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As filed with the Securities and Exchange Commission on May 28, 1999
File Nos. 2-67052 and 811-3023
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 71
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 73
FORUM FUNDS
(Formerly "Forum Funds, Inc.")
Two Portland Square
Portland, Maine 04101
(207) 879-1900
Leslie K. Klenk, Esq.
Forum Financial Services, Inc.
Two Portland Square, Portland, Maine 04101
Copies to:
Anthony C.J. Nuland, Esq.
Seward & Kissel
1200 G Street, N.W.
Washington, D.C. 20005
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to Rule 485, paragraph (b)
[ ] on _________________ pursuant to Rule 485, paragraph (b)
[ ] 60 days after filing pursuant to Rule 485, paragraph (a)(1)
[ ] on August 1, 1999 pursuant to Rule 485, paragraph (a)(1)
[ ] 75 days after filing pursuant to Rule 485, paragraph (a)(2)
[ ] on _________________ pursuant to Rule 485, paragraph (a)(2)
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of SecuritieS Being Registered: Shares of Investors High Grade Bond Fund,
Investors Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Payson Value Fund, Payson Balanced Fund, Austin Global
Equity Fund, Oak Hall Small Cap Contrarian Fund and Investors Growth Fund.
<PAGE>
LOGO
PROSPECTUS
AUGUST 1, 1999
INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
Investors High Grade Bond Fund and Investors Bond Fund seek
high current income consistent with capital
preservation and prudent investment risk.
Investors High Grade Bond Fund primarily invests
in a diversified portfolio of high grade debt securities.
Investors Bond Fund primarily invests in a
non-diversified portfolio of investment grade debt securities.
TaxSaver Bond Fund seeks high current income exempt from federal income tax. The
Fund primarily invests in a non-diversified portfolio of municipal securities.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
ANYFUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY.......................................
PERFORMANCE...............................................
FEE TABLES................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS...............
MANAGEMENT................................................
YOUR ACCOUNT..............................................
How to Contact the Funds
General Information
Buying Shares
Selling Shares
Sales Charges
Exchange Privileges
Retirement Accounts
OTHER INFORMATION.........................................
FINANCIAL HIGHLIGHTS......................................
2
<PAGE>
RISK/RETURN SUMMARY
INVESTORS HIGH GRADE BOND FUND
[Margin callout: CONCEPTS TO UNDERSTAND
DEBT OR FIXED INCOME SECURITY means a security such as a bond or note
that obligates the issuer to pay the security owner a specified sum of
money (i.e. interest) at set intervals as well as to repay the
principal amount of the security at its maturity.
BOND is a debt security with a long term maturity of usually 5 years or
longer
NRSRO means a "nationally recognized statistical rating organization"
such as Standard &Poors, that rates fixed-income securities and
preferred stock by relative credit risk.
INVESTMENT GRADE SECURITY means a security rated in one of the four
highest ratings categories by an NRSRO or unrated and determined to be
of comparable quality.]
MUNICIPAL SECURITY means a debt security issued by or on behalf of the
states, their local governments and public financing authroities and
U.S. territories and possessions the interest of which is exempt from
federal income tax.]
INVESTMENT OBJECTIVE High level of current income consistent with capital
preservation and prudent investment risk.
PRINCIPAL INVESTMENT STRATEGY The Investors High Grade Bond Fund (a "Fund")
primarily invests in a diversified portfolio of debt securities rated in one of
the three highest rating categories by an NRSRO that has an average weighted
maturity of less than 7 years.
INVESTORS BOND FUND
INVESTMENT OBJECTIVE High level of current income consistent with capital
preservation and prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES Investors Bond Fund (a "Fund") invests primarily
in a non-diversified portfolio of investment-grade debt securities that has a an
average weighted maturity of between[Number] and [Number] years.
TAXSAVER BOND FUND
INVESTMENT OBJECTIVE High current income exempt from federal income tax.
3
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES TaxSaver Bond Fund (a "Fund') primarily in a
non-diversified portfolio of investment-grade municipal securities that has an
average weighted maturity of between of 5 to 15 years.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
You could lose money on your investment in a Fund or a Fund could underperform
other investments. An investment in a Fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. The principal risks of an investment in a Fund includes the
following:
o A Fund's share price, yield and total return will fluctuate in
response to price movements in the fixed income securities markets.
o The value of most fixed income securities fall when interest rates
rise; the longer a maturity and the lower its credit quality, the more
its value typically falls.
o A Fund will not collect interest and principal payments on a debt
security if the issuer defaults.
o A Fund's investment in mortgage-backed and asset-backed securities has
prepayment risk. A decline in interest rates may result in losses in
these securities' values and a reduction in their yields as the
holders of the assets backing the securities may prepay their debts.
o Investors Bond Fund and TaxSaver Bond Fund are each non-diversified.
Each of these Funds may invest a greater percentage of its assets in
the securities of fewer issuers. Concentration of a Fund in securities
of a limited number of issuers exposes it to greater market risk and
monetary losses than if its assets were diversified among the
securities of a greater number of issuers.
WHO MAY WANT TO INVEST IN THE FUNDS
Investors High Grade Bond Fund and Investors Bond Fund may be appropriate for
you if you
o Seek income and more price stability than stocks offer.
o Seek capital preservation.
o Are pursuing a long-term goal.
o Are willing to accept higher short-term risk
TaxSaver Bond Fund may be appropriate for you if you
o Seek income and more price stability than stocks offer.
4
<PAGE>
o Seek capital preservation.
o Are an income-oriented investor in a high tax bracket and require
tax-exempt income.
o Do not require the higher yields normally associated with
non-tax-exempt securities.
Investors High Grade Bond Fund and Investors Bond Fund may NOT be appropriate
for you if you:
o Want an investment that pursues market trends and focuses on
particular sectors or industries.
o Are pursuing a short-term goal or are investing emergency reserves.
TaxSaver Fund may NOT be appropriate for you if you:
o Want an investment that pursues market trends and focuses on
particular sectors or industries.
o Are pursuing a short-term goal or are investing emergency reserves.
o Are investing funds in a tax-deffered or tax-exempt account (such as
an IRA).
o Do not require tax-exempt income.
PERFORMANCE
The return information in the tables below provide some indication of the risks
of investing in Investors Bond Fund and TaxSaver Fund by showing the Funds'
performance from year to year and by showing how the Funds' average annual
returns for 1, 5, and 10 years (or for the life of the Fund if shorter) compare
to a broad range of market performance. Return information for Investors High
Grade Bond Fund is not depicted as it did not have a full calendar year of
performance as of December 31, 1998. PERFORMANCE INFORMATION REPRESENTS ONLY
PAST PERFORMANCE AND DOES NOT NECESSARILY INDICATE FUTURE RESULTS.
INVESTORS BOND FUND
The following chart shows the annual total returns for each full calendar year
that the Funds has operated. Sales charges are not reflected in the chart and if
reflected, the returns would be less than shown.
5
<PAGE>
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendary Year Average Annual Total Return
- -------------- ---------------------------
1990 9.54%
1991 16.12%
1992 7.46%
1993 12.53%
1994 -2.23%
1995 13.73%
1996 6.87%
1997 10.97%
1998 6.13%
The year-to-date total return as of June 30, 1999 was _____%.
During the periods shown in the chart, the highest quarterly return was 6.09%
(for the quarter ended September 30, 1991) and the lowest quarterly return was
- -2.32% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman Government/Corporate Intermediate Index.
<TABLE>
<S> <C> <C>
LEHMAN GOVERNMENT/CORPORATE
INTERMEDIATE INDEX
YEAR(S) INVESTORS BOND FUND
1 Year 6.13% 8.42%
5 Years 6.92% 6.59%
10 Years N/A
</TABLE>
Lehman Government/Corporate Intermediate Index is a market index of fixed-rate
government and investment grade securities with maturities of up to 10 years.
The Index is unmanaged and reflects the reinvestment interest and principal
payments. Unlike the performance figures of the Fund, the Index's performance
does not reflect the effect of expenses.
TAXSAVER BOND FUND
The following chart shows the annual total returns for each full calendar year
that the Fund has operated. Sales charges are not reflected in the chart and if
reflected, the returns would be less than shown.
6
<PAGE>
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendar Year Average Annual Total Return
- ------------- ---------------------------
1990 7.07%
1991 10.55%
1992 8.89%
1993 10.51%
1994 -0.85%
1995 13.29%
1996 4.29%
1997 7.39%
1998 5.09%
The year-to-date total return as of June 30, 1999 was _____%.
During the periods shown in the chart, the highest quarterly return was 4.93%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- -2.02% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman 10-Year Municipal Bond Index.
<TABLE>
<S> <C> <C>
LEHMAN 10-YEAR MUNICIPAL BOND
YEAR(S) TAXSAVER BOND FUND INDEX
1 Year 5.09% 6.76%
5 Years 5.74% 6.63%
10 Years N/A N/A
</TABLE>
Lehman 10-Year Municipal Bond Index is a market index of investment grade
municipal fixed-rate debt securities with an average maturity of 10 years. The
Index is unmanaged and reflects the reinvestment of interest and principal
payments. Unlike the performance figures of the Fund, the Index's performance
does not reflect the effect of expenses.
7
<PAGE>
FEE TABLES
The following tables describe the various fees and expenses that you will pay if
youinvest in a Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a 3.75%
percentage of the offering price)
Maximum Deferred Sales Charge (Load) 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested None
Distributions
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
(1) IRA accounts pay an annual $10 maintenance fee.
ANNUAL FUND OPERATING EXPENSES (1) (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
INVESTORS HIGH GRADE BOND FUND
Management fees 0.40%
Distribution (12b-1) fees None
Other expenses 0.72%
Total annual fund operating expenses 1.12%(2)
INVESTORS BOND FUND
Management fees 0.40%
Distribution (12b-1) fees None
Other expenses 0.62%
Total annual fund operating expenses 1.02%(2)
TAXSAVER BOND FUND
Management fees 0.40%
Distribution (12b-1) fees None
Other expenses 0.71%
Total annual fund operating expenses 1.11%(2)
</TABLE>
(1) Based on amounts incurred during each Fund's fiscal year ended
March 31, 1999 stated as a percentage of assets.
