements, and, in addition, net option premiums
received will be included as initial margin deposits. See "Investment Objectives
and Policies - Futures Contracts - Margin Payments". Compared to the purchase or
sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options plus transactions costs. However, there
may be circumstances when the purchase of call or put options on a futures
contract would result in a loss to the Fund when the purchase or sale of the
futures contracts would not, such as when there is no movement in the prices of
debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
INDEX FUTURES CONTRACTS AND OPTIONS. The Fund may invest in debt index futures
contracts and stock index futures contracts, and in related options. A debt
index futures contract is a contract to buy or sell units of a specified debt
index at a specified future date at a price agreed upon when the contract is
made. A unit is the current value of the index. Debt index futures in which the
Fund is presently expected to invest are not now available, although such
futures contracts are expected to become available in the future. A stock index
futures contract is a contract to buy or sell units of a stock index at a
specified future date at a price agreed upon when the contract is made. A unit
is the current value of the stock index.
The following example illustrates generally the manner in which index futures
contracts operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 100 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 100 Index, contracts are to buy or sell
100 units. Thus, if the value of the S&P 100 Index were $180, one contract would
be worth $18,000 (100 units x $180). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take place.
Instead, settlement in cash must occur upon the termination of the contract,
with the settlement being the difference between the contract price and the
actual level of the stock index at the expiration of the contract. For example,
if the Fund enters into a futures contract to buy 100 units of the S&P 100 Index
at a specified future date at a contract price of $180 and the S&P 100 Index is
at $184 on that future date, the Fund will gain $400 (100 units x gain of $4).
If the Fund enters into a futures contract to sell 100 units of the stock index
at a specified future date at a contract price of $180 and the S&P 100 Index is
at $182 on that future date, the Fund will lose $200 (100 units x loss of $2).
The Fund may purchase or sell futures contracts with respect to any securities
indexes. Positions in index futures may be closed out only on an exchange or
board of trade which provides a secondary market for such futures.
In order to hedge the Fund's investments successfully using futures contracts
and related options, the Fund must invest in futures contracts with respect to
indexes or sub-indexes the movements of which will, in its judgment, have a
significant correlation with movements in the prices of the Fund's securities.
Options on index futures contracts are similar to options on securities except
that options on index futures contracts give the purchaser the right, in return
for the premium paid, to assume a position in an index 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 period of the option. Upon
exercise of the option, the holder would assume the underlying futures position
and would receive a variation margin payment of cash or securities approximating
the increase in the value of the holder's option position. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash based on the difference between the
exercise price of the option and the closing level of the index on which the
futures contract is based on the expiration date. Purchasers of options who fail
to exercise their options prior to the exercise date suffer a loss of the
premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, the Fund may purchase and sell call and put options on the
underlying indexes themselves to the extent that such options are traded on
national securities exchanges. Index options are similar to options on
individual securities in that the purchaser of an index option acquires the
right to buy (in the case of a call) or sell (in the case of a put), and the
writer undertakes the obligation to sell or buy (as the case may be), units of
an index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of an
index
7
<PAGE>
option has the right to receive a cash "exercise settlement amount". This amount
is equal to the amount by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the date of the exercise, multiplied by a fixed
"index multiplier".
The Fund may purchase or sell options on stock indexes in order to close out its
outstanding positions in options on stock indexes which it has purchased. The
Fund may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on an index involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
MARGIN PAYMENTS. When the Fund purchases or sells a futures contract, it is
required to deposit with its custodian an amount of cash, U.S. Treasury bills,
or other permissible collateral equal to a small percentage of the amount of the
futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Fund upon termination of the contract, assuming the Fund satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a process
known as "marking to market". These payments are called "variation margin" and
are made as the value of the underlying futures contract fluctuates. For
example, when the Fund sells a futures contract and the price of the underlying
debt security rises above the delivery price, the Fund's position declines in
value. The Fund then pays the broker a variation margin payment equal to the
difference between the delivery price of the futures contract and the market
price of the securities underlying the futures contract. Conversely, if the
price of the underlying security falls below the delivery price of the contract,
the Fund's futures position increases in value. The broker then must make a
variation margin payment equal to the difference between the delivery price of
the futures contract and the market price of the securities underlying the
futures contract.
When the Fund terminates a position in a futures contract, a final determination
of variation margin is made, additional cash is paid by or to the Fund, and the
Fund realizes a loss or a gain. Such closing transactions involve additional
commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
Although the Fund intends to purchase or sell futures only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although the Fund generally will purchase only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that the Fund would have to exercise the options
in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by the Fund of
futures contracts and related options as a hedging device. One risk arises
because of the imperfect correlation between movements in the prices
8
<PAGE>
of the futures contracts and options and movements in the underlying securities
or index or movements in the prices of the Fund's securities which are the
subject of a hedge. SCMI will, however, attempt to reduce this risk by
purchasing and selling, to the extent possible, futures contracts and related
options on securities and indexes the movements of which will, in its judgment,
correlate closely with movements in the prices of the underlying securities or
index and the Fund's portfolio securities sought to be hedged.
Successful use of futures contracts and options by the Fund for hedging purposes
is also subject to SCMI's ability to predict correctly movements in the
direction of the market. It is possible that, where the Fund has purchased puts
on futures contracts to hedge its portfolio against a decline in the market, the
securities or index on which the puts are purchased may increase in value and
the value of securities held in the portfolio may decline. If this occurred, the
Fund would lose money on the puts and also experience a decline in value in its
portfolio securities. In addition, the prices of futures, for a number of
reasons, may not correlate perfectly with movements in the underlying securities
or index due to certain market distortions. First, all participants in the
futures market are subject to margin deposit requirements. Such requirements may
cause investors to close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying security or index
and futures markets. Second, the margin requirements in the futures markets are
less onerous than margin requirements in the securities markets in general, and
as a result the futures markets may attract more speculators than the securities
markets do. Increased participation by speculators in the futures markets may
also cause temporary price distortions. Due to the possibility of price
distortion, even a correct forecast of general market trends by SCMI may still
not result in a successful hedging transaction over a very short time period.
