As filed with the Securities and Exchange Commission on April 13, 1999
Securities Act File No. _________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /___X__/
Pre-Effective Amendment No. /____/
Post-Effective Amendment No. /_____/
FORUM FUNDS
(Exact Name of Registrant as Specified in Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Offices) (Zip Code)
(207) 879-1900
(Registrant's Area Code and Telephone Number)
Leslie K. Klenk, Esq.
Forum Fund Services, LLC
Two Portland Square
Portland, ME 04101
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel LLP
1200 G Street, N.W.
Washington, D.C. 20005
Approximate Date of Proposed Public Offering:
As soon as practicable after this
Registration Statement becomes effective.
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It is proposed that this filing will become effective on May __,
1999 pursuant to Rule 488 under the Securities Act of 1933.
- --------------------------------------------------------------------------------
No filing fee is required because the Registrant has previously registered an
indefinite number of its Shares under the Securities Act of 1933, as amended,
pursuant to Rule 24f-2 under the
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PART A
PROXY STATEMENT/PROSPECTUS
May __, 1999
FORUM FUNDS
Two Portland Square
Portland, Maine 04101
(207) 879-1900
We are furnishing this Proxy Statement/Prospectus to the limited partners of BIA
Emerging Growth Fund Limited Partnership ("Emerging Growth Partnership") and of
BIA Growth Equity Fund Limited Partnership ("Growth Equity Partnership"). BAT
Commingled Fund Manager, Inc. is the general partner of each partnership. The
general partner proposes to convert each partnership into a mutual fund.
The general partner proposes to convert Emerging Growth Partnership into BIA
Small-Cap Growth Fund and Growth Equity Partnership into BIA Growth Equity Fund.
BIA Small-Cap Growth Fund and BIA Growth Equity Fund are two new series of Forum
Funds (the "Trust"), a registered open-end management company. Each fund seeks
high total return by primarily investing in equity securities.
The General Partner is asking your consent to the following two proposals:
1. Proposal 1: To amend your partnership's current Amended and Restated
Partnership Agreement to:
o expressly authorize the General Partner, subject to limited partner
approval, to convert your partnership to a mutual fund; and
o permit dissenting limited partners to redeem their partnership
interests prior to the conversion.
2. Proposal 2: To approve the conversion of your partnership to an investment
in a mutual fund under the Amended and Restated Partnership Agreement as
amended by Proposal 1.
Your partnership may not convert into a mutual fund unless the limited partners
approve both proposals. The general partner intends to consent to both
proposals. If your partnership's limited partners do not approve both proposals,
the general partner will determine what further action to take, if any.
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This Proxy Statement/Prospectus describes the funds and the proposed
conversions. You should consider this information carefully in deciding whether
to approve the proposals. Please keep this Proxy Statement/Prospectus for future
reference. The Trust has filed additional information about the funds and
proposed conversions with the Securities and Exchange Commission in a separate
statement of additional information dated May __, 1999 (the "Statement") that is
incorporated by reference in this Proxy Statement/Prospectus. Call or write
Forum Fund Services, LLC, Portland, ME 04101, (XXX) XXX-XXXX to obtain a copy of
the Statement.
In addition, you can reach the partnerships by calling or writing to: BAT
Commingled Fund Manager, Inc. General Partner, 19 South Street, Baltimore,
Maryland 21202, (410) XXX-XXXX.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
SYNOPSIS...................................................................
RISK FACTORS...............................................................
THE CONVERSION.............................................................
THE PROPOSALS..............................................................
THE PARTNERSHIPS, THE FUNDS AND THE TRUST..................................
SECURITIES TO BE ISSUED....................................................
COMPARISON OF THE PARTNERSHIPS AND THE FUNDS...............................
ADVANTAGES TO FUND SHAREHOLDERS............................................
FEDERAL INCOME TAX CONSEQUENCES OF THE CONVERSION..........................
CONSIDERATIONS.............................................................
CAPITALIZATION.............................................................
FEE TABLES.................................................................
EXPENSES OF THE CONVERSION.................................................
VOTING INFORMATION.........................................................
OTHER INFORMATION..........................................................
APPENDIX A.................................................................
APPENDIX B.................................................................
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SYNOPSIS
The Synopsis highlights some of the information contained in this
Proxy/Prospectus. Other sections of this Proxy/Prospectus and the Appendices
contain addition information.
THE CONVERSION
BAT Commingled Fund Manager, Inc. is the general partner of BIA Emerging Growth
Limited Partnership ("Emerging Growth Partnership") and BIA Growth Equity
Limited Partnership ("Growth Equity Partnership"). The general partner proposes
to convert each partnership into a corresponding mutual fund upon approval of
the partnership's limited partners. The general partner intends to accomplish
the conversion by:
o Transferring substantially all of the assets of a partnership to its
corresponding mutual fund as stated on page 1 in exchange for shares of
that mutual fund (an "Exchange");
o Dissolving the partnership and distributing the mutual fund shares to the
limited partners in proportion to the partners' positive capital accounts
(a "Share Distribution"); and
o Liquidating the partnership (a "Liquidation")
The partners of record for a partnership as of the business day immediately
before the date of the Exchange (the "Valuation Date"), after redemption of the
partnership interests ("Partnership Interests") of partners that do not choose
to participate in the Exchange, will receive fund shares in the partnership's
Share Distribution. Partners that choose not to participate in an Exchange may
redeem their Partnership Interests on the Valuation Date. The general partner
will liquidate each partnership as soon as practicable after the partnership's
Share Distribution. The "Conversion" of each partnership consists of the
Exchange, the Share Distribution and the Liquidation of that partnership. The
Conversion of each partnership is independent of the other. In other words, one
partnership may convert to a mutual fund even though the other does not. The
general partner and the Trust intend to consummate both Conversions on June __,
1999.
THE PROPOSALS
To accomplish a partnership's Conversion, the general partner is soliciting the
written consent of each partnership's limited partners on two proposals.
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PROPOSAL 1
To amend the partnership's current Amended and Restated Limited Partnership
Agreement ("Partnership Agreement") to:
o expressly authorize the general partner, subject to limited partner
approval, to effect the transactions comprising the Conversion; and
o permit dissenting limited partners to redeem their Partnership
Interests prior to conversion if they do not wish to participate in
the Conversion.
PROPOSAL 2
To approve the Conversion of the partnership pursuant to its Partnership
Agreement as amended by Proposal 1.
THE PARTNERSHIPS, THE FUNDS AND THE TRUST
The partnerships are Maryland limited partnerships. Emerging Growth Partnership
commenced investment operations on July 1, 1995 and Growth Equity Partnership
commenced investment operations on January 1, 1996.
The funds are series of the Trust, an open-end management investment company and
Delaware business trust. The Trust commenced operations on March 24, 1980 as a
Maryland corporation and was reorganized as a Delaware business trust on January
5, 1996. The Trust has an unlimited number of authorized shares. Currently,
there are 21 separate series of the Trust. The funds will become operational
series of the Trust on June 1, 1999.
COMPARISON OF THE PARTNERSHIPS AND THE FUNDS
This Proxy/Prospectus compares the key features and discusses the material
differences between the partnerships and the funds. You should pay particular
attention to the comparisons of the funds and the partnerships. You should
carefully consider the differences between the funds and the partnerships in
deciding whether or not to approve the amendments to your partnership's
Partnership Agreement and to consent to the Conversion of the partnership. The
following differences require particular attention:
o investment policies regarding diversification
o investment policies regarding concentration of investments
o investment policies regarding borrowing
o investment policies regarding lending of portfolio securities
o minimum investment requirements
o limitations on purchases and redemptions
o fees or anticipated fees
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o the rights of holders of interests in the entity
o tax treatment of investments in a partnership and a fund
INVESTMENT OBJECTIVES AND POLICIES
Brown Investment Advisory & Trust Company (the "Adviser") is the investment
adviser to each partnership and fund. Each partnership has substantially the
same investment objective and primary investment strategy as its corresponding
fund.
Emerging Growth Partnership seeks to provide high total return by investing
primarily in the equity securities of emerging growth companies. BIA Small-Cap
Growth Fund seeks to provide high total return by investing primarily in small
domestic growth companies. Emerging growth companies and small domestic
companies are those companies whose market capitalization is between $25 million
and $1 billion at the time of investment.
Growth Equity Partnership seeks to provide high total return by investing
primarily in equity securities of domestic growth companies and relatively
mature companies experiencing an acceleration in earnings and cash flow growth.
BIA Growth Equity Fund seeks to provide high total return by primarily investing
in domestic growth companies and relatively mature companies experiencing an
acceleration of earnings and cash flow growth.
Each partnership and corresponding fund have certain secondary investment
restrictions and investment techniques that differ. Unlike the partnerships, the
funds must meet certain investment diversification criteria and may not
concentrate investments in securities of businesses in a particular industry.
The partnerships and funds also maintain different policies regarding the
borrowing of money, the lending of portfolio securities, the purchase of
illiquid and restricted securities, and the use of options and futures.
PURCHASE PROCEDURES
You may purchase Partnerhsip Interests if you are a qualified investor and
client of the Adviser. You may purchase Partnership Interests directly from a
partnership upon approval of the General Partner. Generally, you may only
purchase Partnership Interests on the first day of each month. Ordinarily, the
minimum initial investment in a partnership is $250,000. The general partner may
choose to waive the minimum investment requirement.
Although the Adviser will initially use the funds as investment vehicles for its
own clients, the Adviser anticipates marketing the funds to the general public
in the future. Initially, you may purchase shares of a fund directly from the
Fund or from the Adviser on any day that the New York Stock Exchange is open
("Business Day"). The minimum initial investment is $5,000 ($2,000 for IRA
accounts).
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REDEMPTION AND EXCHANGE PROCEDURES
You may withdraw part or all of the capital from your partnership capital
account upon proper notice to your partnership. Withdrawal requests are
effective as of the last day of any month. You must normally withdraw at least
$20,000 when making a partial withdrawal. You may not make a partial withdrawal
if the withdrawal causes your capital account balance to fall below $250,000.
You will receive your proceeds as soon as possible after the effective date of
your withdrawal request. Partnership Interests do not have exchange privileges.
Unlike partnership redemptions, you may sell fund shares at the next share price
(the "net asset value" or "NAV") calculated after receipt of your redemption
order in proper form by the fund's transfer agent. You may sell fund shares on
any Business Day. There is no redemption charge, no minimum redemption amount
and no limit on the frequency of redemptions. You will generally receive
redemption proceeds within a week. You may exchange shares of one Fund for the
other or for Investor Shares of the Trust's money market funds.
DISTRIBUTION
The General Partner determines whether a partnership will make a distribution,
the timing of the distribution and the nature and amount of the distribution.
A fund, however, distributes its net investment income annually and its realized
capital gain at least annually. Normally, a fund reinvests distributions in
additional shares of the fund unless a shareholder elects to receive
distributions in cash.
FEES AND EXPENSES OF THE PARTNERSHIPS AND THE FUNDS
Currently, the Adviser is entitled to charge you an annualized advisory fee
equal to a maximum of 1% of your net assets. The general partner is also
entitled to charge you an annual administrative fee of up to 0.30% of the
average monthly net asset value of your Partnership Interests. In sum, you pay
an annual fee of up to 1.30% of the average quarter end net asset value of your
Partnership Interests. For the fiscal year ended December 31, 1998, the general
partner waived its administration fee with respect to Growth Equity Partnership.
Accordingly, limited partners of Growth Equity Partnership paid a total
annualized fee of up to 1.00% of their Partnership Interests for the fiscal year
ended December 31, 1998.
If you invest in BIA Small Cap Growth Fund, you will pay an estimated annual fee
equal to 1.25% of the average daily net asset value of your investment. If you
invest in BIA Growth Equity Fund, you will pay an estimated annual fee equal to
1.30% of the average daily of your investment. These fees are based on estimated
annual expenses of each fund for the fiscal year ended May 31, 2000 and include
a fee for advisory services. The Adviser will not charge a separate account
advisory fee for your assets invested in the funds. The adviser has voluntarily
agreed to waive a portion of its fees and assume certain expenses to the extent
that total annual expenses exceed 1.25% for BIA Small-Cap Growth Fund and 1.00%
for BIA Growth Equity Fund.
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It may be more expensive for you to invest in a fund than in your current
partnership. You should compare the total fees that you pay in connection with
your partnership investment to the fees for the corresponding fund when
considering whether to approve the proposals.
TAX MATTERS
The partnerships are not subject to federal income taxes. The funds intend to
operate so that they will not be liable for Federal income or excise tax.
The tax consequences of holding fund shares are different from the tax
consequences of holding an interest in a partnership. As a limited partner, you
must report your share of the partnership's income, gains, losses, deductions
and credits on your individual federal income tax returns, whether or not you
receive distributions from the partnership.
As a shareholder of a fund, you must pay tax on fund distributions that you
receive each year even if your reinvest those distributions in additional shares
of the fund. Each fund intends to distribute all of its net income and all of
its capital gains at least annually. A fund's distribution of net investment
income (which includes short-term capital gain) is taxable to you as ordinary
income. A fund's distribution of long-term capital gain is taxable to you as
long-term capital gain. Unlike a partner in a partnership, you may not currently
deduct your share of any net losses of a fund.
Limited Partners who are not U.S. citizens or residents and who are not
otherwise engaged in a trade or business in the United States (as defined by the
Code) generally are not subject to U.S. withholding tax on their share of a
partnership's realized capital gains. Fund shareholders who are not U.S.
citizens or residents and are not engaged in a U.S. trade or business are
subject to withholding tax at a 30% rate on fund distributions that are
attributable to short-term (but not long-term) capital gain.
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ADVANTAGES OF INVESTMENTS IN THE FUNDS
The general partner believes the Conversion of each partnership is in the best
interests of its limited partners. The primary advantages of the Conversion of
your partnership include:
o the ability to purchase and redeem shares daily
o the reduced minimum purchase amounts
o the ability to exchange shares of one fund for the other
o the ability to exchange fund shares for shares of certain money market funds
of the Trust
o the ability to transfer fund shares
o the daily valuation of fund assets and fund net asset value
RISK FACTORS
This section summarizes the principal risks of investing in a partnership or
fund. For further information regarding the funds' principal investment risks,
please see "Risk/Return Summary" and "Investment Objectives, Strategies and
Risks" in Part I of Appendix A.
GENERAL INVESTMENT RELATED RISKS
There is no guarantee that a partnership or fund will achieve its investment
objectives. The value of a partnership's or fund's investments will fluctuate as
the stock market fluctuates. There is also the risk that a partnership's or
fund's investment adviser may make poor investment selections. A partnership or
fund may also not perform as well as other investment vehicles that have similar
investment objectives and strategies. An investment in a partnership or a fund
is not by itself a complete or balanced investment program. Investing in equity
securities of companies with different market capitalizations may be important
for an investor seeking a diversified portfolio, particularly for a long-term
investor able to tolerate short-term fluctuations in a partnership's interest
value or a fund's net asset value. The market capitalization of a company is the
value of the company's common stock in the stock market.
Because each fund and partnership invest in stocks that the Adviser believes
have growth potential ("Growth Stocks"), there is a risk that the companies will
not continue to grow at certain expected rates thus causing the value of the
stock to decline. There is also the risk that the market will not recognize the
growth potential of the stock. A decline in investor demand for Growth Stocks
may also adversely affect the value of these securities.
SPECIFIC SMALL COMPANY INVESTMENT RELATED RISKS
Because investing in small companies can have more risk than investing in
larger, more established companies, an investment in Emerging Growth Partnership
or BIA Small-Cap Growth Fund may have the following additional risks:
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o More limited product lines, markets and financial resources make these
companies more susceptible to economic or market setbacks;
o Analysts and other investors typically follow these companies less
actively;
o Information about these companies is not always readily available; and
o Many of the companies are traded in the over-the-counter markets or on
regional securities exchanges making them thinly traded and more
volatile.
For these and other reasons, the prices of small capitalization securities can
fluctuate more significantly than the securities of larger companies. As a
result, an investment in Emerging Growth Partnership and BIA Small-Cap Growth
Fund may exhibit a higher degree of volatility than the market.
YEAR 2000 RISK
Certain computer systems may not process date-related information properly on
and after January 1, 2000. The Adviser is addressing this matter for the
partnerships' and funds' systems. The funds' other service providers have
informed the funds that they are taking similar measures. This matter, if not
corrected, could adversely affect the services provided to the partnerships and
funds or the companies in which the partnerships and funds invest and,
therefore, could lower the value of your Partnership Interests or fund shares.
REGULATORY RELATED RISKS
The Trust is registered under the Investment Company Act of 1940, as amended,
(the "1940 Act") and its securities are registered under the Securities Act of
1933, as amended ("Securities Act"). These laws require the Trust and the funds
to comply with certain restrictions and regulations. The purpose of these
regulations is to help protect investors.
Conversely, neither partnership is registered under the 1940 Act in reliance on
an exception provided by Section 3(c)(1) of the 1940 Act. Partnership Interests
are also not registered under the Securities Act in reliance on Section 4(2) and
Regulation D of the Securities Act. Consequently, the partnerships are subject
to less federal and state regulation and supervision than the funds. Although
the investment restrictions and other protections applicable to the funds may
protect investors, they may also prevent the funds from pursuing investment
opportunities that are available to the partnerships.
LIQUIDITY RELATED RISKS
An investment in a partnership is less liquid than an investment in a fund. Fund
shares are redeemable on any Business Day at their next-determined net asset
value after receipt of a redemption order in proper form. Partnership Interests
are not transferable. Accordingly, there is no secondary market for them. Also,
you may only withdraw part or all of the capital from your partnership capital
account as of the last Business Day of the month and upon proper notice. A
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partnership's relative illiquidity may prevent you from capitalizing on market
upswings and from protecting your investment assets during market declines.
TAX RELATED RISKS
Unlike your investment in a partnership, you may not deduct currently
your share of net losses incurred by a fund. In addition, if you are
not a U.S. citizen or resident and are not otherwise engaged in a
trade or business in the United States (as defined by the Code), you
are generally not subject to U.S. withholding tax on your share of a
partnership's realized capital gains. As such a non-U.S. citizen or
resident, you will be subject to withholding tax at a 30% rate on fund
distributions that are attributable to short-term (but not long-term)
capital gain.
An Exchange will not occur unless the partnership and fund participating in the
Exchange receive an opinion from Wilmer, Cutler & Pickering, counsel to the
partnerships, stating that the Exchange will be a tax-free transaction to the
partnerships, the funds, and the Participating Partners. Counsel will render
this opinion based on certain assumptions and on representations made by the
partnership and the fund. The opinio will not be binding on the Internal Revenue
Service ("IRS") or the courts.
The Conversion of a partnership will have other tax consequences that may affect
its limited partners. These include:
* If a partnership must liquidate investments to redeem the interests of
dissenting limited partners as contemplated by Proposal 1, the sales may
result in additional taxable income to the partners.
* Limited partners may have a holding period with respect to the fund shares
they receive in the Conversion that is shorter than their holding period in
their partnership interests. As a result, a higher tax rate may apply to
certain redemptions of fund shares within the year following the
Conversion;
* The Conversion could cause limited partners that are not calendar year
taxpayers to pay taxes on their share of the partnership's income before
those taxes would otherwise be due.
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THE CONVERSION
The Conversion of each partnership will take place under an Agreement and Plan
of Reorganization (the "Plan"). This section summarizes the important terms of
the Plan. For further details, please refer to a copy of the Plan attached as
Appendix B.
Under the Plan, Emerging Growth Partnership will transfer substantially all of
its assets to BIA Small-Cap Growth Fund, and Growth Equity Partnership will
transfer substantially all of its assets to BIA Growth Equity Fund. In exchange
for their assets, Emerging Growth Partnership will receive substantially all of
the shares of BIA Small-Cap Growth Fund, and Growth Equity Partnership will
receive substantially all of the shares of BIA Growth Equity Fund (the
"Exchange").
Immediately after the Exchange, Participating Partners of Emerging Growth
Partnership will receive shares of beneficial interest in BIA Small-Cap Growth
Fund and the Participating Partners of Growth Equity Partnership will receive
shares of beneficial interest in BIA Growth Equity Fund in proportion to their
positive capital accounts. You must be a limited partner of record in a
partnership as of the Valuation Date to participate in the Share Distribution.
To calculate the number of shares you will receive in a partnership Exchange,
the general partner will divide the value of your positive capital account as of
the Valuation Date by the sum of all Participating Partners' capital accounts
and multiply that quotient by the total number of fund shares received by the
partnership.
The limited partners of that partnership must consent to both proposals
described below in order for the partnership to participate in the Exchange.
Prior to the Exchange, each partnership must obtain an opinion of counsel
discussing the tax consequences of the Exchange to the partnerships and the
funds.
The general partner and the Trust propose to consummate the Exchange on or about
June __, 1999. The Exchange may, however, be delayed for regulatory or other
reasons.
Before the Exchange, each fund will issue one share at $10.00 per share to Forum
Fund Services, LLC ("FFS") or to one of its affiliates. FFS is the distributor
of each Fund. FFS or its affiliate will vote its share to approve the
Investment Advisory Agreement between the Trust and the Adviser. This Agreement
will designate the Adviser as a fund's investment adviser effective immediately
after consummation of the corresponding partnership's Exchange.
Upon completion of the Exchange and the Share Distribution, the Participating
Partners will own substantially all of the shares of
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a fund. Participating Partners may purchase additional fund shares as soon as
practicable after the Conversion. The Adviser does not anticipate offering
shares of the funds to the general public immediately after Conversion.
THE PROPOSALS
In order to complete the Conversion, the general partner is soliciting the
consent of the limited partners of each partnership to the matters described
below. You should consider the proposals as they apply to your partnership.
Proposal 1 amends the Partnership Agreements to (1) expressly authorize the
general partner, subject to limited partner approval, to effect the Conversion
and (2) permit dissenting limited partners to redeem their Partnership Interests
prior to the Exchange.
Assuming approval of Proposal 1, Proposal 2 authorizes the general partner to
effect the Conversion.
PROPOSAL 1: AMENDMENTS TO THE PARTNERSHIP AGREEMENT OF EACH PARTNERSHIP
For each Partnership, Proposal 1 authorizes the general partner to make the
following amendments to the Partnership Agreement:
1.) Amendment of Article I to add the following definition of "Mutual Fund"
between the definitions of "Minimum Investment" and "Partner":
Mutual Fund: A registered open-end management investment company or a
series of a registered open-end investment company that is classified as a
corporation for federal income tax purposes and is intended to qualify as a
regulated investment company under section 851 of the Code.
2.) Amendment of Section 5.2B(iii) to insert at the beginning of that Section
the phrase "except as otherwise expressly provided in this Agreement,".
3.) Amendment of Section 8.6C to delete the language which reads ", and any
Partner entitled to any interest in the assets distributed shall receive his
interest as a tenant-in-common with all other partners so entitled".
4.) Amendment of Section 10.1 to add the following Section 10.1(vi) to read
as follows:
(vi) The conversion of the Fund into a Mutual Fund as provided in
Section 10.6.
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5.) Addition of the following Section 10.6:
Section 10.6 Conversion into a Mutual Fund
A. Upon Consent of the Investors, the General Partner shall have the
power to convert the Fund into a Mutual Fund by transferring
substantially all of the assets of the Fund to the Mutual Fund in
exchange for shares of beneficial interest in such Mutual Fund,
dissolving the Fund, and immediately thereafter distributing the
Mutual Fund shares to the Partners in accordance with the provisions
of Section 8.5B.
B. In connection with a conversion of the Fund into a Mutual Fund
described in Section 10.6A, the General Partner shall provide each
Investor that does not consent to the conversion an opportunity to
redeem its entire Interest in the Fund on the terms set forth in
Section 7.3B(iv) as of the day immediately preceding the date on which
the conversion transaction occurs if such Investor makes a written
request therefore that is received by the Fund at least two days prior
to the conversion.
C. The day immediately preceding the date on which the conversion of the
Fund into a Mutual Fund occurs shall be treated as the Valuation Date,
regardless of whether such day is the last day of a Calendar Month,
and any portion of a Calendar Month ending on that day shall be
treated as a Calendar Month.
PROPOSAL 2: AUTHORIZATION TO CONVERT THE PARTNERSHIP TO A MUTUAL FUND
Proposal 2 authorizes the general partner to (1) convert BIA Emerging Growth
Partnership into BIA Small-Cap Growth Fund pursuant to the Partnership Agreement
of BIA Emerging Growth Partnership as amended by Proposal 1 and (2) convert BIA
Growth Equity Partnership into BIA Growth Equity Fund pursuant to the
Partnership Agreement of BIA Growth Equity Partnership as amended by Proposal 1.
The general partner intends to consent to the Conversions. The limited partners
of a partnership must approve both proposals for that partnership's Conversion
to occur. If a partnership's limited partners do not approve both proposals, the
general partner will determine what further action to take, if any.
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THE PARTNERSHIPS, THE FUNDS AND THE TRUST
The partnerships are Maryland limited partnerships. Emerging Growth Partnership
commenced investment operations in 1995 and Equity Growth Partnership commenced
investment operations in 1996. The general partner is responsible for the
day-to-day management of each partnership. Each partnership seeks high total
return by investing primarily in equity securities. The Adviser provides
investment advisory services to each partnership.
The funds are separate series of the Trust. Appendix A provides further details
regarding the funds including information on their investment objectives,
principal investment strategies, fees, risks, management, and distribution
arrangements.
The Trust filed additional information about the funds and the Conversions with
the Securities and Exchange Commission as a separate statement of additional
information dated June __, 1999 (the "Statement") that is incorporated by
reference in this Proxy/Prospectus. You may obtain the Statement without charge
by calling or writing to: Forum Fund Services, LLC, Two Portland Square,
Portland, ME 04101, (XXX) XXX-XXXX.
The Trust is subject to certain informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the 1940 Act, and in
accordance therewith files reports and other information with the Securities and
Exchange Commission. You may inspect and copy proxy material, reports, proxy and
information statements and other information filed by the Trust at the public
reference facilities maintained by the Commission in Washington, D.C., and at
certain of its Regional Offices. Those Regional Offices include: (1) Northeast
Region Office, 7 World Trade Center, suite 1300, New York, NY 10048; (2)
Southeast Region Office, 1401 Brickell Avenue, suite 200, Miami, FL 33131; (3)
Midwest Region Office, 500 West Madison Street, suite 1400, Chicago, IL 60661;
(4) Central Region Office, 1801 California Street, suite 4800, Denver, CO 80202;
and (5) Pacific Region Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles,
CA 90036. In addition, for a prescribed fee, you may obtain copies of such
materials from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549.
SECURITIES TO BE ISSUED
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 ("Series"). The Board may
also, without shareholder approval, divide the Series into two or more classes
of shares ("Classes"). The funds will become new Series of the Trust, effective
June 1, 1999. Each fund initially will offer only one Class. The Trust and each
Series will continue indefinitely until terminated.
Each share of each Series and each Class has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately. Each Series or Class bears its own
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expenses related to its distribution of shares (and other expenses such as
transfer agency, shareholder service and administration expenses). Generally,
shares will be voted separately by individual Series except if (1) the 1940 Act
requires shares to be voted in the aggregate and not by individual Series (2)
the 1940 Act requires a Class vote; and (3) when the Board determines that the
matter affects more than one Series and all affected Series must vote.
Delaware law does not require the Trust to hold annual meetings of shareholders,
and generally, the Trust will hold shareholder meetings only when specifically
required by federal or state law. Shareholders representing 10% or more of the
Trust's (or Series') outstanding shares may, under the Trust Instrument, call
meetings of the Trust (or Series) for any purpose related to the Trust (or
Series), including, in the case of a meeting of the Trust, the purpose of voting
on removal of one or more Trustees.
There are no conversion or preemptive rights in connection with shares of the
Trust. All shares are fully paid and non-assessable. A shareholder of a Series
will receive a pro rata share of all distributions arising from that Series'
assets and, upon redeeming shares, will receive the portion of the Series' net
assets represented by the redeemed shares.
For further information regarding the Funds and the Trust, please see "Other
Information-Organization" in Part I of Appendix A and "Other Matters" in Part II
of Appendix A.
COMPARISON OF THE PARTNERSHIPS AND THE FUNDS
This section compares the partnerships and the funds. For further information
regarding the funds, see Appendix A to this Proxy/Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The Adviser intends to manage each Fund in substantially the same way as it
manages the corresponding Partnership.
Emerging Growth Partnership seeks to provide high total return by investing
primarily in the equity securities of emerging growth companies. BIA Small-Cap
Growth Fund will seek to provide high total return by investing primarily in
small domestic companies. Emerging growth companies and small domestic companies
are those companies whose market capitalization is between $25 million and $1
billion at the time of investment.
Growth Equity Partnership seeks to provide high total return by investing
primarily in equity securities of growth and relatively mature companies
experiencing an acceleration in earnings and cash flow growth. BIA Growth Equity
Fund will seek to provide high total return by primarily investing in domestic
growth companies and relatively mature companies experiencing an acceleration in
earnings and cash flow growth.
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<PAGE>
Although each fund and its corresponding partnership share similar investment
objectives and principal investment strategies, certain secondary investment
techniques and certain investment restrictions differ. The following is a
summary of the material differences between the funds' and the partnerships'
secondary investment techniques and investment restrictions:
o Unlike a partnership, a fund may not purchase a security if, as a result of
the purchase, (1) the fund would hold securities of a single issuer equal
to more than 5% of its total assets or (2) the Fund would own more than
10% of the outstanding voting securities of any single issuer. This
limitation only applies to 75% of fund's total assets. The limitation does
not apply to the purchase of U.S. Government securities or securities of an
investment company. Each partnership may invest up to 20% of its assets in
the equity securities of one issuer, but, although not required to do so,
each partnership has a diversified investment portfolio.
o Unlike a partnership, a fund may not purchase a security if, as a result of
the purchase, the fund would hold more than 25% of its total assets in
securities of issuers conducting their principal business activities in the
same industry. Each partnership may concentrate its portfolio in the
securities of issuers conducting their principal business activities in the
same industry.
o Unlike a partnership, a fund may not invest more than 15% of its assets in
illiquid securities, including repurchase agreements and other securities
not entitling the fund to payment of principal within seven days. Although
a partnership may purchase certain illiquid securities without limitation,
a partnership may not purchase "restricted securities" as defined by Rule
144 under the 1934 Act.
o Unlike a partnership, a fund may borrow money from a bank up to 33 1/3% of
its total assets but a fund may not purchase securities on margin from a
broker-dealer. A partnership may not borrow money from a bank but Growth
Equity Partnership may purchase securities on margin from a broker-dealer.
o Unlike a partnership, a fund may lend portfolio securities to brokers,
dealers, and other financial institutions.
o Unlike Emerging Growth Fund, BIA Small-Cap Growth Fund may invest in
certain options and furtures. Growth Equity Partnership and BIA Growth
Equity Fund may also invest in certain options and futures. Although the
funds and Growth Equity Partnership have no current intentions to invest
in options and futures contracts, they may do so in the future.
17
<PAGE>
PURCHASE PROCEDURES
THE PARTNERSHIPS
You may purchase Partnership Interests if you are a qualified investor and a
customer or affiliate of the Adviser. Affiliates of or immediate family members
of the Adviser's customers or affiliates may also purchase Partnership
Interests. Generally, you may purchase Partnership Interests directly from the
Partnership on the first day of every month. The minimum initial investment in a
Partnership is $250,000. You may make additional capital contributions to a
Partnership upon permission of the General Partner.
THE FUNDS
Although the funds will initially only be offered to Participating Partners for
investment, the Adviser anticipates that the general public may purchase fund
shares in the future. You may purchase fund shares directly from the fund or
through certain brokers and financial institutions. The minimum initial
investment in a Fund is $5,000 ($2,000 for IRAs). You may purchase additional
shares in $100 increments. A transfer agent processes all transactions in a
fund. You may purchase Fund shares without a sales charge on any Business Day at
the net asset value next-determined after the transfer agent receives your order
in proper form.
REDEMPTION AND EXCHANGE PROCEDURES
THE PARTNERSHIPS
A limited partner may request the withdrawal of all or part of its positive
capital account in a partnership on a monthly basis. Generally, withdrawal
requests become effective on the last day of the month if a written request for
withdrawal is received by the partnership at least 10 days prior to that date.
Partial withdrawal requests must be in an amount of $20,000 or more. Generally,
a limited partner may not make a partial withdrawal if such withdrawal would
cause the balance in the partner's capital account to fall below $250,000. Under
certain circumstances, the general partner may refuse to accept a request for
partial withdrawal. Payment of a partial or total withdrawal is made as soon as
practicable after they become effective.
Partnership Interests do not have exchange privileges. In other words, you may
not exchange your Partnership Interests for interests in another investment
vehicle.
THE FUNDS
You may redeem fund shares at their net asset value next-determined following
receipt of a redemption order in proper form by the transfer agent on any
Business Day. There is no minimum redemption requirement nor is there a limit on
the frequency of redemptions. Normally, redemption proceeds are paid immediately
and, in any event, within seven days, following receipt of a redemption order by
a Fund's transfer agent.
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<PAGE>
You may exchange your shares of either fund for shares of the other. You may
also exchange your fund shares for Investor shares of the Trust's money market
funds.
DISTRIBUTION
THE PARTNERSHIPS
The general partner has the sole authority to determine whether a partnership
will make a distribution and if so, the amount of that distribution, the timing
of that distribution and whether it will be in cash or in kind.