(2) Some of the Funds' service providers have voluntarily waived a
portion of their fees and/or assumed certain expenses of a Fund so
8
<PAGE>
that total annual fund expenses actually were 0.60% for Investors
High Grade Bond Fund and TaxSaver Bond Fund and 0.70% for
Investors Bond Fund. Fee waivers and expense reimbursements may be
reduced or eliminated at any time.
EXAMPLE
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 as
stated in the above table, and that distributions are reinvested. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
<TABLE>
<S> <C> <C> <C>
------------------------- ----------------------- -----------------------
INVESTORS HIGH GRADE INVESTORS BOND FUND TAXSAVER BOND FUND
BOND FUND
- ----------------------- ------------------------- ----------------------- -----------------------
- ----------------------- ------------------------- ----------------------- -----------------------
After 1 year $485 $475 $484
- ----------------------- ------------------------- ----------------------- -----------------------
After 3 years $718 $688 $715
- ----------------------- ------------------------- ----------------------- -----------------------
After 5 years $969 $917 $964
- ----------------------- ------------------------- ----------------------- -----------------------
After 10 years $1,687 $1,576 $1,676
- ----------------------- ------------------------- ----------------------- -----------------------
</TABLE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
INVESTORS HIGH GRADE BOND FUND seeks to provide as high a level of current
income as is consistent with capital preservation and prudent investment risk.
INVESTORS BOND FUND seeks to provide as high a level of current income as is
consistent with capital preservation and prudent investment risk.
TAXSAVER BOND FUND seeks to provide shareholders with a high level of current
income exempt from Federal income tax.
INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
MORTGAGE-BACKED SECURITIES are interests in a pool of mortgages created
by lenders such as commercial banks, savings associations and mortgage
bankers and brokers.
ASSET-BACKED SECURITIES are interests in assets other than
mortgage-backed assets such as car loans, leases of real and personal
property and credit card loans.
9
<PAGE>
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed as
to principal and interest by the U.S. Government, its agencies, or its
instrumentalities.
DURATION means a security's average life at the present value of the
security's cash flow. Generally, the volatility of a security's price
increases with an increase in duration.
MATURITY means the date on which a debt security is ( or may be) due
and payable.
PRIVATE ACTIVITY SECURITY means a bond that is issued by or on behalf
of public authorities to finance privately operated facilities. Private
Activity Bonds are primarily revenue bonds.]
INVESTORS HIGH GRADE BOND FUND The Fund primarily invests in a diversified
portfolio of debt securities that are rated in one of the three highest rating
categories by an NRSRO. The Fund normally invests at least 70% of its assets in
U.S. Government Securities and at least 40% of its assets in U.S. Government
Securities that are direct obligations of the U. S. Treasury, such as Treasury
bonds, bills and notes. The Fund may invest up to 30% of its total assets in
mortgage-backed and asset-backed securities. The Fund invests in mortgage-backed
securities that are U.S. Government Securities or are ratedin the two highest
rating categories of an NRSRO. The Fund may invest up to 10% of its total assets
in asset-backed securities rated in the highest rating category of an NRSRO and
up to 10% of its total assets in adjustable rate mortgage-backed securities
rated in the highest category by an NRSRO. The Fund invests in securities with
varyingmaturities from overnight to more than 30 years, but will not invest more
than 25% of its total assets securities with maturities greater than 10 years.
The Fund's portfolio of securities has a average weighted maturity of 7 years or
less.
INVESTORS BOND FUND The Fund primarily invests in a non-diversified portfolio of
investment grade debt securities, U.S. U.S. Government Securities and
mortgage-backed and asset-backed securities rated in the two highest rating
categories of an NRSRO or considered to be of comparable quality. The Fund may
invest up to 50% of its assets in mortgage-backed securities and up to 15% of
its assets in asset-backed securities. The Fund invests in securities with
varying from overnight to more than 30 years. The Fund's portfolio has a average
weighted maturity of between [Number] and [Number].
TAXSAVER BOND FUND The Fund primarily invests in a non-diversified portfolio of
investment grade municipal securities. While it is anticipated that the Fund
will invest in municipal securities whose interest is exempt from Federal income
taxes (including the alternative minimum tax ("AMT")), the Fund may invest up to
20% of its net assets in securities whose interest income is subject to Federal
income tax. The Fund may also invest over 25% of its total assets in private
activity bonds.
THE ADVISER'S PROCESS The Fund's investment adviser (the " Adviser") sets, and
continually adjusts, a duration target for a Fund based upon expectations about
the direction of interest rates and other economic factors. The Adviser then
buys and sells securities to achieve the greatest relative return.
10
<PAGE>
INVESTMENT RISKS
GENERALLY There is no assurance that the Funds will achieve their investment
goal. The Funds' net asset value and investment performance will flucuate based
upon changes in the value of its portfolio securities. An investment in a Fund
is not by itself a complete or balanced investment program. The market value of
securities in which the Funds invest are based upon the market's perception of
value and is not necessarily an objective measure of a security's value.
SPECIFIC RISKS You may lose money in a Fund if any of the following occur:
o Interest rates decline causing the value of fixed income securities,
including U.S. Government and municipal securities, to decline. Changes in
interest rates will affect the value of longer-term securities more than
shorter-term securities.
o An issuer of a security held by a Fund defaults or otherwise is unable to
pay interest or principal due causing a potential losses in the security's
value or yield.
o Economic or political factors adversely affect issuers of municipal
securities.
o An issuer prepays its obligation under a security held by a Fund as
interest rates decline causing the Fund to invest in securities with lower
interest rates. Prepayment of mortgage- and asset-backed securities due to
interest rate declines may result in a potential loss of that security's
value or a decline in its yield. Rising interest rates may reduce the
number of prepayments causing the average maturity of a Fund's investments
to rise. Longer-term securities are more sensitive to rising interest rates
and potential losses in value.
YEAR 2000 Certain computer systems may not process date-related information
properly on and after January 1, 2000. The 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.
TEMPORARY DEFENSIVE MEASURES TEMPORARY DEFENSIVE MEASURES In order to respond to
adverse market, economic, or other conditions, the Fund may assume a temporary
defensive position and invest without limit in cash and cash equivalents such as
high quality money market instruments. As a result, the Fund may be unable to
achieve its investment objective.
MANAGEMENT
The Funds are three series of Forum Funds (the "Trust"), an open-end, management
investment company (a mutual fund). The business of the Trust and of 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 the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
11
<PAGE>
THE ADVISER
Subject to the general control of the Board, the Adviser makes investment
decisions for the Funds. For its services, the Adviser is entitled to receive an
advisory fee at an annual rate of 0.40% of the average daily net assets of each
of the Fund.
Forum Investment Advisors, LLC, Two Portland Square, Portland, Maine 04101,
serves as investment adviser to each Fund. The Adviser is a privately owned
company controlled by John Y. Keffer, who is Chairman of the Board.
As of the date of this Prospectus, the Adviser has approximately [$____] billion
of assets under management.
PORTFOLIO MANAGER
LES C. BERTHY, Senior Portfolio Manager of the Adviser, has been primarily
responsible for the day-to-day management of each of the Funds since their
inception. Mr. Berthy has over [Number] years of experience in the investment
industry and prior to his association with the Adviser in [Month] 1990, Mr.
Berthy was Managing Director and Co-Chief executive Officer of Irwin Union
Capital Corp., an affiliate of Irwin Union Bank & Trust Co.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide services to the Funds.
As of June 30, 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 of 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 Administrative Services, LLC (the "Administrator") provides administrative
services to the Funds, Forum Accounting Services, LLC (the "Fund Accountant) is
each Fund's fund accountant and Forum Shareholder Services, LLC ("Transfer
Agent") is the Funds' transfer agent.
FUND EXPENSES
Each Fund pay for all of its expenses. A Fund's expenses are comprised of
expenses attributable to the Fund as well as expenses not attributable to any
particular series of the Trust that are allocated among the various series. The
Adviser or other service providers may voluntarily
12
<PAGE>
waive all or any portion of their fees and assume certain expenses of the Fund.
Any waiver or expense reimbursement 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 Administrator and the Transfer Agent have undertaken to waive a portion of
their fees and/or assume certain expenses in order to limit the Funds' expenses
(excluding taxes, interest, portfolio transaction expenses and extraordinary
expenses) to 0.70% _or less of the average daily net assets of Investors High
Grade Bond Fund and Investors Bond Fund and 0.60% or less of the average daily
net assets of TaxSaver Bond Fund. Fee waivers and expense reimbursements are
voluntary and may be reduced or eliminated at any time.
YOUR ACCOUNT
[Margin call out: HOW TO CONTACT THE FUNDS
Write to us at:
Forum Funds
P.O. Box 446
Two Portland Square
Portland, Maine 04112
Telephone us at:
(800) 94FORUM or (800) 943-6786 (Toll Free)
(207) 879-0001
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033 For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
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 may purchase or sell (redeem) shares at the public offering price next
calculated after your transaction request is received in proper form by the
Transfer Agent. The public offering price is the net asset value of a share (or
NAV) plus any applicable sales load (or minus any applicable sales load in the
case of redemptions). For instance, if the transfer agent receives your purchase
request in proper form after 4:00 p.m., your transaction will be priced at the
time of the next
13
<PAGE>
business 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 the Funds, 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
confirmation.
The Funds reserve the right to impose 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
that the New York Stock Exchange is open. The time at which NAV is calculated
may change in case of emergency or if the Exchange closes early. The Funds' NAV
is determined by taking the market value of all securities owned by each Fund
(plus all other assets such as cash), subtracting liabilities and then dividing
the result (net 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, a Fund values securities
at fair value.