OTHER RISKS. The Fund will incur brokerage fees in connection with their futures
and options transactions. In addition, while futures contracts and options on
futures will be purchased and sold to reduce certain risks, those transactions
themselves entail certain other risks. Thus, while the Fund may benefit from the
use of futures and related options, unanticipated changes in interest rates or
stock price movements may result in a poorer overall performance for the Fund
than if it had not entered into any futures contracts or options transactions.
Moreover, in the event of an imperfect correlation between the futures position
and the portfolio position which is intended to be protected, the desired
protection may not be obtained and the Fund may be exposed to risk of loss.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a
contract under which the Fund acquires a security for a relatively short period
(usually not more than 7 days) subject to the obligation of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). It is the Trust's present
intention to enter into repurchase agreements only with member banks of the
Federal Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Trustees of the
Trust and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by the Fund which are
collateralized by the securities subject to repurchase. SCMI will monitor such
transactions to ensure that the value of the underlying securities will be at
least equal at all times to the total amount of the repurchase obligation,
including the interest factor. If the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
sale including accrued interest are less than the resale price provided in the
agreement including interest. In addition, if the seller should be involved in
bankruptcy or insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal and interest
if the Fund is treated as an unsecured creditor and required to return the
underlying collateral to the seller's estate.
FORWARD COMMITMENTS
The Fund may enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time ("forward commitments") if the Fund
holds, and maintains until the settlement date in a segregated account, cash or
high-grade debt obligations in an amount sufficient to meet the purchase price,
or if the Fund enters into offsetting contracts for the forward sale of other
securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the Fund's other assets. Where such
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purchases are made through dealers, the Fund relies on the dealer to consummate
the sale. The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price.
Although the Fund will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, the Fund may dispose of a commitment
prior to settlement if SCMI deems it appropriate to do so. The Fund may realize
short-term profits or losses upon the sale of forward commitments.
WHEN-ISSUED SECURITIES
The Fund may from time to time purchase securities on a "when-issued" basis.
Debt securities are often issued on this basis. The price of such securities,
which may be expressed in yield terms, is fixed at the time a commitment to
purchase is made, but delivery and payment for the when-issued securities take
place at a later date. Normally, the settlement date occurs within one month of
the purchase. During the period between purchase and settlement, no payment is
made by the Fund and no interest accrues to the Fund. To the extent that assets
of the Fund are held in cash pending the settlement of a purchase of securities,
The Fund would earn no income. While the Fund may sell its right to acquire
when-issued securities prior to the settlement date, the Fund intends actually
to acquire such securities unless a sale prior to settlement appears desirable
for investment reasons. At the time the Fund makes the commitment to purchase a
security on a when-issued basis, it will record the transaction and reflect the
amount due and the value of the security in determining the Fund's net asset
value. The market value of the when-issued securities may be more or less than
the purchase price payable at the settlement date. The Fund will establish a
segregated account in which it will maintain cash and U.S. Government Securities
or other high-grade debt obligations at least equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its portfolio securities, provided: (1) the loan is secured
continuously by collateral consisting of U.S. government securities, cash, or
cash equivalents adjusted daily to have market value at least equal to the
current market value of the securities loaned; (2) the Fund may at any time call
the loan and regain the securities loaned; (3) the Fund will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities of the Fund loaned will not at any time exceed
one-third of the total assets of the Fund. In addition, it is anticipated that
the Fund may share with the borrower some of the income received on the
collateral for the loan or that it will be paid a premium for the loan. Before
the Fund enters into a loan, SCMI considers all relevant facts and circumstances
including the creditworthiness of the borrower. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Although voting rights or rights to consent with
respect to the loaned securities pass to the borrower, the Fund retains the
right to call the loans at any time on reasonable notice, and it will do so in
order that the securities may be voted by the Fund if the holders of such
securities are asked to vote upon or consent to matters materially affecting the
investment. The Fund will not lend portfolio securities to borrowers affiliated
with the Fund.
The Fund may not lend a security if, as a result, the amount of loaned
securities would exceed an amount equal to 33 1/3% of the Fund's total assets.
FOREIGN SECURITIES
The Fund may invest in foreign securities and in certificates of deposit issued
by United States branches of foreign banks and foreign branches of United States
banks.
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S.
10
<PAGE>
companies. Foreign brokerage commissions and other fees are generally higher
than in the United States. It may be more difficult to obtain and enforce a
judgment against a foreign issuer.
In addition, to the extent that the Fund's foreign investments are not United
States dollar-denominated, the Fund may be affected favorably or unfavorably by
changes in currency exchange rates or exchange control regulations and may incur
costs in connection with conversion between currencies.
Income received by the Fund from sources within foreign countries may be reduced
by withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known, and tax laws and their interpretations may change from
time to time and may change without advance notice. Any such taxes paid by the
Fund will reduce its net income available for distribution to shareholders.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. The Fund may engage in both "transaction hedging" and
"position hedging."
When it engages in transaction hedging, the Fund enters into foreign currency
transactions with respect to specific receivables or payables of the Fund
generally arising in connection with the purchase or sale of its portfolio
securities. The Fund will engage in transaction hedging when it desires to "lock
in" the U.S. dollar price of a security it has agreed to purchase or sell, or
the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. By transaction hedging , the Fund will attempt to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the applicable foreign currency during the period between the
date on which the security is purchased or sold or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging. The Fund may
also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes, the Fund may also purchase exchange-listed and
over-the-counter call and put options on foreign currency futures contracts and
on foreign currencies. A put option on a futures contract gives the Fund the
right to assume a short position in the futures contract until expiration of the
option. A put option on currency gives the Fund the right to sell a currency at
an exercise price until the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in the futures
contract until the expiration of the option. A call option on currency gives the
Fund the right to purchase a currency at the exercise price until the expiration
of the option. The Fund will engage in over-the-counter transactions only when
appropriate exchange-traded transactions are unavailable and when, in SCMI's
opinion, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.
When it engages in position hedging, the Fund enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by the Fund are denominated or are quoted in
their principal trading markets or an increase in the value of currency for
securities which the Fund expects to purchase. In connection with position
hedging, the Fund may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions
and the value of the portfolio 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 values of those securities
between the dates the currency exchange transactions are entered into and the
dates they mature.