THE FUNDS
A fund distributes its net investment income annually and its realized capital
gain at least annually. Normally, a fund reinvests distributions in additional
shares of the fund unless a shareholder elects to receive distributions in cash.
Reinvested distributions of net investment income and net capital gain are
reinvested at the fund's net asset value per share as of the last day of the
period for which the distributions are paid. Reinvested distributions of net
capital gain will be reinvested at the net asset value per share of the fund on
the payment date for that distribution.
Distributions of net investment income or capital gain are income for federal
income tax purposes regardless of whether the distribution is paid in cash or
reinvested in additional shares of a fund.
FEDERAL INCOME TAX STATUS
THE PARTNERSHIPS
Each partnership intends to qualify each fiscal year as a partnership under the
Internal Revenue Code of 1986, as amended (the "Code"). A partnership is not
subject to federal income taxes. The partners must, however, report their share
of each item of the partnership's income, gains, losses, deductions and credits
on their individual federal income tax returns, whether or not actual
distributions are made. Partners report these items for their tax year in which
the fiscal year of the partnership ends. In other words, income or loss of a
partnership for the partnership's fiscal year ending December 31, 1998, must be
reported by partners in their tax returns for fiscal year 1998.
Based on their investment objectives, the partnerships should be considered
investors rather than a dealer or trader in securities for federal income tax
purposes. Accordingly, each partnership's securities should be treated as
capital assets, and purchases and sales of these securities produce capital
gains or losses. Generally, each partnership passes on any capital gains or
losses to its partners. Each partnership allocates realized capital gains and
losses to each partner on a monthly basis. The method employed by each
partnership to allocate such gains and losses is that (1) the capital accounts
of the partners are revalued monthly to reflect the then-fair market value of
the assets of the partnrship; (2) unrealized gains and losses are allocated to
separate accounts maintained for each partner in accordance with the partner's
Percentage Interest (a partner's percentage interest in the partnership) for the
month; (3) the limited partners' Percentage Interests are adjusted monthly to
reflect admissions of additional pertners, redemptions, and withdrawals; and (4)
realized gains are allocated to the partners in accordance with their unrealized
gain accounts while realized losses are allocated to the partners in accordance
with their loss accounts in the month of disposition. Any balance is allocated
based on the Percentage Interests of the partners.
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If a gain or loss results from an investment in a security held for less than a
year, that gain or loss is taxable as a short-term capital gain or loss. If a
gain or loss results from an investment in a security held for a year or more,
it will be taxed as a long-term capital gain or loss.
A partnership's cash distribution will generally not cause a recognized tax gain
or loss to a partner. It will, however, reduce a partner's tax basis in its
interest in the partnership. A partner will generally incur a capital gain or
loss upon the sale of an interest in a partnership, assuming that the
partnership interest is held as a capital asset.
Limited Partners that are not U.S. citizens or residents and are not otherwise
considered to be engaged in a trade or business in the United States under the
Code generally are not subject to withholding tax in their share of the
partnership's realized gains, regardless of whether those capital gains are
short-term or long-term capital gains.
THE FUNDS
Each fund intends to qualify each fiscal year to be taxed as a regulated
investment company (a "RIC") under the Code. As a RIC, a fund generally will not
be liable for federal income taxes on the net investment income and capital gain
distributed to its shareholders. Each fund intends to distribute all of its net
income and net capital gains each year. Accordingly, neither fund should be
subject to federal income and excise taxes.
A fund's distributions of net income (or short-term capital gain) are taxable to
shareholders as ordinary income. A fund's distributions of long-term capital
gain are taxable to shareholders as long-term capital gain. Fund distributions
are taxable to shareholders even if they are invested in additional shares. A
fund will send its shareholders information about the income tax status of
distributions paid during the year after the close of the year.
Distributions reduce the net asset value of the funds' shares by the amount of
the distribution. A distribution made shortly after the purchase of shares,
although in effect a return of capital, will be taxable as described above.
Capital gain or loss may result when you sell or exchange your shares. The
amount of this gain or loss is the difference between the amount paid for the
shares and the value of the shares upon redemption. If you hold fund shares for
six months or less and during that period receive a distribution of
net long-term capital gains, any loss realized on the sale of your shares during
that six-month period would be deemed a long-term capital loss to the extent of
the distribution. Unlike a limited partner of a partnerhsip, fund shareholders
may not currently deduct their share of a fund's net losses.
Fund shareholders that are not U.S. citizens or residents and that are not
considered to be engaged in a U.S. trade or business under the Code generally
will be subject to withholding tax at a 30% rate on distributions of the fund's
net income, which include short-term capital gains. This rate may be reduced
under an applicable income tax treaty. Long-term capital gains distributions by
a fund benerally will not be subject to withholding tax for such shareholders.
20
<PAGE>
RIGHTS OF HOLDERS
THE PARTNERSHIPS
The Partnership Agreement for each partnership and the Maryland Revised Uniform
Limited Partnership Act ("Partnership Act") determine the rights of the limited
partners. The general partner is exclusively responsible for the management of
each partnership and has full authority to manage the partnership's affairs
within the framework established by the Partnership Agreement and by the
Partnership Act. In general, the limited partners may not participate in the
management of a partnership and they have very limited voting rights.
THE FUNDS
Each fund is a series of the Trust, a Delaware business trust. The Trust's Trust
Instrument and Delaware trust law describe the rights of a fund's shareholders.
In addition, because the Trust is registered under the 1940 Act, a fund's
shareholders will have certain rights granted under the federal securities laws.
Under the Trust Instrument, shareholders of a fund will have the power to
approve the Trust's Board of Trustees (the "Trustees"), to remove Trustees, and
to approve advisory contracts. The Trustees also may not change the investment
objective or fundamental policy of a fund without shareholder approval.
ADVISORY AND MANAGEMENT RELATIONSHIPS
The Conversion of a partnership will not substantially affect the day-to-day
portfolio management of the partnership's assets. The Adviser to each
partnership will serve as investment adviser to the funds. Further, the
portfolio manager of Emerging Growth Partnership will serve as the portfolio
manager of BIA Small-Cap Growth Fund and the portfolio managers of Growth
Equity Partnership will serve as the portfolio managers for BIA Growth Equity
Fund. In terms of overall management, however, the funds are different from the
partnerships.
THE PARTNERSHIP
The general partner exclusively controls the overall management of the
partnerships.
THE FUNDS
The Trust's Board makes the key policy decisions for each fund. For example, the
Board, in its discretion, may terminate the advisory contract with a fund's
investment adviser. Moreover, as the Trust is a registered open-end management
investment company, its management is subject to greater federal regulation than
is the general partner of the partnerships.
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<PAGE>
ADVANTAGES TO FUND SHAREHOLDERS
The general partner believes that Conversion of a partnership is in the best
interests of the limited partners. In sum, shares of the funds are more liquid
than Partnership Interests and investments in the funds are more flexible than
investments in the partnerships for the following reasons:
(1) You may purchase fund shares on any Business Day while you may only
purchase Partnership Interests upon consent of the general partner as of
the first day of each month;
(2) You may redeem fund shares on any Business Day while Partnership
Interests may be redeemed (by a partner making a withdrawal from its
positive capital account) monthly, upon proper advance notice to the
partnership;
(3) You may exchange shares of a fund for the other fund or for Investor Shares
of the Trust's money market fund while your Partnership Interests have no
exchange privileges;
(4) Your fund shares are transferable while your Partnership Interests are
nontransferable; and
(5) Each Fund calculates the value of its investments and its net asset value
daily while partnerships calculate the value of their investments and
the net asset value of Partnership Interests on a monthly
basis.
FEDERAL INCOME TAX CONSEQUENCES OF THE CONVERSION
An Exchange may not occur unless Wilmer, Cutler & Pickering, counsel to the
partnerships, provides an opinion to the partnership and the Trust stating that
the Exchange will be a tax-free transaction to the partnership, its
correspinding fund and the limited partners for federal income tax purposes. The
opinion is not binding on the IRS or the courts. The conclusions stated in the
opinion will be based on certain facts, assumptions, and representations as well
as current law and authorities. Any law or authorities relied on to support the
opinion are subject to change and these changes may be retroactive.
If, during the Exchange, a partnership transfers debt securities to a fund that
were purchased at a discount, such transfer could result in the recognition of
income to the partnership in an amount equal to the accrued market discount on
those securities as of the Exchange date. The partnerships do not expect to
transfer any debt securities with accrued market discount.
The following summarizes the federal income tax consequences to the
Participating Partners in an Exchange:
(1) The receipt of fund shares by a limited partner from a partnership will not
cause taxable gain or loss to be recognized by the limited partner. Gain
may be recognized if any cash actually distributed or deemed to be
distributed in connection with the Exchange or the dissolution and
liquidation of the partnership exceeds the limited partner's adjusted basis
in its partnership interest (Code Section 731 (a)). A decrease in a limited
partner's allocable share of partnership liabilities will be deemed to be a
cash distribution.
(2) A limited partner's holding period with respect to fund shares it receives
in the Conversion will include the partnership's holding period of such
shares, but it will not include the partner's holding period with respect
to such partner's partnership interest (Code Section 735(b)). As a result,
a limited partner's holding period with respect to fund shares it receives
in the Conversion may be shorter than the limited partner's holding period
with respect to its partnership interest. If a limited partner experiences
such a reduction in holding period and then redeems fund shares within the
year following the Conversion, the limited partner could be taxed on gains
from the redemption at a higher rate than if the Conversion had not
occurred and the limited partner redeemed its partnership interest at the
same point in time. This would be the case if the reduction in holding
period caused gains to be treated as short-term rather than long-term
capital gains.
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(3) A limited partner's basis in a fund's shares will be equal to the limited
partner's adjusted basis of its former partnership interest minus the
amount of cash, if any, received or deemed received from the partnership in
connection with the Exchange and the dissolution and liquidation of the
partnership (Code Section 732(b)).
If a partnership must liquidate its investments to redeem the interests of
dissenting limited partners prior to an Exchange as contemplated by Proposal 1,
the sales may result in additional taxable income to the Participating Partners.
A dissenting limited partner that elects to redeem its Partnership Interest
rather than participate in the Conversion will recognize gain or loss equal to
the difference between the amount of cash received from a partnership and the
partner's adjusted basis in its Partnership Interest. Such gain or loss will
generally be capital gain or loss if the partner's Partnership Interest is held
as a capital asset. The capital gain or loss will be long-term capital gain or
loss if the partner has held the Partnership Interest for at least one year.
Finally, each limited partner must include in taxable income for its tax year
its share of partnership income for any partnership tax year that ends with or
within that limited partner's tax year. Because the partnership's current year
will end when the partnership is liquidated, a limited partner that is not a
calendar year taxpayer may have to pay taxes on partnership income sooner than
otherwise required.
This section is based on the Code and applicable regulations in effect as of the
date of this Prospectus/Proxy. Future legislative or administrative changes or
court decisions may significantly change the tax rules applicable to the funds
and their shareholders. Any of these changes or court decisions may have a
retroactive effect.
This discussion is general in nature and is not intended as tax advice. The
discussion does not address all aspects of federal income taxation that may be
relevant to specific taxpayers and their particular circumstances. Limited
partners should consult their own tax advisers regarding any personal tax issues
relating to an Exchange, including federal, state, local and, if applicable,
foreign tax consequences.
CAPITALIZATION
The following tables show (1) the capitalization of each partnership and the
fund into which it will convert as of December 31, 1998, each partnership's most
recent fiscal year end; and (2) the pro forma combined capitalization of each
partnership and fund:
EMERGING GROWTH PARTNERSHIP AND BIA SMALL-CAP EQUITY FUND
<TABLE>
<S><C> <C> <C> <C> <C>
Fund Pro Forma Pro Forma Pro Forma
Partnership Initial Net Combined Shares Fund
Net Assets Assets Net Assets Outstanding NAV/
(000's) (000's) (000's) (000's) Share
- ----------- ------------ ---------- ----------- ----------
$44,767 $0 $44,767 4,477 $10/share
</TABLE>
23
<PAGE>
GROWTH EQUITY PARTNERSHIP AND BIA GROWTH EQUITY FUND
<TABLE>
<S><C> <C> <C> <C> <C>
Fund Pro Forma Pro Forma Pro Forma
Partnership Initial Net Combined Shares Fund
Net Assets Assets Net Assets Outstanding NAV/
(000's) (000's) (000's) (000's) Share
- ----------- ----------- ---------- ----------- ----------
$9,041 $0 $9,041 904 $10/share
</TABLE>
FEE TABLES
The following tables describe the various fees and expenses that you will bear
from an investment in a partnership or fund.
There are no transaction charges related to investments in either a fund or a
partnership. The adviser charges its clients a maximum annualized asset based
advisory fee of 1%. The Adviser will not include assets invested in the funds
when calculating this fee. Operating expenses of the funds include advisory and
other service fees while operating expenses of the partnerships include
administration fees. Operating expenses are paid out of a fund's or
partnership's assets. Operating expenses are included in a fund's share or a
partnership's interest value.
<TABLE>
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM BIA Small Emerging Growth Growth Equity
YOUR INVESTMENT) Cap Growth Partnership BIA Growth Partnership
Fund Equity Fund
------------------- ----------------- ----------------- ----------------
Maximum Sales Charge (Load) Imposed on
Purchases None None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Distributions None None None None
Maximum Deferred Sales Charge (Load)
None None None None
Redemption Fee None None None None
Exchange Fee None None None None
Maximum Account Fee None 1.00%(1) None 1.00%(1)
ANNUAL FUND OPERATING EXPENSES (EXPENSES BIA Small-Cap Emerging Growth Growth Equity
THAT ARE DEDUCTED FROM FUND ASSETS) Growth Fund Partnership BIA Growth Partnership
Equity Fund
------------------- ----------------- ----------------- ----------------
Advisory fees 0.85% 0.00% 0.70% 0.00%
Distribution (12b-1) fees None None None None
Other expenses 0.40%(2) 0.30% 0.60%(1) 0.30%
Total annual fund operating
expenses 1.25%(3) 0.30% 1.30%(3) 0.30%.
</TABLE>
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<PAGE>
(1) This is an asset based advisory fee.
(2) Based on estimated amounts for the current fiscal year ending May 31,
2000.
(3) The Adviser has voluntarily undertaken to waive a portion of its fees
and assume certain expenses to the extent that total annual fund
expenses exceed 1.25% or 1.00% of the net assets of BIA Small-Cap
Growth Fund and BIA Growth Equity Fund, respectively.
The following is a hypothetical example intended to help you compare the cost of
investing in the funds to the cost of investing in the partnerships. This
example assumes that you invest $10,000 and have a 5% annual rate of return. For
investments in a partnership, the example also includes the maximum annualized
1.0% account based advisory fee and assumes no distributions and full withdrawal
at the end of each period. In the case of investments in a fund, the example
assumes reinvestment of all dividends and distributions, and full redemption at
the end of each period. Although your actual costs may be higher or lower, under
these assumptions your costs would be:
<TABLE>
<S> <C> <C> <C> <C>
------------------------- --------------------- ----------------------- -----------------------
BIA SMALL-CAP EMERGING GROWTH BIA GROWTH EQUITY GROWTH
GROWTH FUND PARTNERSHIP EQUITY FUND PARTNERSHIP
--------------------- ------------------------- --------------------- ----------------------- -----------------------
After 1 year $127 $132 $132 $132
--------------------- ------------------------- --------------------- ----------------------- -----------------------
After 3 years $397 $412 $412 $412
--------------------- ------------------------- --------------------- ----------------------- -----------------------
</TABLE>
EXPENSES OF THE CONVERSION
Each partnership and fund will pay its own expenses in connection with the
Conversion.
This means that each partnership will pay all of the costs it incurs in
connection with the Conversion, including the costs associated with soliciting
the written consent of the limited partners to the amendments and to the
Conversion. Each fund will pay certain expenses connected with the organization
and start-up of the fund.
VOTING INFORMATION
VOTING PROCEDURE
The general partner is soliciting the written consent of each partnership's
limited partners to (1) the amendments of that partnership's Partnership
Agreements; and (2) the Conversion of that partnership.
In order to approve the amendments to a Partnership Agreement, the general
partner must provide a written consent. The general partner must also obtain the
written consent of the limited partners holding majority of the Percentage
Interests in the partnership. The general partner intends to provide its written
consent to the amendments and recommends that the limited partners approve the
amendments.
In order to approve a Conversion on behalf of a partnership, the general partner
must obtain the written consent of the limited partners holding
25
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a majority of the Percentage Interests in the partnership. The general partner
recommends that the limited partners approve the Conversion of their
partnership.
Each partnership's limited partners may vote on the amendments to their
partnership's Partnership Agreement and upon their partnership's Conversion. The
Conversion of each Partnership is independent of the other as is the Exchange,
Share Distribution and Liquidation involving each Partnership. In other words,
one partnership may convert to a mutual fund even though the other does not.
If the amendments and the Conversion are approved by the limited partners, the
general partner will treat each limited partner as a Participating Partner. The
general partner will permit a limited partner that does not consent to the
Conversion to redeem its partnership interest on the business day immediately
preceding the Exchange. Participating Partners of Emerging Growth Partnership
will receive shares of BIA Small-Cap Growth Fund in the Conversion, while
Participating Partners of Growth Equity Fund will receive shares of BIA Growth
Equity Fund.
You may use the Consent Form enclosed with this Proxy/Prospectus (the "Consent
Form") to vote on the amendments and on the Conversion. If you do not vote in
favor of the amendments or the Conversion, you may also use the Consent Form to
request the redemption of your Partnership Interest. You should complete the
Consent Form by:
(1) Indicating whether you approve, disapprove, or abstain from
approving or disapproving the amendments by checking the appropriate
box on the Consent Form
(2) Indicating whether you approve, disapprove, or abstain from
approving or disapproving the Conversion by checking the appropriate
box on the Consent Form
(3) Indicating, if you disapprove the amendments or the Conversion,
whether you request the partnership to redeem your Partnership
Interest as of the day preceding the Conversion;
(4) Signing and dating the Consent Form; and
(5) Returning it to the partnership in the enclosed postage-paid envelope.
You may vote on the amendments or the Conversion by returning an alternative
written instrument ("Suitable Alternative") that:
(1) Identifies yourself as the limited partner;
(2) Indicates your decision with respect to the amendments and the
Conversion;
(3) Indicates, if you disapprove the amendments or the Conversion, whether
you request the partnership to redeem your Partnership Interest as
of the day preceding the Conversion; and
(4) Is signed and dated by you.
To change a vote after returning a Consent Form or Suitable Alternative to a
partnership, you must provide the partnership with a "Revocation Letter" that:
(1) Identifies yourself;
(2) States that as a limited partner of a partnership, you revoke your
prior decisions as set forth in the previously returned Consent Form
or Suitable Alternative;
(3) Indicates your approval, disapproval or abstention from approving or
disapproving the amendments and the Conversion; and
(4) Indicates, if you disapprove the amendments or the Conversion, whether
you request the partnership to redeem your Partnership Interest as
of the day preceding the Conversion.
The general partner must receive your Consent Form, Suitable Alternative or
Revocation Letter on or before June __, 1999. If you do not return your Consent
Form or Suitable Alternative by that date, the general partner will treat you as
voting against the amendments and the Conversion.
26
<PAGE>
OTHER INFORMATION
INTERESTED PERSONS
Mr. John Y. Keffer, as chairman and president of the Trust and controlling
person of certain of the service providers of each Fund may have a material
interest in the Conversion to the extent that the service providers receive for
their services fees paid out of the assets of the fund.
LEGAL MATTERS
Wilmer, Cutler & Pickering is acting as counsel for each partnership and Seward
& Kissel LLP is acting as counsel for the Trust.
Wilmer, Cutler & Pickering and Seward & Kissel LLP do not represent the
partnerships' general partner, limited partners or the funds' shareholders
regarding the Conversion or any related transaction.
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<PAGE>
APPENDIX A
PART I
INFORMATION REGARDING THE FUNDS
1. RISK/RETURN SUMMARY
THE INVESTMENT GOAL OF EACH FUND - High total return
BIA SMALL-CAP GROWTH FUND
CONCEPTS TO UNDERSTAND
GROWTH COMPANIES are companies that have exhibited an above average
increase in earnings over the past few years and that have strong,
sustainable earnings prospects and attractive stock prices.
MARKET CAPITALIZATION of a company is the value of the company's
common stock in the stock market.]
PRINCIPAL INVESTMENT STRATEGY The Fund invests primarily in the equity
securities of small domestic growth companies that are attractively priced
compared to their growth potential. Small companies are those companies whose
MARKET CAPITALIZATION is between $25 million and $1 billion at the time of
investment.
BIA GROWTH EQUITY FUND
PRINCIPAL INVESTMENT STRATEGY The Fund invests primarily in the equity
securities of domestic growth companies and relatively mature companies
experiencing an acceleration in earnings and cash flow growth.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
You could lose money on your investment in a Fund, or the Fund could
under perform other investments, if any of the following occur:
o The stock market goes down
o The stock market undervalues the stocks in the Funds' portfolios
o Brown Investment Advisory & Trust Company's (the Adviser's) or
portfolio manager's judgment as to the growth potential of a stock
proves to be wrong
An investment in BIA Small-Cap Growth Fund may involve additional risk as the
stock of smaller companies is typically more volatile than the stock of large
companies.
A-1
<PAGE>
WHO MAY WANT TO INVEST IN THE FUNDS
The Funds may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of your
investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk for higher potential
long-term returns
The Funds may NOT be appropriate for you if you:
o Want an investment that pursues market trends or focuses only on
particular sectors or industries
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
2. FEE TABLES
The following tables describe the various gross fees and expenses that you will
bear if you invest in a Fund.
Shareholder transaction expenses are charges you pay when buying, selling or
exchanging shares of a Fund. Operating expenses, which include fees of the
Adviser and shareholder services, are paid out of a Fund's assets and are
factored into a Fund's share price rather than charged directly to shareholder
accounts.
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Sales Charge (Load) Imposed on Reinvested None
Distributions
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
(1) If you hold an IRA account at the fund(s), you pay an annual $25
maintenance fee.
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<PAGE>
ANNUAL FUND OPERATING EXPENSES(1) (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
BIA SMALL-CAP GROWTH FUND
Advisory fees 0.85%
Distribution (12b-1) fees None
Other expenses(2) 0.40%
Total annual fund operating expenses 1.25%
BIA GROWTH EQUITY FUND
Advisory fees 0.70%
Distribution (12b-1) fees None
Other expenses(2) 0.60%
Total annual fund operating expenses 1.30%
</TABLE>
(1) The Adviser has voluntarily undertaken to waive a portion of its
fees and assume certain expenses to the extent that total annual
fund expenses exceed 1.25% or 1.00% of the net assets of BIA
Small-Cap Growth Fund and BIA Growth Equity Fund, respectively.
(2) Based on estimated amounts for the current fiscal year ending May
31, 2000.
The following is a hypothetical example intended to help you compare the cost of
investing in each Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in a Fund then redeem all of your shares
at the end of the period. The example also assumes that your investment has a 5%
annual return, that the Fund's operating expenses remain the same and
distributions are reinvested. Although your actual costs may be higher or lower,
under these assumptions your costs would be:
------------------------ -----------------------
BIA SMALL-CAP BIA GROWTH
GROWTH FUND EQUITY FUND
----------------------- ------------------------ -----------------------
After 1 year $127 $132
----------------------- ------------------------ -----------------------
After 3 years $397 $412
----------------------- ------------------------ -----------------------
3. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
BIA SMALL-CAP GROWTH FUND seeks to achieve high total return by primarily
investing in equity securities.
BIA GROWTH EQUITY FUND seeks to achieve high total return by primarily investing
in equity securities.
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<PAGE>
INVESTMENT STRATEGIES
CONCEPT TO UNDERSTAND
FUNDAMENTAL ANALYSIS is the analysis of a company's financial condition
to forecast the future value of its stock price. This analysis includes
a review of a company's balance sheet and income statement, asset
history, earnings history, product or service development, and
management productivity.
The Adviser relies on selecting individual stocks, and does not try to predict
when the stock market might rise or fall. The Adviser uses in-house research and
information obtained from other Wall Street investment firms to conduct analyses
of prospective Fund investments. As part of this analysis, the Adviser may visit
prospective companies, their suppliers and customers.
THE ADVISER'S PROCESSES
BIA SMALL-CAP GROWTH FUND
The Adviser starts by identifying a universe of small companies. From these
companies, the Adviser selects those with a minimum annual growth rate of 20%
and a MARKET CAPITALIZATION of $25 million to $1 billion. The Adviser then
performs a FUNDAMENTAL ANALYSIS of these companies. The Adviser uses this data
to identify companies that have:
o Large business opportunities relative to their size
o Proprietary products, services, or distribution systems
o Management plans that are easy to understand and to monitor
o Undervalued stock prices compared to growth potential
The Fund plans to invest in these companies early in their life cycle and to
hold the investments for the long-term if they continue to satisfy the Fund's
investment criteria.
BIA GROWTH EQUITY FUND
CONCEPTS TO UNDERSTAND
PRICE/EARNINGS RATIO is the price of a stock divided by the company's
earnings per share.
PRICE/SALES RATIO is the amount an investor is willing to pay for a
dollar generated from a company's operations. DIVIDEND YIELD IS the
percentage rate of return paid on common or preferred stock in
dividends.
The Adviser starts by identifying a universe of superior companies. Superior
companies are companies that have significant market opportunities or
proprietary products, control of a particular market and sound business plans.
From these companies, the Adviser uses in-house research and research from other
Wall Street investment firms to identify growth and mature companies that are
leaders or could be leaders in their markets based on the following criteria:
o Defined growth factors (product cycle, product or geographic mix)
o Financial capability to fund growth
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<PAGE>
o Changes in regulation, management, business cycle and business mix
o Industry consolidation
The Adviser then uses a range of investment techniques including PRICE/EARNINGS
RATIOS, PRICE/SALES RATIOS, and DIVIDEND YIELDS to measure the potential
downside risk of investment candidates and to isolate those companies whose
stocks are fairly valued.
The Adviser sets a price target for each investment. That is, the Adviser sets a
price at which a stock may be sold even though there has been no fundamental
change in the investment. The Adviser constantly monitors the companies in the
Funds' portfolios to determine if there have been any fundamental changes in the
company that prompted the initial purchase of its stock. The Adviser may sell a
stock if:
o It subsequently fails to meet the Adviser's initial investment
criteria
o A more attractively priced stock is found or if funds are needed for
other purposes
o It is oversized compared to other holdings
INVESTMENT RISKS
GENERALLY The value of a Fund's investments will fluctuate as the stock market
fluctuates. An investment in each Fund is not by itself a complete or balanced
investment program. Nevertheless, investing in equity securities with different
capitalizations may be important for an investor seeking a diversified
portfolio, particularly for a long-term investor able to tolerate short-term
fluctuations in a Fund's net asset value.
Because the Funds invest in growth stocks there is a risk the stocks will not
continue to grow at certain expected rates thus causing the value of the stock
to decline. There is also the risk that the market will not recognize the growth
potential of a stock. A decline in investor demand for growth stocks may also
adversely affect the value of these securities.
SPECIFIC SMALL COMPANY RISKS Because investing in small companies can have more
risk than investing in larger, more established companies, an investment in BIA
Small-Cap Growth Fund may have the following additional risks:
o More limited product lines, markets and financial resources make these
companies more susceptible to economic or market setbacks
o Analysts and other investors typically follow these companies less
actively
o Information about these companies is not always readily available
o Large portions of the securities are traded in the over-the-counter
markets or on a regional securities exchange making them thinly traded
and more volatile
For these and other reasons, the prices of small capitalization securities can
fluctuate more
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<PAGE>
significantly than the securities of larger companies. As a result, the net
asset value of the shares of BIA Small-Cap Growth Fund may exhibit a higher
degree of volatility than the market.
YEAR 2000 Certain computer systems may not process date-related information
properly on and after January 1, 2000. The Funds' Adviser is addressing this
matter for their systems. The Funds' other service providers have informed the
Funds that they are taking similar measures. This matter, if not corrected,
could adversely affect the services provided to the Funds or the companies in
which the Funds invest and, therefore, could lower the value of your shares.
INVESTMENT POLICIES
Under normal conditions, BIA Small-Cap Growth Fund will primarily invest in the
equity securities of small companies while BIA Growth Equity Fund will primarily
invest in the equity securities of large companies. Equity securities may
include common and preferred stock, convertible securities and warrants. Common
stock represents an equity or ownership interest in a company. Although this
interest often gives the owner the right to vote on measures affecting the
company's organization and operations, the Funds do not intend to exercise
control over the management of companies in which each invests. Common stocks
have a history of long-term growth in value, but their prices tend to fluctuate
in the shorter term.
CONCEPTS TO UNDERSTAND
PREFERRED STOCK is stock that has a preference over common stock to the
company's dividends (and thus greater potential for income) and whose
value generally fluctuates less than common stock. CONVERTIBLE SECURITY
is a security such as preferred stock or bonds that may be converted
into a specified number of shares of common stock. WARRANT is an option
to purchase an equity security at a specified price at any time during
the warrant's life.
In order to respond to adverse market, economic, political or other conditions,
a Fund may assume a temporary defensive position and invest in prime commercial
paper and other money investment objectives.
4. MANAGEMENT
The Funds are two series of Forum Funds (the "Trust"), an open-end, management
investment company. The business of the Trust and each Fund is managed under the
direction of the Board of Trustees (the "Board"). The Board formulates the
general policies of the Funds and meets periodically to review the Funds'
performance, monitor investment activities and practices and discuss other
matters affecting the Funds. Additional information regarding the Board, as well
as executive officers, may be found in the Statement of Additional Information
("SAI").
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<PAGE>
THE ADVISER
Brown Investment Advisory & Trust Company, Furness House, 19 South Street,
Baltimore, Maryland 21202, serves as investment adviser to each Fund. The
Adviser is currently a privately owned company. Prior to June 1998, the Adviser
operated as a subsidiary of Bankers Trust Company under the name of Alex. Brown
Capital Advisory & Trust Company.
The Adviser and its predecessors have provided investment advisory and
management services to clients for over five years. As of the date of this
Prospectus, the Adviser has over $___ billion of assets under management.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Funds. For its services, the Adviser receives an advisory fee
at an annual rate of 0.85% and 0.70% of the average daily net assets of BIA
Small-Cap Growth Fund and BIA Growth Equity Fund, respectively.
PORTFOLIO MANAGERS
Frederick L. Meserve, Jr. is responsible for the day-to-day management of the
BIA Small-Cap Growth Fund while Geoffrey R.B. Carey, CFA and Jane W. Korhonen,
CFA are responsible for the day-to-day management of the BIA Growth Equity Fund.
Each portfolio manager's business experience is as follows:
FREDERICK L. MESERVE, JR. Senior Portfolio Manager and head of the Emerging
Growth Group of the Adviser since 1994. Prior thereto, Mr. Meserve was Managing
Director of Alex. Brown & Sons Incorporated. Mr. Meserve has published a number
of investment strategy reports on growth stocks. Mr. Meserve received a B.S.&E.
degree from Princeton University in 1960 and an M.B.A. from Columbia Business
School in 1962.
GEOFFREY R.B. CAREY, CFA Senior Portfolio Manager of the Adviser since 1996. Mr.
Carey coordinates portfolio management activities for institutional and high net
worth clients and co-manages BIA Growth Equity Fund. Prior to his association
with the Adviser, Mr. Carey was a Principal of Alex. Brown & Sons Incorporated.
Prior thereto, Mr. Carey was employed as a Portfolio Manager for J.P. Morgan
Investment Management in Geneva, Switzerland. Mr. Carey received a B.A. degree
from Washington & Lee University in 1984 and received an M.B.A. from the
University of North Carolina in 1989.
JANE W. KORHONEN, CFA Senior Research Analyst of the Adviser since 1994. Ms.
Korhonen covers U.S. large-cap technology and health care sectors and co-manages
BIA Growth Equity Fund. Prior to her association with the Adviser, Ms. Korhonen
was a principal of Alex. Brown & Sons Incorporated. Prior thereto, Ms. Korhonen
was an Equity Group Manager for Howard Hughes Medical Institute. Ms. Korhonen
received a B.A. degree from Denison University in 1979 and an M.B.A. from
Northwestern's J.L. Kellogg Graduate School of Management in 1984.
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<PAGE>
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide services to the Funds.
As of March 31, 1999, Forum provided administration and distribution services to
investment companies and collective investment funds with assets of
approximately $___ billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Funds' shares. The distributor acts as the agent of the
Trust in connection with the offering the Funds' shares. The distributor may
enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of the Funds' shares.
Forum Shareholder Services, LLC (Transfer Agent) is the Funds' transfer agent.
FUND EXPENSES
The Funds pay for all of their expenses. Each Fund's expenses are comprised of
expenses attributable to the particular Fund as well as expenses not
attributable to any particular Fund that are allocated among the various series
of the Trust. The Adviser or other service providers may voluntarily waive all
or any portion of their fees, which are accrued daily and paid monthly. Any
waiver would have the effect of increasing a Fund's performance for the period
during which the waiver was in effect and may not be recouped at a later date.