TRANSACTIONS THROUGH THIRD PARTIES When you invest through your adviser, a
broker or other financial intermediary, the policies and fees (other than sales
charges) charged by that institution may be different than those of the Funds'.
For instance, a financial intermediary may charge transactional fees and may set
different minimum investments or limitations on buying or selling shares. Your
institution may also provide you with certain shareholder services such as
periodic account statements summarizing you investment activity and trade
confirmations. Consult a representative of your financial institution 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.
CHECK 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, you may not pay
by travelers checks).
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.
14
<PAGE>
WIRE 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 Each Fund accepts payments in the following minimum amounts:
<TABLE>
<S> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
Standard Account $2,000 $250
-------------------------------------- ------------------------- --------------------------
Traditional and Roth IRA Accounts $1,000 $250
-------------------------------------- ------------------------- --------------------------
Accounts With Automatic Investment - $250
Plans
-------------------------------------- ------------------------- --------------------------
</TABLE>
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 on
as are sole proprietorship accounts. Joint accounts 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 custodial
These custodial accounts provide a way to give account under the Uniform Gift to Minors
money to a child. An individual can give up to Act or the Uniform Transfers to Minors Act
$10,000 a year per child without paying Federal gift
tax. o The trustee must sign instructions in a manner
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>
15
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PROCEDURES
<S> <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 assign 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 $250.
LIMITATIONS ON PURCHASES Each Fund reserves 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 a Fund's view, is likely to engage in excessive trading (usually defined
as more than four exchanges out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS Each Fund accepts 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 expenses incurred by a Fund
or the transfer agent, and each Fund may redeem shares you own in the account
(or another identically registered account in any Fund) as reimbursement.
Each Fund and its agents have the right to reject or cancel any purchase or
exchange due to nonpayment.
16
<PAGE>
SELLING SHARES
Each Fund processes redemption orders 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 a 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")
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
17
<PAGE>
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 a Fund 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, a Fund may ask
you to increase your balance. If the account value remains below $1,000 after 60
days, the Funds may close your account and send you the proceeds. The Funds 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 Each Fund reserves the right to make a redemption 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).
18
<PAGE>
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.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of shares as follows:
<TABLE>
<CAPTION>
SALES CHARGE (LOAD)
AS % OF
-------------------------------
<S> <C> <C> <C>
PUBLIC NET ASSET
OFFERING PRICE VALUE* REALLOWANCE
AMOUNT OF PURCHASE
$0-$49,999 3.75 3.90 3.25
$50,000 to $99,999 3.25 3.36 2.75
$100,000 to $249,999 2.75 2.83 2.25
$250,000 to $499,999 2.25 2.30 1.85
$500,000 to $999,999 1.75 1.78 1.45
$1,000,000 and up 0.00 0.00 0.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The commission paid to the distributor is the sales charge less the reallowance
paid to certain financial institutions purchasing shares as principal or agent.
Normally, reallownances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
REDEMPTIONS A contingent deferred sales charge is assessed on redemptions of
shares that were part of a purchase of $1 million or more. The sales charge is
assessed as follows: (1) 1.00% of the amount redeemed of the shares are redeemed
after one year, but within two years of their purchase. The charge is paid on
the lower of the value of shares redeemed or the cost of the shares.
19
<PAGE>
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. If you qualify for
RIGHTS OF ACCUMULATION ("ROA"), the sales charge you pay is based on the total
of your current purchase and the net asset value (at the end of the previous
Fund Business Day) of shares that you already hold. To qualify for ROA on a
purchase, you must inform the transfer agent and supply sufficient information
to verify that each purchase qualifies for the privilege or discount. You may
also enter into a written Letter of Intent ("LOI"), which expresses your intent
to invest $100,000 or more in a Fund within a period of 13 months. Each purchase
of shares under a LOI will be made at the public offering price applicable at
the time of the purchase to a single transaction of the dollar amount indicated
in the LOI. You are not bound by an LOI.
ELIMINATION OF SALES CHARGES No sales charge is assessed on the reinvestment of
Fund distributions. No sales charge is assessed on purchases made for investment
purposes by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any registered investment adviser which is acting on behalf of its
fiduciary customer accounts and for which it provides additional investment
advisory services
o any broker-dealer with whom the distributor has entered into a Processing
Organization Agreement and a Fee-Based or Wrap Account Agreement and which
is acting on behalf of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or similar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the
benefit of any such person or relative; or the estate of any such person or
relative
o any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment
o persons who exchange into a Fund from a mutual fund other than a fund of
the Trust that participates in the Trust's exchange program, (see "Exchange
Privileges" below) and
o employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
The Funds require appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Funds.
20
<PAGE>
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. 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
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
Investors High Grade Bond Fund and Investors Bond Fund offers 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 for which the contribution is
made.
OTHER INFORMATION
DISTRIBUTIONS
The Funds distribute their net investment income monthly. Any net capital gain
realized by the Funds is distributed at least annually.
21
<PAGE>
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 intends to operate in a manner such that it will not be liable for
Federal income or excise tax.
Distributions of net income or short-term capital gains of are taxable to you as
ordinary income. Distributions of long-term capital gains are taxable to you as
long-term capital gain. Distributions also may be subject to certain state and
local taxes.
Generally, you will not be subject to Federal income tax on net income
distributed by TaxSaver Bond Fund. Net income paid out of the Fund's taxable
income will be taxable as ordinary income. It is anticipated that substantially
all of the Fund's net income will be exempt from Federal income tax. You may not
have to pay state and local tax on net income from obligations of a state or
municipality in which you reside. You may be subject to tax on income derived
from municipal securities of other jurisdictions.
Distributions of capital gain reduce the net asset value of a the Funds' shares
by the amount of the distribution. If you buy shares just before a Fund deducts
a capital gain 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. Distributions may, however, be subject to certain state and local
taxes.
The Funds will mail reports to you containing information about a Fund's
distributions during the year shortly after December 31 of each year. Consult
your tax adviser about federal, state and local tax consequences for your
particular circumstances.
ORGANIZATION
The Trust is a Delaware business trust. The Funds are three 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.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand each Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in a Fund (assuming the reinvestment of
all distributions). This information has been audited by [Name of Independent
Auditor], whose report, along with each Fund's financial statements, are
included in the Annual Report which is available upon request, without charge.
<TABLE>
<CAPTION>
INVESTORS HIGH GRADE BOND FUND
<S> <C> <C>
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1999 1998(a)
---------- ----------
Beginning Net Asset Value Per Share $ 9.96 $10.00
Income from Investment Operations:
Net Investment Income 0.57 0.02
Net Realized and Unrealized Gain on Investments 0.03 (0.04)
Total from Investment Operations (0.57) (0.02)
Less Distributions:
From Net Investment Income (0.07) (0.02)
From Net Realized Capital Gain - -
Total Distributions (0.02)
Ending Net Asset Value $9.92 $9.96
Ratios to Average Net Assets:
Expenses 0.70% 0.70%(d)
Expenses (gross)(b) 1.12% 3.00%(d)
Net Investment Income Including Reimbursement/Waiver 5.68% 5.56%(d)
Total Return(c) 6.12% (0.16%)
Portfolio Turnover Rate 172.60% 0.00%
Net Assets at End of Period (000's omitted) $35,754 $34,037
</TABLE>
(a) Investors High Grade Bond Fund commenced operations on March 16, 1998.
(b) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(c) Does not include sales charge.
(d) Annualized.
23
<PAGE>
<TABLE>
<CAPTION>
INVESTORS BOND FUND
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Beginning Net Asset Value Per Share 10.57 $10.19 $10.21 $10.00 $10.38
------------- -------------- -------------- ------------- --------------
Income from Investment Operations:
Net Investment Income 0.67 0.71 0.71 0.74 0.82
Net Realized and Unrealized Gain (Loss)
on Investments (0.21) 0.38 - 0.21 (0.38)
------------- -------------- -------------- ------------- --------------
Total from Investment Operations 0.46 1.09 0.71 0.95 0.44
------------- -------------- -------------- ------------- --------------
Less Distributions:
From Net Investment Income (0.67) (0.71) (0.71) (0.74) (0.82)
From Net Realized Capital Gain (0.04) - (0.02) _ _
------------- -------------- -------------- ------------- --------------
Total Distributions (0.71) (0.71) (0.73) (0.74) (0.82)
------------- -------------- -------------- ------------- --------------
Ending Net Asset Value $10.32 $10.57 $10.19 $10.21 $10.00
============= ============== ============== ============= ==============
Ratios to Average Net Assets:
Expenses
0.70% 0.70% 0.70% 0.43% 0.75%
Expenses (gross) (a)
1.02% 1.22% 1.45% 1.36% 1.33%
Net Investment Income Including
Reimbursement/Waiver 6.33% 6.52% 6.94% 7.29% 8.19%
Total Return(b) 4.45% 10.98% 7.18% 9.84% 4.55%
Portfolio Turnover Rate 98.36% 116.65% 79.42% 42.89% 48.17%
Net Assets at End of Period (000's omitted)
$70,446 $85,598 $22,190 $25,676 $25,890
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charge.