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It is impossible to forecast with precision the market value of the Fund's
portfolio securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security or securities and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security or securities
of the Fund if the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
To offset some of the costs to the Fund of hedging against fluctuations in
currency exchange rates, the Fund may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities which the Fund owns or intends to purchase or sell.
They simply establish a rate of exchange which one can achieve at some future
point in time. Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency, they tend to limit
any potential gain which might result from the increase in the value of such
currency.
The Fund may also seek to increase its current return by purchasing and selling
foreign currency on a spot basis, and by purchasing and selling options on
foreign currencies and on foreign currency futures contracts, and by purchasing
and selling foreign currency forward contracts.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency exchange
contract involves 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
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The 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. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency futures
contracts in certain respects. For example, the maturity date of a forward
contract may be any fixed number of days from the date of the contract agreed
upon by the parties, rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on
a commodities exchange; a clearing corporation associated with the exchange
assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.
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FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly to
options on securities, and are traded primarily in the over-the-counter market,
although options on foreign currencies have recently been listed on several
exchanges. Such options will be purchased or written only when SCMI believes
that a liquid secondary market exists for such options. There can be no
assurance that a liquid secondary market will exist for a particular option at
any specific time. Options on foreign currencies are affected by all of those
factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, 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
and there is no regulatory requirement that quotations available through dealers
or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(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 closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the U.S. options markets.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a
fee for currency conversion, they do realize a profit based on the difference
(the "spread") between prices at which they buy and sell various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
ZERO-COUPON SECURITIES
Zero-coupon securities in which the Fund may invest are debt obligations which
are generally issued at a discount and payable in full at maturity, and which do
not provide for current payments of interest prior to maturity. Zero-coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of the Fund investing in
zero-coupon securities may fluctuate over a greater range than shares of other
series of the Trust and other mutual funds investing in securities making
current distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (I.E., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-coupon
securities by accounting separately for the beneficial ownership of particular
interest coupons and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of U.S. Treasury
zero-coupon securities recorded directly in the book-entry record-keeping system
in lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities.
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When debt obligations have been stripped of their unmatured interest coupons by
the holder, the stripped coupons are sold separately. The principal or corpus is
sold at a deep discount because the buyer receives only the right to receive a
future fixed payment on the security and does not receive any rights to periodic
cash interest payments. Once stripped or separated, the corpus and coupons may
be sold separately. Typically, the coupons are sold separately or grouped with
other coupons with like maturity dates and sold in such bundled form. Purchasers
of stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero-coupon securities issued directly by the
obligor.
EMERGING MARKETS COUNTRIES
The following countries are not deemed to be "emerging markets" for the
Fund.
Australia The Netherlands
Austria New Zealand
Belgium Norway
Canada Portugal
Denmark Singapore
Finland Spain
France Sweden
Germany Switzerland
Ireland United Kingdom
Italy USA
Japan
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" in the Prospectus. The Fund has substantially the same fundamental
investment policies as the Portfolio.
The investment objective and fundamental investment policies of the Fund may not
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities. A majority of the Fund's outstanding voting
securities, as defined in the 1940 Act, means the lesser of: (1) 67% of the
shares of the Fund present or represented at a shareholders meeting at which the
holders of more than 50% of the shares are present or represented; or (2) more
than 50% of the outstanding shares of the Fund. Investment policies are not
fundamental unless they are designated as fundamental. Non-fundamental
investment policies may be changed by the Trust's Board of Trustees without
shareholder approval.
FUNDAMENTAL POLICIES
INDUSTRY CONCENTRATION: The 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. 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 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.
BORROWING: The Fund may not borrow money if, as a result, outstanding borrowings
would exceed an amount equal to one third of the Fund's total assets.
REAL ESTATE: The 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).
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LENDING: The Fund may not make loans to other parties. For purposes of this
limitation, entering into repurchase agreements, lending securities and
acquiring any debt security are not deemed to be the making of loans.
COMMODITIES: The Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities or other instruments (but this
shall not prevent the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities).
UNDERWRITING: The Fund may not underwrite (as that term is defined in the
Securities Act of 1933, as amended) securities issued by other persons except,
to the extent that in connection with the disposition of the Fund's assets, the
Fund may be deemed to be an underwriter.
SENIOR SECURITIES: The Fund may not issue any class of senior securities except
to the extent consistent with the 1940 Act.
NON-FUNDAMENTAL RESTRICTIONS: The following investment restrictions are not
fundamental policies of the Fund.
DIVERSIFICATION: To the extent required to qualify as a regulated investment
company under the Code, the Fund may not purchase a security (other than a U.S.
government security or a security of an investment company) if, as a result, (1)
with respect to 50% of its assets, more than 5% of the Fund's total assets would
be invested in the securities of any single issuer; (2) with respect to 50% of
its assets, the Fund would own more than 10% of the outstanding securities of
any single issuer; or (3) more than 25% of the Fund's total assets would be
invested in the securities of any single issuer.
BORROWING: For purposes of the Fund's limitation on borrowing, the following are
not treated as borrowings to the extent they are fully collateralized: (1) the
delayed delivery of purchased securities (such as the purchase of when-issued
securities); (2) reverse repurchase agreements; (3) dollar-roll transactions;
and (4) the lending of securities ("leverage transactions").
LIQUIDITY: The Fund may not invest more than 15% of its net assets in: (1)
securities that cannot be disposed of within seven days at their then-current
value; (2) repurchase agreements not entitling the holder to payment of
principal within seven days; and (3) securities subject to restrictions on the
sale of the securities to the public without registration under the 1933 Act
("restricted securities") that are not readily marketable.
EXERCISING CONTROL OF ISSUERS: The Fund may not make investments for the purpose
of exercising control of an issuer. Investments by the Fund in entities created
under the laws of foreign countries solely to facilitate investment in
securities in that country will not be deemed the making of investments for the
purpose of exercising control.