The Adviser has undertaken to waive its fees and assume certain expenses of each
Fund in order to limit the Funds' expenses (excluding taxes, interest, portfolio
transaction expenses and extraordinary expenses) to 1.25% and 1.00% or less of
the average daily net assets of BIA Small-Cap Growth Fund and BIA Growth Equity
Fund, respectively.
5. YOUR ACCOUNT
HOW TO CONTACT THE FUNDS
Write to us at:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
Telephone us at:
(800) ______-_______ (toll free)
(207) ______-_______
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<PAGE>
Wire investments (or ACH payments) to us at:
BankBoston
Boston, MA
ABA #011000390
For Credit to:
Forum Shareholder Services, LLC
Account # 541-54171
Re: (Name of Your Fund)
(Your Name goes on this line)
(Your Account Number goes on this line)
(Your Social Security number or tax identification number goes
on this line)]
GENERAL INFORMATION
You pay no sales charge to purchase or sell (or redeem) shares of a Fund. You
may purchase or sell Fund shares at the next share price (net asset value or
NAV) calculated after a transaction is received in proper form by the Transfer
Agent. For instance, if the Transfer Agent receives your purchase request in
proper form after 4 p.m., your transaction will be priced at the next day's NAV.
The Funds cannot accept orders that request a particular day or price for the
transaction or any other special conditions.
The Funds do not issue share certificates.
If you purchase shares directly from a Fund, you will receive monthly statements
and a confirmation of each transaction. You should verify the accuracy of all
transactions in your account as soon as you receive your confirmations.
The Funds reserve the right to waive minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED Each Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
except days when the New York Stock Exchange is closed. These days are normally,
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The time at which NAV is calculated may be changed in case of an emergency. A
Fund's NAV is determined by dividing the value of the Fund's assets by the
number of shares outstanding. A Fund values securities for which market
quotations are readily available at current market value. If market quotations
are not readily available, then a Fund values securities at estimated fair
value.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through your adviser, a broker
or other financial institution, the policies and fees charged by that
institution may be different than those of the Funds. Banks, brokers, retirement
plans and financial advisers may charge transaction fees and may set different
minimum investments or limitations on buying or selling shares. These
institutions may also provide you with certain shareholder services such as
periodic account
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<PAGE>
statements and trade confirmations summarizing your investment activity. Consult
a representative of your financial institution or retirement plan for further
information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual or Uniform Gift to Minors Act ("UGMA") accounts,
the check must be made payable to "Forum Funds" or to one or more
owners of the account and endorsed to "Forum Funds." For all other
accounts, the check must be made payable on its face to "Forum Funds."
No other method of check payment is acceptable (for instance, payment
by travelers checks is prohibited).
ACH PAYMENT Instruct your financial institution to make an ACH
(automated clearinghouse) payment to us. These payments typically take
two days. Your financial institution may charge you a fee for this
service.
WIRES Instruct your financial institution to make a Federal Funds wire
payment to us. Your financial institution may charge you a fee for this
service.
MINIMUM INVESTMENTS The Fund accepts investments in the following minimum
amounts:
<TABLE>
<S> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
Standard Minimums $5,000 $100
-------------------------------------- ------------------------- --------------------------
Traditional and Roth IRA Accounts $2,000 $100
-------------------------------------- ------------------------- --------------------------
With Automatic Investment Plans $2,000 $100
-------------------------------------- ------------------------- --------------------------
</TABLE>
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<PAGE>
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TYPE OF ACCOUNT REQUIREMENT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, required to sign exactly as their names appear
as are sole proprietorship accounts. Joint accounts on the account
can have two or more owners (tenants)
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give custodial account under the Uniform Gift to
money to a child and obtain tax benefits. An Minors Act or the Uniform Transfers to Minors Act
individual can give up to $10,000 a year per o The trustee must sign instructions in a manner
child without paying Federal gift tax. indicating trustee capacity
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
CORPORATIONS AND PARTNERSHIPS o For corporations, provide a corporate
resolution signed by an authorized person with
a signature guarantee
o For partnerships, provide a certification for
a partnership agreement, or the pages from the
partnership agreement that identify the
general partners
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
TRUSTS o The trust must be established before an
account can be opened
o Provide a certification for trust, or the
pages from the trust document that identify
the trustees
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
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<PAGE>
INVESTMENT PROCEDURES
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO YOUR ACCOUNT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
BY CHECK BY CHECK
o Call or write us for an account application o Fill out an investment slip from a
o Complete the application confirmation or statement or write us a letter
o Mail us your application and a check o Write your account number on your check.
o Mail us the slip (or your letter) and the check
BY WIRE
o Call or write us for an account application BY WIRE
o Complete the application o Call to notify us of your incoming wire
o Call us o Instruct your bank to wire your money to us
o You will be assigned an account number
o Mail us your application BY AUTOMATIC INVESTMENT
o Instruct your bank to wire your money to us o Call or write us for an "Automatic Investment
Plan" form
BY ACH PAYMENT o Complete the form
o Call or write us for an account application o Attach a voided check to your form
o Complete the application o Mail us the form
o Call us
o We will assigned you an account number
o Mail us your application
o Make an ACH payment
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
AUTOMATIC INVESTMENTS You may invest a specified amount of money in a Fund once
or twice a month on specified dates. These payments are taken from your bank
account by ACH payment. Automatic investments must be for at least $100.
LIMITATIONS ON PURCHASES The Funds reserve the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Funds or their operations. This includes those from any individual or group
who, in the Funds' view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Funds within a calendar year).
CANCELED OR FAILED PAYMENTS The Funds accept checks and ACH transfers at full
value subject to collection. If your payment for shares is not received or you
pay with a check or ACH transfer that does not clear, your purchase will be
canceled. You will be responsible for any losses or
<PAGE>
expenses incurred by the Funds or the Transfer Agent, and the Funds may redeem
shares you own in the account (or another identically registered account in any
Fund) as reimbursement. The Funds and their agents have the right to reject or
cancel any purchase or exchange due to nonpayment.
SELLING SHARES
Redemption orders are processed promptly. You will generally receive redemption
proceeds within a week. Delays may occur in cases of very large redemptions,
excessive trading or during unusual market conditions. If the Fund has not yet
collected payment for the shares you are selling, however, it may delay sending
redemption proceeds for up to 15 calendar days.
- --------------------------------------------------------------------------------
TO SELL SHARES FROM YOUR ACCOUNT
- --------------------------------------------------------------------------------
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if:
o You have elected wire redemption privileges AND
o Your redemption is for $5,000 or more
o Call us with your request (if you have elected telephone redemption
privileges - See "By Telephone") Or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Telephone redemptions are only available if you have elected telephone
redemption privileges o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you Or
o Wired to you (if you have elected wire redemption privileges - See "By
Wire")
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
TO SELL SHARES FROM YOUR ACCOUNT
- --------------------------------------------------------------------------------
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
TELEPHONE REDEMPTION PRIVILEGES You may only redeem your shares by telephone if
you elect telephone redemption privileges on your account application or by
completing a separate form. You may be responsible for any fraudulent telephone
order as long as the Transfer Agent takes reasonable measures to verify the
order.
WIRE REDEMPTION PRIVILEGES You may only redeem your shares by wire if you elect
wire redemption privileges on your account application or by completing a
separate form. The minimum amount that may be redeemed by wire is $5,000. If you
wish to request a wire redemption by telephone, you must also elect telephone
redemption privileges.
AUTOMATIC REDEMPTIONS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Automatic redemptions must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Funds against fraud,
signatures on certain requests must have a "signature guarantee." For requests
made in writing, a signature guarantee is required for any of the following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name or address
o Redemptions from an account for which the address or account
registration has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different
registration (name or ownership) from yours
o Changes to automatic investment or redemption, distribution, telephone
redemption or exchange option or any other election in connection with
your account
A signature guarantee verifies the authenticity of your signature. You can
obtain one from most banking institutions or securities brokers, but not from a
notary public.
SMALL ACCOUNTS If the value of your account falls below $1,000 ($500 for IRAs or
accounts with an established automatic investment plan), a Fund may ask you to
increase your balance. If the account value is still below $1,000 (or $500 in
the case of IRAs or accounts with an established automatic investment plan)
after 60 days, a Fund may close your account and send
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<PAGE>
you the proceeds. A Fund will not close your account if it falls below these
amounts solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND The Funds reserve the right to make a redemptions in kind. A
Fund makes a redemption in kind when it pays redemption proceeds in portfolio
securities rather than cash. A redemption in kind usually occurs if the amount
to be redeemed is large enough to affect a Fund's operations (for example, if it
represents more than 1% of the Fund's assets).
LOST ACCOUNTS The transfer agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is "lost," all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another Fund by telephone or in
writing. You may also exchange Fund shares for Investor Shares of the Trust's
money market funds. Because exchanges are treated as a sale and purchase of
shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Funds reserve the right to limit exchanges.
- --------------------------------------------------------------------------------
HOW TO EXCHANGE
- --------------------------------------------------------------------------------
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of the Funds from which you are exchanging and into which you are
exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
HOW TO EXCHANGE
- --------------------------------------------------------------------------------
BY TELEPHONE
o Telephone exchanges are only available if you have elected telephone
redemption privileges
o Call us with your request
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
- --------------------------------------------------------------------------------
RETIREMENT ACCOUNTS
The Funds offer IRA accounts, including traditional and Roth IRAs. Before
investing in any IRA or other retirement plan, you should consult your tax
advisers. Whenever making an investment in an IRA, be sure to indicate the year
in which the contribution is made.
6. OTHER INFORMATION
DISTRIBUTIONS
The Funds distribute their net investment income annually and realized net
capital gain at least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
Each Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Funds' distributions of net income (or short-term capital gains) are taxable
to you as ordinary income. The Funds' distributions of long-term capital gains
are taxable to you as long-term capital gains. The Funds' distributions also may
be subject to certain state and local taxes.
If you buy shares just before a Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution. The sale or exchange of Fund shares is a taxable
transaction for Federal income tax purposes.
The Funds will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
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<PAGE>
For further information about the tax effects of investing in a Fund, please see
the SAI and consult your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust that is registered with the SEC as an
open-end, management investment company (a "mutual fund"). The Funds are two
series of the Trust. Shareholders' meetings are not anticipated except if
required by Federal or Delaware law. Shareholders of each series are entitled to
vote at shareholders' meetings unless a matter relates only to specific series
(such as approval of an advisory agreement for a Fund). From time to time, large
shareholders may control a Fund or the Trust.
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<PAGE>
PART II
CERTAIN ADDITIONAL INFORMATION ABOUT THE FUNDS
1. GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Brown Investment Advisory & Trust Company.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of each Fund's assets.
"FAdS" means Forum Administrative Services, LLC, the administrator of
each Fund.
"Fitch" means Fitch IBCA, Inc.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of
each Fund.
"FFS" means Forum Fund Services, LLC, the distributor of each Fund's
shares.
"Fund" means each of the separate series of the Trust to which this SAI
relates as identified on the cover page.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value per share.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, A Division of the McGraw Hill Companies.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer
agent of each Fund.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
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"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
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1. INVESTMENT POLICIES AND RISKS
Each Fund is a diversified series of the Trust. The following discussion
supplements the disclosure in the Prospectus for each Fund's investment
techniques, strategies and risks.
A. EQUITY SECURITIES
1. COMMON AND PREFERRED STOCK
GENERAL. Common stock represents an equity (ownership) interest in a company,
and usually possesses voting rights and earns dividends. Dividends on common
stock are not fixed but are declared at the discretion of the issuer. Common
stock generally represents the riskiest investment in a company. In addition,
common stock generally has the greatest appreciation and depreciation potential
because increases and decreases in earnings are usually reflected in a company's
stock price.
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
RISKS. The fundamental risk of investing in common and preferred stock is the
risk that the value of the stock might decrease. Stock values fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
preferred stocks, fixed-income and money market investments. The market value of
all securities, including common and preferred stocks, 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. If you invest in a Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
2. CONVERTIBLE SECURITIES
GENERAL. Convertible securities include debt securities, preferred stock 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 and at
a specified price in the future. A convertible security entitles the holder to
receive interest on debt or the dividend on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. Convertible
securities have unique investment characteristics in that they generally: (1)
have higher yields than common stocks, but lower yields than comparable
non-convertible securities; (2) are less subject to fluctuation in value than
the underlying stocks since they have fixed income characteristics; and (3)
provide the potential for capital appreciation if the market price of the
underlying common stock increases. A convertible security may be subject to
redemption at the option of the issuer at a price established
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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.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, 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.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
3. WARRANTS
GENERAL. 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 and 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.
RISKS. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations due to adverse market conditions 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.
4. DEPOSITARY RECEIPTS
GENERAL. The Funds may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs typically are 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. The Funds invest in depositary
receipts in order to obtain exposure to foreign securities markets.
RISKS. 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 depository receipt. The bank or trust company depositary 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.
B. SECURITY RATINGS INFORMATION
Each Fund's investments in preferred and 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
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credit risk, each Fund invests its assets in debt securities that are considered
investment grade. Investment grade means rated in the top four long-term rating
categories or top two short-term rating categories by an NRSRO, or unrated and
determined by the Adviser to be of comparable quality.
The lowest long-term ratings that are investment grade for convertible bonds,
are "Baa" in the case of Moody's and "BBB" in the case of S&P and Fitch; for
preferred stock are "Baa" in the case of Moody's and "BBB" in the case of S&P
and Fitch; and for short-term debt, including commercial paper, are "Prime-2"
(P-2) in the case of Moody's, "A-2" in the case of S&P and "F-2" in the case of
Fitch.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
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.
Moody's, S&P 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 bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by an
NRSRO may change as a result of changes in such organizations or their rating
systems, the Adviser will attempt to substitute comparable ratings. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
C. TEMPORARY DEFENSIVE POSITION
A Fund may assume a temporary defensive position and may invest without limit in
commercial paper and other money market instruments that are of prime quality.
Prime quality instruments are those instruments that are rated in one of the two
highest short-term rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which a fund may invest include
U.S. Government Securities, time deposits, bankers acceptances and certificates
of deposit of depository institutions (such as banks), corporate notes and
short-term bonds and money market mutual funds. The Funds may only invest in
money market mutual funds to the extent permitted by the 1940 Act.
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The money market instruments in which a Fund may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. These obligations often
include the right, after a given period, to prepay the outstanding principal
amount of the obligations upon a specified number of days' notice. These
obligations generally are not traded, nor generally is there an established
secondary market for these obligations. To the extent a demand note does not
have a 7-day or shorter demand feature and there is no readily available market
for the obligation, it is treated as an illiquid security.
D. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
No Fund may acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act ("restricted securities").
2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and a Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. A Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemptions. There can be no
assurance that a liquid market will exist for any security at any particular
time. Any security, including securities determined by the Adviser to be liquid,
can become illiquid.
3. DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
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An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
E. FOREIGN SECURITIES
Each Fund may invest in foreign securities. Investments in the securities of
foreign issuers may involve risks in addition to those normally associated with
investments in the securities of U.S. issuers. All foreign investments are
subject to risks of: (1) foreign political and economic instability; (2) adverse
movements in foreign exchange rates; (3) the imposition or tightening of
exchange controls or other limitations on repatriation of foreign capital; and
(4) and changes in foreign governmental attitudes towards private investment,
including potential nationalization, increased taxation or confiscation of your
assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States and therefore, less information may be available
about foreign companies than is available about issuers of comparable U.S.
companies. Foreign securities also may trade less frequently and with lower
volume and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by a Fund. 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, and a Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar after a 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 make a distribution. Similarly, if the exchange rate
declines between the time a 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.
F. OPTIONS AND FUTURES
1. GENERAL
A Fund may purchase or sell (write) put and call options to: (1) enhance the
Fund's performance; or (2) to hedge against a decline in the value of securities
owned by the Fund or an increase in
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the price of securities that the Fund plans to purchase. A Fund may purchase or
write options on securities in which it may invest or on market indices based in
whole or in part on such securities. Options purchased or written by a Fund must
be traded on an exchange or over-the-counter.
A Fund may invest in futures contracts on market indices based in whole or in
part on securities in which the Fund may invest. A Fund may also purchase or
write put and call options on these futures contracts. Options and futures are
considered to be derivatives. Use of these instruments is subject to regulation
by the SEC, the options and futures exchanges on which futures and options are
traded or by the CFTC. No assurance can be given that any hedging or option
income strategy will achieve its intended result.
Currently, the Funds have no intention of investing in options or futures for
purposes other than hedging. If a Fund will be financially exposed to another
party due to its investments in options or futures, the Fund will maintain
either: (1) an offsetting ("covered") position in the underlying security or an
offsetting option or futures contract; or (2) cash, receivables and liquid debt
securities with a value sufficient at all times to cover its potential
obligations. A 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 in the prescribed amount. Segregated
Assets cannot be sold or closed out while the hedging 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 the Fund's
ability to meet redemption requests or other current obligations.
2. OPTIONS AND FUTURES STRATEGIES
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
(or index) 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. 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, upon exercise of the
option, the underlying security (or a cash amount equal to the value of the
index) at the exercise price. The amount of a premium received or paid for an
option is based upon certain factors, including the market price of the
underlying security, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security, the option period
and interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional options on securities except that stock index
options are settled exclusively in cash and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer
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will pay an amount based on the differences between the exercise price and the
closing price of the stock index.
OPTIONS ON FUTURES. 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.
3. LIMITATIONS ON OPTIONS AND FUTURES TRANSACTIONS
A Fund may not sell a put option if the exercise value of all put options
written by the Fund would exceed 50% of the Fund's total assets or sell a call
option if the exercise value of all call options written by the Fund would
exceed the value of the Fund's assets. A Fund 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.
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. In addition positions held by a Fund may not exceed 50% of its
total assets.
1. RISKS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options and movements in the price of the securities (or indices)
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 securities in which a
Fund invest; and (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.
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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. A Fund may use various futures contracts that
are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market in those
contracts will develop or continue to exist. A Fund's activities in the futures
and options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield.
G. BORROWING
1. GENERAL
The Fund may borrow money in amounts up to 33 1/3 percent of the Fund's total
assets for, among other things, the purchase of securities. When a Fund borrows
money, it will set aside segregated assets to cover its obligations under the
loan. The Fund will generally borrow money to increase its returns. Typically,
if a security purchased with borrowed funds increases in value, the Fund may
sell the security, repay the loan, and secure a profit.
2. RISKS
The use of borrowing involves special risks, including magnified capital losses.
If a Fund buys securities with borrowed funds and the value of the securities
declines, a Fund may be required to provide the lender with additional funds or
liquidate its position in these securities to continue to secure or repay the
loan. A Fund may also be obligated to liquidate other portfolio positions at an
inappropriate time in order to pay off the loan or any interest payments
associated with the loan.
To the extent that the interest expense involved in a borrowing transaction
approaches the net return on a Fund's investment portfolio, the benefit of
borrowing will be reduced. If the interest expense due to a borrowing
transaction exceeds the net return on a Fund's investment portfolio, a Fund's
use of borrowing would result in a lower rate of return than if the Fund did not
borrow. The size of any loss incurred by a Fund due to borrowing will depend on
what percentage of the Fund's portfolio has been used as collateral for the
loan. The greater the percentage borrowed, the greater potential of gain or loss
to a Fund.
To help minimize the risks associated with borrowing, a Fund will set aside and
maintain, in a segregated account, segregated assets. The account's value, which
is marked to market daily, will be at least equal to the Fund's margin
commitments.
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H. CORE AND GATEWAY(R)
Each Fund may seek to achieve its investment objective by converting to a Core
and Gateway(R) structure. A Fund operating under a Core and Gateway(R)
structure holds, as its only investment, shares of another investment company
having substantially the same investment objective and policies. The Board will
not authorize conversion to a Core and Gateway(R) structure if it would
materially increase costs to a Fund's shareholders.
I. OTHER INVESTMENTS
Although the Funds do not currently plan to invest in securities other than
those referenced in the Prospectus and this SAI, they may invest in a variety of
other investments. The Funds' Prospectus and/or SAI will be supplemented, as
necessary, to include information regarding the employment of any additional
investment strategies and their associated risks.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Funds: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy of a Fund and the Fund's investment objective, cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. A nonfundamental
policy of a Fund may be changed by the Board without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are
fundamental policies of the Fund.
1. ISSUANCE OF SENIOR SECURITIES
A Fund may not issue senior securities except pursuant to Section 18 of the 1940
Act.
2. BORROWING MONEY
A 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.
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3. UNDERWRITING ACTIVITIES
A Fund may not underwrite securities issued by other persons except, to the
extent that in connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter.
4. CONCENTRATION
A 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) investments
in issuers domiciled in a single jurisdiction. Notwithstanding anything to the
contrary, to the extent permitted by the 1940 Act, a Fund may invest in one or
more investment companies; provided that, except to the extent the Fund invests
in other investment companies pursuant to Section 12(d)(1)(A) of the 1940 Act,
the Fund treats the assets of the investment companies in which it invests as
its own for purposes of this policy.
5. PURCHASES AND SALES OF REAL ESTATE
A 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 backed by real estate or securities of
companies engaged in the real estate business).
6. PURCHASES AND SALES OF COMMODITIES
A 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).
7. MAKING LOANS
A 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.
8. DIVERSIFICATION
A Fund is "diversified" as that term is defined in the 1940 Act. A Fund may not,
with respect to 75% of its assets, purchase a security (other than a U.S.
Government Security or security of an
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investment company) if, as a result: (1) more than 5% of the Fund's total assets
would be invested in the securities of a single issuer; or (2) the Fund would
own more than 10% of the outstanding voting securities of a single issuer.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund.
1. SHORT SALES
A 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.
2. PURCHASES ON MARGIN
A 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.
3. ILLIQUID SECURITIES
A Fund may not invest more than 15% of 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 Funds may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board.
4. BORROWING
A Fund may not purchase or otherwise acquire any security if, the total of
borrowings would exceed 5% of the value of its total assets.
5. OPTION CONTRACTS
A Fund may not invest in options contracts regulated by the CFTC except 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.
A Fund (i) will not hedge more than 50% of its total assets by buying put
options, and writing
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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.
6. EXERCISING CONTROL OF ISSUERS
A 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.
7. SECURITIES OF INVESTMENT COMPANIES
A Fund may invest in the securities of any investment company except to the
extent permitted by the 1940 Act.
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
A Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
A Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper Analytical Services, Inc., IBC/Donoghue, Inc., CDA/Wiesenberger
or other companies which track the investment performance of investment
companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley - Europe,
Australian and Far East 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.
Performance information may be presented numerically or in a table, graph or
similar illustration.
Indices are not used in the management of a Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of
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securities with similar, but not identical, characteristics as the Fund.
A Fund may refer to: (1) general market performances over past time periods such
as those published by Ibbotson Associates (for instance, its "Stocks, Bonds,
Bills and Inflation Yearbook"); (2) mutual fund performance rankings and other
data published by Fund Tracking Companies; and (3) material and comparative
mutual fund data and ratings reported in independent periodicals, such as
newspapers and financial magazines.
A Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
A Fund's performance may be quoted in terms of yield or total return.
1. SEC YIELD
Standardized SEC yields for a Fund used in advertising are computed by dividing
the Fund's interest income (in accordance with specific standardized rules) for
a given 30 day or one month period, net of expenses, by the average number of
shares entitled to receive income distributions during the period, dividing this
figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income in accordance with
specific standardized rules) in order to arrive at an annual percentage rate.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in a Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
The yields of a Fund are not fixed or guaranteed, and an investment in a Fund is
not insured or guaranteed. Accordingly, yield information should not be used to
compare shares of a Fund with investment alternatives, which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives which are insured or guaranteed.
Yield quotations are based on amounts invested in a Fund net of any applicable
sales charges that
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<PAGE>
may be paid by an investor. A computation of yield that does not take into
account sales charges paid by an investor would be higher than a similar
computation that takes into account payment of sales charges. The Funds charge
no sales charges.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
2. TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in a Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges. The Funds
charge no sales charges.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period; and (2) calculates the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
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<PAGE>
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 payment made at the beginning of the
applicable period
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.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
A Fund may quote unaveraged or cumulative total returns which reflect a
Fund's performance over a stated period of time.
Total returns may be stated in 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.
Any total return 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 quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge (if applicable).
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
C. OTHER MATTERS
A Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials 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
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<PAGE>
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) biographical descriptions of the Fund's
portfolio managers and the portfolio management staff of the Fund's investment
adviser, summaries of the views of the portfolio managers with respect to the
financial markets, or descriptions of the nature of the Adviser's and its
staff's management techniques; (7) 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; (8) the effects of investing in a
tax-deferred account, such as an individual retirement account or Section 401(k)
pension plan; (9) the net asset value, net assets or number of shareholders of
the Fund as of one or more dates; and (10) a comparison of the Fund's operations
to the operations of other funds or similar investment products, such as a
comparison of the nature and scope of regulation of the products and the
products' weighted average maturity, liquidity, investment policies, and the
manner of calculating and reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of a Fund's performance.
A Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
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<PAGE>
<TABLE>
<S> <C> <C> <C>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
</TABLE>
In connection with its advertisements, a Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service provider's policies
or business practices.
4. MANAGEMENT
A. TRUSTEES AND OFFICERS
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and 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 (*).
<TABLE>
<S> <C>
- -------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
AGE AND ADDRESS PAST 5 YEARS
- -------------------------------------------- -----------------------------------------------------------------------
- -------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*,Chairman & President President, Forum Financial Group, LLC (a mutual fund services holding
Born: July 15, 1942 company)
Two Portland Square President, Forum Fund Services, LLC. (Trust's underwriter)
Portland, Maine 04101 Chairman & President*, Core Trust (Delaware) (registered investment
company)
- -------------------------------------------- -----------------------------------------------------------------------
- -------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Trustee, Core Trust (Delaware)
Department of Economics
University of California
Los Angeles, CA 90024
- -------------------------------------------- -----------------------------------------------------------------------
James C. Cheng, Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in New
27 Temple Street England)
Belmont, MA 02718 Trustee, Core Trust (Delaware)
- -------------------------------------------- -----------------------------------------------------------------------
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<PAGE>
- -------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
AGE AND ADDRESS PAST 5 YEARS
- -------------------------------------------- -----------------------------------------------------------------------
- -------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner-Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner-Winthrop, Stimson, Putnam & Roberts (law firm) from 1989-1995
40 West 57th Street Trustee, Core Trust (Delaware)
New York, NY 10019
- -------------------------------------------- -----------------------------------------------------------------------
Mark D. Kaplan, Vice President Director, Investments, Forum Financial Group, LLC since 1995
Born: August 28, 1955 Previously, Managing Director and Director of Research, H.M. Payson
Two Portland Square & Co. (investment firm)
Portland, Maine 04101
- -------------------------------------------- -----------------------------------------------------------------------
Stacey Hong, Treasurer Director, Fund Accounting, Forum Financial Group, LLC
Born: May 10, 1966 Treasurer, Core Trust (Delaware)
Two Portland Square
Portland, Maine 04101
- -------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Assistant Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Vice President/Associate General Counsel, Smith Barney Inc.
Two Portland Square (brokerage firm) from 1993 through 1998
Portland, Maine 04101
- -------------------------------------------- -----------------------------------------------------------------------
Pamela Stutch, Asst. Secretary Fund Administrator, Forum Financial Group, LLC since 1998
Born: June 29, 1967 Law Student, Temple University from 1994-1997
Two Portland Square
Portland, Maine 04101
- -------------------------------------------- -----------------------------------------------------------------------
</TABLE>
B. COMPENSATION OF TRUSTEES AND OFFICERS
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 $1,000 for each audit committee
meeting attended on a date when a Board meeting is not held. In addition to the
$1,000 for each Board meeting attended, each Trustee is paid $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.
Trustees that are affiliated with the Adviser receive no compensation for their
services or reimbursement for their associated expenses. No officer of the Trust
is compensated by the Trust.
The following table sets forth the fees to paid to each Trustee by the Trust for
the fiscal year ended May 31, 2000.
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------- ------------------- ---------------- --------------- --------------------------------
Compensation from Benefits Retirement Total Compensation from Trust
Trustee Trust(1) and Fund Complex(1)
- ---------------------- ------------------- ---------------- --------------- --------------------------------
John Y. Keffer
- ---------------------- ------------------- ---------------- --------------- --------------------------------
Costas Azariadis
- ---------------------- ------------------- ---------------- --------------- --------------------------------
James C. Cheng
- ---------------------- ------------------- ---------------- --------------- --------------------------------
J. Michael Parish
- ---------------------- ------------------- ---------------- --------------- --------------------------------
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to each Fund pursuant to an investment
advisory agreement with the Trust. Under that agreement, the Adviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing a Fund's investments and effecting portfolio
transactions for a Fund.
2. OWNERSHIP OF ADVISER
The Adviser is a fully owned subsidiary of Brown Capital Holdings Incorporated,
a holding company incorporated under the laws of Maryland in 1998. The Adviser
is a trust company operating under the laws of Maryland.
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by the Funds and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from each Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in a Fund. If you have a separately managed account with
the Adviser with assets invested in a Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
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<PAGE>
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement remains in effect for a period of two years from the
date of its effectiveness. Subsequently, the Adviser's agreement must be
approved at least annually by the Board or by majority vote of the shareholders,
and in either case by a majority of the Trustees who are not parties to the
agreement or interested persons of any such party.
The Adviser's agreement is terminable without penalty by the Trust regarding a
Fund on 60 days' written notice when authorized either by vote of the Fund's
shareholders or by a majority vote of the Board, or by the Adviser on 60 days'
written notice to the Trust. The Agreement terminates immediately upon
assignment.
Under its agreement, the Adviser is not liable for any error of judgment,
mistake of law, or in any event whatsoever except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC. Forum Financial Group, LLC is controlled by John Y.
Keffer.
Under its agreement with the Trust, FFS acts as the agent of the Trust in
connection with the offering of shares of the Funds. FFS continually distributes
shares of the Funds on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
FFS receives no compensation for its distribution services. Shares are sold with
no sales commission; accordingly, FFS receives no sales commissions. FFS may
enter into arrangements with various financial institutions through which you
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 Funds.
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
FFS's distribution agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party.
FFS's agreement is terminable without penalty by the Trust with respect to a
Fund on 60 days'
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<PAGE>
written notice when authorized either by vote of the Fund's shareholders or by a
majority vote of the Board, or by FFS on 60 days' written notice to the Trust.
Under its agreement, FFS is not liable to the Trust or the Trust's shareholders
for any error of judgment or mistake of law, for any loss arising out of any
investment or for any act or omission in the performance of its duties to a
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreement.
Under its agreement, FFS and certain related parties (such as FFS's officers and
persons that control FFS) are indemnified by the Trust against all claims and
expenses in any way related to alleged untrue statements of material fact
contained in a Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust, FAdS is responsible
for the supervision of the overall management of the Trust, providing the Trust
with general office facilities and providing persons satisfactory to the Board
to serve as officers of the Trust.
For its services, FAdS receives a fee from a Fund at an annual rate as follows:
(1) 0.10% of the average daily net assets of the Fund for the first $100 million
of Fund assets and (2) 0.075% of the average daily net assets of the Fund for
remaining fund assets. FadS charges a minimum fee of $40,000 for its services.
The fee is accrued daily by the Funds and is paid monthly based on average net
assets for the previous month.
FAdS's administration agreement must be approved at least annually by the Board
or by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. FAdS's agreement is terminable without penalty by the Trust or by FAdS
with respect to a Fund on 60 days' written notice.
Under the agreement, FAdS is not liable to the Trust or the Trust's shareholders
for any act or omission, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement. Under the agreement, FAdS and
certain related parties (such as FadS's officers and persons who control FAdS)
are indemnified by the Trust against any and all claims and expenses related to
FAdS's actions or omissions that are consistent with FAdS's contractual standard
of care.
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<PAGE>
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust, FAcS provides fund
accounting services to each Fund. These services include calculating the NAV per
share of each Fund (and class) and preparing the Funds' financial statements and
tax returns.
For its services, FAcS receives a fee from each Fund at an annual rate of
$39,000 ($3,000 for preparation of tax returns) and certain surcharges based
upon the number and type of a Fund's portfolio transactions and positions. The
fee is accrued daily by the Funds and is paid monthly based on the transactions
and positions for the previous month.
FAcS's accounting agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. FAcS's agreement is terminable without penalty by the Trust or by FAcS
with respect to a Fund on 60 days' written notice.
Under the agreement, FAcS is not liable for any action or omission in the
performance of its duties to a Fund, except for willful misfeasance, bad faith,
gross negligence or by reason of reckless disregard of its obligations and
duties under the agreement. Under the agreement, FAcS and certain related
parties (such as FacS's officers and persons who control FAcS) are indemnified
by the Trust against any and all claims and expenses related to FAcS's actions
or omissions that are consistent with FAcS's contractual standard of care.
Under the agreement, in calculating a Fund's NAV per share, FAcS is deemed not
to have committed an error if the NAV per share it calculates is within 1/10 of
1% of the actual NAV per share (after recalculation). The agreement also
provides that FacS will not be liable to a shareholder for any loss incurred due
to an NAV difference if such difference is less than or equal 1/2 of 1% or less
than or equal to $10.00. In addition, FAcS is not liable for the errors of
others, including the companies that supply securities prices to FAcS and the
Funds.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Trust, the Transfer Agent maintains an account for each shareholder of
record of a Fund and is responsible for processing purchase and redemption
requests and paying distributions to shareholders of record. The Transfer Agent
is located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, the Transfer Agent receives a fee from each Fund at an annual
rate of $18,000 and $25 per shareholder account. The fee is accrued daily by the
Funds and is paid monthly.