24
<PAGE>
<TABLE>
<CAPTION>
TAXSAVER BOND FUND
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
-------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Beginning Net Asset Value Per Share $10.75 $10.49 $10.57 $10.39 $10.35
------------- ------------ ------------ ------------ ------------
Income from Investment Operations:
Net Investment Income 0.48 0.53 0.56 0.57 0.57
Net Realized and Unrealized Gain (Loss)
on Investments 0.04 0.27 (0.03) 0.18 0.04
------------- ------------ ------------ ------------ ------------
Total from Investment Operations 0.52 0.80 0.53 0.75 0.61
------------- ------------ ------------ ------------ ------------
Less Distributions:
From Net Investment Income (0.48) (0.53) (0.56) (0.57) (0.57)
From Net Realized Capital Gain (0.18) (0.01) (0.05) _ _
------------- ------------ ------------ ------------ ------------
Total Distributions (0.66) (0.54) (0.61) (0.57) (0.57)
Ending Net Asset Value $10.61 $10.75 $10.49 $10.57 $10.39
============= ============ ============ ============ ============
Ratios to Average Net Assets:
Expenses
0.60% 0.60% 0.60% 0.60% 0.60%
Expenses (gross)(a)
1.11% 1.36% 1.53% 1.48% 1.45%
Net Investment Income Including
Reimbursement/Waiver 4.48% 4.95% 5.28% 5.35% 5.62%
Total Return(b) 4.95% 7.75% 5.15% 7.36% 6.18%
Portfolio Turnover Rate 61.60% 92.87% 34.19% 61.61% 63.85%
Net Assets at End of Period (000's
omitted) $37,447 $39,203 $17,757 $17,915 $16,018
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charge.
25
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
INVESTORS HIGH GRADE BOND FUND
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Funds' investments is available in the INVESTORS BOND FUND
Funds' annual and semi-annual
reports to shareholders. In each Fund's annual report, you will find a TAXSAVER BOND FUND
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Funds and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI, request other information and discuss
your questions about the Funds by contacting the Funds at:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
800-94FORUM or 800-943-6786
207-879-0001
You can also review the Funds' SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies, for a
fee, by writing to or calling the following:
Public Reference Room Forum Funds
Securities and Exchange Commission P.O. Box 446
Washington, D.C. 20549-6009 Two Portland Square
Telephone: 800-SEC-0330 Portland, Maine 04112
800-94FORUM
Free copies are available from the SEC's Internet website at 800-943-6786
http://www.sec.gov. 207-879-0001
Investment Company Act File No.811-3023.
</TABLE>
<PAGE>
LOGO
PROSPECTUS
AUGUST 1, 1999
MAINE MUNICIPAL BOND FUND
The Fund seeks to provide a high level of current income
exempt from both Federal and Maine state income taxes (other than the
alternative minimum tax), without assuming undue risk by investing primarily in
a portfolio of investment-grade Maine municipal securities.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY.............................................
PERFORMANCE.....................................................
FEE TABLES......................................................
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS......................
MANAGEMENT......................................................
YOUR ACCOUNT....................................................
How to Contact the Fund
General Information
Buying Shares
Selling Shares
Sales Charges
Exchange Privileges
Retirement Accounts
OTHER INFORMATION...............................................
FINANCIAL HIGHLIGHTS............................................
2
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
High current income exempt from Federal income taxes and Maine state income
taxes (other than the alternative minimum tax ("AMT")).
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
[Margin callout: CONCEPTS TO UNDERSTAND
DEBT OR FIXED INCOME SECURITY means a security such as a bond or note
that obligates the issuer to pay the security owner a specified sum of
money (i.e. interest) at set intervals as well as to repay the
principal amount of the security at its maturity.
BOND means a debt security with a long-term maturity, usually 5 years
or longer.
NOTE means a written promise to pay a specified amount to a certain
entity on demand or on a specified date.
MUNICIPAL SECURIY means adebt security issued by or on behalf of the
State of Maine, its local governments and public financing authorities
and U.S. territories and possessions, the interest of which is exempt
from federal income tax.
INVESTMENT-GRADE SECURITY means a security rated in one of the four
highest long-term or two highest short-term ratings categories by an
NRSRO or unrated and determined to be of comparable quality.
NRSRO means a "nationally recognized statistical rating organization"
such as Standard & Poor's that rates fixed-income securities and
preferred stock by relative credit risk.]
The Maine Municipal Bond Fund (the "Fund") primarily invests in a
non-diversified portfolio of investment grade Maine Municipal Securities that
has an average weighted maturity of between 5 and 15 years.
PRINCIPAL RISKS OF INVESTING IN THE FUND
You could lose money on your investment in the Fund or the Fund could
underperform other investments. An investment in the Fund is not a deposit of
any bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. The principal risks of an investment
in the Fund include the following:
o The Fund's share price, yield and total return will fluctuate in
response to price movements in the fixed income securities markets.
3
<PAGE>
o The value of most fixed income securities fall when interest rates
rise; the longer a security's maturity and the lower its credit
quality, the more its value typically falls.
o The Fund will not collect interest and principal payments on a debt
security if the issuer defaults.
o The Fund is non-diversified. The Fund may invest a greater percentage
of its assets in the securities of a few issuers. Concentration of the
Fund in securities of a limited number of issuers exposes it to
greater market risk and monetary losses than if its assets were
diversified among the securities of a greater number of issuers.
o Economic and political changes in Maine may have a greater effect on
the Fund than if it invested in municipal securities of various
states.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Seek income and more price stability than stocks.
o Seek capital preservation.
o Are pursuing a long-term goal.
o Are willing to accept higher short-term risk.
o Are an income-oriented investor in a high tax bracket and require
tax-exempt income.
o Do not require the higher yields normally associated with
non-tax-exempt securities.
The Fund may NOT be appropriate for you if you:
o Want an investment that pursues market trends and focuses on
particular sectors or industries.
o Are pursuing a short-term goal or are investing emergency reserves.
o Are investing funds in a tax-deferred or tax-exempt account (such as
an IRA).
o Do not require tax-exempt income.
PERFORMANCE
The return information in the tables provides some indication of the risks of
investing in the Fund by showing the Fund's performance from year to year and by
showing how the Fund's average annual returns for 1, 5, and 10 years (or for the
life of the Fund if shorter) compare to a broad measure of market performance.
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
4
<PAGE>
The following chart shows the annual total returns for each full calendar year
that the Fund has operated. Sales charges are not reflected in the chart and if
reflected, the returns would be less than shown.
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendar Year Average Annual Total Return
- ------------- ---------------------------
1992 8.20%
1993 11.21%
1994 -4.20%
1995 15.26%
1996 3.65%
1997 7.26%
1998 5.63%
The year-to-date total return as of June 30, 1999 was _____%.
During the periods shown in the chart, the highest quarterly return was 6.36%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- -4.15% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman 10-Year Municipal Bond Index.
<TABLE>
<S> <C> <C>
MAINE MUNICIPAL BOND FUND LEHMAN 10-YEAR MUNICIPAL BOND
YEAR(S) INDEX
1 Year 5.63% 6.76%
5 Years 5.33% 6.63%
10 Years N/A
</TABLE>
5
<PAGE>
Lehman 10-Year Municipal Bond Index is a market index of investment grade
municipal fixed-rate debt securities with an average maturity of 10 years. The
Index is unmanaged and reflects the reinvestment of interest and principal
payments. Unlike the performance figures of the Fund, the Index's performance
does not reflect the effect of expenses.
FEE TABLES
The following tables describe the various gross fees and expenses that you will
pay if you invest in the Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases 3.00%
Maximum Deferred Sales Charge (Load) 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
(1) IRA accounts pay an annual $10 maintenance fee.
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (1) (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management fees 0.40%
Distribution (12b-1) fees None
Other expenses 0.92%
Total annual fund operating expenses 1.32% (2)
(1) Based on amounts incurred during the Fund's fiscal year ended
March 31, 1999 stated as a percentage of assets.
(2) Some of the Fund's service providers have volumntarily waived
a portion of their fees so that total annual fund expenses were
actually 0.60%.
</TABLE>
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in a Fund, you pay the maximum sales
load 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 that distributions are reinvested. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
6
<PAGE>
----------------- ------------- ------------- --------------
AFTER 1 YEAR AFTER 3 AFTER 5 AFTER 10
YEARS YEARS YEARS
----------------- ------------- ------------- --------------
$381 $658 $955 $1,800
----------------- ------------- ------------- --------------
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income exempt from both Federal and Maine
state income taxes (other than the AMT) without assuming undue risk.
INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
MATURITY means the date on which a debt security is (or may be) due and
payable.
DURATION means a security's average life at the present value of the
security's cash flow. Generally, the volatility of a security's price
increases with an increase in duration.
GENERAL OBLIGATION SECURITY means a debt security whose principal and
interest payments is secured by a municipality's full faith and credit
and taxing power.
PRIVATE ACTIVITY SECURITY means a bond that is issued by or on behalf
of public authorities to finance privately operated facilities. Private
Activity Bonds are primarily revenue bonds.
REVENUE SECURITY means a debt security generally payable from revenues
of a particular facility, class of facilities or, in some cases, from
the proceeds of a special excise or other tax.
The Fund invests primarily in a non-diversified portfolio of investment grade
municipal securities issued by the state of Maine. The Fund may also invested in
municipal securities issued by Puerto Rico, other United States territories or
possessions and their subdivisions, authorities and corporations. The Fund will
invest at least 80% of its total assets in municipal securities, the interest of
which is exempt from Federal and Maine State income tax (other than AMT).
Municipal Securities include municipal bonds, notes and leases. The Fund invests
in general obligation securities and revenue securities which include private
activity securities. Municipal notes generally have original maturities of 397
days or less. Municipal leases permit government issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of long-term debt.