OTHER INVESTMENT COMPANIES: The Fund may not invest in securities of another
investment company, except to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES: The Fund may not purchase securities on margin, except
that the Portfolio may use short-term credit for the clearance of the
Portfolio's transactions, and provided that initial and variation margin
payments in connection with futures contracts and options on futures contracts
shall not constitute purchasing securities on margin. The 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 securities short.
4. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's net asset value, yield and total return will
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
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<PAGE>
For the period beginning December 24, 1997 (the commencement of operations) to
May 31, 1998, the Fund had an unannualized total returns of (10.91%). The total
return figure takes into consideration the applicable maximum sales charge.
In performance advertising the Fund may compare any of its performance
information with data published by independent evaluators such as Morningstar,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger or other
companies which track the investment performance of investment companies ("Fund
Tracking Companies"). The Fund may also compare any of its performance
information with the performance of recognized stock, bond and other indices,
including but not limited to the Standard & Poor's 500 Composite Stock Price
Index, the Dow Jones Industrial Average, the Salomon Brothers Bond Index, the
Shearson Lehman Bond Index, U.S. Treasury bonds, bills or notes and changes in
the Consumer Price Index as published by the U.S. Department of Commerce. The
Fund may refer to general market performances over past time periods such as
those published by Ibbotson Associates. In addition, the Fund may refer in such
materials to mutual fund performance rankings and other data published by Fund
Tracking Companies. Performance advertising may also refer to discussions of the
Fund and comparative mutual fund data and ratings reported in independent
periodicals, such as newspapers and financial magazines.
TOTAL RETURN CALCULATIONS
The Fund may, from time to time, include quotations of its average annual total
return in advertisements or reports to shareholders or prospective investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in 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 the Fund during the particular time period shown. Total return for
the Fund will vary based on changes in market conditions and the level of the
Fund's expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future.
In connection with communicating total return to current or prospective
investors, the Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments and/or a series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted with or without taking into consideration
the 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.
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Period total return is calculated according to the following formula:
PT = (ERV/P-1); where:
PT = period total return;
The other definitions are the same as in average annual total
return above.
Investors who purchase and redeem shares of the Fund through a customer account
maintained at a 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 Fund may also include various information in its advertisements including,
but not limited to: (1) portfolio holdings and portfolio allocation as of
certain dates, such as portfolio diversification by instrument type, by
instrument, by location of issuer or by maturity; (2) statements or
illustrations relating to the appropriateness of types of securities and/or
mutual funds that may be employed by an investor to meet specific financial
goals, such as funding retirement, paying for children's education and
financially supporting aging parents; (3) information (including charts and
illustrations) showing the effects of compounding interest (compounding is the
process of earning interest on principal plus interest that was earned earlier;
interest can be compounded at different intervals, such as annually, quarterly
or daily); (4) information relating to inflation and its effects on the dollar;
for example, after ten years the purchasing power of $25,000 would shrink to
$16,621, $14,968, $13,465 and $12,100, respectively, if the annual rates of
inflation were 4%, 5%, 6% and 7%, respectively; (5) information regarding the
effects of automatic investment and systematic withdrawal plans, including the
principal of dollar cost averaging; (6) background information regarding the
Fund's investment adviser and biographical descriptions of the management staff
of the Adviser; (7) summaries of the views of the Fund's investment adviser with
respect to the financial markets; (8) background information regarding the
Trust; (9) the results of a hypothetical investment in the Fund over a given
number of years, including the amount that the investment would be at the end of
the period; (10) the effects of investing in a tax-deferred account, such as an
individual retirement account or Section 401(k) pension plan; and (11) the net
asset value, net assets or number of shareholders of the Fund as of one or more
dates.
5. MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The trustees and officers of the Trust and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" (as defined by the 1940 Act) of the Trust is indicated by an asterisk.
John Y. Keffer,* Trustee, Chairman and President (age 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.
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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 (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.
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 Fund's fiscal year ended May 31,
1998.
18
<PAGE>
<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
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.
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), 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.
19
<PAGE>
Mark J. Smith* (age 35), Chairman, 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 33 Gutter Lane,
London, England.
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.
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 Mgmt, 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.
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.
20
<PAGE>
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, an investment
management attorney at Seward & Kissel since 1998; prior thereto, an
investment management attorney with Gordon Altman Butowsky Weitzen
Shalov & Wein since 1989. 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 33 Gutter Lane, London, England.
Alexandra Poe (age 37), - Secretary and Vice President of Schroder Core
Vice President of SCMI since August 1996; General 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.
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.
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 ADVISER
The Fund invests its assets in the Portfolio, a series of Schroder Core.
21
<PAGE>
SCMI, 787 Seventh Avenue, New York, New York, 10019, serves as investment
adviser to the Portfolio pursuant to an investment advisory agreement. SCMI (as
well as Schroder Capital Management Inc.) is a wholly owned U.S. subsidiary of
Schroders Incorporated (doing business in New York State as Schroders Holdings),
the wholly owned U.S. holding company subsidiary of Schroders plc. Schroders plc
is the holding company parent of a large worldwide group of banks and financial
service companies (referred to as the "Schroder Group"), with associated
companies and branch and representative offices located in seventeen countries
worldwide. The Schroder Group specializes in providing investment management
services, with funds under management in excess of $175 billion as of June 30,
1998.
Under the investment advisory agreements, SCMI is responsible for managing the
investment and reinvestment of the assets included in the Portfolio and for
continuously reviewing, supervising and administering the Portfolio's
investments. In this regard, SCMI is responsible for making decisions relating
to the Portfolio's investments and placing purchase and sale orders regarding
such investments with brokers or dealers selected by it in its discretion. SCMI
also furnishes to the Board, which has overall responsibility for the business
and affairs of the Trust, periodic reports on the investment performance of the
Portfolio.
Under the terms of the investment advisory agreements, SCMI is required to
manage the Portfolio's investment portfolio in accordance with applicable laws
and regulations. In making its investment decisions, SCMI does not use material
inside information that may be in its possession or in the possession of its
affiliates.