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<PAGE>
The Transfer Agent agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Transfer Agent's agreement is terminable without penalty by the Trust
or by the Transfer Agent with respect to a Fund on 60 days' written notice.
Under the agreement, the Transfer Agent is not liable for any act in the
performance of its duties to a Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties under the agreement. Under
the agreement, the Transfer Agent and certain related parties (such as the
Transfer Agent's officers and persons who control the Transfer Agent) are
indemnified by the Trust against any and all claims and expenses related to
FAdS's actions or omissions that are consistent with FAdS's contractual standard
of care.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust LLC
safeguards and controls the Funds' cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of a Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of a Fund. Each Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Funds and are paid monthly based on average net assets and transactions for the
previous month.
5. LEGAL COUNSEL
Legal matters in connection with the issuance of shares of the Trust are passed
upon by Seward & Kissel, 1200 G Street, N.W., Washington, D.C. 20005.
6. INDEPENDENT AUDITORS
(Name of Independent Auditor), (Address of Independent Auditor), independent
auditors, have been selected as auditors for each Fund. The auditors audit the
annual financial statements of the Funds and provide the Funds with an audit
opinion. The auditors also review certain regulatory filings of the Funds and
the Funds' tax returns.
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities
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<PAGE>
normally are purchased directly from the issuer or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
these securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected: (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with brokers
and dealers selected by and in the discretion of the Adviser. No Fund has any
obligation to deal with any specific broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers and
the frequency of transactions are determined by the Adviser in its best judgment
and in a manner deemed to be in the best interest of each Fund rather than by
any formula.
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for a Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
1. CHOOSING BROKER-DEALERS
The Funds may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser takes into account
factors such as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the research services described below)
and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute portfolio transactions for a Fund; and (2) take into
account payments made by brokers effecting transactions for a Fund (these
payments may be made to the Fund or to other persons on behalf of the Fund for
services provided to the Fund for which those other persons would be obligated
to pay.
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<PAGE>
2. OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause a Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Funds, and not all research services may be
used by the Adviser in connection with the Funds. The Adviser's fees are not
reduced by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal data bases.
Occasionally, the Adviser may do a transaction with a broker and pay a slightly
higher commission than another might charge. If this is done it will be because
of the Adviser's need for specific research, for specific expertise a firm may
have in a particular type of transaction (due to factors such as size or
difficulty), or for speed/efficiency in execution. Since most of the Adviser's
brokerage commissions for research are for economic research on specific
companies or industries, and since the Adviser is involved with a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
There are occasions on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to each Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
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4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect brokerage transactions through affiliates of the Adviser
(or affiliates of those persons) pursuant to procedures adopted by the Trust.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Funds are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including 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
a portfolio security for one client could have an adverse effect on another
client that has a position in that security. In addition, when purchases or
sales of the same security for a Fund and other client accounts managed by the
Adviser occurs contemporaneously, the purchase or sale orders may be aggregated
in order to obtain any price advantages available to large denomination
purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in a Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to a Fund and a possible increase in
short-term capital gains or losses.
C. SECURITIES OF REGULAR BROKER-DEALERS
From time to time a Fund may acquire and hold securities issued by its "regular
brokers and dealers" or the parents of those brokers and dealers. For this
purpose, regular brokers and dealers means the 10 brokers or dealers that: (1)
received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the Fund's last fiscal year.
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6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at the Transfer Agent's offices located at Two Portland Square, Portland,
Maine 04101.
The Funds accept orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share without any sales charge. Accordingly, the
offering price per share is the same as the NAV per share.
The Funds reserve the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, a Fund may accept portfolio securities that meet the investment
objective and policies of a Fund as payment for Fund shares. A Fund will only
accept securities that: (1) are not restricted as to transfer by law and are not
illiquid; and (2) have a value which is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in a Fund directly. When you purchase a Fund's shares
through a financial institution, you may or may not be the shareholder of record
and, subject to your institution's procedures, you may have Fund shares
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transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Funds may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Funds through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to a
Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted; (2) an emergency (as
determined by the SEC) exists as a result of which disposal by a Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of a Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of a
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Trust has filed an election with the SEC pursuant to which a Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily
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available are valued at current market value using the last reported sales
price. If no sale price is reported, the average of the last bid and ask price
is used. If no average price is available, the last bid price is used. If market
quotations are not readily available, then securities are valued at fair value
as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at a Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of a
Fund on the payment date for the distribution. Cash payments may be made more
than seven days following the date on which distributions would otherwise be
reinvested.
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that each Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting each Fund and its shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year end of each Fund is May 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its investment company taxable income (that is, taxable
interest, dividends, net short-term capital gains and other taxable ordinary
income, net of expenses) and net capital gain (that is the excess of net
long-term capital gains over short-term capital losses) that it distributes to
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shareholders. In order to qualify to be taxed as a regulated investment company
a Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company taxable
income for the tax year. (Certain distributions made by a Fund after
the close of its tax year are considered distributions attributable to
the previous tax year for purposes of satisfying this requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which
are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits. A
portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you as
ordinary income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
Each Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Funds may make additional distributions of net
capital gain at any time during the year. These
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distributions are taxable to you as long-term capital gain, regardless of how
long you have held shares. These distributions do not qualify for the
dividends-received deduction.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares whose net asset value at the time reflects undistributed
net investment income or recognized capital gain, or unrealized appreciation in
the value of the assets of a Fund. Distributions of these amounts are taxable to
you in the manner described above, although the distribution economically
constitutes a return of capital to you.
If you purchase shares of a Fund just prior to the ex-dividend date of a
distribution, you will be taxed on the entire amount of the distribution
received, even though the net asset value per share on the date of the purchase
reflected the amount of the distribution.
Ordinarily, you are required to take distributions by a Fund into account in the
year in which they are made. A distribution declared in October, November or
December of any year and payable to shareholders of record on a specified date
in those months, however, is deemed to be received by you (and made by the Fund)
on December 31 of that calendar year if the distribution is actually paid in
January of the following year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) to them during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUNDS' TRANSACTIONS
For federal income tax purposes, when put and call options purchased by a Fund
expire unexercised, the premiums paid by a Fund give rise to short- or long-term
capital losses at the time of expiration (depending on the length of the
respective exercise periods for the options). When put and call options written
by a Fund expire unexercised, the premiums received by the Fund give rise to
short-term capital gains at the time of expiration. When a Fund exercises a
call, the purchase price of the underlying security is increased by the amount
of the premium paid by a Fund. When a Fund exercises a put, the proceeds from
the sale of the underlying security are
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decreased by the premium paid. When a put or call written by a Fund is
exercised, the purchase price (selling price in the case of a call) of the
underlying security is decreased (increased in the case of a call) for tax
purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts that are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to a Fund which may mitigate the effects of the straddle
rules, particularly with respect to mixed straddles. In general, the straddle
rules described above do not apply to any straddles held by a Fund all of the
offsetting positions of which consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. The
balance of the Fund's income must be distributed during the next calendar year.
A Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year in determining the amount of
ordinary taxable income for the current calendar year. The Fund will include
foreign currency gains and losses incurred after October 31 in determining
ordinary
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taxable income for the succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. Investors should note, however, that a Fund
may in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases (for example, by reinvesting dividends) other shares of the Fund
within 30 days before or after the sale or redemption (a so called "wash sale").
If disallowed, the loss will be reflected in an upward adjustment to the basis
of the shares purchased. In general, any gain or loss arising from the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Any capital loss arising from the sale or redemption of shares held for
six months or less, however, is treated as a long-term capital loss to the
extent of the amount of capital gain distributions received on such shares. In
determining the holding period of such shares for this purpose, any period
during which a shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
F. WITHHOLDING TAX
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide its correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to a Fund that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient." Backup withholding is
not an additional tax; any amounts so withheld may be credited against a
shareholder's federal income tax liability or refunded.
G. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation or foreign partnership ("foreign
shareholder"), depends on whether the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(and short-term capital gains) paid to a
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foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower applicable treaty rate) upon the gross amount of the distribution. The
foreign shareholder generally would be exempt from U.S. federal income tax on
gain realized on the sale of shares of a Fund and distributions of net capital
gain from a Fund.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income distributions, capital
gain distributions, and any gain realized upon the sale of shares of a Fund will
be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from a Fund can
differ from the U.S. federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in a Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from a Fund can differ from the U.S. federal
income taxation rules described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund.
8. OTHER MATTERS
A. THE TRUST AND ITS SHAREHOLDERS
1. GENERAL INFORMATION
Forum Funds 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.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
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<TABLE>
<S><C> <C>
Investors Bond Fund Oak Hall Small Cap Contrarian Fund
TaxSaver Bond Fund Austin Global Equity Fund
Investors High Grade Bond Fund Polaris Global Value Fund
Maine Municipal Bond Fund Investors Equity Fund
New Hampshire Bond Fund Equity Index Fund
Daily Assets Government Fund(1) Small Company Opportunities Fund
Daily Assets Treasury Obligations Fund(1) International Equities Fund
Daily Assets Cash Fund(1) Emerging Markets Fund
Daily Assets Government Obligations Fund(1) Investors Growth Fund
Daily Assets Municipal Fund(1) BIA Small-Cap Growth Fund
Payson Value Fund BIA Growth Equity Fund
Payson Balanced Fund
</TABLE>
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
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 series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust and each Fund will continue indefinitely until terminated.
2. SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and each
class' performance will be affected by its expenses. For more information on any
other class of shares of the Fund, investors may contact the Transfer Agent.
3. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series 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, shareholder service 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 pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted separately by individual series except if:(1) the 1940 Act
requires shares to be voted in the aggregrate and not by individual series and
(2) when the Trustees determine that the matter affects more than one series and
all affected series must vote. The Trustees may also determine that a matter
only affects certain classes of the Trust and thus only those such classes are
entitled to vote on the matter. 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. There are
no conversion or
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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.
A shareholder in a series is entitled to the shareholder's pro rata share of all
distributions arising from that series' assets and, upon redeeming shares, will
receive the portion of the series' net assets represented by the redeemed
shares.
Shareholders representing 10% or more of the Trust's (or a series') outstanding
shares may, as set forth in the Trust Instrument, call meetings of the Trust (or
series) for any purpose related to the Trust (or series), including, in the case
of a meeting of the Trust, the purpose of voting on removal of one or more
Trustees.
4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust to merge or consolidate into one or more
trusts, partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end, management
investment company that will succeed to or assume the Trust's registration
statement.
B. FUND OWNERSHIP
As of May __, 1999, the officers and trustees of the Trust as a group owned less
than 1% of the shares of each Fund.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As of May __, 1999, and prior to
the public offering of the Funds, Forum Financial Group, LLC, beneficially owned
100% of and may be deemed to control each Fund. It is unlikely, however, that
Forum Financial Group, LLC, a limited liability company organized under the laws
of Delaware, will continue to control each Fund. "Control" for these purpose is
the ownership of 25% or more of a Fund's voting securities.
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some states, however, have indicated that they and the
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courts in their state may decline to apply Delaware law on this point. The
Trust's Trust Instrument (the document that governs the operation of the Trust
contains an express disclaimer of shareholder liability for the debts,
liabilities, obligations and expenses of the Trust. The Trust's Trust Instrument
provides for indemnification out of each series' property of any shareholder or
former shareholder held personally liable for the obligations of the series. The
Trust Instrument also provides that each series shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the series and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which Delaware law does not apply, no contractual limitation of
liability was in effect, and the portfolio is unable to meet its obligations.
FAdS believes that, in view of the above, there is no risk of personal liability
to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference to the copy of such contract or other documents
filed as exhibits to the registration statement.
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APPENDIX - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
Aaa Bonds 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 edged." 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 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 risk
appear somewhat larger than the Aaa securities.
A 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.
Baa Bonds 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 bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
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CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors are
more variable in periods of greater economic stress.
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BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD, D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e. below
50%.
B. PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
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a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c This is the lowest rated class of preferred or preference stock. Issues
so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Note Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
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BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This 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.
Note Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
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o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above 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.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
2. STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
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C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for timely
repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. This rating is
automatically assigned to all obligations issued or guaranteed by the
sovereign state. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative
degree of risk is slightly higher than for issues classified as `A1'
and capacity for timely repayment may be susceptible to adverse change
sin business, economic, or financial conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is more
susceptible to adverse changes in business, economic, or financial
conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is uncertain
relative to other obligors in the same country. The capacity for timely
repayment is susceptible to adverse changes in business, economic, or
financial conditions.
C Obligations for which there is a high risk of default to other obligors
in the same country or which are in default.
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APPENDIX B
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
____ day of ________________, 1999, by and among (1) Forum Funds (the "Trust"),
a Delaware Business Trust with its principal place of business at Two Portland
Square, Portland, Maine, on behalf of its series listed in the Acquiring Fund
column below (each an "Acquiring Fund"); (2) BAT Commingled Fund Manager,
Inc., a Maryland corporation with its principal place of business at 19 South
Street, Baltimore, Maryland, (the "General Partner"); (3) BIA Emerging Growth
Fund Limited Partnership, a Maryland limited partnership with its principal
place of business at 19 South Street, Baltimore, Maryland; and (4) BIA Growth
Equity Fund Limited Partnership with its principal place of business at 19 South
Street, Baltimore, Maryland.
- -------------------------------- -----------------------------------------------
Acquiring Fund Target LP
- -------------------------------- -----------------------------------------------
- -------------------------------- -----------------------------------------------
BIA Small-Cap Growth Fund BIA Emerging Growth Fund Limited Partnership
- -------------------------------- -----------------------------------------------
BIA Growth Equity Fund BIA Equity Growth Fund Limited Partnership
- -------------------------------- -----------------------------------------------
WHEREAS, The parties intend that each of BIA Emerging Growth Fund Limited
Partnership and BIA Growth Equity Fund Limited Partnership (each a "Target LP")
transfer substantially all of its assets to the Acquiring Fund set forth
opposite the Target LP in the table above (the "Corresponding Acquiring Fund")
as more fully discussed below:
WHEREAS, the plan of exchange for each Target LP and its Corresponding Acquiring
Fund consists of: (1) the transfer of substantially all of the assets of the
Target LP to its Corresponding Acquiring Fund in exchange solely for
substantially all (and in all events over 80%) of the shares of beneficial
interest (no par value per share) of the Corresponding Acquiring Fund (the
"Exchange"); (2) the distribution of shares of the Corresponding Acquiring Fund
by the Target LP to the general and limited partners (each a "Partner,"
collectively the "Partners") of the Target LP in proportion to the Partners'
Positive Capital Accounts pursuant to the Target LP's amended and restated
LimitedPartnership Agreement(the "Share Distribution"); and (3) the liquidation
of the Target LP (the "Liquidation"); and
WHEREAS, the parties intend that each Target LP's and Corresponding Acquiring
Fund's Exchange, Share Distribution and Liquidation (collectively, a
"Reorganization") be independent of and not contingent upon the other Target
LP's and Corresponding Acquiring Fund's Reorganization; and
WHEREAS, each exchange is intended to qualify under section 351 of the Internal
Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. TRANSFER
The parties agree to take the following steps with respect to each
Reorganization:
1.1 Subject to the terms and conditions herein set forth and on the basis of the
representations and warranties contained herein, the Target LP agrees to
transfer to its Corresponding Acquiring Fund substantially all of the Target
LP's assets as set forth in section 1.2. In exchange, and as set forth in
section 1.2, the Coresponding Acquiring Fund agrees to deliver that number of
its full and fractional shares to the Target LP as computed in the manner set
forth in section 2.3. Such transactions shall take place at the closing provided
for in section 3.1 (the "Closing").
1.2 The Target LP's assets to be acquired by the Acquiring Fund (the "Assets")
shall consist of all assets, including, without limitation, all cash, cash
equivalents, securities, commodities and futures interests and dividends or
interest or other receivables that are owned by the Target LP and any deferred
or prepaid expenses shown on the balance sheet of the Target LP prepared as of
the Valuation Date (as defined in section
B-1
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2.1) in accordance with generally accepted accounting principles ("GAAP")
applied consistently with the Target LP's most recent audited balance sheet
dated December 31, 1998, except for cash and cash equivalents retained by the
Target LP in an amount estimated by it to be sufficient to discharge in full all
its liabilities, including the expenses of its liquidation (the "Expense
Reserve") and any assets which the Acquiring Fund is not permitted to acquire by
law or pursuant to its investment objectives (the "Retained Assets"). Any assets
retained by a Target LP, after paying or providing for the payment of all its
liabilities, shall be distributed by the Target LP or its agents to its Partners
of record as of the Valuation Date pursuant to Sections 8.5B of the Target LP's
Partnership Agreement (as defined in section 4.1(a)).
1.3 The Target LP will pay or cause to be paid to its Corresponding Acquiring
Fund any interest or dividends received on or after the Closing with respect to
securities transferred to the Acquiring Fund hereunder. The Target LP will
transfer to its Corresponding Acquiring Fund any distributions, rights, stock
dividends or other securities received by the Target LP after the Closing as
distributions on or with respect to the securities transferred, which shall be
deemed included in the Assets and shall not be separately valued unless the
securities in respect of which such distribution is made shall have gone "ex"
such distribution prior to the Valuation Date. Notwithstanding the foregoing,
the Acquiring Fund shall not be entitled to receive any interest or dividends or
other distributions on securities not transferred to the Acquiring Fund
hereunder.
1.4 Immediately after the transfer of Assets in exchange for the shares of the
Acquiring Fund provided for in section 1.1 (the "Distribution Time"), the Target
LP will dissolve and distribute to the Partners of record, determined as of the
Valuation Date (the "Participating Partners"), pro rata in the proportion that
each Partner's Capital Account (as defined in the Target LP's organizational
documents) bears to the aggregate Capital Accounts of all Partners, the shares
of the Acquiring Fund received by the Target LP pursuant to section 1.1. Such
distribution (the "Distribution") will be accomplished by the transfer of the
Acquiring Fund shares then credited to the account of the Target LP on the books
of the Acquiring Fund to open accounts on the share records of the Acquiring
Fund in the names of the Participating Partners. The aggregate net asset value
of shares of the Acquiring Fund to be so credited to the Participating Partners
shall be equal to the aggregate net asset value at the Valuation Date of the
Assets of the Target LP, which shall be transferred to the Acquiring Fund
pursuant to section 1.1. The Assets of the Target LP and the shares of the
Acquiring Fund will be valued pursuant to the Trust's Valuation Procedures which
are attached to this Agreement as Appendix A. The Acquiring Fund will not issue
certificates representing shares of the Acquiring Fund in connection with the
Exchange.
1.5 Ownership of shares of th Acquiring Fund will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus.
B-2
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1.6 The General Partner will wind up and liquidate the Target LP after the
Distribution. As soon as is reasonably practicable after the Distribution, but
not until payment by the Target LP of all the Target LP's liabilities, the
Target LP shall be completely liquidated and its Certificate of Cancellation
shall be filed with the State of Maryland. The Target LP shall not conduct any
business on and after the Closing Date except in connection with its
dissolution, liquidation, and termination.
1.7 Any reporting responsibility of the Target LP including, but not limited to,
the responsibility for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "Commission"), any
state securities commission, any federal, state or local tax authorities, or any
other relevant regulatory authority, is and shall remain the responsibility of
the Target LP.
1.8 All books and records of the Target LP shall be available to its
Corresponding Acquiring Fund from and after the Closing Date and shall be turned
over to the Acquiring Fund as soon as practicable following the Closing Date.
All such books and records shall be available to the Target LP thereafter until
the Target LP is completely liquidated and has filed its Certificate of
Cancellation with the State of Maryland.
1.9 The Acquiring Fund shall not be obligated to assume any liabilities
(absolute or contingent) of the Target LP other than liabilities related to the
purchase of securities on behalf of the Target LP.
2. VALUATION
The Acquiring Fund and the Target LP to a Reorganization shall value assets and
liabilites as follows:
2.1 The value of the Assets, of the Expense Reserve, and of the Retained Assets
of the Target LP shall be computed as of the close of regular trading on the New
York Stock Exchange (normally, 4:00 P.M., Eastern time) on the business day
immediately preceding the Closing and after the payment of any distributions
(including distributions in redemption of the partnership interests
("Partnership Interests") of Partners that elect such treatment) or other
amounts by the Target LP (such time and date, the "Valuation Date")pursuant to
the Trust Valuation Procedures.
2.2 The net asset value of a share of the Acquiring Fund shall be determined by
that Acquiring Fund in the manner described in the Acquiring Fund's then-current
prospectus prior to the Closing Date.
2.3 The number of the shares of the Acquiring Fund to be issued (including
fractional shares, if any) in exchange for the Assets of the Target LP shall be
determined by dividing the value of the Assets, determined pursuant to section
2.1, by the net asset value of one share of the Acquiring Fund determined
pursuant to section 2.2.
B-3
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3. CLOSING AND CLOSING DATE
The Acquiring Fund and Target LP to a Reorganization shall conduct the Closing
of each Reorganization as follows:
3.1 The Closing of the Reorganization shall be on or about 8:00 A.M., Eastern
time, on June __, 1999, or such later date as the parties may agree in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously as of 12:00 A.M., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of the Acquiring Fund or at such other place and time as the parties
shall mutually agree.
3.2 The Target LP shall deliver to the Acquiring Fund on the Closing Date a
schedule of Assets, a schedule of Retained Assets, and a schedule of assets in
the Expense Reserve.
3.3 Brown Investment Advisory & Trust Company (the "Partnership Custodian"), as
custodian for the Target LP, shall deliver at the Closing a certificate of an
authorized officer stating that (i) the Assets shall have been delivered in
proper form to Forum Trust, LLC (the "Fund Custodian"), custodian for the
Acquiring Fund, prior to or on the Closing Date, and (ii) all necessary taxes in
connection with the delivery of the Assets, including all applicable federal and
state stock transfer stamps, if any, have been paid or provision for payment has
been made. The Target LP's portfolio securities represented by a certificate or
other written instrument shall be presented by the Partnership Custodian to the
Fund Custodian for examination no later than five business days preceding the
Closing Date and those portfolio securities comprising the Assets shall be
transferred and delivered as of the Closing Date by the Target LP for the
account of the Acquiring Fund duly endorsed in proper form for transfer in such
condition as to constitute good delivery thereof. The Target LP's portfolio
securities and instruments deposited with a securities depository, as defined in
Rule 17f-4 under the Investment Company Act of 1940, as amended (the "1940
Act"), shall be delivered as of the Closing Date by book entry in accordance
with the customary practices of such depositories and the Fund Custodian. The
cash to be transferred by the Target LP shall be delivered by wire transfer of
Federal Funds on the Closing Date.
3.4 The Target LP shall deliver at the Closing a certificate executed by the
General Partner stating that the Target LP's records contain the names and
addresses of the Participating Partners and the percentage ownership to 5
decimal places that each Partner's Capital Account bears to the Capital Accounts
of all Participating Partners as of the Valuation Date immediately prior to the
Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing
the Acquiring Fund shares to be credited on the Closing Date to the Target LP or
provide evidence satisfactory to the General Partner that such shares of the
Acquiring Fund have been credited to the Target LP's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request to effect
the transactions contemplated by this Agreement.
3.5 In the event that immediately prior to the Valuation Date (i) the New York
Stock Exchange or another primary trading market for portfolio securities of the
Target LP shall be closed to trading or trading thereupon shall be
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restricted, or (ii) trading or the reporting of trading on such exchange or
elsewhere shall be disrupted so that, in the judgment of the General Partner, or
the board of trustees of the Trust, or both, accurate appraisal of the value of
the net assets of the Target LP is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
With respect to each Reorganization:
4.1 The General Partner and the Target LP severally, not jointly, represent and
warrant to the Acquiring Fund as of the date of this Agreement and as of
Closing, unless otherwise stated below, that:
(a) The Target LP is a limited partnership duly organized and validly
existing under the laws of the State of Maryland and has the power
under the Partnership's and Restated Agreement of Limited Partnership
(the "Partnership Agreement") to own all of its properties and assets
and to carry on its business as it is now being conducted;
(b) BAT Commingled Fund Manager, Inc. is the general partner of the
Target LP;
(c) The General Partner has approved this Agreement and the
transactions contemplated by it hereunder, including the Exchange, and
the subsequent dissolution, winding up and liquidation of the Target
LP;
(d) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Target
LP of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended, (the "1933
Act"), the Securities Exchange Act of 1934, as amended, (the "1934
Act") and the 1940 Act, or state securities laws;
(e) The Target LP is not, and the execution, delivery and performance
of this Agreement by the Target LP will not result, in violation of
the laws of the State of Maryland, or of the Partnership Agreement, or
of any material agreement, indenture, instrument, contract, lease or
other undertaking to which the Target LP is a party or by which it is
bound; and the execution, delivery and performance of this Agreement
by the General Partner and the Target LP will not result in the
acceleration of any obligation, or the imposition of any penalty,
under any agreement, indenture, instrument, contract, lease, judgment
or decree to which the Target LP is a party or by which it is bound;
(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to the General Partner's or to the Target LP's knowledge
threatened against the General Partner, the Target LP, or any
properties or assets held by the Target LP. Neither the General
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Partner nor the Target LP knows of any facts which it reasonably
believes are likely to form the basis for the institution of such
proceedings which would materially and aversely affect their
respective busineses and neither is a party to or subject to the
provisions of any order, decree, or judgment of any court or
governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated;
(g) There are no contracts outstanding to which the Target LP is a
party, other than those that have been disclosed to the Acquiring Fund
or those that would not have a material impact on the Acquiring Fund's
right to the Assets;
(h) The Statement of Assets and Liabilities of the Target LP for the
fiscal year ended December 31, 1998 have been audited by Wolpoff &
Company, LLP, independent certified public accountants in accordance
with GAAP consistently applied, and such statement (a copy of which
has been furnished to the Acquiring Fund) presents fairly, in all
material respects, the financial position of the Target LP as of such
date in accordance with GAAP, and there are no known contingent
liabilities of the Target LP required to be reflected on the balance
sheet (including the notes thereto) in accordance with GAAP as of such
date not disclosed therein;
(i) Since December 31, 1998, there has not been any material adverse
change in the Target LP's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business. For purposes of this subsection, a decline in net value of
an interest in the Target LP due to declines in market values of
securities in the Target LP's portfolio, the discharge of the Target
LP's liabilities, or the partial or complete withdrawal of a Partner
shall not constitute a material adverse change;
(j) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Target LP required by law to have been
filed by such dates (including any extensions) shall have been filed
and are or will be correct in all material respects, and all federal
and other taxes shown as due or required to be shown as due on said
returns and reports shall have been paid or provision shall have been
made for the payment thereof, and, to the best of the Target LP's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(k) Partnership Interests in the Target LP, as they appear on the
Partnership's books as of the Valuation Date, (i) are, and on the
Closing Date will be, duly authorized, duly and validly issued and
fully paid; and (ii) will be held at the time of the Closing by the
persons and in the amounts set forth in the records of the Target LP,
as provided in section 3.4. The Target LP does not have outstanding
any options, warrants or other rights to subscribe for or to purchase
any Partnership Interests nor is there outstanding any security
convertible into any Partnership Interests;
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(l) At the Closing Date, the Target LP will have good and marketable
title to the Assets, which are to be transferred to the Acquiring Fund
pursuant to section 1.1, and full right, power, and authority to sell,
assign, transfer and deliver the Assets hereunder free of any liens,
encumbrances, security interests, or other transfer restrictions
except those liens, encumbrances, security interests, or other
transfer restrictions as to which the Acquiring Fund has received
notice of and agreed to prior to the Closing or those liens,
encumbrances, security interests, or other transfer restrictions
created by the Acquiring Fund, and upon delivery and payment for such
Assets, the Acquiring Fund will acquire good and marketable title
thereto, subject to no restrictions on the full transfer thereof,
except those restrictions which the Acquiring Fund has received notice
of and agreed to prior to the Closing and except for restrictions
created under applicable state and federal law;
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action on the part of the General Partner, and subject to appropriate
amendment of the Partnership Agreement and the written consent,
pursuant to a Partnership Agreement as amended of the limited
partners holding at least a majority of of the Percentage Interests
(as defined in the Target LP's Partnership Agreement), this Agreement
will constitute a valid and binding obligation of a Partnership,
enforceable pursuant to its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other laws relating to or affecting creditors' rights
and to general equity principles. The General Partner shall use its
reasonable best efforts to obtain that written consent from the
limited partners of the Target LP to appropriate Partnership Agreement
amendments and to the transaction, contemplated by this Agreement;
(n) The information to be furnished by the Target LP or the General
Partner to the Acquiring Fund for use in the Registration Statement,
(as defined in section 5.6), shall be true, accurate and complete in
all material respects and shall not omit to state any material fact
necessary in order to make the information not misleading based on the
knowledge of the Target LP and General Partner after reasonable due
inquiry;
(o) The Registration Statement, as it relates to a Partnerships or the
General Partner will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially
misleading based on the knowledge of the General Partners and the
Target LP after reasonable due inquiry;
(p) The Assets of the Target LP will satisfy the 50-percent and
25-percent tests of Code sections 851(b)(3)(A) and 851(b)(3)(B) at the
time of the Exchange.
4.2 The Trust and the Acquiring Fund, jointly and severally, represent and
warrant to the General Partner and the Target LP, as of the date of this
Agreement and Closing, unless otherwise stated below, that:
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(a) The Trust is a business trust duly organized, validly existing,
and in good standing under the laws of the State of Delaware with
power under its Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being
conducted;
(b) The Trust, which is organized as a "series mutual fund," is
registered with the Commission as an open-end management investment
company under the 1940 Act, and such registration is in full force
and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, the 1934 Act, and the 1940
Act, and such as may be required by state securities laws;
(d) The Acquiring Fund is not, and the execution, delivery, and
performance of this Agreement by the Acquiring Fund will not result
in violation of Delaware law or of the Acquiring Fund's Declaration
of Trust, as amended, or any material agreement, indenture,
instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will
not result in the acceleration of any obligation, or the imposition
of any penalty, under any agreement, indenture, instrument, contract,
lease, judgment or decree to which the Acquiring Fund is a party or
by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to the Trust's or Acquiring Fund's knowledge threatened
against the Trust, the Acquiring Fund or any properties or assets held
by the Acquiring Fund. Neither the Trust nor the Acquiring Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely
affects its business or its ability to consummate the transactions
herein contemplated;
(f) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have
been filed by such dates (including any extensions) shall have been
filed and are or will be correct in all material respects, and all
federal and other taxes shown as due or required to be shown as due on
said returns and reports shall have been paid or provision shall have
been made for the payment thereof, and, to the best of the Acquiring
Fund's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(g) The Acquiring Fund does not have outstanding any options,
warrants, preemptive rights, or other rights to subscribe for or
purchase any shares of the Acquiring Fund nor is there outstanding any
security convertible into any shares of the Acquiring Fund;
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(h) The shares of the Acquiring Fund to be issued and delivered to the
Target LP pursuant to the terms of this Agreement, and all other
issued and outstanding shares of the Acquiring Fund, will at the
Closing Date have been duly authorized and, when so issued and
delivered, will be duly and validly issued and outstanding shares of
the Acquiring Fund, and will be fully paid and non-assessable;
(i) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Assets, free of any liens, encumbrances,
security interests, or other transfer restrictions, except those
liens, encumbrances, security interests, or other transfer
restrictions, which the Target LP has received notice of and agreed to
prior to the Closing;
(j) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the trustees of the Acquiring Fund and
this Agreement constitutes a valid and binding obligation of the
Acquiring Fund, enforceable pursuant to its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(k) The information to be furnished by the Acquiring Fund for use in
advertisements, applications for orders, registration statements,
annual reports, proxy materials, or for use in any other document
filed or to be filed with any federal, state or local regulatory
authority (including the National Association of Securities Dealers,
Inc.), which may be necessary in connection with the transactions
contemplated herein, shall be true, accurate and complete in all
material respects, shall comply in all material respects with federal
securities and other laws and regulations applicable thereto, and
shall not omit to state any material fact necessary in order to make
the information not misleading based on the knowledge of the Acquiring
Fund and the Trust after reasonable due inquiry;
(l) The Registration Statement will, as it relates to the Acquiring
Fund and the Trust, on the effective date of the Registration
Statement and on the Closing Date: (i) conform in all material
respects to applicable requirements of the 1933 Act, the 1934 Act, and
the 1940 Act, and the rules and regulations of the Commission
thereunder; (ii) not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements are made, not materially
misleading based on the knowledge of the Acquiring Fund and the Trust
after reasonable due inquiry; provided, however, that the
representations and warranties in this section shall not apply to
statements in or omissions from the Registration Statement made in
reasonable reliance upon and in conformity with information that was
furnished or should have been furnished by the Target LP or the
General Partner for use therein; and
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(m) For its first taxable year, which includes the date of the
Exchange, the Acquiring Fund will elect and qualify to be treated as a
"regulated investment company" under subchapter M of the Code as in
effect on the date of the Exchange and the Acquiring Fund intends, for
that taxable year, to compute its federal income tax under Code
section 852. If the subchapter M is materially amended after the date
of the Exchange, the Acquiring Fund will use its best efforts to
qualify as a regulated investment company under subchapter M, as
amended.