7
<PAGE>
INFORMATION CONCERNING THE STATE OF MAINE In 1991, citing declines in key
financial indicators and continued softness in the Maine economy, S&P lowered
its credit rating for Maine general obligations from AAA to AA+, and at the same
time lowered its credit rating on bonds issued by the Maine Municipal Bond Bank
and the Maine Court Facilities Authority, and on State of Maine Certificates of
Participation for highway equipment from AA to A+. In August 1993, citing the
"effects of protracted economic slowdown and the expectation that Maine's
economy will not soon return to the pattern of robust growth evident in the
mid-1980s," Moody's lowered its credit rating for Maine general obligations from
Aa1 to Aa. At the same time, Moody's lowered from Aa1 to Aa the ratings assigned
to state-guaranteed bonds of the Maine School Building Authority and the Finance
Authority of Maine, and confirmed at A1 the ratings assigned to the bonds of the
Maine Court Facilities Authority and State of Maine Certificates of
Participation. On May 13, 1997, Moody's "confirmed and refined from Aa to Aa3"
Maine's general obligation bond rating in accord with a new national rating
system published by Moody's on January 13, 1997. On June 5, 1998, Moody's raised
its credit rating on Maine general obligations bonds from Aa3 to Aa2. Since
1996, Maine general obligation bonds also have been rated by Fitch. Fitch has
assigned a rating of AA to Maine general obligation bonds. There can be no
assurance that Maine general obligations or the securities of any Maine
political subdivision, authority or corporation owned by the Fund will be rated
in any category or will not be downgraded by an NRSRO. Further information
concerning the State of Maine is contained in the SAI.
THE ADVISER'S PROCESS The Adviser sets, and continually adjusts, a duration
target for the Fund based upon expectations about the direction of interest
rates and other economic factors. The Adviser then buys and sells securities to
achieve the greatest relative return.
INVESTMENT RISKS
GENERALLY There is no assurance that the Fund will achieve its investment goal.
The Fund's net asset value and investment performance will fluctuate based upon
changes in the value of its portfolio securities. An investment in the Fund is
not by itself a complete or balanced investment program.
SPECIFIC RISKS You may lose money in the Fund if any of the following occur:
o Interest rates decline causing the value of fixed income securities,
including municipal securities, to decline. Changes in interest rates will
affect the value of longer-term securities more than shorter-term
securities.
o An issuer of a security held by the Fund defaults or otherwise is unable to
pay interest or principal due causing a potential loss in the security's
value or yield.
o Economic or political factors in Maine adversely affect issuers of Maine
municipal securities. Adverse economic or political factors will affect the
Fund's net asset value more than if the Fund invested in more
geographically diverse investments. As a result, the value of the Fund's
8
<PAGE>
assets may fluctuate more widely than the value of shares of a fund
investing in securities relating to a number of different states.
YEAR 2000 Certain computer systems may not process date-related information
properly on and after January 1, 2000. The Fund's Adviser is addressing this
matter for its systems. The Fund's other service providers have informed the
Fund that they are taking similar measures. This matter, if not corrected, could
adversely affect the services provided to the Fund or the companies in which the
Fund invests and, therefore, could lower the value of your shares.
TEMPORARY DEFENSIVE MEASURES The Fund may invest up to 20% of its net assets in
cash or cash equivalents such as high quality money market instruments pending
investment and to retain flexibility in meeting redemptions and paying
expenses. In addition, in order to respond to adverse market, economic, or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in these instruments. As a result, the Fund may be unable to
achieve its investment objective.
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company ( a mutual fund). The business of the Trust and of the Fund
is managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices, and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the SAI.
THE ADVISER
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. For its services, the Adviser is entitled to receives an
advisory fee at an annual rate of 0.40% of the average daily net assets of the
Fund.
Forum Investment Advisors, LLC, Two Portland Square, Portland, Maine 04101,
serves as investment adviser to the Fund. The Adviser is a privately owned
company controlled by John Y. Keffer, who is Chairman of the Board. As of the
date of this Prospectus, the Adviser has approximately [$____] billion of assets
under management.
PORTFOLIO MANAGER
LES C. BERTHY, Senior Portfolio Manager of the Adviser, has been primarily
responsible for the day-to-day management of the Fund since its inception. Mr.
Berthy has over [Number] years of experience in the investment industry and
prior to his association with the Adviser in [Month], 1990, Mr. Berethy was
Managing Director and Co-Chief Executive Officer of Irwin Union Capital Corp.,
an affiliate of Irwin Union Bank & Trust Co.
9
<PAGE>
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide services to the Fund.
As of the date of this Prospectus, 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 Fund's shares. The distributor acts as the agent of the
Trust in connection with the offering of the Fund's 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 Fund's shares.
Forum Administrative Services, LLC (the "Administrator) provides administrative
services to the Fund, Forum Accounting Services, LLC (the "Accountant") is the
Fund's accountant, and Forum Shareholder Services, LLC ("Transfer Agent") is the
Fund's transfer agent.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of
expenses attributable to the Fund as well as expenses not attributable to any
particular series of the Trust that are allocated among the various series. The
Adviser or other service providers may voluntarily waive all or any portion of
their fees and assume certain expenses of the Fund. Any waiver or expense
reimbursement would have the effect of increasing the Fund's performance for the
period during which the waiver was in effect and may not be recouped at a later
date.
The Administrator, the Fund Accountant and the Transfer Agent have undertaken to
waive a portion of their fees and/or assumed certain expenses in order to limit
the Fund's expenses (excluding taxes, interest, portfolio transaction expenses
and extraordinary expenses) to 0.60% less of the average daily net assets of the
Fund. Fee waivers and expense reimbursements are voluntary and may be reduced or
eliminated at any time.
10
<PAGE>
YOUR ACCOUNT
[Margin call out: HOW TO CONTACT THE FUND
Write to us at:
Forum Funds
P.O. Box 446
Two Portland Square
Portland, Maine 04112
Telephone us at:
(800) 94FORUM or (800) 943-6786 (Toll Free)
(207) 879-0001
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033 For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: Maine Municipal Bond 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 may purchase or sell (redeem) shares at the public offering price next
calculated after your transaction request is received in proper form by the
Transfer Agent. The public offering price is the net asset value of a share (or
NAV) plus any applicable sales load (or minus any applicable sales load in the
case of redemptions). For instance, if the transfer agent receives your purchase
request in proper form after 4:00 p.m., your transaction will be priced at the
time of the next business day's NAV. The Fund cannot accept orders that request
a particular day or price for the transaction or any other special conditions.
The Fund does not issue share certificates.
If you purchase shares directly from the 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 Fund reserves the right to waive minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
11
<PAGE>
WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
that the New York Stock Exchange is open. The time at which NAV is calculated
may change in case of an emergency or if the Exchange closes early. The Fund's
NAV is determined by taking the market value of all securities owned by the Fund
(plus all other assets such as cash), subtracting liabilities and then dividing
the result (net assets) by the number of shares outstanding. The Fund values
securities for which market quotations are readily available at current market
value. If market quotations are not readily available, the Fund values
securities at 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 Fund. 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 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.
CHECK 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.
WIRE Instruct your financial institution to make a Federal
Funds wire payment to us. Your financial institution may
charge you a fee for this service.
12
<PAGE>
MINIMUM INVESTMENTS The Fund accepts investments in the following
minimum amounts:
<TABLE>
<S> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
Standard Account $2,000 $250
-------------------------------------- ------------------------- --------------------------
Accounts With Automatic Investment - $250
Plans
-------------------------------------- ------------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT REQUIREMENTS
<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, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
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 money to a custodial account under the Uniform Gift to Minors
child. An individual can give up to $10,000 a year per Act or the Uniform Transfers to Minors Act.
child without paying Federal gift tax. o The trustee must sign instructions in a manner
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>
13
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PROCEDURES
<S> <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 assign 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 the 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 $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts 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 expenses incurred by the
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account in any Fund) as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase or exchange due to nonpayment.
14
<PAGE>
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")
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
15
<PAGE>
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 Fund 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),
the Fund may ask you to increase your balance. If the account value remains
below $1,000 ($500 for IRAs) after 60 days, the Fund may close your account and
send you the proceeds. The 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 Fund reserves the right to make a redemption in kind.
The 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 the Fund's operations (for
example, if it represents more than 1% of the Fund's assets).
16
<PAGE>
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.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of shares as follows:
<TABLE>
<CAPTION>
SALES CHARGE (LOAD)
AS % OF
-------------------------------
<S> <C> <C> <C>
PUBLIC
OFFERING PRICE NET ASSET REALLOWANCE
AMOUNT OF PURCHASE -------------- VALUE* -----------
------------------ ------
$0-$99,999 3.00 3.09 2.50
$100,000 to $249,999 2.50 2.56 2.00
$250,000 to $499,999 2.00 2.04 1.60
$500,000 to $999,999 1.50 1.52 1.20
$1,000,000 and up 0.00 0.00 1.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The commission paid to the distributor is the sales charge less the Reallowance
paid to certain financial institutions purchasing shares as principal or agent.
Normally, reallownances are paid as indicated in th e above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
REDEMPTIONS A contingent deferred sales charge is assessed on redemptions of
shares that were part of a purchase of $1 million or more. The sales charge is
assessed as follows: (1) 1.00% of the amount redeemed of the shares are redeemed
after one year, but within two years of their purchase. The charge is paid on
the lower of the value of shares redeemed or the cost of the shares.
17
<PAGE>
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. If you qualify for
RIGHTS OF ACCUMULATION ("ROA"), the sales charge you pay is based on the total
of your current purchase and the net asset value (at the end of the previous
Fund Business Day) of shares that you already hold. To qualify for ROA on a
purchase, you must inform the transfer agent and supply sufficient information
to verify that each purchase qualifies for the privilege or discount. You may
also enter into a written Letter of Intent ("LOI"), which expresses your intent
to invest $100,000 or more in a Fund within a period of 13 months. Each purchase
of shares under a LOI will be made at the public offering price applicable at
the time of the purchase to a single transaction of the dollar amount indicated
in the LOI. You are not bound by an LOI.