The investment advisory agreements each continue in effect provided such
continuance is approved annually: (1) by the vote of a majority of the
outstanding voting securities of the Portfolio (as defined by the 1940 Act) or
by the Schroder Core Board and (2) by a majority of the Trustees who are not
parties to the agreement or "interested persons" (as defined in the 1940 Act) of
any party to the agreement. The investment advisory agreement with respect to
the Portfolio may be terminated without penalty by vote of the Trustees or the
interestholders of the Portfolio, in each case on 60 days' written notice to
SCMI, or by SCMI on 60 days' written notice to the Schroder Core Board. The
agreements terminate automatically if assigned. Each agreement also provides
that, with respect to the Portfolio, neither SCMI nor its personnel shall be
liable for any error of judgment or mistake of law or for any act or omission in
the performance of its or their duties to the Portfolio, except for willful
misfeasance, bad faith or gross negligence in the performance of SCMI's duties
or by reason of reckless disregard of its or their obligations and duties under
the agreement.
For its services with respect to the Portfolio, SCMI receives an advisory fee at
an annual rate of 1.00% of the average daily net assets of the Portfolio. The
Fund bears a pro rata portion of advisory fees of the 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.
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $31 $28 $3
</TABLE>
THE ADMINISTRATOR
Pursuant to an Administrative Agreement with the Trust, Forum Administrative
Services, LLC ("FAdS") acts as administrator of the Fund. As administrator, FAdS
provides management and administrative services necessary to the operation of
the Trust (which include, among other responsibilities, negotiation of contracts
and fees with, and monitoring of performance and billing of, the transfer agent
and custodian and arranging for maintenance of books and records of the Trust),
and provides the Trust with general office facilities. At the request of the
Board, FAdS provides persons satisfactory to the Board to serve as officers of
the Trust. Those officers as well as certain other employees and Trustees of the
Trust, may be directors, officers or employees of FAdS, SCMI, or their
affiliates.
The Administration Agreement will remain in effect for a period of twelve months
with respect to the Fund and will continue in effect thereafter only if it is
specifically reapproved annually (1) by the Board or by majority vote of the
shareholders of the 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).
22
<PAGE>
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 receives a fee at an annual rate of 0.20% of the
Fund's average daily net assets.
Pursuant to an Administration Agreement between Schroder Core and Schroder Fund
Advisors Inc. ("Schroder Advisors") located at 787 Seventh Avenue, New York, New
York 10019, Schroder Advisors serves as administrator for the Portfolio.
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 a Subadministration Agreement between Schroder Core and FAdS, FAdS
serves as the subadministrator for the Portfolio.
Pursuant to their Agreements, Schroder Advisors and FAdS provide management and
administrative services necessary to the operation of 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 provide 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,
SCMI, or their affiliates.
The respective 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 Core Board or by majority vote of the shareholders
of the Portfolio and (2) by vote of a majority of the Trustees of Schroder Core
who are not party to the Agreements or interested persons of any such party
(other than as Trustees of Schroder Core).
The Agreements terminate automatically if assigned and may be terminated without
penalty with respect to a Portfolio by vote of the Schroder Core Board, by
Schroder Advisors or by 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 duties under the applicable
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.
The Fund is responsible for its pro rata share of the Portfolio's 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 the Fund for the fiscal year ended May 31,
1998.
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $9 $6 $3
</TABLE>
THE DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust Forum Fund Services, Inc.
("FFS"), an affiliate of FAdS, serves as the Trust's distributor and acts as the
agent of the Trust in connection with the offering of shares of the Fund (Forum
Financial Services, Inc. until February 28, 1999). FFS is under no obligation to
sell any specific amount of Fund shares. All subscriptions of shares obtained by
FFS 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 the 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 the Fund's shareholders and in either case, by
a majority of the Trustees who:
23
<PAGE>
(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 the Fund without penalty by the Board or by a
majority vote of its shareholders on 60 days' written notice to FFS or by FFS on
60 days' written notice to the Trust. The Distribution Agreement provides that
FFS 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 FFS's duties or by reason of reckless disregard of its
obligations and duties under the Distribution Agreement.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read the 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, FFS receives, and may reallow to certain financial
institutions, the sales charge paid by the purchasers of the Fund's shares. For
the fiscal year ended May 31, 1998, no sales charges were paid to FFSI in
connection with the purchases of the Fund's shares.
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 the
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 the 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 and Services Agreement.
Among the responsibilities of FSS as agent for the Trust are: (1) answering
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of the Fund may be effected and certain
other matters pertaining to the Fund; (2) assisting shareholders in initiating
and changing account designations and addresses; (3) providing necessary
personnel and facilities to establish and maintain shareholder accounts and
records, assisting in processing purchase and redemption transactions and
receiving wired funds; (4) transmitting and receiving funds in connection with
customer orders to purchase or redeem shares; (5) verifying 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
24
<PAGE>
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 the
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.
The Fund is responsible for its pro rata share of the Portfolio's transfer
agency expenses, if any. The following table shows the gross fees payable for
transfer agency services rendered, the amount of transfer agency fees waived, if
any, and the actual transfer agency fees paid by the Fund for the fiscal year
ended May 31, 1998.
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $5,282 $8 $5,274
</TABLE>
THE FUND ACCOUNTANT
Pursuant to a Fund Accounting Agreement with the Trust, FAcS performs portfolio
accounting services for the Fund. Pursuant to the Fund Account Agreement, FAcS
prepares and maintains books and records of the Fund as required under the 1940
Act, calculates the net asset value per share of the Fund 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 the 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 the 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 Fund an annual fee of $12,000.
FSS performs transfer agency and portfolio accounting services for the 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.
The Fund is responsible for its pro rata 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 the Fund for the fiscal year ended May 31, 1998.
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR ENDED
MAY 31 GROSS FEE WAIVED FEE NET FEE
- ------ --------- ---------- -------
1998 $7,266 $0 $7,266
</TABLE>
25
<PAGE>
6. DETERMINATION OF NET ASSET VALUE
The Trust determines the net asset value per share of the Fund as of the close
of the New York Stock Exchange (the "Exchange") (normally, 4:00 p.m., Eastern
Time) on each Business Day as defined in the Prospectus, by dividing the value
of the Fund's net assets (I.E., the value of its portfolio securities and other
assets less its liabilities) by the number of the Fund's shares outstanding at
the time the determination is made. Purchases and sales of the Fund's shares are
effected at the next determination of the net asset value of the Fund following
the receipt of any purchase or redemption order.