5. COVENANTS OF THE ACQUIRING FUNDS AND THE TARGET LPS
With respect to each Reorganization:
5.1 The General Partner and the Target LP covenant to operate the Target LP's
business in the ordinary course between the date hereof and the Closing Date, it
being understood that:(i) such ordinary course of business will include such
changes as are contemplated by the Target LP's normal operations and preparing
for its dissolution, liquidation, and termination; and (ii) notwithstanding the
foregoing, the Target LP shall retain exclusive control of the composition of
its Assets until the Closing Date.
5.2 The General Partner and the Target LP covenant that upon reasonable notice,
the Acquiring Fund's officers and agents shall have reasonable access to the
Target LP's books and records necessary to maintain current knowledge of the
Target LP and to ensure that the representations and warranties made by the
Target LP are accurate. The Acquiring Fund, the Trust and their agents and
representatives agree to keep any information provided by the General Partner or
Target LP confidential and not to disclose the information prior to Closing.
5.3 The General Partner and the Target LP covenant that shares of the Acquiring
Fund to be issued hereunder are not being acquired by the Target LP for the
purpose of making any distribution thereof other than pursuant to the terms of
its Partnership Agreement and this Agreement.
5.4 The General Partner and the Target LP covenant that they will assist the
Acquiring Fund in obtaining such information as the Acquiring Fund reasonably
requests concerning the beneficial ownership of the Partnership Interests.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund, the General
Partner, and the Target LP, each covenant that it will take, or cause to be
taken, all actions, and do or cause to be done, all things reasonably necessary,
proper, and/or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.6 The Acquiring Fund covenants to prepare its Registration Statement on Form
N-14 (the "Registration Statement") in compliance with the 1933 Act, the 1934
Act, and the 1940 Act, and the rules and regulations promulgated thereunder by
the Commission, in connection with the consideration by the Partners of the
transactions contemplated herein. The Acquiring Fund covenants to file the
Registration Statement with the Commission. The General Partner and the Target
LP covenant to provide the Acquiring Fund with information reasonably necessary
for the preparation of the Registration Statement, in compliance in all material
respects with the 1933 Act, the 1934 Act, and the 1940 Act.
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5.7 The General Partner and the Target LP covenant that they will, from time to
time, as and when reasonably requested by the Acquiring Fund execute and deliver
or cause to be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further action as the
Acquiring Fund may reasonably deem necessary or desirable in order to vest in
and confirm the Acquiring Fund's title to and possession of all the Assets and
otherwise to carry out the intent and purpose of this Agreement.
5.8 The General Partner and the Target LP covenant to use all reasonable efforts
to obtain approvals and authorizations required by the 1933 Act, the 1934 Act,
the 1940 Act, and such of the state securities laws and the laws of the State of
Maryland, as it deems appropriate to consummate the transactions contemplated
herein, which approvals include the written consent of the Limited Partners
holding at least a majority of the Percentage Interests in the Target LP, as
specified in the Partnership Agreement.
5.9 The Acquiring Fund covenants to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1934 Act, the 1940
Act, and such of the state securities laws, as it deems appropriate to
consummate the transactions contemplated herein and to continue its operations
after the Closing Date as a regulated investment company under the Code,
including having a registration statement on Form N-1A (the "N-1A") effective at
the Closing Date that covers the continuous public offering of shares of the
Acquiring Fund; provided, however, that the Acquiring Fund may take such actions
it reasonably deems advisable after the Closing Date as circumstances change.
5.10 An Acquiring Fund covenants that it will, from time to time, as and when
reasonably requested by the Target LP, execute and deliver or cause to be
executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the General Partner or the Target LP may reasonably deem necessary or
desirable in order to vest and confirm to the Target LP title to and possession
of all Acquiring Fund shares to be transferred to the Target LP pursuant to this
Agreement.
5.11 The Target LP covenants to make a distribution, pursuant to section 1.4, at
the Distribution Time to the Participating Partners of the Target LP consisting
of the shares of the Acquiring Fund received at the Closing.
5.12 The Acquiring Fund, the General Partner and the Target LP each covenant
that it shall use its reasonable best efforts to fulfill or obtain the
fulfillment of the conditions precedent to effect the transactions contemplated
by this Agreement as promptly as practicable.
5.13 Before the Closing, the Acquiring Fund covenants to issue to Forum Fund
Services, LLC (the "Sponsor"), or an affiliate thereof, one share in echange for
a contribution of $10. The Acquiring Fund shall not have any other issued and
outstanding shares as of the Closing.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTNERSHIPS
With respect to the Reorganization, the obligations of the Target LP to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by the Acquiring Fund of its obligations hereunder
on or before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Trust, with respect to the
Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and based on
the knowledge of the Target LP and the General Partner after reasonable inquiry,
there shall be no pending or threatened litigation brought by any person (other
than Acquiring Fund, its adviser or any of their affiliates) against the Target
LP, the Acquiring Fund or their advisers, directors, trustees or officers
arising out of this Agreement.
6.2 The Acquiring Fund shall have delivered to the Target LP on the Closing Date
a certificate executed in its name by the President or Vice President of the
Trust, in a form reasonably satisfactory to the Target LP and dated as of the
Closing Date, to the effect that the representations and warranties of the Trust
with respect to the Acquiring Fund made in this Agreement are materially true
and correct on and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Target LP shall reasonably request;
6.3 The Target LP shall have received on the Closing Date an opinion of Seward &
Kissel LLP, counsel to the Trust, in a form reasonably satisfactory to the
Target LP, and dated as of the Closing Date, to the effect that: (i) the Trust
has been duly formed and is a validly existing Delaware business trust in good
standing; (ii) the Acquiring Fund has the power to carry on its business as
presently conducted pursuant to the description thereof in the Trust's
registration statement under the 1940 Act; (iii) this Agreement has been duly
authorized, executed and delivered by the Acquiring Fund, and constitutes a
valid and legally binding obligation of the Acquiring Fund, enforceable pursuant
to its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (iv) the execution
and delivery of this Agreement did not, and the exchange of substantially all of
the Target LP's assets for shares of the Acquiring Fund pursuant to this
Agreement will not, violate the Acquiring Fund's Declaration of Trust, as
amended; (v) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the federal laws of the United States or the laws of the
State of Delaware for the exchange of substantially all of the Corresponding
Target LP's assets for shares of the Acquiring Fund pursuant to this Agreement
have been obtained or made; (vi) the Registration Statement (except as to the
financial statements and schedules contained therein) complies as to form in all
material respects with the requirements of the 1933 Act and the 1934 Act, and
with the rules and regulations of the Commission thereunder; and (vii) the
Registration Statement (except as to the
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financial statements and schedules contained therein), as to the Acquiring Fund,
to the knowledge of counsel based upon representations made by the Trust and the
Acquiring Fund or obtained in the due course of counsel's engagement, and
without having made an independent investigation thereof, does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading;
6.4 The Acquiring Fund shall have performed all of the covenants and complied
with all of the provisions required by this Agreement to be performed or
complied with by the Acquiring Fund on or before the Closing Date; and
6.5 Before the Closing, the Acquiring Fund shall have issued to the Sponsor or
an affiliate thereof, one share in exchange for a contribution of $10 and
Sponsor or its affiliate, as the sole shareholder in the Acquiring Fund, shall
have approved the Investment Advisory Agreement between the Acquiring Fund and
the Adviser to become effective immediately following the Closing.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUNDS
With respect to a Reorganization, the obligations of the Acquiring Fund to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by the Target LP of its obligations hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1 All representations and warranties of the General Partner, with respect to
the Target LP, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be no pending or threatened litigation brought by any person (other than
the Target LP or any of its affiliates) against the Target LP, or the Acquiring
Fund, its advisers, directors, trustees or officers, arising out of this
Agreement;
7.2 The Target LP shall have delivered to the Acquiring Fund a statement of the
Target LP's assets and liabilities as of the Valuation Date, certified by the
General Partner, including a list of securities owned by the Target LP with
their respective tax costs and values determined as provided in section 2 above,
all as of the Valuation Date;
7.3 The Target LP shall have delivered to the Acquiring Fund on the Closing Date
a certificate executed in its name by its General Partner, in a form reasonably
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the General Partner with
respect to the Target LP made in this Agreement are materially true and correct
on and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Acquiring Fund shall reasonably request;
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7.4 The Acquiring Fund shall have received on the Closing Date an opinion of
Wilmer, Cutler & Pickering, counsel to the Target LP, in a form reasonably
satisfactory to the Acquiring Fund, and dated as of the Closing Date, to the
effect that: (i) the Target LP has been duly formed and is a validly existing
Maryland limited partnership; (ii) the Target LP has the power to carry on its
business as presently conducted pursuant to the description thereof in the
Partnership Agreement; (iii) the Agreement has been duly authorized, executed
and delivered by the General Partner, on behalf of the Target LP, and
constitutes a valid and legally binding obligation of the Target LP, enforceable
pursuant to its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and laws of general applicability relating to or
affecting creditors' rights and to general equity principles; (iv) the execution
and delivery of the Agreement did not, and the exchange of substantially all of
the Target LP's assets for shares of the Acquiring Fund pursuant to the
Agreement will not, violate the Partnership Agreement; and (v) to the knowledge
of such counsel, all regulatory consents, authorizations, approvals or filings
required to be obtained or made by the Target LP under the federal laws of the
United States or the laws of the state of Maryland for the exchange of
substantially all of the Target LP's assets for shares of the Acquiring Fund
pursuant to this Agreement have been obtained or made.
7.5 The Target LP shall have performed all of the covenants and complied with
all of the provisions required by this Agreement to be performed or complied
with by the Target LP on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUNDS AND THE
PARTNERSHIPS
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to a Reorganization, the Acquiring Fund or Target LP,
where applicable, shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the written consent of the General Partner and the Limited Partners
of the Corresponding Target LP holding at least a majority of the Percentage
Interests , pursuant to the Partnership Agreement, applicable laws of the state
of Maryland, and applicable federal securities laws. Notwithstanding anything
herein to the contrary, neither the Acquiring Fund nor the Target LP may waive
the conditions set forth in this section 8.1;
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8.2 On the Closing Date, no action, suit or other proceeding shall be pending or
to either party's knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein;
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities deemed necessary by the
Acquiring Fund or the Target LP to permit consummation, in all material
respects, of the transactions contemplated herein shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Target LP, provided that either party hereto may for
itself waive any of such conditions;
8.4 Each of the N-1A and the Registration Statement shall have become effective
under the 1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act; and
8.5 The parties shall have received an opinion of Wilmer, Cutler & Pickering
addressed to the Target LP and Acquiring Fund substantially to the effect that,
based upon certain facts, assumptions and representations, the Exchange
contemplated by this Agreement constitutes a tax free exchange for federal
income tax purposes. The delivery of such opinion is conditioned upon receipt by
Wilmer, Cutler & Pickering of representations it shall request of the Target LP
and of the Acquiring Fund.
9. INDEMNIFICATION
With respect to each Reorganization:
9.1 The Acquiring Fund and the Trust agree, jointly and severally, to indemnify
and hold harmless the Target LP, each of the Partners, and the Partnership's
employees, from and against any and all losses, claims, damages, liabilities or
expenses (including, without limitation, the payment of reasonable legal fees
and reasonable court costs, but excluding any indirect, consequential, or
special damages) to which the Target LP or any of its Partners or employees may
become subject, insofar as any such loss, claim, damage, liability, or expense
arises out of or is based on (i) any breach or misrepresentation by the
Acquiring Fund of any of its representations, warranties, covenants or
agreements set forth in this Agreement; or (ii) the negligent or reckless acts
or omissions or willful misfeasance of the Acquiring Fund in connection with
this Agreement.
9.2 The General Partner and the Target LP severally, not jointly, agree to
indemnify and hold harmless the Acquiring Fund and each of the Acquiring Fund's
trustees, officers or employees from and against any and all losses, claims,
damages, liabilities or expenses (including, without limitation, the payment of
reasonable legal fees and reasonable court costs, but excluding any indirect,
consequential, or special damages) to which the Acquiring Fund or any of its
trustees, officers, or employees may become subject, insofar as any such loss,
claim, damage, liability, or expense arises out of or is based on:(i) any breach
by the
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General Partner or the Target LP of any of their representations, warranties,
covenants or agreements set forth in this Agreement; or (ii) the negligent or
reckless acts or omissions or willful misfeasance of the General Partner and the
Target LP in connection with this Agreement.
10. FEES AND EXPENSES
10.1 Each of the Trust and the General Partner represents and warrants to the
other that it has no obligations to pay any brokers or finders fees in
connection with the transactions provided for herein.
10.2 Each party will pay its own expenses incurred in connection with the
Exchange.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 The Acquiring Funds, the General Partner and the Target LPs agree that no
party has made any representation, warranty or covenant not set forth herein and
this Agreement constitutes the entire agreement between the parties.
11.2 Except as specified in the next sentence set forth in this section 11.2,
the representations, warranties and covenants contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder. The
covenants to be performed after the Closing shall survive indefinitely and the
obligations of each of the Trust, the Acquiring Funds, the General Partner and
the Target LPs in Sections 9.1 and 9.2 shall survive the Closing for three years
thereafter.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated herein may be
abandoned, with respect to a Reorganization, by a party to that Reorganization
by: (i) mutual agreement of the parties; or (ii) by a party if the Closing shall
not have occurred on or before June 30, 1999, unless such date is extended by
mutual agreement of the parties; or (iii) by a party if another party shall have
materially breached its obligations under this Agreement or made a material and
intentional misrepresentation herein or in connection herewith. In the event of
any such termination, this Agreement shall become void with respect to a
Reorganization and there shall
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<PAGE>
be no liability hereunder on the part of any party or their respective trustees,
or officers, as the case may be, except for any such material breach or
intentional misrepresentation, as to each of which all remedies at law or in
equity of the party adversely affected shall survive.
13. WAIVER
Except as otherwise expressly provided herein, at any time prior to the Closing
Date, any party may (i) extend the time for the performance of the obligations
or other acts of the other; (ii) waive any inaccuracy in the representations of
the other; and (iii) waive compliance by the other with any of the agreements or
conditions set forth herein. Any such extension or waiver must be in writing.
14. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the parties; provided, however, that
following approval by the Limited Partners of a Target LP pursuant to section
5.8 of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of shares of the Corresponding Acquiring
Fund to be issued to the Participating Partners of that Target LP under this
Agreement to the detriment of those Participating Partners without their further
approval.
15. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement (a "Notice") shall be in writing and may be delivered to the
parties by hand, Federal Express or similar express courier, facsimile, prepaid
registered mail, certified mail, return receipt requested. Any notice, report,
statement or demand delivered by hand, facsimile, or Federal Express or similar
express courier shall be deemed duly given on the date delivered. Any notice,
report, statement or demand delivered by mail in a manner described above shall
be deemed duly given on the third day after being mailed.
Any Notice to the Target LP shall be to 19 South Street, Baltimore, Maryland
21202 with a copy to Wilmer, Cutler & Pickering, 100 Light Street, Baltimore, MD
21202, Attention: John B. Watkins, Esq. Any Notice to the Acquiring Funds shall
be sent to, Two Portland Square, Portland, ME 04101, Attention: Secretary.
Any Notice to the Target LP or Acquiring Funds may also be sent to any other
address that the Target LPs or the Acquiring Funds shall have last designated by
duly given notice to the other parties to the Agreement.
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<PAGE>
16. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
16.1 The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
16.3 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the written consent of the other party. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Funds and the Limited Partners of the Target LPs and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
16.4 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of state of New York, without regard to its principles
of conflicts of laws.
16.5 The trustees of the Trust and the shareholders of each series of the Trust
shall not be liable for any obligations of the Trust or the Acquiring Funds
under this Agreement, and the General Partner and the Target LPs agree that, in
asserting any rights or claims against the Trust or the Acquiring Funds under
this Agreement, they shall look only to the assets and property of the Acquiring
Funds in settlement of such rights or claims, and not to the trustees of the
Trust, the shareholders of the series of the Trust, or the other series of the
Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed and attested on its behalf by its duly authorized representatives, all
as of the ___ day of _________________ , 1999.
Forum Funds
on behalf of BIA Small-Cap Growth Fund and
BIA Growth Equity Fund
By: ___________________________
Name: ___________________________
Title: ___________________________
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<PAGE>
BIA Emerging Growth Fund Limited Partnership and BIA
Growth Equity Fund Limited Partnership
By: ___________________________
Name: ___________________________
Title: ___________________________
BAT Commingled Fund Manager, Inc.
By: ___________________________
Name: ___________________________
Title: ___________________________
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<PAGE>
ATTACHMENT A
FORUM FUNDS
PORTFOLIO SECURITIES VALUATION PROCEDURES
December 18, 1995
SECTION 1. INTRODUCTION
In accordance with Rule 22c-1 under the Investment Company Act of 1940 (the
"Act"), each separate non-money market series ("Fund") of Forum Funds (the
"Trust") is required to calculate its net asset value per share ("NAV") on each
Business Day (as defined in the prospectus relating to the Fund) as of the close
of the New York Stock Exchange, currently 4:00 p.m., Eastern time ("Valuation
Time"). These Procedures, including the delegation of certain responsibilities,
are adopted in order to ensure that the Funds calculate NAV on a timely and
accurate basis.
The Trust has established a valuation committee ("Committee") consisting of
certain Trustees appointed by the Board of Trustees ("Board"). The Committee is
responsible for, among other things, determining and monitoring the value of the
Funds' assets. As fund accountant, Forum Accounting Services, LLC ("FAcS")
receives or computes the value of each investment security and other asset held
by the Funds and computes the NAV for each Fund by dividing the value of the
Fund's assets (less any liabilities) by the total interests of the Fund
outstanding. To determine the value of each asset of a Fund, FAcS shall value
the Funds' securities and perform certain other calculations in accordance with
these Procedures and as directed by the Committee and the investment adviser
(and any investment sub-adviser) to the Fund (with respect to each Fund, the
"Adviser").
SECTION 2. VALUATION STANDARDS
(A) PORTFOLIO INVESTMENTS.
(i) Portfolio investments (including foreign currencies, options,
futures contracts, swaps, collars, floors and other contracts relating
to securities) ("securities") for which market quotations are readily
available are to be valued at current market value as of the Valuation
Time in accordance with these Procedures.
(ii) Portfolio securities for which market quotations are not readily
available are to be valued at fair value as determined by the Board or
its delegate as of the Valuation Time in accordance with these
Procedures ("Fair Value Determinations").
(B) OTHER ASSETS AND LIABILITIES. Other assets (such as receivables and
capitalized start-up costs) and liabilities (such as payables and borrowings by
a Fund) are to be valued at their book value absent a determination by the Board
or the Committee to value them on another basis.
(C) LIQUIDITY. The Adviser is responsible on an ongoing basis for determining
the liquidity of securities. The Trust has adopted Liquidity Procedures
(Appendix A) which are to be read in conjunction with these Procedures. The
Liquidity Procedures are applicable to money market series of the Trust as well
as the Funds.
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SECTION 3. ORDINARY PRICING PROCEDURES
(A) EXCHANGE TRADED SECURITIES. Securities traded or dealt in upon one or more
securities exchange (whether domestic or foreign and, for purposes of these
Procedures, including the National Association of Securities Dealers' Automated
Quotation System ("NASDAQ")) and not subject to restrictions against resale
shall be valued:
(i) at the last quoted sales price or, in the absence of a sale,
(ii) at the mean of the last bid and asked prices.
(B) NON-EXCHANGE TRADED SECURITIES. Securities not traded or dealt in upon any
securities exchange for which over-the-counter market quotations are readily
available generally shall be valued at the mean of the current bid and asked
prices.
(C) OPTIONS AND FUTURES CONTRACTS.
(i) Options and futures contracts listed for trading on a securities
exchange or board of trade shall be valued:
(A) at the last quoted sales price or, in the absence of a
sale,
(B) at the mean of the last bid and asked prices.
(ii) Options not listed for trading on a securities exchange or board
of trade for which over-the-counter market quotations are readily
available shall be valued at the mean of the current bid and asked
prices.
(D) MONEY MARKET INSTRUMENTS. Notwithstanding anything to the contrary, money
market instruments with a remaining maturity of 60 days or less may be valued at
amortized cost (purchase price or last valuation, as applicable, adjusted for
accretion of discount or amortization of premium) unless the Adviser believes
another valuation is more appropriate. Municipal daily or weekly variable rate
demand instruments may be priced at par plus accrued interest.
(E) SECURITIES TRADED ON MORE THAN ONE EXCHANGE. If a security is traded or
dealt in on more than one exchange, or on one or more exchange and in the
over-the-counter market, quotations from the market in which the security is
primarily traded shall be used.
(F) CURRENCIES AND RELATED ITEMS. The value of foreign currencies and of foreign
securities whose value is calculated in a foreign currency shall be translated
into U.S. dollars based on the mean of the current bid and asked prices by major
banking institutions and currency dealers.
(G) PRICING AGENTS. FAcS shall employ, at the Trust's expense, independent
pricing agents of the type commonly used in the investment company industry,
such as Interactive Data Corporation, Muller Data Corporation, Kenny Information
Systems, Inc. and Merrill Lynch Pricing Service, to provide current market
values. Debt securities may be valued at prices supplied by a Fund's pricing
agents based on broker or dealer supplied valuations or matrix pricing, a method
of valuing securities by reference to the value of other securities with similar
characteristics, such as rating, interest rate and maturity. Absent special
circumstances valuations for a type of instrument should all be made through the
same pricing agent.
(H) CURRENT MARKET VALUE REVIEW. If, in the judgment of the Adviser to a Fund,
the value of a security as determined in accordance with this Section 3 does not
represent the fair market
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value of the security for any reason, the Adviser shall so inform the Secretary
or a Committee Member and a meeting of the Committee may be called to decide
whether or not to make a Fair Value Determination. No Fair Value Determination
shall be made without consideration of any readily available market quotations.
(I) ACCOUNTING REQUIREMENTS. Security purchases and sales shall be reflected no
later than one Business Day after the trade. Expenses and income are to be
accrued daily and dividend income is to be accrued as of the ex-dividend date.
SECTION 4. FAIR VALUE DETERMINATIONS
(A) SECURITIES SUBJECT TO FAIR VALUE DETERMINATIONS.
Fair Value Determinations are required for the following securities:
(i) Securities for which market quotations are insufficient or not
readily available at the Valuation Time on a particular Business Day
(including securities for which there is a short and temporary lapse in
the provision of a price by the regular pricing source).
(ii) Securities for which, in the judgment of the Adviser, the prices
or values available do not represent the fair value of the instrument.
Factors which may cause the Adviser to make such a judgment include,
but are not limited to, the following: only a bid price or an asked
price is available; the spread between bid and asked prices is
substantial; the frequency of sales; the thinness of the market; the
size of reported trades; and actions of the securities markets, such as
the suspension or limitation of trading.
(iii) Securities determined to be illiquid in accordance with the
Liquidity Procedures.
(B) OBLIGATIONS OF THE ADVISERS.
(I) IDENTIFICATION OF NEED FOR FAIR VALUE DETERMINATIONS. Prior
to or upon purchasing a security, each Adviser:
(A) shall determine the nature and duration of any
restrictions on trading in the security and any rights
acquired with the security and
(B) if applicable, shall inform FAcS and the Secretary or a
Committee Member that the Adviser believes that there will be
insufficient market quotations readily available such that a
Fair Value Determination will have to be made.
As soon as an Adviser believes that there are insufficient market
quotations readily available such that a Fair Value Determination will
have to be made with respect to a security that is priced (or otherwise
would normally be priced) in accordance with Section 3 of these
Procedures, it shall so inform FAcS and the Secretary or a Committee
Member.
(II) RECOMMENDATIONS FOR FAIR VALUE DETERMINATIONS. When a security for
which an Adviser believes a Fair Value Determination will be required
is purchased, the Adviser shall determine (and use as contemplated by
Section 4(c)(i) below) a recommended method of valuing the security. As
soon as the Adviser believes a Fair Value Determination is required for
a security that is priced (or otherwise would normally be priced) in
accordance with Section 3 of these Procedures (or as soon a Fair Value
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Determination is determined to be required by the Committee), the
Adviser shall determine (and use as contemplated by Section 4(c)(i)
below) a recommended method of valuing the security.
(III) REVIEW OF VALUATION METHODOLOGY. For each security valued by Fair
Value Determination, the Adviser shall monitor the continuing
appropriateness of the valuation methodology used with respect to the
security. In the event the Adviser believes that the valuation
methodology no longer produces a fair value of the security, the
Adviser shall immediately notify the Secretary or a Committee Member so
that a meeting of the Committee may be called to consider appropriate
action.
(IV) QUARTERLY BOARD REPORTING. For each Fund, the Advisers shall
provide the Board at each regularly scheduled meeting of the Board with
the following information:
(A) any pricing overrides currently instituted by the Adviser
(see Section 4(c)(i) below);
(B) a list of all securities that have been valued in
accordance with a Fair Value Determination by the Committee;
(C) a list of all illiquid securities and restricted
securities (including Rule 144A Securities) held by each Fund
and the percentage of each Fund's portfolio represented by
illiquid securities and restricted securities (see Section 5
of the Liquidity Procedures);
(D) a list of all securities presumed illiquid pursuant to
Section 2(d) of the Liquidity Procedures which have been
determined to be liquid;
(E) a list of all sale prices for securities valued by Fair
Value Determination; and
(F) such other information as the Committee or any Adviser
deems relevant.
(C) FAIR VALUATION DETERMINATION PROCEDURES.
(I) INITIAL DETERMINATIONS BY ADVISER ("PRICE OVERRIDES"). In the event
a Fund holds or acquires a security for which a Fair Value
Determination is required, the Adviser is authorized to and shall
determine the fair value of the security for a maximum of five Business
Days. The Adviser shall transmit an "Adviser Manual Pricing Sheet" to
FAcS (Appendix B) for each such determination. If at the end of the
second Business Day a Fair Value Determination continues to be required
for the security, the Adviser shall notify a member of the Committee or
the Secretary of the need to call a Committee meeting. Thereafter, the
Committee shall meet as soon as practicable to determine the
appropriate method of valuing the security and, in any event, before
the Valuation Time on the sixth Business Day.
(II) RECOMMENDATIONS TO COMMITTEE. At the meeting of the Committee called
for the purpose of valuing a security, a representative of the Adviser
familiar with the security shall describe to the Committee the nature
of the security, the circumstances requiring a determination by the
Committee and the Adviser's recommended methodology for determining the
fair value of the security.
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(D) STANDARDS FOR FAIR VALUE DETERMINATIONS. As a general principle, the "fair
value" of a security is the amount that the Fund might reasonably expect to
realize upon its current sale. There is no single standard for determining the
fair value of a security. Rather, in determining the fair value of a security,
the Adviser and the Committee shall take into account the relevant factors and
surrounding circumstances, which may include: (i) the nature and pricing history
(if any) of the security; (ii) whether any dealer quotations for the security
are available; (iii) possible valuation methodologies that could be used to
determine the fair value of the security; (iv) the recommendation of the
portfolio manager of the Fund with respect to the valuation of the security; (v)
whether the same or similar securities are held by other funds managed by the
Adviser or other Funds and the method used to price the security in those Funds;
(vi) the extent to which the fair value to be determined for the security will
result from the use of data or formulae produced by third parties independent of
the Adviser; and (vii) the liquidity or illiquidity of the market for the
security.
(E) EFFECTIVENESS OF COMMITTEE DETERMINATIONS.
(I) PERIOD OF EFFECTIVENESS. Determination by the Committee that a
security held by a Fund should be valued in a particular manner shall
be effective for all subsequent calculations of the Fund's NAV until
such time as either
(A) the Fund no longer owns the security in question;
(B) a Fair Value Determination is no longer required for the
security; or
(C) the Committee determines to modify or terminate its prior
determination with respect to the security.
(II) SECURITIES FOR WHICH A PRICE BECOMES AVAILABLE. In the event that
a Fair Value Determination is no longer required for a security that
has been valued by the Committee based on such a determination, the
security shall be valued in accordance with Section 3. The change in
valuation may occur upon notice from the Adviser to FAcS without
further action by the Committee, although the Adviser must report the
change and the circumstances warranting it to the Committee.
SECTION 5. FAIR VALUE DETERMINATIONS - SPECIAL CIRCUMSTANCES
(A) RESTRICTED SECURITIES.
(i) In determining the fair value of restricted securities, the
Adviser shall obtain a valuation based upon the current bid for the
restricted security from one or more independent dealers or other
parties reasonably familiar with the facts and circumstances of the
security (who should take into consideration all relevant factors as
may be appropriate under the circumstances).
(ii) If the Adviser is unable to obtain a current bid for a restricted
security from an independent dealer or other independent party, the
Committee shall determine the fair value of such security.
(iii) The factors which may need to be considered in valuing a
restricted security include (A) the type of security; (B) the cost at
date of purchase; (C) the size and nature of the Fund's holdings; (D)
the discount from market value of unrestricted securities of the same
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class at the time of purchase and subsequent thereto; (E) information
as to any transactions or offers with respect to the security; (F) the
nature and duration of restrictions on disposition of the security and
the existence of any registration rights; (G) how the yield of the
security compares to similar securities of companies of similar or
equal creditworthiness; (H) the level of recent trades of similar or
comparable securities; (I) the liquidity characteristics of the
security; (J) current market conditions; and (K) the market value of
any securities into which the security is convertible or exchangeable.
SECTION 6. PRICING ERRORS
The Trust has adopted Policies for Correction of Pricing Errors (Appendix C)
which are to be read in conjunction with these Procedures. Pricing errors result
when one or more shareholder transactions in a Fund are processed at an NAV
which is materially inaccurate. These policies provide general guidance in the
case of the identification of a pricing error and guidelines for determining
materiality.
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APPENDIX A
LIQUIDITY PROCEDURES
SECTION 1. LIMITATIONS
No Fund may invest more than 15% of its net assets in illiquid securities (10%
in the case of money market series of the Trust ("money funds")). In addition,
no Fund or money fund may purchase a security that may not be offered to the
public without first being registered under the Securities Act of 1933 (the
"1933 Act") if more than 10% of the Fund's net assets would be invested in such
"restricted securities." Certain money funds are prohibited from investing in
restricted securities as set forth in their prospectus.
SECTION 2. REQUIRED LIQUIDITY DETERMINATIONS
(a) DEFINITION. A security shall be deemed to be liquid if it can be disposed of
within seven days at approximately the amount at which the security is valued by
the Trust.
(b) DELEGATION. The Advisers shall make liquidity determinations with respect to
each security purchased for a Fund and shall monitor each Fund's holdings to
ensure that the Funds comply with these procedures and the Funds' investment
policies. The Advisers shall monitor all relevant factors concerning the trading
markets for securities held by a Fund to ensure that determinations of liquidity
(based on presumptions or otherwise) continue to be appropriate under the
circumstances.
(c) SECURITIES DEEMED ILLIQUID. Notwithstanding anything to the contrary,
repurchase agreements not entitling the Fund to payment of principal within
seven days, time deposits in excess of seven days, privately issued
interest-only and principal-only stripped-asset backed securities, purchased
over-the-counter options, and the assets used to cover written over-the-counter
options shall be deemed to be illiquid. Restricted securities (other than
Section 4(2) Commercial Paper or Rule 144A Securities (as defined below)), shall
be deemed to be illiquid until such time as (i) there is an effective
registration statement pertaining to the security or the security may otherwise
freely be traded in an established market (including foreign markets) and (ii)
the security is deemed liquid by the Adviser.
(d) PRESUMPTION OF ILLIQUIDITY. The following securities shall be presumed to be
illiquid unless, pursuant to Section 2(e), the Adviser determines that the
security is liquid:
(i) Restricted securities that are Rule 144A Securities (as
defined below);
(ii) Municipal lease obligations and certificates of participation;
(iii) Interest-only and principal-only stripped-mortgage backed
securities that are U.S. Government securities; and
(iv) zero-coupon municipal securities.
(e) DETERMINATION OF LIQUIDITY. Restricted securities and the securities listed
in Section 2(d) shall be presumed to be illiquid unless the Adviser determines,
taking into account all relevant factors, that the security is liquid. Among the
factors to be considered by the Adviser are:
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(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase and sell the security
and the number of potential purchasers;
(iii) the number of dealers who undertake to make a market in the
security;
(iv) the nature of the security, including whether it is registered or
unregistered, and the market place;
(v) whether the security has been rated by a nationally recognized
statistical rating organization ("NRSRO");
(vi) the period of time remaining until the maturity of a debt
instrument or until the principal amount of a demand instrument can be
recovered through demand;
(vii) the nature of any restrictions on resale; and
(viii) with respect to municipal lease obligations and certificates of
participation, there is reasonable assurance that the obligation will
remain liquid throughout the time the obligation is held and, if
unrated, an analysis similar to that which would be performed by an
NRSRO is performed.
SECTION 3. SECTION 4(2) COMMERCIAL PAPER
(a) BACKGROUND. Pursuant to Section 3(a)(3) under the 1933 Act, commercial paper
generally is not subject to registration under the 1933 Act. That section
exempts notes with maturities of nine months or less which arise out of a
current transaction or the proceeds of which have been or are to be used for
current transactions. Certain commercial paper does not meet the requirements of
Section 3(a)(3), is sold in "private placements" and, accordingly, is a
restricted security ("Section 4(2) Commercial Paper"). The requirements of
Sections 2(d) and 2(e) hereof shall not apply to Section 4(2) Commercial Paper
(b) PRESUMPTION OF LIQUIDITY. Section 4(2) Commercial Paper shall be deemed to
be liquid provided that:
(i) the paper is not traded flat or in default as to principal and
interest;
(ii) the paper is rated in one of the two highest rating categories (A)
by at least two NRSROs or, if only one NRSRO has rated the paper, by
that NRSRO, or (B) is not rated by any NRSRO but is deemed by the
Adviser to be of equivalent quality; and
(iii) the Adviser's decision takes into account all relevant factors of
the trading market for the specific security.