ELIMINATION OF SALES CHARGES No sales charge is assessed on the reinvestment of
Fund distributions. No sales charge is assessed on purchases made for investment
purposes by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any registered investment adviser which is acting on behalf of its
fiduciary customer accounts and for which it provides additional investment
advisory services
o any broker-dealer with whom the distributor has entered into a Processing
Organization Agreement and a Fee-Based or Wrap Account Agreement and which
is acting on behalf of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or simlar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the
benefit of any such person or relative; or the estate of any such person or
relative
o any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment
o persons who exchange into a Fund from a mutual fund other than a fund of
the Trust that participates in the Trust's exchange program, (see "Exchange
Privileges" below) and
o employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
18
<PAGE>
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. 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 Fund reserves 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
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
- --------------------------------------------------------------------------------
19
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income monthly. Any net capital gain
realized by the Fund is distributed 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
The Fund intends to operate in a manner such that it will not be liable for
Federal income or excise tax.
Distributions of net income or short-term capital gains are taxable to you as
ordinary income. Distributions of long-term capital gains are taxable to you as
long-term capital gain.
The sale of exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
Generally, you will not be subject to Federal and Maine state income tax on
tax-exempt net income (including short-term capital gains) paid by the Fund. Net
income paid out of the Fund's taxable net income will be taxable to you as
ordinary income. It is anticipated that substantially all of the Fund's net
income will be exempt from Federal and Maine state income tax.
If you are a financial institution, any tax-exempt net income received from the
Fund is subject to Maine franchise tax.
If you are a "substantial user" or a "related person" of a substantial user of
facilities financed by private activity bonds held by the Fund, you may have to
pay Federal income tax on your pro rata share of the net income generated from
these securities. Individuals and corporations, however, do not have to pay
Federal AMT on certain private activity bonds. Net income from tax-exempt
obligations is included in the "adjusted current earnings" of corporations for
Federal AMT purposes. The Maine AMT is based, in part, on the Federal AMT
income.
Distributions of capital gain reduce the net asset value of a the Funds' shares
by the amount of the distribution. If you buy shares just before a Fund deducts
a capital gain 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. Distributions may, however, be subject to certain state and local
taxes.
20
<PAGE>
The Fund will mail reports to you containing information about the Fund's
distributions during the year after December 31 of each year.
Consult your tax adviser about federal, state and local tax consequences for
your particular circumstances.
ORGANIZATION
The Trust is a Delaware business trust. The Fund is one of several 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 the Fund or the Trust.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understanding the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by [Name of Independent
Auditor], whose report, along with the Fund's financial statements, are included
in the Annual Report which is available upon request, without charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ------------ ------------ ----------
Beginning Net Asset Value Per Share $11.05 $10.73 $10.72 $10.47 $10.37
----------- ----------- ------------ ------------ ----------
Income from Investment Operations:
Net Investment Income 0.49 0.51 0.51 0.51 0.52
Net Realized and Unrealized Gain on
Investments 0.07 0.33 0.01 0.25 0.11
----------- ----------- ------------ ------------ ----------
Total from Investment Operations 0.56 0.84 0.52 0.76 0.63
----------- ----------- ------------ ------------ ----------
Less Distributions:
From Net Investment Income (0.49) (0.51) (0.51) (0.51) (0.52)
From Net Realized Gain (0.05) (0.01) _ _ (0.01)
----------- ----------- ------------ ------------ ----------
Total Distributions (0.54) (0.52) (0.51) (0.51) (0.53)
----------- ----------- ------------ ------------ ----------
Ending Net Asset Value $11.07 $11.05 $10.73 $10.72 $10.47
=========== =========== ============ ============ ==========
Ratios to Average Net Assets:
Expenses 0.60% 0.60% 0.60% 0.60% 0.50%
Expenses (gross)(a) 1.32% 1.48% 1.56% 1.48% 1.40%
Net Investment Income (Loss) Including
Reimbursement/Waiver 4.42% 4.65% 4.77% 4.73% 5.08%
Total Return(b) 5.19% 7.94% 4.98% 7.34% 6.31%
Portfolio Turnover Rate 28.61% 16.34% 21.18% 34.07% 31.55%
Net Assets at End of Period
(000's omitted) $32,659 $28,196 $25,827 $26,044 $25,525
</TABLE>
(a) Reflects expense ration in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
MAINE MUNICIPAL BOND FUND
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual
reports to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during their last fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Fund and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI, request other information and discuss
your questions about the Fund by contacting the Fund at:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
800-94FORUM or 800-943-6786
207-879-0001
You can also review the Fund's SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies, for a
fee, by writing to or calling the following:
Public Reference Room
Securities and Exchange Commission Forum Funds
Washington, D.C. 20549-6009 P.O. Box 446
Telephone: 800-SEC-0330 Two Portland Square
Portland, Maine 04112
Free copies are available from the SEC's Internet website at 800-943-6786
http://www.sec.gov. 800-94FORUM
207-879-0001
Investment Company Act File No. 811-3023.
</TABLE>
<PAGE>
LOGO
PROSPECTUS
AUGUST 1, 1999
NEW HAMPSHIRE BOND FUND
The Fund seeks to provide a high level of current income exempt from both
Federal income tax and New Hampshire interest and dividends tax (other
than the alternative minimum tax) by investing primarily invests in a
non-diversified portfolio of investment-grade
New Hampshire municipal securities.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY...........................................
PERFORMANCE...................................................
FEE TABLES....................................................
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS....................
MANAGEMENT....................................................
YOUR ACCOUNT..................................................
How to Contact the Fund
General Information
Buying Shares
Selling Shares
Sales Charges
Exchange Privileges
Retirement Accounts
OTHER INFORMATION.............................................
FINANCIAL HIGHLIGHTS..........................................
2
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
High current income exempt from Federal income tax and New Hampshire interest
and dividend tax (other than the alternative minimum tax ("AMT")).
PRINCIPAL INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
DEBT OR FIXED INCOME SECURITY is a security such as a bond or note that
obligates the issuer to pay the security owner a specified sum of money
(i.e. interest) at set intervals as well as repay the principal amount
of the security at its maturity.
BOND is a debt security with a long term maturity of usually 5 years or
longer
MUNICIPAL SECURITY means a debt securities issued by or on behalf of
the State of New Hampshire, its local governments and public finance
authorities and U.S. territories and possessions, the interest on which
is exempt from Federal income tax.
INVESTMENT GRADE SECURITY means a debt security rated in one of the
four highest long-term or two highest short-term ratings categories by
an NRSRO or unrated and determined to be of comparable quality.
NRSRO means a "nationally recognized statistical rating organization",
such as Standard & Poorsthat rates fixed-income securities and
preferred stock by relative credit risk.
The Fund primarily invests in a portfolio of investment grade New Hampshire
municipal securities that has an average weighted maturity of between 5 and
15years.
PRINCIPAL RISKS OF INVESTING IN THE FUND
You could lose money on your investment in the Fund or the Fund could
underperform other investments. An investment in the Fund is not a deposit of
any bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. The principal risks of an investment
in the Fund include the following:
o The Fund's share price, yield and total return will fluctuate in
response to price movements in the fixed income securities markets.
o The value of most fixed income securities fall when interest rates
rise; the longer a security's maturity and the lower its credit
quality, the more its value typically falls.
3
<PAGE>
o The Fund will not collect interest and principal payments on a debt
security if the issuer defaults.
o The Fund is non-diversified. The Fund may invest a greater percentage
of its assets in the securities of fewer issuers. Concentration of a
Fund in securities of a limited number of issuers exposes it to
greater market risk and monetary losses than if its assets were
diversified among the securities of a greater number of issuers.
o Economic and political changes in New Hampshire may have a greater
effect on the Fund than if it invested in municipal securities of
various states.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Seek income and more price stability than stocks. Seek capital
preservation.
o Are pursuing a long-term goal.
o Are willing to accept higher short-term risk.
o Are an income-oriented investor in a high tax bracket and require
tax-exempt income.
o Do not require the higher yields normally associated with
non-tax-exempt securities.
The Fund may NOT be appropriate for you if you:
o Want an investment that pursues market trends and focuses on
particular sectors or industries.
o Are pursuing a short-term goal or are investing emergency reserves.
o Are investing funds in a tax deferred or tax-exempt account (such as
an IRA).
o Do not require tax-exempt income.
PERFORMANCE
The return information in the tables provides some indication of the risks of
investing in the Fund by showing the Fund's performance from year to year and by
showing how the Fund's average annual returns for 1, 5, and 10 years (or for the
life of the Fund if shorter) compare to a broad measure of market performance..
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
The following chart shows the annual total returns for each full calendar year
that the Fund has operated. Sales charges are not reflected in the chart and if
reflected, the returns would be less than shown.
4
<PAGE>
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendar Year Average Annual Total Return
- ------------- ---------------------------
1993 11.86%
1994 -4.59%
1995 14.76%
1996 3.59%
1997 7.63%
1998 6.13%
The year-to-date total return as of June 30, 1999 was _____%.
During the periods shown in the chart, the highest quarterly return was 5.76%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
- -5.10% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Lehman 10-Year Municipal Bond Index.
<TABLE>
<S> <C> <C>
LEHMAN 10-YEAR MUNICIPAL BOND
YEAR(S) NEW HAMPSHIRE BOND FUND INDEX
1 Year 6.13% 6.76%
5 Years 5.31% 6.63%
10 Years N/A N/A
</TABLE>
The Lehman 10-Year Municipal Bond Index is a is a market index of investment
grade municipal fixed-rate debt securities with an average maturity of 10 years.
The Index is unmanaged and reflects the reinvestment of interest and principal
payments. Unlike the performance figures of the Fund, the Index's performance
does not reflect the effect of expenses.
5
<PAGE>
FEE TABLES
The following tables describe the various gross fees and expenses that you will
pay if you invest in the Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a 3.00%
percentage of the offering price)
Maximum Deferred Sales Charge (Load) 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
(1) IRA accounts pay an annual $10 maintenance fee.
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (1) (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management fees 0.40%
Distribution (12b-1) fees None
Other expenses(2) 1.13%
Total annual fund operating expenses 1.53% (2)
(1) Based on amounts incurred during the Fund's fiscal year ended
March 31, 1999 stated as a percentage of assets.