Securities owned by the 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 Net Asset Value 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 the Portfolio or the Fund denominated in foreign
currencies are converted to U.S. dollars at the mid price of such currencies
against U.S. dollars last quoted by a major bank prior to the time when the Net
Asset Value of the Fund or Portfolio is calculated.
7. PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS
Investment decisions for the Portfolio and for SCMI's other investment advisory
clients 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, and a particular security
may be 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 other 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 that, in SCMI'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 of negotiated brokerage commissions. Such commissions vary among
brokers. Also, a particular broker may charge different commissions according to
the difficulty and size of the transaction; for example, transactions in foreign
securities generally involve the payment of fixed brokerage commissions, which
are generally higher than those in the U.S. Since most brokerage transactions
for the Portfolio are placed with foreign broker-dealers, certain portfolio
transaction costs for a Portfolio may be higher than fees for similar
transactions executed on U.S. securities exchanges. However, SCMI seeks to
achieve the best net results in effecting its portfolio transactions. There is
generally less governmental supervision and regulation of foreign stock
exchanges and brokers than in the U.S. There is generally no stated commission
in the case of securities traded in the over-the-counter markets, but the price
paid usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid includes a disclosed, fixed
26
<PAGE>
commission or discount retained by the underwriter or dealer. Brokerage
commissions are not paid directly by the Fund as it invests its assets directly
in the Portfolio.
The Portfolio's advisory agreement authorizes and directs SCMI to place orders
for the purchase and sale of the Portfolio's investments with brokers or dealers
SCMI selects and to seek "best execution" of portfolio transactions. SCMI places
all such orders for the purchase and sale of portfolio securities and buys and
sells securities through a substantial number of brokers and dealers. In so
doing, SCMI uses its best efforts to obtain the most favorable price and
execution available. The Portfolio may, however, pay higher than the lowest
available commission rates when SCMI 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,
SCMI considers all factors it deems relevant, including price, transaction size,
the nature of the market for the security, the commission amount, 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.
Historically, investment advisers, including advisers of investment companies
and other institutional investors, have received research services from
broker-dealers that execute portfolio transactions for the advisers' clients.
Consistent with this practice, SCMI may receive research services from
broker-dealers with which it places 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 SCMI in advising various of
its clients (including other Portfolios), although not all of these services are
necessarily useful and of value in managing the Portfolio. The investment
advisory fee paid by the Portfolio is not reduced because SCMI and its
affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, SCMI may cause the Portfolio to pay a broker-dealer that provides SCMI
with "brokerage and research services" (as defined in that Section) 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. In addition, although it does not do so currently SCMI may allocate
brokerage transactions to broker-dealers who have entered into arrangements
under which the broker-dealer allocates a portion of the commissions paid by the
Portfolio toward payment of Portfolio expenses, such as custodian fees.
Subject to the general policies of the Portfolio regarding allocation of
portfolio brokerage as set forth above, the Board has authorized SCMI to employ:
(1) Schroder & Co. Inc., an affiliate of SCMI, to effect securities transactions
of the Portfolio on the New York Stock Exchange only; and (2) Schroder
Securities Limited and its affiliates (collectively, "Schroder Securities"),
affiliates of SCMI, to effect securities transactions of the Portfolio on
various foreign securities exchanges on which Schroder Securities has trading
privileges, provided certain other conditions are satisfied as described below.
Payment of brokerage commissions to Schroder & Co. Inc. or Schroder Securities
for effecting brokerage transactions is subject to Section 17(e) of the 1940
Act, which requires, among other things, that commissions for transactions on a
securities exchange paid by the Portfolio to a broker that is an affiliated
person of the Portfolio (or an affiliated person of another person so
affiliated) not exceed the usual and customary broker's commissions for such
transactions. It is the policy of the Portfolio that commissions paid to
Schroder & Co. Inc. or Schroder Securities will, in SCMI's opinion, be: (1) at
least as favorable as commissions contemporaneously charged by Schroder & Co.
Inc. or Schroder Securities, as the case may be, on comparable transactions for
their most favored unaffiliated customers; and (2) at least as favorable as
those which would be charged on comparable transactions by other qualified
brokers having comparable execution capability. The Schroder Core Board,
including a majority of the non-interested Trustees, has adopted procedures
pursuant to Rule 17e-1 under the 1940 Act to ensure that commissions paid to
Schroder & Co. Inc. or Schroder Securities by a Portfolio satisfy these
standards. Such procedures are reviewed periodically by the Board, including a
majority of the non-interested Trustees. The Schroder Core Board also reviews
all transactions at least quarterly for compliance with such procedures.
27
<PAGE>
It is further a policy of the Portfolio that all such transactions effected by
Schroder & Co. Inc. on the New York Stock Exchange be in accordance with Rule
11a2-2(T) promulgated under the Securities Exchange Act of 1934, as amended,
which requires in substance that a member of such exchange not associated with
Schroder & Co. Inc. actually execute the transaction on the exchange floor or
through the exchange facilities. Thus, while Schroder & Co. Inc. will bear
responsibility for determining important elements of execution such as timing
and order size, another firm will actually execute the transaction.
Schroder & Co. Inc. pays a portion of the brokerage commissions it receives from
a Portfolio to the brokers executing the transactions on the Exchange. In
accordance with Rule 11a2-2(T), the Trust has entered into an agreement with
Schroder & Co. Inc. permitting it to retain a portion of the brokerage
commissions paid to it by the Portfolio. The Board, including a majority of the
non-interested Trustees, has approved this agreement.
The Portfolio does not have any understanding or arrangement to direct any
specific portion of its brokerage to Schroder & Co. Inc. or Schroder Securities,
and will not direct brokerage to Schroder & Co. Inc. or Schroder Securities in
recognition of research services.
From time to time, the Portfolio may purchase securities of a broker or dealer
through which it regularly engages in securities transactions.
8. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Detailed information pertaining to the purchase of shares of the Fund,
redemption of shares and the determination of the net asset value of Fund shares
is set forth in the Prospectus under "Purchases and Redemptions of Shares".
Shares of the Fund are sold on a continuous basis by the FFS.
Set forth below is an example of the method of computing the offering price of
the Fund's shares. The example assumes a purchase of shares of beneficial
interest aggregating less than $100,000 subject to the schedule of sales charges
set forth in the Prospectus at a price based on the net asset value per share of
the Fund on May 31, 1998.
Net Asset Value Per Share $9.28
Shares Charge, 4.00% of
offering price (4.17% of net
asset value per share) $0.39
Offering to Public $9.67
In addition to the situations described in the Prospectus under "Purchases and
Redemptions of Shares," the Trust may redeem shares involuntarily, from time to
time, to reimburse the Fund for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to transactions effected for the benefit of a
shareholder which is applicable to the Fund's shares as provided in the
Prospectus.
REDEMPTION IN KIND
The Trust has filed a formal election with the Securities and Exchange
Commission pursuant to which the Fund will only effect a redemption in portfolio
securities if a shareholder is redeeming more than $250,000 or 1% of the Fund's
total net assets, whichever is less, during any 90-day period.
In the event that payment for redeemed shares is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the shareholder in
converting the securities to cash. An in kind distribution of portfolio
securities will be less liquid than cash. The shareholder may have difficulty in
finding a buyer for portfolio securities received in payment for redeemed
shares. Portfolio securities may decline in value between the time of receipt by
the shareholder and conversion to cash. A redemption in kind of the Fund's
portfolio securities could result in a less diversified portfolio of investments
for the Fund and could affect adversely the liquidity of the Fund's portfolio.
28
<PAGE>
EXCHANGE PRIVILEGE
The exchange privilege permits shareholders of the Fund to exchange their shares
for shares of any other fund of the Trust or shares of certain other portfolios
of investment companies which retain FAdS or its affiliates as investment
adviser or distributor and which participate in the Trust's exchange privilege
program ("Participating Fund"). For Federal income tax purposes, exchange
transactions are treated as sales on which a purchaser will realize a capital
gain or loss depending on whether the value of the shares redeemed is more or
less than his basis in such shares at the time of the transaction.
By use of the exchange privilege, the shareholder authorizes FSS to act upon the
instruction of any person representing himself to either be, or to have the
authority to act on behalf of, the investor and believed by FSS to be genuine.
The records of FSS of such instructions are binding. Proceeds of an exchange
transaction may be invested in another Participating Fund in the name of the
shareholder.
Exchange transactions will be made on the basis of relative net asset values per
share at the time of the exchange transaction plus any sales charge applicable
to the Participating Fund whose shares are being acquired. Shares of any
Participating Fund may be redeemed and the proceeds used to purchase, without a
sales charge, shares of any other Participating Fund that are offered without a
sales charge. Shares of any Participating Fund purchased with a sales charge may
be redeemed and the proceeds used to purchase, without a sales charge, shares of
any other Participating Fund otherwise sold with the same sales charge. If the
Participating Fund purchased in the exchange transaction imposes a higher sales
charge than was paid originally on the exchanged shares, the shareholder will be
responsible for the difference between the two sales charges. Shares acquired
through the reinvestment of dividends and distributions are deemed to have been
acquired with a sales charge rate equal to that paid on the shares on which the
dividend or distribution was paid.
The terms of the exchange privilege are subject to change, and the privilege may
be terminated by any of the Participating Funds or the Trust. However the
privilege will not be terminated, and no material change that restricts the
availability of the privilege to shareholders will be implemented, without
reasonable advance notice to shareholders.
9. TAX MATTERS
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company the Fund intends to distribute to shareholders at
least 90% of its net investment income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net
long-term capital losses), and to meet certain diversification of assets, source
of income, and other requirements of the Code. By so doing, the Fund will not be
subject to Federal income tax on its net investment income and net capital gain
(the excess of net long-term capital gains over net short-term capital losses)
distributed to shareholders. If the Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation, and its distributions
will be taxable to shareholders as ordinary income to the extent of the Fund's
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, the Fund must distribute for each calendar
year an amount equal to the sum of (1) at least 98% its ordinary income
(excluding any capital gains or losses) for the calendar year, (2) at least 98%
of the excess of its capital gains over capital losses realized during the
one-year period ending October 31 of such year, and (3) all such ordinary income
and capital gains for previous years that were not distributed during such
years. A distribution will be treated as paid during the calendar year if it is
declared by the Fund in October, November or December of the year with a record
date in such month and paid by the Fund during January of the following year.
Such distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received.
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
29
<PAGE>
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
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 the Fund which is taxed as ordinary income when distributed to shareholders.
The 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
the Fund. Distributions of net capital gain are not eligible for the dividends
received deduction. A loss realized by a shareholder on the sale of shares of
the Fund 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 the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, such distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will receive a distribution which will nevertheless
be taxable to them.
Upon redemption or sale of his shares, a shareholder will realize a taxable gain
or loss depending upon his basis in his shares. Such gain or loss generally will
be treated as capital gain or loss if the shares are capital assets in the
30
<PAGE>
shareholder's hands. Such gain or loss generally will be long-term or short-term
depending upon the shareholder's holding period for the shares.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all distributions as well as gross proceeds from the redemption of the Fund
shares, except in the case of certain exempt shareholders. All such
distributions and proceeds generally will be subject to withholding of Federal
income tax at a rate of 31% ("backup withholding") in the case of nonexempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions or proceeds,
whether reinvested in additional shares or taken in cash, will be reduced by the
amount required to be withheld. Any amounts withheld may be credited against the
shareholder's Federal income tax liability. Investors may wish to consult their
tax advisers about the applicability of the backup withholding provisions.