SECTION 4. RULE 144A SECURITIES
(a) BACKGROUND. The sale of restricted securities without an effective
registration statement pertaining to the securities or an exemption from
registration is a violation of the 1933 Act. Rule 144A provides an exemption
from registration for the sale of restricted securities made pursuant to that
Rule. Certain restricted securities are eligible to be sold to "qualified
institutional buyers" ("QIBs") without registration under the 1933 Act pursuant
to Rule 144A under that Act ("Rule 144A Securities"). Among the requirements for
the sale of a Rule 144A Security are that (i)
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the seller reasonably believes the purchaser to be a QIB, (ii) the seller takes
reasonable steps to ensure that the purchaser is aware that the seller may rely
on the exemption provided by Rule 144A, (iii) the securities are not of the same
class as any security of the same issuer that is listed on a securities exchange
and (iv) the issuer is a reporting company under the Securities Exchange Act of
1934, is exempt from those reporting requirements or the holder has the right to
obtain certain information from the issuer.
(b) SALES OF RULE 144A SECURITIES. In the absence of compliance with Rule 144A
and the unavailability of any other exemption from registration contained in the
1933 Act, the sale of a restricted security by a Fund may result in the Fund
being deemed to be an underwriter and a violation of the 1933 Act. Accordingly,
the Adviser shall ensure that the sale of any Rule 144A Security is made to QIBs
in compliance with Rule 144A. The term "QIB" is specifically defined in Rule
144A.
SECTION 5. MONITORING AND REPORTING
(a) MONITORING LIQUIDITY. The Advisers periodically shall monitor each Fund's
securities holdings to determine the liquidity of each issue held. If a liquid
security held by a Fund becomes illiquid, the Adviser shall treat the security
as an illiquid security and determine whether or not to hold the security taking
into account all relevant factors, including the amount of illiquid securities
then held by the Fund.
(b) REPORTING. At each regularly scheduled Board of Trustees (the "Board")
meeting the Advisers shall report:
(i) the illiquid securities and restricted securities (including Rule
144A Securities) held by each Fund and the percentage of each Fund's
portfolio represented by illiquid securities and restricted securities;
and
(ii) whether any restricted security (including Rule 144A Securities)
previously deemed liquid by the Adviser has become an illiquid
security.
The Advisers also shall report such other information with respect to the Funds'
holdings of restricted securities or illiquid securities as may be requested by
the Board.
(c) RECORDKEEPING. The Adviser shall maintain appropriate documentation with
respect to their determinations of liquidity to enable the Board and the
Securities and Exchange Commission to review the determinations.
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APPENDIX B
FORM OF ADVISER MANUAL PRICING SHEET
FUND:_________________________________ DATE:__________________________
FAX TO:__________________________ FAX NO. (207) 879-6051
PHONE (207) 879-6200 ext. 2xx
<TABLE>
<S> <C> <C> <C>
Security Reason For
Description Adviser Price Source Adviser Price
----------- ------------- ------ -------------
</TABLE>
BY:____________________________________
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APPENDIX C
POLICIES FOR CORRECTION OF PRICING ERRORS
SECTION 1. NAV DISCREPANCIES
If the NAV calculated for a Fund ("Original NAV") is determined to have been
inaccurate, FAcS shall recalculate the NAV ("Recalculated NAV"). No further
action (other than required by Section 4) is required if (i) the rounded
Original NAV and rounded Recalculated NAV are the same, (ii) the difference
between the Original NAV and Recalculated NAV divided by the Recalculated NAV is
0.005 (1/2 of 1%) or less or (iii) no shareholder purchases or redemptions were
effected at the Original NAV.
Under all other circumstances, an NAV discrepancy shall be deemed to have
occurred and FACS shall notify Forum Administrative Services, LLC ("Forum"), the
Trust's administrator. Forum shall (i) in conjunction with FAcS and the Fund's
Adviser take the actions listed in Section 2 to make the Fund and its
shareholders whole or (ii) request that the Board determine what action is to be
taken accordance with Section 3.
SECTION 2. REPRICING MATERIAL SHAREHOLDER TRANSACTIONS
(A) MATERIALITY. No debit, credit or payment shall be required to be made with
respect to a shareholder account if the effect of any overstatement or
understatement of NAV on such account is less than or equal to $25.
(B) OVERSTATEMENTS OF NAV. Each shareholder account for which shares were
purchased shall be credited with additional shares which, in the case of
accounts which have been liquidated, shall be redeemed and the proceeds
forwarded to the former shareholder. Each shareholder account from which shares
were redeemed shall be debited or, if the account has been liquidated, request
may be made of the former shareholder for repayment.
(C) UNDERSTATEMENTS OF NAV. Each shareholder account from which shares were
redeemed shall be credited with additional shares which, in the case of accounts
which have been liquidated, shall then be redeemed and the proceeds forwarded to
the former shareholder. Each shareholder account for which shares were purchased
shall be debited or, if the account has been liquidated, request may be made of
the former shareholder for repayment.
SECTION 3. BOARD ACTION
In the event of an NAV discrepancy, Forum may request guidance from the Board.
In that case, with respect to each redemption made at an overstated NAV, Forum
shall inform the Board of (i) the cause of the discrepancy, (ii) the amount of
the actual redemption, (iii) the amount that the redemption should have been and
(iv) the difference. With respect to each purchase made at an understated NAV,
Forum shall inform the Board of (i) the cause of the discrepancy, (ii) the
number of shares actually purchased, (iii) the number of shares that should have
been purchased and (iv) the value of the share difference.
SECTION 4. REPORTING
At each regularly scheduled meeting of the Board, FAcS shall report all
differences between unrounded Original NAV and Recalculated NAV to the extent
such difference exceeds $0.01 per share.
C-1
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
May __, 1999
FORUM FUNDS
Two Portland Square
Portland, Maine 04101
(207) 879-1900
This Statement of Additional Information (the "Statement") supplements the
Prospectus/Proxy dated May__, 1999 relating to:
(1) the proposed transfer of substantially all of the assets of BIA Emerging
Growth Partnership ("Emerging Growth Partnership") to BIA Small-Cap Growth
Fund in exchange for substantilly all of the Fund's shares and
(2) the proposed transfer of substantially all of the assets of BIA Growth
Equity Partnership ("Growth Equity Partnership") to BIA Growth Equity Fund
in exchange for substantially of that Fund's shares.
Participating Partners of Emerging Growth Partnership will receive shares of
beneficial interest in BIA Small-Cap Growth Fund and the Participating Partners
of Growth Equity Partnership will receive shares of beneficial interest in BIA
Growth Equity Fund in proportion to their positive capital accounts. Each
Partnership will be liquidated as soon as practicable after the Share
Distribution.
This Statement is not a prospectus and is meant to be read in conjunction with
the Proxy Statement/Prospectus dated May __, 1999, which this Statement
accompanies.
A copy of that Proxy Statement/Prospectus may be obtained without charge by
writing to or calling: Forum Shareholder Services, LLC; Two Portland Square;
Portland, ME 04101; (XXX) XXX-XXXX.
<PAGE>
TABLE OF CONTENTS
Page
THE TRUST........................................................ 1
FINANCIAL STATEMENTS............................................. Appendix A
<PAGE>
THE TRUST
For further information about Forum Funds (the "Trust"), BIA Small-Cap Fund, and
BIA Growth Equity Fund, please refer to the information regarding the Trust and
each Fund contained in Appendix A to the Proxy Statement/Prospectus.
FINANCIAL STATEMENTS
Appendix A to this Statement of Additional Information includes recent historic
financial information regarding Emerging Growth Partnership and Growth Equity
Partnership as well as certain pro forma financial information for BIA Small-Cap
Growth Fund and BIA Growth Equity Fund.
1
<PAGE>
APPENDIX A
<PAGE>
WOLPFOFF & COMPANY, LLP
ALEX.BROWN CAPITAL ADVISORY &
TRUST EMERGING GROWTH FUND
LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1998
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
BALTIMORE, MARYLAND - HAGERSTOWN, MARYLAND
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
CONTENTS
DECEMBER 31,1998
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Statement of Assets, Liabilities, and Partners' Capital (Net Assets) 2
Statement of Operations 3
Statement of Changes in Partners' Capital (Net Assets) 4
Notes to Financial Statements 5-6
SUPPLEMENTARY INFORMATION
Schedule of Investments in Securities 7-8
<PAGE>
WOLPOFF & COMPANY, LLP
To the Partners
Alex. Brown Capital Advisory & Trust Emerging
Growth Fund Limited Partnership
Baltimore, Maryland
INDEPENDENT AUDITOR'S REPORT
We have audited the statement of assets, liabilities, and partners' capital (net
assets) of Alex. Brown Capital Advisory & Trust Emerging Growth Fund Limited
Partnership as of December 31, 1998, and the related statements of operations
and changes in partners' capital (net assets) for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit The financial statements of Alex. Brown Capital Advisory & Trust
Emerging Growth Fund Limited Partnership as of December 31, 1997, were audited
by other auditors whose report dated February 10, 1998, expressed an unqualified
opinion on these financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Alex. Brown Capital Advisory
& Trust Emerging Growth Fund Limited Partnership as of December 31, 1998, and
the results of its operations and changes in partners' capital (net assets) for
the year then ended, in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of investments in securities
on pages 7 and 8 is presented for the purpose of additional analysis and is not
a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Wolpoff & Company
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
January 29, 1999
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
550511
200 SAINT PAUL PLACE - SUITE 2300 - BALTIMORE, MARYLAND 21202.
(410) 837-3770 - FAX (410) 752-2369
P.O. Box 470-1301 WEST WASHINGTON STREET -
HAGERSTOWN, MARYLAND 21741.
(301) 733-7200 -
FAX (301) 797-3153
1
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
STATEMENT OF ASSETS, LIABILITIES, AND PARTNERS' CAPITAL (NET ASSETS)
ASSETS
<TABLE>
<S> <C> <C>
December 31,
---------------
1998 1997
---- ----
ASSETS
Investments in Securities, at Value
(Cost 1998 - $32,309,534;
1997 - $25,585,147) - Notes 1 and 4 $ 42,696,587 $ 31,181,782
Cash and Cash Equivalents - Notes 1 and 4 2,070,449 2,071,231
--------- ---------
$ 44,767,036 $ 33,253,013
------------ ------------
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL (NET ASSETS)
<TABLE>
<S> <C> <C>
LIABILITIES
Management Fee Payable - Note 4 $ 11,184 $ 8,307
Distribution Payable -0- 8,873
--- -----
TOTAL LIABILITIES 11,184 17,180
PARTNERS' CAPITAL (NET ASSETS) 44,755,852 33,235,833
---------- ----------
$ 44,767,036 $ 33,253,013
------------ ------------
</TABLE>
- --------
See Independent Auditor's Report.
The notes to financial statements are an integral part of this statement.
2
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C>
Year Ended December 31,
-----------------------
1998 1997
---- ----
INVESTMENT INCOME - Note 1
Dividend Income $98,376 $126,383
Interest Income 4,096 1,402
------------- -------------
TOTAL INVESTMENT INCOME 102,472 127,785
EXPENSES
Management Fee - Note 4 116,600 75.428
------------- -------------
INVESTMENT INCOME (LOSS), NET (14,128) 52,357
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSSES) ON INVESTMENTS
Net Realized Gains (Losses) on Investments (1,914,439) 564,111
Change in Unrealized Appreciation of Investments 4,796,772 3,955,749
------------- -------------
NET GAIN ON INVESTMENTS 2,882,333 4,519,860
------------- -------------
NET INCOME (NET INCREASE IN NET ASSETS) - Note 1 $ 2,868,205 $4,572,217
------------ ----------
</TABLE>
- --------------
See Independent Auditor's Report.
The notes to financial statements are an integral part to this statement.
3
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (NET ASSETS)
YEARS ENDED DECEMBER 31, 1998 and 1997
<TABLE>
<S> <C> <C> <C>
General Limited
Partner Partners Total
------- -------- -----
PARTNERS' CAPITAL (NET ASSETS),
JANUARY 1, 1997 $165,328 $16,329,103 $16,494,431
CAPITAL CONTRIBUTIONS, 1997 124,000 12,332,975 12,456,975
DISTRIBUTIONS, 1997 (1,288) (286,502) (287,790)
NET INCOME, 1997 45,043 4,427,174 4,572,217
--------------- ----------- ---------
PARTNERS' CAPITAL (NET ASSETS),
DECEMBER 31, 1997 333,083 32,902,750 33,235,833
CAPITAL CONTRIBUTIONS, 1998 70,000 11,987,541 12,057,541
DISTRIBUTIONS, 1998 (908) (3,404,819) (3,405,727)
NET INCOME, 1998 39,505 2,828,700 2,868,205
--------------- ----------- ---------
PARTNERS' CAPITAL (NET ASSETS)
DECEMBER 31, 1998 $441,680 $44,314,172 44,755,852
--------------- ----------- ----------
</TABLE>
- ----------
See Independent Auditor's Report.
The Notes to the financial statements are an integral part of this statement.
4
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1998
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Alex. Brown Capital Advisory & Trust Emerging Growth Fund Limited
Partnership (the Partnership) was organized on June 8, 1995,
pursuant to the Maryland Uniform Limited Partnership Act. BAT
Commingled Fund Manager, Inc. is the general partner. The
Partnership was formed to trade and invest in stocks and other
securities and will continue until December 31, 2045, unless
terminated sooner pursuant to the terms of its limited partnership
agreement.
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid debt instruments
purchased with a maturity of 3 months or less to be cash
equivalents.
Valuation of Investment Securities
----------------------------------
Investments in securities that are listed or quoted on a national
securities exchange or market are stated at their last quoted sales
price on the valuation date per the principal exchange or market on
which the security is traded. Any other security or asset shall be
valued as determined in good faith by the investment advisor to
reflect its fair value.
Securities transactions are accounted for on the trade date.
Realized gains and losses from securities transactions are
determined using the identified cost method.
Revenue Recognition
-------------------
Dividends are recorded on the ex-dividend date. Interest income is
recorded on the accrual basis and includes interest equivalent
dividends on money market accounts.
Income Taxes
------------
Partnerships, as such, are not subject to income taxes. The
partners are required to report their shares of Partnership income
and other tax items on their respective income tax returns.
Partners' Allocations
---------------------
Under the terms of the limited partnership agreement, net profits
and losses are allocated to the partners in accordance with their
respective percentage interests.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and
disclosures. The actual outcome of the estimates could differ from
the estimates made in the preparation of the financial statements.
Note 2 - INVESTMENT ADVISOR
Brown Investment Advisory & Trust Company manages the acquisition,
holding, and disposition of securities on behalf of the Partnership.
5
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31,1998
Note 3 - DEPOSIT WITH BROKER
All funds of the Partnership are deposited in its name in money
market mutual funds managed or made available through affiliates of
the general partner.
Note 4 - RELATED PARTY TRANSACTIONS
BAT Commingled Fund Manager, Inc., the general partner, is
responsible for the management of the Partnership. The general
partner is obligated to maintain a positive balance in its capital
account which is equal to at least 1 % of the total capital of all
partners (or such lesser amount as may be required under the terms
of the limited partnership agreement). The general partner may
withdraw a portion of its capital account in accordance with the
terms and conditions of the limited partnership agreement.
As compensation for administrative and management services, the
general partner is entitled to a fee computed monthly equal to
0.025% (0.3% annually) of the total capital account balances. The
fees incurred during 1998 and 1997 totaled $116,600 and $75,428,
respectively.
The Partnership may contract for goods or services with the general
partner or any of its affiliates, provided that any such agreement
shall be no less favorable to the Partnership than terms and
conditions upon which such goods or services could be obtained.
All cash and cash equivalents are in the custody of BT Alex. Brown,
Incorporated, and securities are in the custody of Alex. Brown
Capital Advisory & Trust Company, affiliates of the general
partner. Brown Investment Advisory & Trust Company, the
Partnership's investment advisor, is an affiliate of both the
general partner and the custodians.
Note 5 SUBSCRIPTIONS, DISTRIBUTIONS, AND REDEMPTIONS
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the general partner.
The timing and amounts of distributions are determined by the
general partner. Any distributions of available cash shall be made
to the partners in accordance with their respective percentage
interests as of the date of distribution.
Limited partners wishing to withdraw from the Partnership or reduce
their ownership interests may request and receive redemption of all
or the applicable portion of their capital account balance, subject
to the restrictions in the limited partnership agreement.
6
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
SCHEDULE OF INVESTMENTS IN SECURITIES
DECEMBER 31,1998
<TABLE>
<S> <C> <C>
Common Stock [Percent of Partner's Capital (Net Assets)] Shares Value
------------------------------------------------------- ---------------------
Capital Goods (2.7%)
Wilmar Industries, Inc. 58,450 $1,187,295
----------
Consumer Staples (10.3%)
Apollo Group, Inc.-CL A 36,900 1,249,988
Memberworks Inc. 33,252 980,934
Starbucks Corp. 19,700 1,105,662
Sylvan Learning Systems, Inc. 42,165 1,286,032
---------
4,622,616
---------
Consumer Cyclicals (17.8%)
AHL Services Inc. 24,209 756,531
Advanced Lighting Technologies, Inc. 59,350 578,662
Avado Brands Inc. 128,163 1,065,419
Central Garden & Pet Co. 63,400 911,375
Getty Images Inc. 9,900 170,171
Il Fornaio America Corporation 21,200 156,350
Just For Feet Inc. 71,100 1,235,363
O-Charley's Inc. 90,175 1,273,722
Papa John's International, Inc. 18,225 804,178
PETsMART, Inc. 90,725 997,975
-------
7,949,736
---------
Health Care (14.3%)
American Oncology Resources 107,350 1,563,338
Arthrocare Corp. 23,110 502,642
Bionx Implants, Inc. 15,900 132,177
Eclipsys Corp. 21,052 634,192
Guilford Pharmaceuticals 10,600 151,050
Heartport Inc. 15,850 93,119
Incyte Pharmaceuticals, Inc. 7,200 269,100
PSS World Medical Inc. 80,920 1,861,160
Perclose, Inc. 35,609 1,179,548
---------
6,386,326
---------
Telecommunications (6.2%)
Geotel Communications Corporation 34,800 1,296,300
Pacific Gateway Exchange Inc. 30,670 1,474,092
Carryforward 22,916,365
----------
</TABLE>
7
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING
GROWTH FUND LIMITED PARTNERSHIP
SCHEDULE OF INVESTMENTS IN SECURITIES
DECEMBER 31,1998
<TABLE>
<S> <C> <C>
Common Stock [Percent of Partner's Capital (Net Assets)] Shares Value
-------------------------------------------------------- ------------------
Balance Forward $22,916,365
Technology(38.2%)
Atmi Inc. 30,300 765,075
Applied Digital Access 55,259 145,055
Aspect Development Inc. 27,300 1,209,745
Broadvision Inc. 44,500 1,424,000
Documentum Inc. 10,450 558,427
Integrated Systems, Inc. 93,800 1,401,184
Level One Communications, Inc. 59,750 2,121,125
Mapics Inc. 31,916 526,614
Manugistics Group, Inc. 44,650 558,125
QRS Corporation 43,891 2,106,768
Security Dynamics Technologies, Inc. 65,350 1,503,050
Sipex Corporation* 72,500 2,546,563
Summit Design Inc. 19,700 183,466
Synopsis, Inc. 37,375 2,026,617
--------------
17,075,814
--------------
Transportation (6.0%)
Atlantic Coast Airlines Holdings, Inc. 32,900 822,500
Coach USA Inc. 38,304 1,328,689
Forward Air Corporation 21,075 395,156
Landair Services, Inc. 21,075 158,063
-------------
2,704,408
-------------
TOTAL INVESTMENTS IN SECURITIES (Cost $32,309,534) $42,696,587
--------------
</TABLE>
* Securities of Sipex Corporation aggregate 5.7% of net assets of the
Partnership.
- -------------
See Independent Auditor's Report.
8
<PAGE>
WOLPOFF & COMPANY, LLP
ALEX. BROWN CAPITAL ADVISORY &
TRUST EMERGING GROWTH FUND
LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE>
GROWTH EQUITY FUND LIMITED PARTNERSHIP
CONTENTS
DECEMBER 31,1998
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Statement of Assets, Liabilities, and Partners' Capital (Net Assets) 2
Statement of Operations 3
Statement of Changes in Partners' Capital (Net Assets) 4
Notes to Financial Statements 5-6
SUPPLEMENTARY INFORMATION
Schedule of Investments in Securities 7-8
<PAGE>
WOLPOFF & COMPANY, LLP
To the Partners
Alex. Brown Capital Advisory & Trust
Growth Equity Fund Limited Partnership
Baltimore, Maryland
INDEPENDENT AUDITOR'S REPORT
We have audited the statement of assets, liabilities, and partners' capital
(net assets) of Alex. Brown Capital Advisory & Trust Growth Equity Fund Limited
Partnership as of December 31, 1998, and the related statements of operations
and changes in partners' capital (net assets) for the year then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Alex. Brown Capital Advisory & Trust
Growth Equity Fund Limited Partnership as of December 31, 1997, were audited by
other auditors whose report dated February 6, 1998, expressed an unqualified
opinion on these financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Alex. Brown Capital
Advisory & Trust Growth Equity Fund Limited Partnership as of December 31,
1998, and the results of its operations and changes in partners' capital (net
assets) for the year then ended, in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of investments in
securities on pages 7 and 8 is presented for the purpose of additional analysis
and is not a required part of the basic financial statements. Such information
has been subject to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Wolpoff & Company, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
January 29, 1999
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 550513
550513
200 SAINT PAUL PLACE SUITE 2300. BALTIMORE, MARYLAND 21202.(
410) 837-3770 - FAX (410) 752-2369
P.O. BOX 470-1301 WEST WASHINGTON STREET - HAGERSTOWN, MARYLAND 21741.
(301) 733-7200. FAX (301) 797-3153
1
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
GROWTH EQUITY FUND LIMITED PARTNERSHIP
STATEMENT OF ASSETS, LIABILITIES, AND PARTNERS' CAPITAL (NET ASSETS)
ASSETS
<TABLE>
<S> <C> <C>
December 31,
---------------------------------------
1998 1997
------------------ ------------------
------------------ ------------------
ASSETS
Investments in Securities, at Value
(Cost: 1998 - $5,406,309; 1997 - $5,821,368) - Notes 1 and 4 $8,270,439 $7,926,846
Cash and Cash Equivalents - Notes 1 and 4 755,677 581,267
Receivable, Other 14,996 -0-
------------------ ------------------
$9,041,112 $8,508,113
------------------ ------------------
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL (NET ASSETS)
<TABLE>
<S> <C> <C>
December 31,
------------------------------------------
1998 1997
-------------------- ------------------
LIABILITIES
Redemptions Payable - Note 5 $515,000 $ -0-
Income Distribution Payable 1,411
-0-
-------------------- ------------------
TOTAL LIABILITIES 515,000 1,411
PARTNERS' CAPITAL $8,526,112 $8,508,113
-------------------- ------------------
$9,041,112 $8,508,113
-------------------- ------------------
</TABLE>
- ------------
See Independent Auditor's Report.
The notes to financial statements are an integral part of this statement.
2
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
GROWTH EQUITY FUND LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C>
Year Ended December 31,
------------------------
1998 1997
----- ----
INVESTMENT INCOME - Note 1
Dividend Income $ 92,221 $ 95,038
Interest Income 31,230 18,527
------ ------
TOTAL INVESTMENT INCOME 123,451 113,565
------------- -------
EXPENSES
Other -0- 20
TOTAL EXPENSES -0- 20
INVESTMENT INCOME, NET 123,451 113,545
------------- -------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gains on Investments 463,171 209,595
Change in Unrealized Appreciation of Investments 1,484,310 1,597,971
--------- ---------
NET GAIN ON INVESTMENTS 1,947,481 1,807,566
--------- ---------
NET INCOME (NET INCREASE IN NET ASSETS) - Note 1 $2,070,932 $1,921,111
------------- ---------
</TABLE>
- --------------
See Independent Auditor's Report.
The notes to financial statements are an integral part to this statement.
3
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
GROWTH EQUITY FUND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (NET ASSETS)
YEARS ENDED DECEMBER 31, 1998 and 1997
<TABLE>
<S> <C> <C> <C>
General Limited
Partner Partners Total
------- --------- ---------
PARTNERS' CAPITAL
(NET ASSETS), JANUARY 1, 1997 $2,183,573 $ 4,844,644 $7,028,217
CAPITAL CONTRIBUTIONS, 1997 -0- 607,565 607,565
DISTRIBUTIONS, 1997 (37,861) (1,012,330) (1,050,191)
NET INCOME, 1997 655,446 1,265,665 1,921,111
--------------- ----------- ---------
PARTNERS' CAPITAL
(NET ASSETS), DECEMBER 31, 1997 2,801,158 5,705,544 8,506,702
CAPITAL CONTRIBUTIONS, 1998 -0- 3,603,977 3,603,977
DISTRIBUTIONS, 1998 (3,106,484) (2,549,015) (5,655,499)
NET INCOME, 1998 443,787 1,627,145 2,070,932
--------------- ----------- ---------
PARTNERS' CAPITAL
(NET ASSETS), DECEMBER 31, 1998 $138,461 $ 8,387,651 $8,526,112
-------- ----------- -----------
</TABLE>
---------
See Independent Auditor's Report.
The notes to financial statements are an integral part of this statement.
4
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
GROWTH EQUITY FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1998
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operation
-------------------
Alex. Brown Capital Advisory & Trust Growth Equity Fund Limited
Partnership (the Partnership) was organized on December 6, 1995,
pursuant to the Maryland Uniform Limited Partnership Act. BAT
Commingled Fund Manager, Inc. is the general partner. The
Partnership was formed to trade and invest in stocks and other
securities and will continue until December 31, 2045, unless
terminated sooner pursuant to the terms of its limited partnership
agreement.
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid debt instruments
purchased with a maturity of 3 months or less to be cash
equivalents.
Valuation of Investment Securities
----------------------------------
Investments in securities that are listed or quoted on a national
securities exchange or market are stated at their last quoted sales
price on the valuation date per the principal exchange or market on
which the security is traded. Any other security or asset shall be
valued as determined in good faith by the investment advisor to
reflect its fair value.
Securities transactions are accounted for on the trade date.
Realized gains and losses from securities transactions are
determined using the identified cost method.
Revenue Recognition
-------------------
Dividends are recorded on the ex-dividend date. Interest income is
recorded on the accrual basis and includes interest equivalent
dividends on money market accounts.
Income Taxes
------------
Partnerships, as such, are not subject to income taxes. The
partners are required to report their shares of Partnership income
and other tax items on their respective income tax returns.
Partners' Allocations
---------------------
Under the terms of the limited partnership agreement, net profits
and losses are allocated to the partners in accordance with their
respective percentage interests.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and
disclosures. The actual outcome of the estimates could differ from
the estimates made in the preparation of the financial statements.
Note 2 - INVESTMENT ADVISOR
Brown Investment Advisory & Trust Company manages the acquisition,
holding, and disposition of securities on behalf of the Partnership.
5
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
GROWTH EQUITY FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31,1998
Note 3 - DEPOSIT WITH BROKER
All funds of the Partnership are deposited in its name in money
market mutual funds managed or made available through affiliates of
the general partner.
Note 4 - RELATED PARTY TRANSACTIONS
BAT Commingled Fund Manager, Inc., the general partner, is
responsible for the management of the Partnership. The general
partner is obligated to maintain a positive balance in its capital
account which is equal to at least 1 % of the total capital of all
partners (or such lesser amount as may be required under the terms
of the limited partnership agreement). The general partner may
withdraw a portion of its capital account in accordance with the
terms and conditions of the limited partnership agreement.
As compensation for administrative and management services, the
general partner is entitled to a fee computed monthly equal to
0.025% (0.3% annually) of the total capital account balances.
However, the general partner has waived these fees for the years
ended December 31, 1998 and 1997.
The Partnership may contract for goods or services with the general
partner or any of its affiliates, provided that any such agreement
shall be no less favorable to the Partnership than terms and
conditions upon which such goods or services could be obtained.
All cash and cash equivalents are in the custody of BT. Alex. Brown
Incorporated, and securities are in the custody of Alex. Brown
Capital Advisory & Trust Company, affiliates of the general
partner. Brown Investment Advisory & Trust Company, the
Partnership's investment advisor, is an affiliate of both the
general partner and the custodians.
Note 5 - SUBSCRIPTIONS, DISTRIBUTIONS, AND REDEMPTIONS
Investments in the Partnership are made by subscription agreement, subject to
acceptance by the general partner.
The timing and amounts of distributions are determined by the general partner.
Any distributions of available cash shall be made to the partners in accordance
with their respective percentage interests as of the date of distribution.
Limited partners wishing to withdraw from the Partnership or reduce their
ownership interests may request and receive redemption of all or the applicable
portion of their capital account balance, subject to the restrictions in the
limited partnership agreement.
6
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
GROWTH EQUITY FUND LIMITED PARTNERSHIP
SCHEDULE OF INVESTMENTS IN SECURITIES
DECEMBER 31,1998
<TABLE>
<S> <C> <C>
Common Stock [Percent of Partner's Capital (Net Assets)] Shares Value
------ -----
Basic Industry (2.4%)
Air Products & Chemical, Inc. 1,000 $40,000
E I Du Pont De Nemours & Co. 3,200 169,802
-------
209,802
-------
Capital Goods (8.6%)
Dover Corp. 5,200 190,450
Illinois Tool Works 1,200 69,600
Ingersoll-Rand Co. 4,600 217,350
Tyco, Intl Ltd New 3,400 256,489
-------
733,889
-------
Consumer Staples (11.3%)
CVS Corp. 3,720 204,600
Colgate Palmolive Co. 2,000 185,750
Gillette Co. 2,750 131,486
Pepsico Inc. 6,100 249,337
Phillip Morris Cos. Inc. 3,700 197,950
-------
969,123
-------
Consumer Cyclicals (12.5%)
Carnival Corp. 5,600 268,800
Federated Dept Stores, Inc. 2,550 111,086
Harley Davidson, Inc. 1,400 66,325
Lowes Cos, Inc. 6,000 307,128
Newell Co. 3,000 123,750
Walt Disney Co. 6,400 192,000
-------
1,069,089
---------
Energy (5.7%)
Chevron Corp. 2,070 171,682
Halliburton Co. 4,500 133,312
Mobil Corp. 2,100 182,963
-------
487,957
---------
Carryforward 3,469,860
---------
</TABLE>
7
<PAGE>
ALEX. BROWN CAPITAL ADVISORY & TRUST
GROWTH EQUITY FUND LIMITED PARTNERSHIP
SCHEDULE OF INVESTMENTS IN SECURITIES
DECEMBER 31,1998
<TABLE>
<S> <C> <C>
Common Stock [Percent of Partners Capital (Net Assets)] Shares Value
------ -----
Balance Forward $3,469,860
---------
Health Care (15.2%)
Abbott Laboratories 3,000 147,000
American Home Products Corp. 4,000 225,500
Bristol Myers Squibb Co. 2,200 294,389
Cardinal Health, Inc. 2,550 193,481
Healthsouth Corp. 2,000 30,876
Eli Lilly & Co. 1,500 133,312
Medtronic Inc. 2,500 185,702
Tenet Health Care 3,400 89,250
------
1,299,510
---------
Telecommunications (5.6%)
MCI Worldcom, Inc. 4,500 322,875
SBC Communications, Inc. 3,000 160,875
-------
483,750
-------
Financial (16.0%)
American International Group, Inc. 2,500 241,562
Chase Manhattan Corp. 4,000 284,000
Citigroup, Inc 1,250 62,110
Freddie Mac-Voting Common 3,500 225,533
MBNA Corp. 9,025 223,937
MGIC Investment Corp. 3,000 119,439
Wells Fargo & Co-New 5,200 207,678
-------
1,364,259
---------
Technology (17.3%)
Cisco Systems 2,700 250,595
Compaq Computer Corp. 4,200 176,400
Computer Assoc. International, Inc. 4,700 200,337
Hewlett Packard Corp. 2,300 157,120
Intel Corp. 1,900 225,270
Linear Technology Corp. 2,500 223,907
Lucent Technologies, Inc. 1,150 126,429
Parametric Technology Corp. 7,300 118,625
-------
1,478,683
---------
Utilities (2.0%)
CMS Energy Corp 3,600 174,377
-------
TOTAL INVESTMENTS IN SECURITIES (COST - $5,406,309) $8,270,439
----------
</TABLE>
- -------------
See Independent Auditor's Report.