(2) Some of the Fund's service providers have voluntarily waived a
portion of their fees and/or assumed certain expenses of the Fund
so that total annual fund expenses actually were 0.60%. Fee
waivers and expense reimbursements may be reduced or eliminated
at any time.
</TABLE>
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in a Fund, you pay the maximum sales
charge 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 that distributions are reinvested. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
6
<PAGE>
----------------- ------------- ------------- --------------
AFTER 1 YEAR AFTER 3 AFTER 5 AFTER 10
YEARS YEARS YEARS
----------------- ------------- ------------- --------------
$402 $721 $1,063 $2,028
----------------- ------------- ------------- --------------
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The Fund seeksa high level of current income exempt from both Federal income tax
and New Hampshire interest and dividends taxes (other than AMT).
INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
MATURITY means the date on which a debt security is ( or may be) due or
payable.
DURATION means a security's average life that reflects the present
value of the security's cash flow. Generally, the volatility of a
security's price increases with an increase in duration.
GENERAL OBLIGATION SECURITY means a bond whose principal and interest
payments is secured by a municipality's full faith and credit and
taxing power.
PRIVATE ACTIVITY SECURITY means a bond that isissued by or on behalf of
public authorities to finance privately operated facilities. Private
Activity Bonds are primarily revenue bonds.
REVENUE SECURITY means a debt security generally payable from revenues
of a particular facility, class of facilities or, in some cases, from
the proceeds of a special excise or other tax.
The Fund invests primarily in a non-diversified portfolio of investment grade
municipal securities issued by the state of New Hampshire The Fund may also
invest in municipal securities issued by Puerto Rico, other United States
territories or possessions and their subdivisions, authorities and corporations.
The Fund will invest at least 80% of its total assets in municipal securities,
the interest of which is exempt from Federal income tax and New Hampshire State
interest and dividends tax (other than AMT). Municipal securities include
municipal bonds, notes and leases. The Fund invests in general obligation
securities and revenue securities which include private activity bonds. The Fund
may invest more than 25% of its assets in private activity securities. Municipal
notes generally have original maturities of 397 days or less. Municipal leases
permit government issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of long-term debt.
7
<PAGE>
INFORMATION CONCERNING THE STATE OF NEW HAMPSHIRE The major NRSROs have rated
recent New Hampshire general obligation or state-guaranteed bond issues as
follows: Moody's - Aa2 (refined from Aa in June 1997); S&P - AA+ (stable)
(revised from AA in November, 1995); Fitch - AA+ (revised from AA in November
1995). S&P's rating revision cited sustained employment recovery, improved
financial position, low debt burden and high wealth indicators. Fitch noted
conservative debt and financial policies underpinning the State's credit
position, strengthened by economic buoyancy. A recent bond issue by the New
Hampshire Municipal Bond Bank without State guarantee has been separately rated
A1 by Moody's (stable) and A+ by S&P (stable). Bond ratings of individual
municipalities in New Hampshire vary in accordance with rating agencies'
estimates of the issuer's relative financial strength and ability to support
debt service. There can be no assurance that New Hampshire general obligations
or any New Hampshire municipal securities owned by the Fund will be rated in any
category or will not be downgraded by an NRSRO.
THE ADVISER'S PROCESS The Adviser sets, and continually adjusts, a duration
target for the Fund based upon expectations about the direction of interest
rates and other economic factors. The Adviser then buys and sells securities to
achieve the greatest relative return.
8
<PAGE>
INVESTMENT RISKS
GENERALLY There is no assurance that the Fund will achieve its investment goal.
The Fund's net asset value and investment performance will flucuate based upon
changes in the value of its portfolio securities. An investment in the Fund is
not by itself a complete or balanced investment program.
SPECIFIC RISKS You may lose money in the Fund if any of the following occur:
o Interest rates decline causing the value of fixed income securities,
including New Hampshire municipal securities, to decline. Changes in
interest rates will affect the value of longer-term securities more than
shorter-term securities.
o An issuer of a security held by the Fund defaults or otherwise is unable to
pay interest or principal due, causing a potential loss in the security's
value or yield.
o Economic or political factors in New Hampshire adversely affect issuers of
New Hampshire municipal securities. Adverse economic or political factors
will affect the Fund's net asset value more than if the Fund invested in
more geographically diverse investments. As a result, the value of the
Fund's assets may fluctuate more widely than the value of shares of a fund
investing in securities relating to a number of different states.
YEAR 2000 Certain computer systems may not process date-related information
properly on and after January 1, 2000. The Adviser is addressing this matter for
its systems. The Fund's other service providers have informed the Fund that they
are taking similar measures. This matter, if not corrected, could adversely
affect the services provided to the Fund or the companies in which the Fund
invests and, therefore, could lower the value of your shares.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic, or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and cash equivalents such as high quality money market
instruments. As a result, the Fund may be unable to achieve its investment
objective.
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (a mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices, and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
9
<PAGE>
THE ADVISER
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. For its services, the Adviser is entitled to receive an
advisory fee at an annual rate of 0.40% of the average daily net assets of the
Fund.
Forum Investment Advisors, LLC, Two Portland Square, Portland, Maine 04101,
serves as investment adviser to the Fund. The Adviser is a privately owned
company controlled by John Y. Keffer, who is Chairman of the Board. As of the
date of this Prospectus, the Adviser has approximately [$____] billion of assets
under management.
PORTFOLIO MANAGERS
LES C. BERTHY, Senior Portfolio Manager of the Adviser, has been primarily
responsible for the day-to-day management of the Fund's portfolio since its
inception. Mr. Berthy has over __ years of experience in the investment industry
and prior to his association with the Adviser in [Month] 1990 , Mr. Berthy was
Managing Director and Co-Chief Executive Officer of Irwin Union Capital Corp.,
an affiliate of Irwin Union Bank & Trust Co.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide services to the Fund.
As of the date of this Prospectus, 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 Fund's shares. The distributor acts as the agent of the
Trust in connection with the offering of the Fund's 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 Fund's shares.
Forum Administrative Services, LLC (the "Administrator") provides administrative
services to the Fund, Forum Accounting Services, LLC (the "Accountant") is the
Fund's accountant and Forum Shareholder Services, LLC ("Transfer Agent") is the
Fund's transfer agent.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of
expenses attributable to the Fund as well as expenses not attributable to any
particular series of the Trust that are allocated among the various series. The
Adviser or other service providers may voluntarily waive all or any portion of
their fees and/or assume certain expenses of the Fund.
10
<PAGE>
Any waiver would have the effect of increasing the Fund's performance for the
period during which the waiver was in effect and may not be recouped at a later
date.
The Administrator, the Transfer Agent and the Fund Accountant have undertaken to
waive a portion of their fees in order to limit the Fund's expenses (excluding
taxes, interest, portfolio transaction expenses and extraordinary expenses) to
0.60% or less of the average daily net assets of the Fund. Fee waivers are
voluntary and may be reduced or eliminated at any time.
YOUR ACCOUNT
[Margin call out: HOW TO CONTACT THE FUND
Write to us at:
Forum Shareholder Services, LLC
P.O. Box 466
Two Portland Square
Portland, Maine 04112
Telephone us at:
(800) 94FORUM or (800) 943-6786 (Toll Free)
(207) 879-0001
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033 For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: New Hampshire Bond 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 may purchase or sell (redeem) shares at the public offering price next
calculated after your transaction request is received in proper form by the
Transfer Agent. The public offering price is the net asset value of a share (or
NAV) plus any applicable sales load (or minus any applicable sales load in the
case of redemptions. For instance, if the Transfer Agent receives your purchase
request in proper form after 4:00 p.m., your transaction will be priced at the
time of the next business day's NAV. The Fund cannot accept orders that request
a particular day or price for the transaction or any other special conditions.
11
<PAGE>
The Fund does not issue share certificates.
If you purchase shares directly from the Fund, you will receive
monthlystatements 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 Fund reserves 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 The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
that the New York Stock Exchange is open. The time at which NAV is calculated
may change in case of an emergency or if the Exchange closes early. The Fund's
NAV is determined by taking the market value of all securities owned by the Fund
(plus all other assets such as cash), subtracting liabilities and then dividing
the result (net assets) by the number of shares outstanding. The Fund values
securities for which market quotations are readily available at current market
value. If market quotations are not readily available, the Fund values
securities at fair value.
TRANSACTIONS THROUGH THIRD PARTIES When you invest through your adviser, a
broker or other financial intermediary, the policies and fees (other than sales
charges) charged by that institution may be different than those of the Fund.
For instance, a financial intermediary may charge transaction fees and may set
different minimum investments or limitations on buying or selling shares. Your
institution may also provide you with certain shareholder services such as
periodic account statements summarizing your investment activity and trade
confirmations. Consult a representative of your financial institution 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.
CHECK 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.
WIRE Instruct your financial institution to make a Federal Funds wire
payment to us. Your financial institution may charge you a fee for this
service.
12
<PAGE>
MINIMUM INVESTMENTS The Fund accepts investments in the following minimum
amounts:
<TABLE>
<S> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
Standard Account $2,000 $250
-------------------------------------- ------------------------- --------------------------
Accounts With Automatic Investment - $250
Plans
-------------------------------------- ------------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT REQUIREMENTS
<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, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts the account
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 money to a custodial account under the Uniform Gift to Minors
child. An individual can give up to $10,000 a year per Act or the Uniform Transfers to Minors Act.
child without paying Federal gift tax. o The trustee must sign instructions in a manner
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>
13
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PROCEDURES
<S> <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 assign 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 the 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 $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts 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 expenses incurred by the
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account in any Fund) as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase or exchange due to nonpayment.
14
<PAGE>
SELLING SHARES
The Fund processes redemption orders 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")
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
15
<PAGE>
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 Fund 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),
the Fund may ask you to increase your balance. If the account value remains
below $1,000 ($500 for IRAs) after 60 days, the Fund may close your account and
send you the proceeds. The 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 Fund reserves the right to make a redemption in kind.