The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and their treatment under state and local income tax
laws may differ from the Federal income tax treatment. Shareholders should
consult their tax advisors with respect to particular questions of Federal,
state and local taxation. Shareholders who are not U.S. persons should consult
their tax advisors regarding U.S. and foreign tax consequences of ownership of
shares of the Fund including the likelihood that 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
ADDITIONAL INFORMATION ABOUT THE TRUST
The Trust's shareholders are not personally liable for the obligations of the
Trust under Delaware law. The Delaware Business Trust Act (the "Delaware Act")
provides that a shareholder 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 shareholder liability exists in many other states. As a
result, to the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject the Trust shareholders to liability. To guard against
this risk, the Trust Instrument of the Trust disclaims shareholder 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 the Trust or
its Trustees, and provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder 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) the Trust itself is unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business, and the nature of its assets, the Board
believes that the risk of personal liability to a Trust shareholder is extremely
remote.
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<PAGE>
SCHRODER CORE
Schroder Core is a business trust organized under the law of the State of
Delaware in September 1995. Schroder Core is registered under the Act as an
open-end management investment company. Currently, Schroder Core has eight
separate portfolios. The assets of each Schroder Core portfolio, 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
Schroder Core's Trust Instrument, the Trustees are authorized to issue
beneficial interest in one or more separate and distinct series. Investments in
the Portfolio have no preference, preemptive, conversion or similar rights and
are fully paid and nonassessable, except as set forth below. Each investor in
the Portfolio is entitled to a vote in proportion to the amount of its
investment therein. Investors in the Portfolio and other series (collectively,
the "portfolios") Schroder Core will all vote together in certain circumstances
(e.g., election of the Trustees). 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 Schroder Core or
in the 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 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 Schroder Core (or the Portfolio) request in
writing a meeting of investors in Schroder Core (or the Portfolio). Except for
certain matters specifically described in the Trust Instrument, the Trustees may
amend the Trust's Trust Instrument without the vote of investors.
Schroder Core may enter into a merger or consolidation with respect to the
Portfolio or sell all or substantially all of its assets, if approved by the
applicable Board (without approval of the interestholders of the Portfolio). The
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 Schroder Core
on written notice to the Portfolio's investors. Upon liquidation or dissolution
of the Portfolio, the investors therein would be entitled to share pro rata in
its net assets available for distribution to investors. Schroder Core'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
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
Schroder Core to liability. To guard against this risk, the Trust Instrument of
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 Schroder Core or their respective Trustees, and
provides for indemnification out of Trust property of any interestholder held
personally liable for the obligations of 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) 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.
Schroder Core, its Trustees and certain of its officers are required to sign the
registration statement of the Trust and the registration statements of certain
other publicly-offered investors in the Portfolio. 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. In
addition, under the Federal securities laws, Schroder Core could be liable for
misstatements or omissions of a material fact in any proxy soliciting material
of a publicly offered investor in Schroder Core, including the Fund. Under the
Trust Instrument for Schroder Core, each investor in the Portfolio, including
the Trust, indemnifies Schroder Core and its Trustees and officers ("Schroder
Core Indemnitees") against certain claims. Indemnified claims are those brought
against 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 Schroder Core in the investor's
registration statement or proxy materials that was supplied to the investor by
Schroder Core. Similarly, Schroder Core indemnifies each investor in the
Portfolio, including the Fund, 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 Schroder Core that is supplied to the investor by
Schroder Core. In addition, each registered investment company investor in the
Portfolio indemnifies the 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 Schroder Core. The purpose of these cross-indemnity provisions is
principally to limit the liability of 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 Schroder Core, Schroder
Core's liability is similarly limited to information about and supplied by
Schroder Core.
PLACEMENT AGENT
Forum Fund Services, LLC, Two Portland Square, Portland, Maine 04101, serves as
Schroder Core's placement agent. FFS receives no compensation for such placement
agent services.
COUNSEL
Legal matters in connection with the Trust are passed upon by the law firm of
Seward & Kissel, 1200 G Street, N.W. Washington, D.C. 20005.
Ropes & Gray, One International Place, Boston, Massachusetts, serves as counsel
to the Schroder Core 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
02109, serves as independent accountants for the Portfolio.
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<PAGE>
CUSTODIAN
Pursuant to a Custodian Agreement, Investors Bank & Trust Company, 200 Clarendon
Street, 16th Floor, Boston, MA 02116, acts as the custodian of the Fund's
assets. The custodian's responsibilities include safeguarding and controlling
the Fund's cash and securities, determining income and collecting interest on
the Fund's investments.
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 the Fund and the Schroder Core portfolio in which it
invests 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.
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<PAGE>
APPENDIX A
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 1, 1999, 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.
The Fund has relataively few investors and minimal assets. It is, therefore,
unlikely that the current 25% shareholders will continue to potentially control
the Funds once they experience an increase in assets and shareholders.
<TABLE>
<S> <C> <C>
- ---------------------------------------- ------------------------ ---------------------------------------
Percentage of Shares Amount of Shares of Fund Owned
Owned
- ---------------------------------------- ------------------------ ---------------------------------------
- ---------------------------------------- ------------------------ ---------------------------------------
EMERGING MARKETS FUND
- ---------------------------------------- ------------------------ ---------------------------------------
- ---------------------------------------- ------------------------ ---------------------------------------
Forum Financing 66.62% 518.200
Attn: Corporate Accounting
Two Portland Square
Portland, ME 04101
- ---------------------------------------- ------------------------ ---------------------------------------
- ---------------------------------------- ------------------------ ---------------------------------------
Gary L. Robinson 33.68% 263.158
One Royal Meadow Road
Yarmouth, ME 04096
- ---------------------------------------- ------------------------ ---------------------------------------
</TABLE>
A-1
<PAGE>
APPENDIX B
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 124
mutual funds for 12 different fund managers, with more than $47.7 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.
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.
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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 with decades of experience with some of the country's major
financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed approximately $175 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 $1.2 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 $2.1 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 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.
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Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
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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 124 funds with
more than $47.7 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
$2.1 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 $1.2 billion in assets under management and $400 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.
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FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
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: $60.4 billion
*Client Assets Processed by Fund Accounting: $47.7 billion
*Client Funds under Administration and Distribution: 124 mutual funds with 175
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 -209 Poland - 76, 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
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H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.2 Billion
*Custody Income Assets: $400 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
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