8
<PAGE>
BIA GROWTH EQUITY FUND
GROWTH EQUITY FUND LIMITED PARTNERSHIP & BIA
GROWTH EQUITY FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
YEAR ENDING DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
Growth Equity
Fund Limited Growth Equity
Partnership Fund
----------------------------- -----------------------------
INVESTMENT INCOME
Dividend $92,221
Interest $31,230
----------------------------- -----------------------------
TOTAL INVESTMENT INCOME $123,451 $0
----------------------------- -----------------------------
EXPENSES
Advisory
Management
Transfer Agent
Custody
Legal
Compliance
SEC Fees
Accounting
Auditing
Directors
Reporting
Other
----------------------------- -----------------------------
GROSS EXPENSES $0 $0
----------------------------- -----------------------------
LESS WAIVERS
Investment Advisory
Expense Reimbursements
----------------------------- -----------------------------
TOTAL WAIVERS $0 $0
----------------------------- -----------------------------
NET EXPENSES $0 $0
============================= =============================
</TABLE>
<TABLE>
<S><C> <C> <C>
Pro Forma Pro Forma
Combined Adjustments Combined
- ----------------------------- ----------------------------- -----------------------------
$92,221 $92,221
$31,230 $31,230
- ----------------------------- ----------------------------- -----------------------------
$123,451 $0 $123,451
- ----------------------------- ----------------------------- -----------------------------
$0 $59,615 (a) $59,615
$0 $40,000 (b) $40,000
$0 $21,000 (c) $21,000
$0 $1,703 (d) $1,703
$0 $3,817 (e) $3,817
$0 $4,544 (f) $4,544
$0 $2,370 (g) $2,370
$0 $41,887 (h) $41,887
$0 $15,000 (i) $15,000
$0 $1,511 (j) $1,511
$0 $6,667 (k) $6,667
$0 $1,635 (l) $1,635
- ----------------------------- ----------------------------- -----------------------------
$0 $199,750 $199,750
- ----------------------------- ----------------------------- -----------------------------
$0 ($59,615) (m) ($59,615)
$0 ($54,971) (m) ($54,971)
- ----------------------------- ----------------------------- -----------------------------
$0 ($114,586) ($114,585)
- ----------------------------- ----------------------------- -----------------------------
$0 $85,164 $85,164
============================= ============================= =============================
</TABLE>
9
<PAGE>
BIA GROWTH EQUITY FUND
GROWTH EQUITY FUND LIMITED PARTNERSHIP & BIA GROWTH EQUITY FUND
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
AS OF DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Growth Equity
Fund Limited Growth Equity
Partnership Fund
----------------------------- ---------------------------
ASSETS
Investments in Securities,
at Value (Cost $8,270,439
$5,406,309)
Cash and Cash $755,677
Equivalents
Receivable, Other $14,996
----------------------------- ---------------------------
TOTAL ASSETS $9,041,112 $0
----------------------------- ---------------------------
LIABILITIES
Redemptions Payable $515,000
Income Distribution Payable $0
----------------------------- ---------------------------
TOTAL LIABILITIES $515,000 $0
----------------------------- ---------------------------
PARTNERSHIP CAPITAL (NET ASSETS) $8,526,112 $0
============================= ===========================
</TABLE>
<TABLE>
<S><C> <C> <C>
Pro Forma Pro Forma
Combined Adjustments Combined
----------------------------- ---------------------------- -----------------------------
$8,270,439 $8,270,439
$755,677 $755,677
$14,996 $14,996
----------------------------- ---------------------------- -----------------------------
$9,041,112 $0 $9,041,112
----------------------------- ---------------------------- -----------------------------
$515,000 $515,000
$0 $0
----------------------------- ---------------------------- -----------------------------
$515,000 $0 $515,000
----------------------------- ---------------------------- -----------------------------
$8,526,112 $0 $8,526,112
============================= ============================ =============================
</TABLE>
10
<PAGE>
BIA GROWTH EQUITY FUND
GROWTH EQUITY FUND LIMITED PARTNERSHIP & BIA GROWTH EQUITY FUND
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited Pro Forma Combining Statement of Assets and
Liabilities as of December 31, 1998 and the unaudited Pro Forma Combining
Statement of Operations for the year ended December 31, 1998 are intended to
present the financial condition and related results of operations of BIA Growth
Equity Fund ("Fund") as if the reorganization with Growth Equity Fund Limited
Partnership had been consummated as of January 1, 1998.
A Pro Forma Combining Schedule of Investments has been omitted from these pro
forma financial statements since there were no pro forma adjustments to the
Schedule of Investments as included in the December 31, 1998 Growth Equity Fund
Limited Partnership Financial Statements.
The pro forma adjustments to these pro forma financial statements are comprised
of:
(a) Reflects estimated investment advisory fee by Brown Investment Advisory
& Trust Company to the Fund based on the average of 12/31/97 and
12/31/98 net assets
(b) Reflect minimum fee for administrative services by Forum Administrative
Services, LLC to the Fund
(c) Reflects transfer agent base fee and estimated account fees by Forum
Shareholder Services, LLC to the Fund
(d) Reflects estimated custody fee associated with the custodian to the
Fund
(e) Reflects legal fees associated with the independent counsel to the Fund
(f) Reflects blue sky registration fees associated with initial and ongoing
registration of the shares of the Fund for sale in eleven states
(g) Reflects fees charged by the Securities & Exchange Commission under
Section 24f2 to the Fund
(h) Reflects fund accounting fees charged by Forum Accounting Services, LLC
and related out of pocket expenses for pricing services
(i) Reflects audit fees associated with the independent audit of the Fund
(j) Reflects pro rata share of board of trustee fees and expenses for the
fund
(k) Reflects the cost of printing, filing, and mailing semiannual and
annual financial statements as well as fund prospectuses
(l) Reflects miscellaneous costs incurred as a regulated investment company
(m) Reflects reduction in expenses due to Brown Investment Advisory and
Trust Company's agreement to voluntarily limit the fund expense to
1.00% of average net assets
The unaudited combining statements should be read in conjunction with the
separate annual audited financial statements as of December 31, 1998 for the
Growth Equity Fund Limited Partnership, which are also included in Appendix A to
Part B of this registration statement.
11
<PAGE>
BIA SMALL-CAP GROWTH FUND
EMERGING GROWTH FUND LIMITED PARTNERSHIP & BIA
SMALL-CAP GROWTH FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
YEAR ENDING DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
Emerging Growth
Fund Limited Small-Cap
Partnership Growth Fund
----------------------------- -----------------------------
INVESTMENT INCOME
Dividend $4,096
Interest $98,376
----------------------------- -----------------------------
TOTAL INVESTMENT INCOME $102,472 $0
----------------------------- -----------------------------
EXPENSES
Advisory
Management $116,600
Transfer Agent
Custody
Legal
Compliance
SEC Fees
Accounting
Auditing
Directors
Reporting
Other
----------------------------- -----------------------------
GROSS EXPENSES $116,600 $0
----------------------------- -----------------------------
LESS WAIVERS
Investment Advisory
Expense Reimbursements
----------------------------- -----------------------------
TOTAL WAIVERS $0 $0
----------------------------- -----------------------------
NET EXPENSES $116,600 $0
============================= =============================
</TABLE>
<TABLE>
<S><C> <C> <C>
Pro Forma Pro Forma
Combined Adjustments Combined
----------------------------- ----------------------------- -----------------------------
$4,096 $4,096
$98,376 $98,376
----------------------------- ----------------------------- -----------------------------
$102,472 $0 $102,472
----------------------------- ----------------------------- -----------------------------
$0 $331,465 (a) $331,465
$116,600 ($76,600) (b) $40,000
$0 $21,000 (c) $21,000
$0 $7,799 (d) $7,799
$0 $7,634 (e) $7,634
$0 $4,603 (f) $4,603
$0 $12,442 (g) $12,442
$0 $41,761 (h) $41,761
$0 $15,000 (i) $15,000
$0 $3,023 (j) $3,023
$0 $13,333 (k) $13,333
$0 $3,270 (l) $3,270
----------------------------- ----------------------------- -----------------------------
$116,600 $384,731 $501,331
----------------------------- ----------------------------- -----------------------------
$0 ($13,883) (m) ($13,883)
$0 $0 $0
----------------------------- ----------------------------- -----------------------------
$0 ($13,883) ($13,883)
----------------------------- ----------------------------- -----------------------------
$116,600 $370,848 $487,448
============================= ============================= =============================
</TABLE>
12
<PAGE>
BIA SMALL-CAP GROWTH FUND
EMERGING GROWTH FUND LIMITED PARTNERSHIP & BIA SMALL-CAP
GROWTH FUND
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
AS OF DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
Emerging Growth
Fund Limited Small-Cap
Partnership Growth Fund
---------------------------- -----------------------------
ASSETS
Investments in Securities,
at Value (Cost $32,309,534) $42,696,587
Cash and Cash Equivalents $2,070,449
---------------------------- -----------------------------
TOTAL ASSETS $44,767,036 $0
---------------------------- -----------------------------
LIABILITIES
Management Fee Payable $11,184
Distribution Payable $0
---------------------------- -----------------------------
TOTAL LIABILITIES $11,184 $0
---------------------------- -----------------------------
PARTNERSHIP CAPITAL (NET ASSETS) $44,755,852 $0
============================ =============================
</TABLE>
<TABLE>
<S><C> <C> <C>
Pro Forma Pro Forma
Combined Adjustments Combined
---------------------------- ----------------------------- ----------------------------
$42,696,587 $42,696,587
$2,070,449 $2,070,449
---------------------------- ----------------------------- ----------------------------
$44,767,036 $0 $44,767,036
---------------------------- ----------------------------- ----------------------------
$11,184 $11,184
$0 $0
---------------------------- ----------------------------- ----------------------------
$11,184 $0 $11,184
---------------------------- ----------------------------- ----------------------------
$44,755,852 $0 $44,755,852
============================ ============================= ============================
</TABLE>
13
<PAGE>
BIA SMALL-CAP GROWTH FUND
EMERGING GROWTH FUND LIMITED PARTNERSHIP & BIA SMALL-CAP GROWTH FUND
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited Pro Forma Combining Statement of Assets and
Liabilities as of December 31, 1998 and the unaudited Pro Forma Combining
Statement of Operations for the year ended December 31, 1998 are intended to
present the financial condition and related results of operations of BIA
Small-Cap Growth Fund ("Fund") as if the reorganization with Emerging Growth
Fund Limited Partnership had been consummated as of January 1, 1998.
A Pro Forma Combining Schedule of Investments has been omitted from these pro
forma financial statements since there were no pro forma adjustments to the
Schedule of Investments as included in the December 31, 1998 Emerging Growth
Fund Limited Partnership Financial Statements.
The pro forma adjustments to these pro forma financial statements are comprised
of:
(a) Reflects estimated investment advisory fee by Brown Investment Advisory
& Trust Company to the Fund based on the average of 12/31/97 and
12/31/98 net assets
(b) Reflect minimum fee for administrative services by Forum Administrative
Services, LLC to the Fund
(c) Reflects transfer agent base fee and estimated account fees by Forum
Shareholder Services, LLC to the Fund
(d) Reflects estimated custody fee associated with the custodian to the
Fund
(e) Reflects legal fees associated with the independent counsel to the Fund
(f) Reflects blue sky registration fees associated with initial and ongoing
registration of the shares of the Fund for sale in eleven states
(g) Reflects fees charged by the Securities & Exchange Commission under
Section 24f2 to the Fund
(h) Reflects fund accounting fees charged by Forum Accounting Services, LLC
and related out of pocket expenses for pricing services
(i) Reflects audit fees associated with the independent audit of the Fund
(j) Reflects pro rata share of board of trustee fees and expenses for the
fund
(k) Reflects the cost of printing, filing, and mailing semiannual and
annual financial statements as well as fund prospectuses
(l) Reflects miscellaneous costs incurred as a regulated investment company
(m) Reflects reduction in expenses due to Brown Investment Advisory and
Trust Company's agreement to voluntarily limit the fund expense to
1.25% of average net assets
The unaudited combining statements should be read in conjunction with the
separate annual audited financial statements as of December 31, 1998 for the
Emerging Growth Fund Limited Partnership, which are also included in Appendix A
to Part B of this registration statement.
14
<PAGE>
PART C
OTHER INFORMATION
ITEM 15 - INDEMNIFICATION.
THE TRUST INSTRUMENT
In accordance with Section 3803 of the Delaware Business Trust Act, SECTION 10.2
of the Registrant's Trust Instrument provides as follows:
"SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection 10.02(b):
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees or by independent counsel.
<PAGE>
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described in Subsection
10.02(a) of this Section 10.02 may be paid by the Trust or Series from time to
time prior to final disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under Section 10.02.
THE INVESTMENT ADVISORY AGREEMENTS
Section 4 of the Trust's Investment Advisory Agreements with Austin Investment
Management, Inc., Oak Hall Capital Advisors, Inc., Quadra Capital Partners LP,
Forum Investment Advisors, LLC (Investors Bond Fund, Investors High Grade Bond
Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund,
and Investors Growth Fund) and H.M. Payson & Company (Payson Balanced Fund &
Payson Value Fund) includes language similar to the following:
"SECTION 4. STANDARD OF CARE
The Adviser shall use its best judgment and efforts in rendering the services
described in this Agreement. The Adviser shall not be liable to the Trust for
any action or inaction of the Adviser in the absence of bad faith, willful
misconduct or gross negligence or based upon information, instructions or
requests with respect to the Fund made to the Adviser by a duly authorized
officer of the Trust. The Adviser shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement caused
by circumstances beyond its reasonable control."
Section 5 of the Trust's Investment Advisory Agreements with Forum Investment
Advisors, LLC (Small Company Opportunities Fund) and Polaris Capital Management,
Inc. and Section 5 of the Form of Investment Advisory Agreement between the
Trust and Brown Investment Advisory & Trust Company include similar language to
the following:
<PAGE>
"SECTION 5. STANDARD OF CARE.
(a) The Trust shall expect of the Adviser, and the Adviser will give the
Trust the benefit of, the Adviser's best judgment and efforts in
rendering its services to the Trust. The Adviser shall not be liable
hereunder for error of judgment or mistake of law or in any event
whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Adviser
against any liability to the Trust or to the Trust's security holders
to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties hereunder, or by reason of the Adviser's reckless
disregard of its obligations and duties hereunder.
(b) The Adviser shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its
reasonable control including, without limitation, acts of civil or
military authority, national emergencies, labor difficulties (other
than those related to the Adviser's employees), fire, mechanical
breakdowns, flood or catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power
supply."
THE DISTRIBUTION AGREEMENT
Section 8 of the Trust's Distribution Agreement with Forum Financial Services,
Inc. and Forum Fund Services LLC provides:
"SECTION 8. INDEMNIFICATION
(a) The Trust will indemnify, defend and hold the Distributor, its employees,
agents, directors and officers and any person who controls the Distributor
within the meaning of section 15 of the Securities Act or section 20 of the 1934
Act ("Distributor Indemnitees") free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur, under the
Securities Act, or under common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectuses or arising out of or based upon any alleged
omission to state a material fact required to be stated in any one thereof or
necessary to make the statements in any one thereof not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Trust in connection with the preparation
of the Registration Statement or exhibits to the Registration Statement by or on
behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section 13(e),
the Trust shall
<PAGE>
indemnify and hold each Distributor Indemnitee free and harmless from and
against any Distributor Claim; provided, that the term Distributor Claim for
purposes of this sentence shall mean any Distributor Claim related to the
matters for which the Distributor has requested amendment to the Registration
Statement and for which the Trust has not filed a Required Amendment, regardless
of with respect to such matters whether any statement in or omission from the
Registration Statement was made in reliance upon, or in conformity with,
information furnished to the Trust by or on behalf of the Distributor.
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Trust
and approved by the Distributor, which approval shall not be withheld
unreasonably. The Trust shall advise the Distributor that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Trust assumes the defense of any such suit and
retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Trust does not assume the defense of
any such suit, or if Distributor does not approve of counsel chosen by the Trust
or has been advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust will
reimburse any Distributor Indemnitee named as defendant in such suit for the
reasonable fees and expenses of any counsel that person retains. A Distributor
Indemnitee shall not settle or confess any claim without the prior written
consent of the Trust, which consent shall not be unreasonably withheld or
delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its several
officers and trustees (collectively, the "Trust Indemnitees"), free and harmless
from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, reasonable counsel fees and other
expenses of every nature and character (including the cost of investigating or
defending such claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent that such
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses result from, arise out of or
are based upon:
(i) any alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus or any alleged omission of a
material fact required to be stated or necessary to make the statements
therein not misleading, if such statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust in writing in connection with the preparation of the Registration
Statement or Prospectus by or on behalf of the Distributor; or
(ii)any act of,or omission by, Distributor or its sales representatives
that does not conform to the standard of care set forth in Section 7 of
this Agreement ("Trust Claims").
(d) The Distributor may assume the defense of any suit brought to enforce any
Trust Claim and may retain counsel of good standing chosen by the Distributor
and approved by the Trust, which approval shall not be withheld unreasonably.
The Distributor shall advise the Trust that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Distributor assumes the defense of any such suit and retains
counsel, the
<PAGE>
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Distributor does not assume the defense of any such suit, or if
Trust does not approve of counsel chosen by the Distributor or has been advised
that it may have available defenses or claims that are not available to or
conflict with those available to the Distributor, the Distributor will reimburse
any Trust Indemnitee named as defendant in such suit for the reasonable fees and
expenses of any counsel that person retains. A Trust Indemnitee shall not settle
or confess any claim without the prior written consent of the Distributor, which
consent shall not be unreasonably withheld or delayed.
(e) The Trust's and the Distributor's obligations to provide indemnification
under this Section is conditioned upon the Trust or the Distributor receiving
notice of any action brought against a Distributor Indemnitee or Trust
Indemnitee, respectively, by the person against whom such action is brought
within twenty (20) days after the summons or other first legal process is
served. Such notice shall refer to the person or persons against whom the action
is brought. The failure to provide such notice shall not relieve the party
entitled to such notice of any liability that it may have to any Distributor
Indemnitee or Trust Indemnitee except to the extent that the ability of the
party entitled to such notice to defend such action has been materially
adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Trust Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Trust Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) Each party agrees promptly to notify the other party of the commencement of
any litigation or proceeding of which it becomes aware arising out of or in any
way connected with the issuance or sale of Shares.
(h) Nothing contained herein shall require the Trust to take any action contrary
to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws or any applicable statute
or regulation; provided, however, that neither the Trust nor the Distributor may
amend their Organic Documents or Articles of Incorporation and Bylaws,
respectively, in any manner that would result in a violation of a representation
or warranty made in this Agreement.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or its security holders to which
the Distributor would otherwise be subject by reason of its failure to satisfy
the standard of care set forth in Section 7 of this Agreement.
<PAGE>
ITEM 16 - EXHIBITS.
All references to a post effective amendment ("PEA") are to PEAs to Registrant's
Registration Statement on Form N-1A, file numbers 2-67052 and 811-3023.
(1) Copy of Registrant's Trust Instrument dated August 29, 1995 is
incorporated herein by reference. The Trust Instrument, Exhibit (a) to
PEA No. 34, was filed via EDGAR on May 9, 1996 (accession number
0000912057-96-008780).
(2) Copy of Registrant's By-Laws is incorporated by reference. The By-Laws,
Exhibit (b) to PEA No 43 were filed via EDGAR on July 31, 1997
(accession number 0000912057-97-025707).
(3) None.
(4) Form of Agreement and Plan of Reorganization is filed herewith as
Attachment B to Part A.
(5)(a) Sections 2.04 and 2.06 of Registrant's Trust Instrument provide as
follows:
"SECTION 2.04 TRANSFER OF SHARES.
Except as otherwise provided by the Trustees, Shares shall be transferable on
the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Trust's transfer agent of a duly executed instrument of transfer and such
evidence of the genuineness of such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery the
transfer shall be recorded on the register of the Trust. Until such record is
made, the Shareholder of record shall be deemed to be the holder of such Shares
for all purposes hereunder and neither the Trustees nor the Trust, nor any
transfer agent or registrar nor any officer, employee or agent of the Trust
shall be affected by any notice of the proposed transfer."
"SECTION 2.06 ESTABLISHMENT OF SERIES.
The Trust created hereby shall consist of one or more Series and separate and
distinct records shall be maintained by the Trust for each Series and the assets
associated with any such Series shall be held and accounted for separately from
the assets of the Trust or any other Series. The Trustees shall have full power
and authority, in their sole discretion, and without obtaining any prior
authorization or vote of the Shareholders of any Series of the Trust, to
establish and designate and to change in any manner any such Series of Shares or
any classes of initial or additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes thereof as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or classes thereof into a greater or lesser number, to classify or reclassify
any issued Shares or any Series or classes thereof into one or more Series or
classes of Shares,
<PAGE>
and to take such other action with respect to the Shares as the Trustees may
deem desirable. The establishment and designation of any Series shall be
effective upon the adoption of a resolution by a majority of the Trustees
setting forth such establishment and designation and the relative rights and
preferences of the Shares of such Series. A Series may issue any number of
Shares and need not issue shares. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may by a majority vote abolish that Series and the establishment and
designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be Shares
of any or all Series, or classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial interest
in the net assets of such Series. Each holder of Shares of a Series shall be
entitled to receive his pro rata share of all distributions made with respect to
such Series. Upon redemption of his Shares, such Shareholder shall be paid
solely out of the funds and property of such Series of the Trust."
(6) Investment Advisory Agreements
(a) Investment Advisory Agreement between Registrant and Austin Investment
Management, Inc. regarding Austin Global Equity Fund is incorporated
herein by reference. The Investment Advisory Agreement, Exhibit
(d)(3) to PEA No. 62, was filed via EDGAR on May 26, 1998
(accession number 0001004402-98-000307).
(b) Form of Investment Advisory Agreement between Registrant and Brown
Investment Advisory & Trust Company regarding BIA Small-Cap Growth Fund
and BIA Growth Equity Fund is incorporated herein by reference. The
Form of Investment Advisory Agreement, Exhibit (d)(11) to PEA 70, was
filed via EDGAR on March 18, 1999 (accession number
0001004402-99-000185).
(c) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC regarding Investors Bond Fund, Investors High Grade Bond
Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond
Fund, and Investors Growth Fund is incorporated herein by reference.
The Investment Advisory Agreement, Exhibit (d)(5) to PEA 56, was filed
via EDGAR on December 31, 1997 (accession number 0001004402-97-000281).
(d) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC regarding Small Company Opportunities Fund is
incorporated herein by reference. The Investment Advisory Agreement,
Exhibit (d)(10) to PEA 65, was filed via EDGAR on September 30, 1998
(accession number 0001004402-98-000530).
(e) Investment Advisory Agreement between Registrant and H.M. Payson & Co.
regarding Investors Equity Fund is incorporated herein by reference.
<PAGE>
The Investment Advisory Agreement, Exhibit (d)(8) to PEA 63, was filed
via EDGAR on June 8, 1998 (accession number 0001004402-98-000339).
(f) Investment Advisory Agreement between Registrant and H.M. Payson & Co.
relating to the Payson Value Fund and the Payson Balanced Fund is
incorporated herein by reference. The Investment Advisory Agreement,
Exhibit (d)(1) to PEA No. 62, was filed via EDGAR on May 26, 1998
(accession number 0001004402-98-000307).
(g) Investment Subadvisory Agreement between H.M. Payson & Co. and Peoples
Heritage Bank regarding Investors Equity Fund is incorporated herein by
reference. The Investment Subadvisory Agreement, Exhibit (d)(9) to PEA
64, was filed via EDGAR on July 31, 1998 (accession number
0001004402-98-000421).
(h) Investment Advisory Agreement between Registrant and Oak Hall Capital
Advisors, Inc. regarding Oak Hall Small Cap Contrarian Fund is
incorporated by reference. The Investment Advisory Agreement, to
Exhibit (d)(4) to PEA No. 62, was filed via EDGAR on May 26,
1998 (accession number 0001004402-98-000307).
(i) Investment Advisory Agreement between Registrant and Polaris Capital
Management, Inc. Incorporated by reference to Exhibit (d)(7) to PEA 63
to Registrant's Form N-1A, filed via EDGAR on June 8, 1998 (accession
number 0001004402-98-000339).
(j) Investment Advisory Agreement between Registrant and Quadra Capital
Partners, L.P relating to Quadra Growth Fund is incorporated herein by
reference. The Investment Advisory Agreement, Exhibit (d)(2) to PEA No.
41, was filed via EDGAR on December 31, 1996 (accession number
0000912057-96-030646).
(k) Investment Subadvisory Agreement between Quadra Capital Partners, LLC
and Smith Asset Management Group, L.P regarding Quadra Growth Fund is
incorporated herein by reference. The Investment Subadvisory Agreement,
Exhibit (d)(6) to PEA 48, was filed via EDGAR on October 31, 1997
(accession number 0001004402-97-000152).
(7) Distribution Agreements and Form of Selected Dealer Agreement
(a) Distribution Agreement between Registrant and Forum Financial Services,
Inc. regarding Austin Global Equity Fund, Investors Bond Fund,
Investors Growth Fund, Investors High Grade Bond Fund, Maine Municipal
Bond Fund, New Hampshire Bond Fund, Payson Balanced Fund, Payson Value
Fund, Polaris Global Value Fund, TaxSaver Bond Fund is incorporated
herein by reference. The Distribution Agreement, Exhibit (e)(3) to PEA
62 to Registrant's Form N-1A, was filed via EDGAR on May 26, 1998
(accession number 0001004402-98-000307).
(b) Distribution Agreement between Registrant and Forum Fund Services, LLC
regarding the Emerging Markets Fund, Equity Index Fund, International
Equity Fund, Investors Equity Fund, and Small Company Opportunities
<PAGE>
Fund and the Investor, Institutional, and Institutional Share Classes
of Daily Assets Treasury Obligations Fund, Daily Assets Government
Fund, Daily Assets Government Obligations Fund, Daily Assets Cash Fund,
and Daily Asset Municpal Fund. Incorporated by reference to Exhibit
(e)(4) to PEA 70 to Registrant's Form N-1A, filed via EDGAR on March
18, 1999 (accession number 0001004402-99-000185).
(c) Form of Distribution Agreement between Registrant and Forum Fund
Services, LLC regarding Austin Global Equity Fund, Investors Bond Fund,
Investors Growth Fund, Investors High Grade Bond Fund, Maine Municipal
Bond Fund, New Hampshire Bond Fund, Payson Balanced Fund, Payson Value
Fund, Polaris Global Value Fund, TaxSaver Bond Fund is incorporated
herein by reference. The Form of Distribution Agreement, Exhibit (e)(4)
to PEA 68 was filed via EDGAR on November 30, 1998 (accession number
0001004402-98-000620).
(d) Form of Distribution Agreement between Registrant and Forum Fund
Services, LLC regarding BIA Small-Cap Growth Fund and BIA Equity Growth
Fund is incorporated herein by reference. The Form of Distribution
Agreement, Exhibit (e)(6) to PEA 70 was filed via EDGAR on March 18,
1999 (accession number 0001004402-99-00185).
(e) Form of Selected Dealer Agreement between Forum Financial Services,
Inc. and securities brokers is incorporated herein by reference. The
Form of Selected Dealer Agreement, Exhibit (e)(1) to PEA 62, was filed
via EDGAR on May 26, 1998 (accession number 0001004402-98-000307).
(f) Form of Bank Affiliated Selected Dealer Agreement between Forum
Financial Services, Inc. and bank affiliates is incorporated herein by
reference. The Form of Bank Affiliated Selected Dealer Agreement,
Exhibit (e)(2) to PEA 62, was filed via EDGAR on May 26, 1998
(accession number 0001004402-98-000307).
(8) None.
(9) Custodian Contracts
(a) Custodian Agreement between Registrant and Investors Bank and Trust.
regarding Austin Global Equity Fund, Equity Index Fund, Emerging
Markets Fund, International Equity Fund, Investors Bond Fund, Investors
Equity Fund, Investors Growth Fund, Investors High Grade Bond Fund,
Maine Municipal Bond Fund, New Hampshire Bond Fund, Oak Hall Small Cap
Contrarian Fund, Payson Balanced Fund, Payson Value Fund, Polaris
Global Value Fund, Quadra Growth Fund, Small Company Opportunities Fund
and Investor Shares, Institutional Shares and Institutional Service
Shares of Daily Assets Government Fund, Daily Assets Treasury
Obligations Fund, Daily Assets Government Obligations Fund, Daily
Assets Cash Fund and Daily Assets Municipal Fund is incorporated herein
by reference. The Custodian Agreement, Exhibit (g)(1) to PEA No. 70,
was filed via EDGAR on March 18, 1999 (accession number
0001004402-99-000185).
<PAGE>
(b) Form of Custodian Agreement between Registrant and Forum Trust
regarding regarding Austin Global Equity Fund, BIA Small-Cap Growth
Fund, BIA Growth Equity Fund, Equity Index Fund, Emerging Markets Fund,
International Equity Fund, Investors Bond Fund, Investors Equity Fund,
Investors Growth Fund, Investors High Grade Bond Fund, Maine Municipal
Bond Fund, New Hampshire Bond Fund, Oak Hall Small Cap Contrarian Fund,
Payson Balanced Fund, Payson Value Fund, Polaris Global Value Fund,
Quadra Growth Fund, Small Company Opportunities Fund and Investor
Shares, Institutional Shares and Institutional Service Shares of Daily
Assets Government Fund, Daily Assets Treasury Obligations Fund, Daily
Assets Government Obligations Fund, Daily Assets Cash Fund and Daily
Assets Municipal Fund is incorporated herein by reference. The Form of
Custodian Agreement, Exhibit (g)(2) to PEA No. 70, was filed via EDGAR
on March 18, 1999 (accession number 0001004402-99-000185).
(c) Form of Master Custodian Agreement between Forum Trust and Bankers
Trust Company regarding Austin Global Equity Fund, BIA Small-Cap Growth
Fund, BIA Growth Equity Fund, Equity Index Fund, Emerging Markets Fund,
International Equity Fund, Investors Bond Fund, Investors Equity Fund,
Investors Growth Fund, Investors High Grade Bond Fund, Maine Municipal
Bond Fund, New Hampshire Bond Fund, Oak Hall Small Cap Contrarian Fund,
Payson Balanced Fund, Payson Value Fund, Polaris Global Value Fund,
Quadra Growth Fund, Small Company Opportunities Fund and Investor
Shares, Institutional Shares and Institutional Service Shares of Daily
Assets Treasury Obligations Fund, Daily Assets Government Fund, Daily
Assets Government Obligations Fund, Daily Assets Cash Fund and Daily
Assets Municipal Fund is incorporated herein by reference. The Form of
Master Custodian Agreement, Exhibit (g)(3) to PEA No. 70, was filed via
EDGAR on March 18, 1999 (accession number 0001004402-99-000185).
(10) Rule 12b-1 Plan adopted by the Registrant regarding the Investor Share
Classes of Daily Assets Treasury Obligations Fund, Daily Assets
Treasury Obligations Fund, Daily Assets Government Fund, Daily Assets
Government Obligations Fund, Daily Assets Cash Fund and Daily Assets
Municipal Fund is filed herewith.
(11) Form of opinion and consent of Seward & Kissel LLP, Trust counsel,
regarding legality of securities is filed herewith.
(12) Form of opinion and consent of Wilmer, Cutler & Pickering regarding tax
consequences is filed herewith.
(13) Material Service Contracts
(a) Administration Agreement between Registrant and Forum Administrative
Services, LLC relating to Austin Global Equity Fund, Equity Index Fund,
Emerging Markets Fund, International Equity Fund, Investors Bond Fund,
Investors Equity Fund, Investors Growth Fund, Investors High Grade Bond
Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund, Oak Hall
Small Cap Contrarian Fund, Payson Balanced Fund, Payson Value Fund,
<PAGE>
Polaris Global Value Fund, Quadra Growth Fund, Small Company
Opportunities Fund and Investor Shares, Institutional Shares and
Institutional Service Shares of Daily Assets Government Fund, Daily
Assets Treasury Obligations Fund, Daily Assets Government Obligations
Fund, Daily Assets Cash Fund and Daily Assets Municipal Fund is
incorporated herein by reference. The Administraton Agreement, Exhibit
(h)(1) to PEA 49, was filed via EDGAR on November 5, 1997 (accession
number 0001004402-97-000163).
(b) Form of Administration Agreement between Registrant and Forum
Administrative Services, LLC relating to BIA Small-Cap Growth Fund and
BIA Growth Equity Fund, is incorporated herein by reference. The Form
of Administration Agreement, Exhibit (h)(2) of PEA 70, was filed via
EDGAR on March 18, 1999 (accession number 0001004402-99-00185).
(c) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC regarding to Austin Global Equity Fund, Equity Index
Fund, Emerging Markets Fund, International Equity Fund, Investors Bond
Fund, Investors Equity Fund, Investors Growth Fund, Investors High
Grade Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund,
Oak Hall Small Cap Contrarian Fund, Payson Balanced Fund, Payson Value
Fund, Polaris Global Value Fund, Quadra Growth Fund, Small Company
Opportunities Fund and Investor Shares, Institutional Shares and
Institutional Service Shares of Daily Assets Government Fund, Daily
Assets Treasury Obligations Fund, Daily Assets Government Obligations
Fund, Daily Assets Cash Fund and Daily Assets Municipal Fund is
incorporated herein by reference. The Fund Accounting Agreement,
Exhibit (h)(3) to PEA 70, was filed via EDGAR on March 18, 1999
(accession number 0001004402-99-00185).
(d) Form of Fund Accounting Agreement between Registrant and Forum
Accounting Services, LLC regarding to BIA Small-Cap Growth Fund and BIA
Growth Equity Fund, is incorporated herein by reference. The Form of
Fund Accounting Agreement , Exhibit (h)(4) to PEA 70, was filed via
EDGAR on March 18, 1999 (accession number 0001004402-99-00185).
(e) Transfer Agency and Services Agreement between Registrant and Forum
Shareholder Services, LLC relating to Austin Global Equity Fund, Equity
Index Fund, Emerging Markets Fund, International Equity Fund, Investors
Bond Fund, Investors Equity Fund, Investors Growth Fund, Investors High
Grade Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund,
Oak Hall Small Cap Contrarian Fund, Payson Balanced Fund, Payson Value
Fund, Polaris Global Value Fund, Quadra Growth Fund, Small Company
Opportunities Fund and Investor Shares, Institutional Shares and
Institutional Service Shares of Daily Assets Government Fund, Daily
Assets Treasury Obligations Fund, Daily Assets Government Obligations
Fund, Daily Assets Cash Fund and Daily Assets Municipal Fund is
incorporated herein by reference. The Transfer Agency and Services
Agreement, Exhibit (h)(5) to PEA 62, was filed via EDGAR on May 26,
19998 (accession number 0001004402-98-000307).
<PAGE>
(f) Form of Transfer Agency and Services Agreement between Registrant and
Forum Shareholder Services, LLC relating to BIA Small-Cap Growth Fund
and BIA Growth Equity Fund is incorporated herein by reference. The
Form of Transfer Agency and Services Agreement, Exhibit (h)(5) to PEA
70, was filed via EDGAR on March 18, 1999 (accession number
0001004402-99-00185).
(g) Shareholder Service Plan of Registrant and Form of Shareholder Service
Agreement regarding the Institutional Service and Investor Classes of
Daily Assets Treasury Obligations Fund, Daily Assets Government
Obligations Fund, Daily Assets Government Fund, Daily Assets Cash Fund,
and Daily Assets Municipal Fund is incorporated herein by reference.
The Shareholder Service Plan and Form of Shareholder Service Agreement,
Exhibit (h)(8) to PEA 50, was filed via EDGAR on November 12, 1997
(accession number 0001004402-97-000189).
(h) Shareholder Service Plan and Form of Shareholder Service Agreement
regarding Oak Hall Small Cap Contrarian Fund is incorporated herein by
reference. The Shareholder Service Plan and Form of Shareholder Service
Agreement, Exhibit (h)(10) to PEA 65, filed via EDGAR on September 30,
1998 (accession number 0001004402-98-000530).
(i) Shareholder Service Plan and Form of Shareholder Service Agreement
relating to Polaris Global Value Fund is incorporated herein by
reference. The Shareholder Service Plan and Form of Shareholder Service
Agreement, Exhibit (h)(9) to PEA 65, was filed via EDGAR on September
30, 1998 (accession number 0001004402-98-000530).
(j) Shareholder Service Plan of Registrant relating to the Quadra Growth
Fund and Form of Shareholder Service Agreement regarding to Quadra
Growth Fund is incorporated herein by reference. The Shareholder
Service Plan and Form of Shareholder Service Agreement, Exhibit (h)(7)
to PEA 49, was filed via EDGAR on November 5, 1997 (accession number
0001004402-97-000163).
(14) Consent of Wolpoff & Company LLP is filed herewith.
(15) None.
(16) Powers of Attorney of Costas Azariadas, James C. Cheng, John Y. Keffer,
and J. Michael Parish are incorporated herein by reference. The Powers
of Attorney, Exhibit 16 to Form N-14, filed via EDGAR on April 7, l998
(accession number 0000919574-98-000466).
ITEM 17 - UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the
reoffering prospectus will contain the information called
<PAGE>
for by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file a copy of the opinion Forum
Administrative Services, LLC regarding the legality of securities to be issued
and as required to be filed as an exhibit to the registration statement by Item
16(11) of Form 14 under the Securities Act of 1933, as amended by means of a
pre-effective amendment to the registration statement.
(4) The undersigned Registrant agrees to file a copy of the tax opinion required
to be filed as an exhibit to the registration statement by Item 16(12) of Form
N-14 under the Securities Act of 1933, as amended, by means of a post-effective
amendment to the registration statement.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
(10) Rule 12b-1 Plan.
(11) Form of opinion and consent
of Forum Administrative
Services, LLC regarding
legality of securities.
(12) Form of opinion and consent
of Wilmer, Cutler &
Pickering as to the tax
Consequences of the
Agreement and Plan Of
Reorganization.
(14) Consent of Wolpoff &
Company LLP, Independent
accountants for BIA
Emerging Growth Fund
Limited Partnership and
BIA Growth Equity Fund
Limited Partnership.
(17) Form of consent letter of
limited partners of BIA
Emerging Growth Fund
Limited Partnership and BIA
Growth Equity Fund Limited
Partnership.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant in the city of Portland and State of Maine,
April 16th, 1999.
FORUM FUNDS
By:/s/ John Y. Keffer
-------------------------
John Y. Keffer
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated:
Signature Title Date
Principal Executive Officer
/s/ John Y. Keffer Chairman April 16, 1999
- ----------------------------- and President
John Y. Keffer
Principal Financial
and Accounting Officer
/s/ Stacey Hong Treasurer April 16, 1999
- -----------------------------
Stacey Hong
A majority of the Trustees
/s/ John Y.Keffer April 16, 1999
- -----------------------------
John Y. Keffer
Costas Azariadis
James C. Cheng
J. Michael Parish
/s/ John Y. Keffer April 16, 1999
- ---------------------------
By: John Y. Keffer
(Attorney-in-fact)
EXHIBIT 10
FORUM FUNDS
INVESTOR CLASS DISTRIBUTION PLAN
FORUM FUNDS
INVESTOR CLASS DISTRIBUTION PLAN
January 1, 1999
This Distribution Plan (the "Plan") is adopted by Forum Funds (the
"Trust") with respect to the Investor Class of shares of beneficial interest of
each of the Funds identified in Appendix A (individually a "Fund" and
collectively the "Funds") in accordance with the provisions of Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "Act").
SECTION 1. DISTRIBUTOR
The Trust has entered into a Distribution Agreement (the "Agreement")
with Forum Fund Services, LLC ("Forum") whereby Forum acts as principal
underwriter of the Funds.
SECTION 2. DISTRIBUTION AND SERVICE ACTIVITIES
(a) Forum shall provide to the Funds distribution and service
activities including, but not limited to (i) sales, marketing and other
activities primarily intended to result in the sale of Investor Class shares;
(ii) shareholder services in connection with the distribution of shares; and
(iii) such other similar services as the Trustees determine are reasonably
calculated to result in the sale of Investor Shares.
(b) In connection with the distribution activities described in Section
2(a), Forum may incur expenses for such activities including, but not limited
to, (i) expenses of sales employees or agents of the Distributor, including
salary, commissions, travel and related expense for services in connection with
the distribution of shares; (ii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares,
including fees calculated with reference to the average daily net asset value of
shares held by shareholders who have a brokerage or other service relationship
with the broker-dealer of institution receiving such fees; (iii) costs of
printing prospectuses and other materials to be given or sent to prospective
investors; and, (iv) the costs of preparing, printing and distributing sales
literature and advertising materials used by Forum or others in connection with
the offering of Investor Class shares for sale to the public.
SECTION 3. MARKETING AND SERVICE AGREEMENTS
Pursuant to agreements ("Agreements") the form of which the Trust's
Board of Trustees ("Board") shall approve, Forum may pay other persons ("Service
Providers") for any distribution or service activity. Each Agreement shall
contain a representation by the Service Provider that
<PAGE>
any compensation payable to the Service Provider in connection with the
investment in the Investor Class of a Fund of the assets of its customers (i)
will be disclosed by the Service Provider to its customers, (ii) will be
authorized by its customers, and (iii) will not result in an excessive fee to
the Service Provider.
SECTION 4. PAYMENTS
(a) As compensation for Forum's services with respect to the Investor
Class of each Fund, the Trust shall pay Forum a fee at an annual rate of up to
0.15% of the average daily net assets of the Investor Class of Daily Assets
Government Fund and up to 0.50% of the average daily net assets of the Investor
Class of each other Fund (the "Payments"). The Payments shall be accrued daily
and paid monthly or at such other interval as the Board shall determine.
(b) The Funds shall pay all costs and expenses in connection with (i)
the preparation, printing and distribution of its prospectuses other than as
contemplated by Section 2 and (ii) the implementation and operation of the Plan.
(c) On behalf of the Trust, as principal underwriter of each Fund,
Forum may spend such amounts and incur such expenses as it deems appropriate or
necessary on any activities primarily intended to result in the sale of the
shares of the Investor Class of each Fund (distribution activities) or for the
servicing and maintenance of shareholder accounts of the Investor Class of each
Fund (service activities); provided, however that the Investor Class of each
Fund shall not directly or indirectly pay any amounts, whether Payments or
otherwise, that exceed any applicable limits imposed by law or the National
Association of Securities Dealers, Inc. ("NASD").
(d) Payments to Forum under this Plan are limited to distribution and
service expenses incurred by Forum and submitted to the Trust for payment with
supporting documentation.
(e) Unreimbursed expenses incurred by Forum with respect to a fund
during a fiscal year of the Fund may not be reimbursed by the Fund from revenues
attributable to a subsequent fiscal year of the Fund.
SECTION 5. REVIEW AND RECORDS
(a) Forum shall prepare and furnish to the Board, and the Board shall
review at least quarterly, written reports setting forth all amounts expended
under the Plan by Forum and identifying the activities for which the
expenditures were made.
(b) The Trust shall preserve copies of the Plan, each agreement related
to the Plan and each report prepared and furnished pursuant to this Section in
accordance with Rule 12b-1 under the Act.
SECTION 6. EFFECTIVENESS; DURATION; AND TERMINATION
<PAGE>
With respect to the Investor Class of a Fund:
(a) The Plan shall become effective upon approval by the Board,
including a majority of the trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreement related to the Plan (the "Qualified Trustees"),
pursuant to a vote cast in person at a meeting called for the purpose of voting
on approval of the Plan.
(b) The Plan shall remain in effect for a period of one year from the
date of its effectiveness, unless earlier terminated in accordance with this
Section, and thereafter shall continue in effect for successive twelve-month
periods, provided that such continuance is specifically approved at least
annually by the Board and a majority of the Qualified Trustees pursuant to a
vote cast in person at a meeting called for the purpose of voting on continuance
of the Plan.
(c) The Plan may be terminated with respect to a Fund without penalty
at any time by a vote of (i) a majority of the Qualified Trustees or (ii) a vote
of a majority of the outstanding voting securities of the Investor Class of the
Fund.
SECTION 7. AMENDMENT
The Plan may be amended at any time by the Board, provided that (i) any
material amendments to the Plan shall be effective only upon approval of the
Board and a majority of the Qualified Trustees pursuant to a vote cast in person
at a meeting called for the purpose of voting on the amendment to the Plan, and
(ii) any amendment which increases materially the amount which may be spent by
the Trust pursuant to the Plan with respect to the Investor Class of a Fund
shall be effective only upon the additional approval of a majority of the
outstanding voting securities of the Investor Class of that Fund.
SECTION 8. NOMINATION OF DISINTERESTED TRUSTEES
While the Plan is in effect, the selection and nomination of Trustees
who are not interested persons (as defined in the Investment Company Act of
1940) of the Trust shall be committed to the discretion of the Trustees who are
not interested persons of the Trust.
SECTION 9. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under the Plan, and
Forum agrees that, in asserting any rights or claims under this Plan, it shall
look only to the assets and property of the Trust or the Fund to which Forum's
rights or claims relate in settlement of such rights or claims, and not to the
Trustees of the Trust or the shareholders of the Funds.
<PAGE>
SECTION 10. MISCELLANEOUS
(a) The terms "majority of the outstanding voting securities" and
"interested person" shall have the meanings ascribed thereto in the Act.
(b) If any provision of the Plan shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.
<PAGE>
FORUM FUNDS
INVESTOR CLASS DISTRIBUTION PLAN
APPENDIX A
FUNDS COVERED INCLUDED IN PLAN
AS OF JANUARY 1, 1999
Daily Assets Treasury Obligations Fund
Daily Assets Government Obligations Fund
Daily Assets Government Fund
Daily Assets Cash Fund
Daily Assets Municipal Fund
EXHIBIT 11
FORM OF SECURITIES OPINION
SEWARD & KISSEL LLP
1200 G Street, N.W.
Washington, DC 20005
Telephone: (202) 737-8833
Facsimile: (202) 737-5184
May __, 1999
Forum Funds
Two Portland Square
Portland, Maine 04101
Ladies and Gentlemen:
We have acted as counsel to Forum Funds, a Delaware business trust (the
"Trust"), in connection with the transfer of substantially all the assets of (i)
BIA Emerging Growth Fund Limited Partnership ("Emerging Growth Partnership") to
BIA Small-Cap Growth Fund of the Trust ("Small-Cap Fund") in exchange for shares
of Small Cap Fund and (ii) BIA Growth Equity Fund Limited Partnership ("Growth
Equity Partnership") to BIA Growth Equity Fund of the Trust ("Growth Fund") in
exchange for shares of Growth Fund. We also have acted as counsel to the Trust
in connection with the subsequent distribution of Small-Cap Fund and Growth Fund
shares to partners of Emerging Growth Partnership and Growth Equity Partnership,
respectively. Each of these transactions will be completed pursuant to an
Agreement and Plan of Reorganization (the "Plan") approved by the Board of
Trustees of the Trust.
We have examined the Trust Instrument and Bylaws of the Trust, its
Registration Statement on Form N-14 in which this opinion letter is included as
an exhibit (the "Registration Statement") and the Plan in the form approved by
the Board of Trustees of the Trust. We also have examined and relied upon a
certificate of the Secretary of State of the State of Delaware to the effect
that the Trust is duly formed and existing under the laws of the State of
Delaware and in good standing in the State of Delaware.
In addition, we have examined and relied upon a certificate of the
Secretary of the Trust certifying that the Plan presented to us is substantially
in the form approved by the Board of Trustees of the Trust and further
certifying the adoption by the Board of Trustees of the Trust of resolutions
approving the Plan and authorizing the issuance of the shares of Small Cap Fund
and Growth Fund pursuant to the Plan. We also have examined and relied upon such
<PAGE>
records of the Trust and other documents and certificates with respect to
factual matters as we have deemed necessary to render the opinion expressed
herein. We have assumed, without independent verification, the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and the conformity with originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that:
1. The Trust is validly existing as a business trust in good standing
under the laws of the State of Delaware; and
2. The shares of Small Cap Fund and Growth Fund to be issued in
accordance with the terms of the Plan, when so issued, will constitute validly
issued, fully paid and nonassessable shares under the laws of the State of
Delaware.
We hereby consent to the filing of this opinion letter with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the captions "Legal Matters " and "Other Information
- - Counsel and Auditors" in the Proxy Statement/Prospectus included in the
Registration Statement.
Please be advised that we are opining as set forth above as members of the
bars of the State of New York and the District of Columbia. This opinion does
not extend to the securities or "blue sky" laws of any state.
Very truly yours,
EXHIBIT 12
FORM OF OPINION AND CONSENT
[Date]
BIA Emerging Growth Fund Limited Partnership
c/o BAT Commingled Fund Manager, Inc.
General Partner
21 South Street
Baltimore, MD 21202
Ladies and Gentlemen:
You have requested our opinion regarding certain United States federal
income tax consequences to BIA Emerging Growth Fund Limited Partnership, a
Delaware limited partnership (the "Partnership"), BIA Small-Cap Growth Fund, a
separate series of Forum Funds, a Delaware business trust (the "Fund"), and the
limited partners of the Partnership (the "Partners") of (1) the Partnership's
transfer of substantially all of its assets in exchange solely for substantially
all of the shares of beneficial interest of the Fund ("Shares"), pursuant to the
Agreement and Plan of Reorganization, dated as of ______________, 1999 (the
"Plan"); and (2) the dissolution of the Partnership and the distribution of the
Shares to the Partners. The exhange of substantially all of the Partnership's
assets for Shares pursuant to the Plan is referred to herein as the "Exchange."
We have reviewed and rely upon the Plan; the Form N-14, including all
exhibits thereto, filed by Forum Funds with the Securities and Exchange
Commission on ___________, 1999; the Amended and Restated Limited Partnership
Agreement of the Partnership, effective as of June 7, 1995; and such other
documents as we have deemed relevant for purposes of rendering this opinion. We
have assumed the genuineness of all signatures, the proper execution of all
documents, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies, and the
authenticity of the originals of any such copies. We have further assumed that
all parties to agreements that we have examined have acted, and will act, in
accordance with the terms of such agreements.
We have also relied on the accuracy of the representations contained in
letters to us from the Partnership and the Fund of even date herewith. We have
not attempted to verify independently such representations, but in the course of
our representation of the Partnership, nothing has come to our attention which
would cause us to question the accuracy thereof.
<PAGE>
Based on and subject to the foregoing, and on our consideration of such
other matters of fact and law as we have deemed necessary or appropriate, it is
our opinion that:
1. The Partnership will recognize no gain or loss upon its transfer of
substantially all of its assets to the Fund solely in exchange for Shares.
2. The Partnership's basis in the Shares received from the Fund will equal
the basis of the assets transferred in exchange therefor.
3. The Partnership's holding period of the Shares received from the Fund
will include the period during which the Partnership held the assets exchanged
therefor, provided that such assets were capital assets or property described in
section 1231 of the Internal Revenue Code of 1986, as amended (the "Code"), on
the date of the exchange.
4. The Fund will recognize no gain or loss on its receipt of substantially
all of the Partnership's assets in exchange for Shares.
5. The Fund's basis in the assets received from the Partnership will equal
the basis of those assets in the hands of the Partnership immediately prior to
the Exchange.
6. The Fund's holding period for the assets received from the Partnership
will include the holding period during which the Partnership held the assets.
7. The Partnership will not recognize gain or loss on the distribution of
the Shares received from the Fund to the Partners.
8. A Partner will not recognize gain or loss on the distribution of Shares
to that Partner, but a Partner may recognize gain if cash distributed or deemed
distributed to that Partner exceeds such Partner's adjusted basis in its
interest in the Partnership ("Partnership Interest"). Each Partner will be
deemed to receive a cash distribution equal to any decrease in its allocable
share of Partnership liabilities occurring in connection with the Exchange and
the dissolution and winding up of the Partnership.
9. The holding period of the Shares received by each Partner will include
the period during which the Partnership is treated as having held those shares
under paragraph 6 above, but will not include the period during which such
Partner held its Partnership Interest.
10. The aggregate basis of the Fund Shares and any other property (not
including cash) received by each Partner will be equal to such Partner's
adjusted basis in its Partnership Interest minus the amount of cash distributed
or deemed distributed to such Partner in connection with the dissolution and
winding up of the Partnership.
<PAGE>
This opinion is based on relevant provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, and interpretations of the foregoing as expressed in court decisions
and administrative determinations, as currently in effect. We undertake no
obligation to update or supplement this opinion to reflect any changes in law
that may occur.
We express no opinion as to the United States federal income
tax consequences of the Exchange except as expressly set forth above, or as to
any transaction except those consummated in accordance with the Plan and the
representations made to us. In particular, we express no opinion with respect to
the tax consequences of the liquidation of Partnership assets to redeem the
Partnership Interests of certain Partners prior to the Exchange, or the tax
consequences of such redemptions. This opinion does not address any tax
considerations under foreign, state, or local law.
This opinion should not be quoted in whole or in part nor
otherwise be referred to, nor otherwise be filed with or furnished to any
governmental agency or other person or entity, without our express prior written
consent. We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement on Form N-14 filed by Forum Funds with the Securities
and Exchange Commission and to the reference to our firm under the caption
"Legal Matters" in the Proxy Statement/Prospectus included in that Registration
Statement.
Very truly yours,
WILMER, CUTLER & PICKERING
By:______________________________
A Partner
<PAGE>
FORM OF OPINION AND CONSENT
[Date]
BIA Growth Equity Fund Limited Partnership
c/o BAT Commingled Fund Manager, Inc.
General Partner
21 South Street
Baltimore, MD 21202
Ladies and Gentlemen:
You have requested our opinion regarding certain United States federal
income tax consequences to BIA Growth Equity Fund Limited Partnership, a
Delaware limited partnership (the "Partnership"), BIA Growth Equity Fund, a
separate series of Forum Funds, a Delaware business trust (the "Fund"), and the
limited partners of the Partnership (the "Partners") of (1) the Partnership's
transfer of substantially all of its assets in exchange solely for substantially
all of the shares of beneficial interest of the Fund ("Shares"), pursuant to the
Agreement and Plan of Reorganization, dated as of ______________, 1999 (the
"Plan"); and (2) the dissolution of the Partnership and the distribution of the
Shares to the Partners. The exhange of substantially all of the Partnership's
assets for Shares pursuant to the Plan is referred to herein as the "Exchange."
We have reviewed and rely upon the Plan; the Form N-14, including all
exhibits thereto, filed by Forum Funds with the Securities and Exchange
Commission on ___________, 1999; the Amended and Restated Limited Partnership
Agreement of the Partnership, effective as of June 7, 1995; and such other
documents as we have deemed relevant for purposes of rendering this opinion. We
have assumed the genuineness of all signatures, the proper execution of all
documents, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as copies, and the
authenticity of the originals of any such copies. We have further assumed that
all parties to agreements that we have examined have acted, and will act, in
accordance with the terms of such agreements.
We have also relied on the accuracy of the representations contained in
letters to us from the Partnership and the Fund of even date herewith. We have
not attempted to verify independently such representations, but in the course of
our representation of the Partnership, nothing has come to our attention which
would cause us to question the accuracy thereof.
<PAGE>
Based on and subject to the foregoing, and on our consideration of such
other matters of fact and law as we have deemed necessary or appropriate, it is
our opinion that:
1. The Partnership will recognize no gain or loss upon its transfer of
substantially all of its assets to the Fund solely in exchange for Shares.
2. The Partnership's basis in the Shares received from the Fund will equal
the basis of the assets transferred in exchange therefor.
3. The Partnership's holding period of the Shares received from the Fund
will include the period during which the Partnership held the assets exchanged
therefor, provided that such assets were capital assets or property described in
section 1231 of the Internal Revenue Code of 1986, as amended (the "Code"), on
the date of the exchange.
4. The Fund will recognize no gain or loss on its receipt of substantially
all of the Partnership's assets in exchange for Shares.
5. The Fund's basis in the assets received from the Partnership will equal
the basis of those assets in the hands of the Partnership immediately prior to
the Exchange.
6. The Fund's holding period for the assets received from the Partnership
will include the holding period during which the Partnership held the assets.
7. The Partnership will not recognize gain or loss on the distribution of
the Shares received from the Fund to the Partners.
8. A Partner will not recognize gain or loss on the distribution of Shares
to that Partner, but a Partner may recognize gain if cash distributed or deemed
distributed to that Partner exceeds such Partner's adjusted basis in its
interest in the Partnership ("Partnership Interest"). Each Partner will be
deemed to receive a cash distribution equal to any decrease in its allocable
share of Partnership liabilities occurring in connection with the Exchange and
the dissolution and winding up of the Partnership.
9. The holding period of the Shares received by each Partner will include
the period during which the Partnership is treated as having held those shares
under paragraph 6 above, but will not include the period during which such
Partner held its Partnership Interest.
10. The aggregate basis of the Fund Shares and any other property (not
including cash) received by each Partner will be equal to such Partner's
adjusted basis in its Partnership Interest minus the amount of cash distributed
or deemed distributed to such Partner in connection with the dissolution and
winding up of the Partnership.
<PAGE>
This opinion is based on relevant provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder, and interpretations of the foregoing as expressed in court decisions
and administrative determinations, as currently in effect. We undertake no
obligation to update or supplement this opinion to reflect any changes in law
that may occur.
We express no opinion as to the United States federal income
tax consequences of the Exchange except as expressly set forth above, or as to
any transaction except those consummated in accordance with the Plan and the
representations made to us. In particular, we express no opinion with respect to
the tax consequences of the liquidation of Partnership assets to redeem the
Partnership Interests of certain Partners prior to the Exchange, or the tax
consequences of such redemptions. This opinion does not address any tax
considerations under foreign, state, or local law.
This opinion should not be quoted in whole or in part nor
otherwise be referred to, nor otherwise be filed with or furnished to any
governmental agency or other person or entity, without our express prior written
consent. We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement on Form N-14 filed by Forum Funds with the Securities
and Exchange Commission and to the reference to our firm under the caption
"Legal Matters" in the Proxy Statement/Prospectus included in that Registration
Statement.
Very truly yours,
WILMER, CUTLER & PICKERING
By:________________________________
A Partner
EXHIBIT 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-14 of our
reports dated January 29, 1999, on our audits of the financial statements of
Alex. Brown Capital Advisory & Trust Emerging Growth Fund Limited Partnership
and Alex. Brown Capital Advisory & Trust Growth Equity Fund Limited Partnership.
We also consent to all referenced to our firm in this registration statement.
WOLPOFF & COMPANY LLP
Baltimore, Maryland
April 9, 1999
EXHIBIT 17
FORM OF CONSENT OF BIA EMERGING GROWTH FUND
LIMITED PARTNERSHIP
THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF THE GENERAL PARTNER OF BIA
EMERGING GROWTH FUND LIMITED PARTNERSHIP TO (1) AMEND THE PARTNERSHIP AGREEMENT,
AND (2) TO CONVERT THE PARTNERSHIP TO BIA SMALL-CAP GROWTH FUND, A SERIES OF
FORUM FUNDS, A REGISTERED OPEN-END MANAGEMENT INVESTMENT COMPANY.
The undersigned, being a Limited Partner of BIA Emerging Growth Limited
Partnership (the "Partnership") on June __, 1999, has placed an "X" on the
appropriate lines below to indicate its vote (1) on the proposal to amend the
Amended and Restated Limited Partnership Agreement dated as of June 7, 1995 (the
"Partnership Agreement"), as set forth in the enclosed Proxy
Statement/Prospectus and as restated below; and (2) on the proposal to convert
the Partnership to BIA Small-Cap Growth Fund, a series of Forum Funds, a
registered open-end management investment company, as described in the enclosed
Proxy Statement/Prospectus and as restated below.
PROPOSAL 1: AMENDMENTS TO THE PARTNERSHIP AGREEMENT.
Proposal 1 authorizes the general partner to make the following modifications to
the Partnership Agreement:
1.) Amendment of Article I to add the following definition of "Mutual Fund"
between the definitions of "Minimum Investment" and "Partner":
Mutual Fund: A registered open-end management investment company or a
series of a registered open-end investment company that is classified as a
corporation for federal income tax purposes and is intended to qualify as a
regulated investment company under section 851 of the Code.
2.) Amendment of Section 5.2B(iii) to insert at the beginning of that Section
the phrase "except as otherwise expressly provided in this Agreement,".
3.) Amendment of Section 8.6C to delete the language which reads ", and any
Partner entitled to any interest in the assets distributed shall receive his
interest as a tenant-in-common with all other partners so entitled".
<PAGE>
4.) Amendment of Section 10.1 to add the following Section 10.1(vi) to read
as follows:
(vii) The conversion of the Fund to a Mutual Fund as provided in
Section 10.6.
5.) Addition of the following Section 10.6:
Section 10.6 Conversion into a Mutual Fund
A. Upon Consent of the Investors, the General Partner shall have the
power to convert the Fund into a Mutual Fund by transferring
substantially all of the assets of the Fund to the Mutual Fund in
exchange for shares of beneficial interest in such Mutual Fund,
dissolving the Fund, and immediately thereafter distributing the
Mutual Fund shares to the Fund in accordance with the provisions of
Section 8.5B.
B. In connection with a conversion of the Fund into a Mutual Fund
described in Section 10.6A, the General Partner shall provide each
Investor that does not consent to the conversion an opportunity to
redeem its entire Interest in the Fund on the terms set forth in
Section 7.3B(iv) as of the day immediately preceding the date on which
the conversion transaction occurs if such Investor makes a written
request therefore that is received by the Fund at least two days prior
to the conversion.
C. The day immediately preceding the date on which the conversion of
the Fund into a Mutual Fund occurs shall be treated as the Valuation
Date, regardless of whether such day is the last day of a Calender
Month, and any portion of a Calender Month ending on that such day
shall be treated as a Calendar Month.
With respect to Proposal 1, I
____ Approve Proposal 1
____ Disapprove Proposal 1
____ Abstain
PROPOSAL 2: AUTHORIZATION TO CONVERT THE PARTNERSHIP INTO A BIA SMALL-CAP GROWTH
FUND
Proposal 2 authorizes the general partner to convert the Partnership in to BIA
Small-Cap Growth Fund pursuant to the Partnership Agreement as amended by
Proposal 1.
____ Approve Proposal 2
____ Disapprove Proposal 2
____ Abstain
REDEMPTION OF PARTNERSHIP INTERESTS
I disapprove of Proposal 1 and Proposal 2 and I request that the General
Partner to redeem my partnerhsip interests in BIA Emerging Growth Fund Limited
Partnership as of business day immediately proceeding the Conversion.
Name of Limited Partner: ___________________________________
Signature of Limited Partner: ___________________________________
Dated as of: _______________, 1999.
<PAGE>
FORM OF CONSENT OF BIA EQUITY GROWTH FUND
LIMITED PARTNERSHIP
THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF THE GENERAL PARTNER OF BIA EQUITY
GROWTH FUND LIMITED PARTNERSHIP TO (1) AMEND THE PARTNERSHIP AGREEMENT, AND (2)
CONVERT THE PARTNERSHIP TO BIA GROWTH EQUITY FUND, A SERIES OF FORUM FUNDS, A
REGISTERED OPEN-END MANAGEMENT INVESTMENT COMPANY.
The undersigned, being a Limited Partner of BIA Emerging Growth Limited
Partnership (the "Partnership") on May __, 1999, has placed an "X" on the
appropriate lines below to indicate its vote (1) on the proposal to amend the
Amended and Restated Limited Partnership Agreement dated as of December 6,
1995,(the "Partnership Agreement"), as set forth in the enclosed Proxy
Statement/Prospectus and restated below; and (2) on the proposal to convert the
Partnership into BIA Growth Equity Fund, a series of Forum Funds, a registered
open-end management investment company, as described in the enclosed Proxy
Statement/Prospectus and as restated below.
Proposal 1 authorizes the general partner to make the following modifications to
the Partnership Agreement:
1.) Amendment of Article I to add the following definition of "Mutual Fund"
between the definitions of "Minimum Investment" and "Partner":
Mutual Fund: A registered open-end management investment company or a
series of a registered open-end investment company that is classified as a
corporation for federal income tax purposes and is intended to qualify as a
regulated investment company under section 851 of the Code.
2.) Amendment of Section 5.2B(iii) to insert at the beginning of that Section
the phrase "except as otherwise expressly provided in this Agreement,".
3.) Amendment of Section 8.6C to delete the language which reads ", and any
Partner entitled to any interest in the assets distributed shall receive his
interest as a tenant-in-common with all other partners so entitled".
4.) Amendment of Section 10.1 to add the following Section 10.1(vi) to read
as follows:
(viii) The conversion of the Fund into a Mutual Fund as provided in
Section 10.6.
<PAGE>
5.) Addition of the following Section 10.6:
Section 10.6 Conversion into a Mutual Fund
A. Upon Consent of the Investors, the General Partner shall have the
power to convert the Fund into a Mutual Fund by transferring
substantially all of the assets of the Fund to the Mutual Fund in
exchange for shares of beneficial interest in such Mutual Fund,
dissolving the Fund, and immediately thereafter distributing the
Mutual Fund shares to the Fund in accordance with the
provisions of Section 8.5B.
B. In connection with a conversion of the Fund into a Mutual Fund
described in Section 10.6A, the General Partner shall provide each
Investor that does not consent to the conversion an opportunity to
redeem its entire Interest in the Fund on the terms set forth in
Section 7.3B(iv) as of the day immediately preceding the date on which
the conversion transaction occurs if such Investor makes a written
request therefor that is received by the Fund at least two days prior
to the conversion.
C. The day immediately preceding the date on which the conversion of
the Fund into a Mutual Fund occurs shall be treated as the Valuation
Date, regardless if whether such day is the last day of a Calender
Month, and any portion of a Calender Month ending on that such day
shall be treated as a Calendar Month.
With respect to Proposal 1, I
____ Approve Proposal 1
____ Disapprove Proposal 1
____ Abstain
PROPOSAL 2: AUTHORIZATION TO CONVERT THE PARTNERSHIP INTO A MUTUAL FUND
Proposal 2 authorizes the general partner to convert the Partnership into BIA
Small-Cap Growth Fund pursuant to the Partnership Agreement as amended by
Proposal 1.
____ Approve Proposal 2
____ Disapprove Proposal 2
____ Abstain
REDEMPTION OF PARTNERSHIP INTEREST
I disapprove of Proposal 1 and Proposal 2 and I request that the General
Partner to redeem my partnership interests in BIA Growth Equity Fund Limited
Partnership as of business day immediately proceeding the Conversion.
Name of Limited Partner: ___________________________________
Signature of Limited Partner: ___________________________________
Dated as of: _______________, 1999.