The 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 the Fund's operations (for
example, if it represents more than 1% of the Fund's assets).
16
<PAGE>
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.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of shares as follows:
<TABLE>
SALES CHARGE (LOAD)
AS % OF
<S> <C> <C> <C>
PUBLIC NET ASSET
OFFERING PRICE VALUE* REALLOWANCE
AMOUNT OF PURCHASE
$0-$99,999 3.00 3.09 2.50
$100,000 to $249,999 2.50 2.56 2.00
$250,000 to $499,999 2.00 2.04 2.10
$500,000 to $999,999 1.50 1.52 1.60
$1,000,000 and up 0.00 0.00 1.20
</TABLE>
*Rounded to the nearest one-hundredth percent.
The commission paid to the distributor is the sales charge less the Reallowance
paid to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
REDEMPTIONS A contingent deferred sales charge is assessed on redemptions of
shares that were part of a purchase of $1 million or more. The sales charge is
assessed as follows; (1) 1.00% of the amount redeemed or the shares are redeemed
after one year, but within two years of their purchase. The charge is paid on
the lower of the value of shares redeemed or the cost of the shares.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. If you qualify for
17
<PAGE>
RIGHTS OF ACCUMULATION ("ROA"), the sales charge you pay is based on the total
of your current purchase and the net asset value (at the end of the previous
Fund Business Day) of shares that you already hold. To qualify for ROA on a
purchase, you must inform the transfer agent and supply sufficient information
to verify that each purchase qualifies for the privilege or discount. You may
also enter into a written Letter of Intent ("LOI"), which expresses your intent
to invest $100,000 or more in a Fund within a period of 13 months. Each purchase
of shares under a LOI will be made at the public offering price applicable at
the time of the purchase to a single transaction of the dollar amount indicated
in the LOI. You are not bound by an LOI.
ELIMINATION OF SALES CHARGES No sales charge is assessed on the reinvestment of
Fund distributions. No sales charge is assessed on purchases made for investment
purposes by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any registered investment adviser which is acting on behalf of its
fiduciary customer accounts and for which it provides additional investment
advisory services
o any broker-dealer with whom the distributor has entered into a Processing
Organization Agreement and a Fee-Based or Wrap Account Agreement and which
is acting on behalf of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or similar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the
benefit of any such person or relative; or the estate of any such person or
relative
o any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment
o persons who exchange into a Fund from a mutual fund other than a fund of
the Trust that participates in the Trust's exchange program, (see
"Exchange Privileges" below) and
o employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another fund of the Trust by
telephone or in
18
<PAGE>
writing. For a list of funds available for exchange, you may call the Transfer
Agent. Because exchanges are 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 Fund reserves 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 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
- --------------------------------------------------------------------------------
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income monthly. Any net capital gain
realized by the Fund is distributed 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.
19
<PAGE>
TAXES
The Fund intends to operate in a manner such that it will not be liable for
Federal income or excise tax.
Distributions of net income or short-term capital gains are taxable to you as
ordinary income. Distributions of long-term capital gains are taxable to you as
long-term capital gain.
Generally, you will not be subject to Federal income tax and New Hampshire state
interest and dividends tax on tax-exempt net income (including short-term
capital gains) by the Fund. Net income out of the Fund's taxable net income will
be taxable to you as ordinary income. It is anticipated that substantially all
of the Fund's net income will be exempt from Federal income tax and New
Hampshire state interest and dividends tax (other than AMT).
If you are a (1) New Hampshire resident, (2) a partnership, limited liability
company, association or trust whose beneficial interest is not transferable, or
(3) a fiduciary deriving your appointment from a New Hampshire court,, you will
generally not be subject to the New Hampshire interest and dividends or business
profits tax on net income paid by the Fund, provided that the Fund invests
solely in New Hampshire tax-exempt municipal securities or United States
government obligations. If the Fund invests in any other form of investment,
then the entire amount of all of the Fund's net income (including short-term
capital gains) will be subject to the interest and dividends tax. Special
interest and dividends tax rules apply to net income received by trusts,
estates, partnerships, limited liability companies, and "S" corporations and
their beneficiaries or owners, if all or some of its beneficiaries or owners are
not New Hampshire residents.
If you are a partnership, limited liability company, association, or trust
having a transferable beneficial interest, you are not subject to the New
Hampshire interest and dividend tax. However, if you are engaged in business
activity in New Hampshire, you must pay the New Hampshire business profits tax
on all income (except income earned on U.S. Government Securities) earned by it
in New Hampshire, including net income paid by the Fund.
Distributions of capital gain reduce the net asset value of a the Funds' shares
by the amount of the distribution. If you buy shares just before a Fund deducts
a capital gain 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.
You may incur a capital gain or loss when you sell your shares. The amount of
this gain or loss is calculated based on the amount paid for the shares and the
value of the shares upon redemption.
The Fund will send you information about the income tax status of distributions
paid during the year after the close of the year.
20
<PAGE>
For further information about the tax effects of investing in the Fund, please
see the SAI and consult your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund is one of several 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 the Fund or the Trust.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by [Name of Independent
Auditor]. The Fund's financial statements and the auditor's report are included
in the Annual Report which is available upon request, without charge.
<TABLE>
<CAPTION>
NEW HAMPSHIRE BOND FUND
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ----------- ----------- ----------- -----------
Beginning Net Asset Value Per Share $10.73 $10.31 $10.33 $10.08 $9.96
---------- ----------- ----------- ----------- -----------
Income from Investment Operations:
Net Investment Income 0.46 0.47 0.48 0.48 0.49
Net Realized and Unrealized Gain loss on
Investments 0.13 0.43 (0.02) 0.25 0.12
---------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.59 0.90 0.46 0.73 0.61
---------- ----------- ----------- ----------- -----------
Less Distributions:
From Net Investment Income (0.46) (0.48) (0.48) (0.48) (0.49)
From Net Realized Capital Gain (0.06) _ _ _ _
---------- ----------- ----------- ----------- -----------
Total Distributions (0.52) (0.48) (0.48) (0.48) (0.49)
---------- ----------- ----------- ----------- -----------
Ending Net Asset Value $10.80 $10.73 $10.31 $10.33 $10.08
========== =========== =========== =========== ===========
Ratios to Average Net Assets:
Expenses 0.60% 0.60% 0.60% 0.60% 0.46%
Expenses (gross) (a) 1.53% 1.81% 2.22% 2.26% 2.19%
Net Investment Income Including
Reimbursement/Waiver 4.28% 4.45% 4.65% 4.65% 4.95%
Total Return(b) 5.61% 8.84% 4.56% 7.36% 6.32%
Portfolio Turnover Rate 41.74% 22.99% 53.46% 34.31% 37.59%
Net Assets at End of Period (000's omitted) $15,227 $12,908 $8,691 $6,903 $5,276
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
22
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS NEW HAMPSHIRE BOND FUND
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual
reports to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during their last fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Fund and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI, request other information and discuss
your questions about the Fund by contacting the Fund at:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
800-94FORUM or 800-943-6786
207-879-0001
You can also review the Fund's SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies, for a
fee, by writing to or calling the following: Forum Funds
P.O. Box 446
Public Reference Room Two Portland Square
Securities and Exchange Commission Portland, Maine 04112
Washington, D.C. 20549-6009 (800) 943-6786
Telephone: 800-SEC-0330 (800) 94FORUM
(207) 879-0001
Free copies are available from the Commission's Internet
website at http://www.sec.gov.
Investment Company Act File No. 811-3023.
</TABLE>
<PAGE>
LOGO
PROSPECTUS
AUGUST 1, 1999
PAYSON VALUE FUND
PAYSON BALANCED FUND
Payson Value Fund seeks to provide high total return (capital appreciation and
current income) by investing primarily in a portfolio of common stock and
convertible securities of domestic companies.
Payson Balanced Fund seeks to provide high current income and capital
appreciation by investing in common stock and investment grade debt securities
of domestic companies and debt securities.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED EITHER
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY......................................
PERFORMANCE..............................................
FEE TABLES...............................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..............
MANAGEMENT...............................................
YOUR ACCOUNT.............................................
How to Contact the Funds
General Information
Buying Shares
Selling Shares
Sales Charges
Exchange Privileges
Retirement Accounts
OTHER INFORMATION........................................
FINANCIAL HIGHLIGHTS.....................................
2
<PAGE>
RISK/RETURN SUMMARY
PAYSON VALUE FUND
[Margin callout: CONCEPTS TO UNDERSTAND
COMMON STOCK means an equity or ownership interest in a company.
GROWTH COMPANY means stock of a company that has exhibited faster than
average gains in earnings over the past few years and are expected to
continue to show high levels of profit growth in the future.
VALUE COMPANY means stock of a company whose price is low relative to
comparable companies.]
CONVERTIBLE SECURITY means a security such as a preferred stock or
bonds that may be converted into a specified number of shares of
common.
LARGE CAPITALIZATION COMPANY means a company that, in the Adviser's
opinion, has a market capitalization (i.e. the value of the company's
common stock in the stock market) in excess of $12 billion,
MEDIUM CAPITALIZATION COMPANY means a company that, in the opinion
of the Adviser, has a market capitalization in the range of $2
billion to $12 billion.]
INVESTMENT GOAL High total return.
PRINCIPAL INVESTMENT STRATEGY Using a value-oriented approach, Payson Value Fund
(a "Fund") primarily invests in common stock of large and medium capitalization
domestic companies, and other convertible securities.
PAYSON BALANCED FUND
[Margin callout: CONCEPTS TO UNDERSTAND
DEBT OR FIXED INCOME SECURITY means a security such as a bond or note
that obligates the issuer to pay the security owner a specified sum of
money (i.e. interest) at set intervals as well as to repay the
principal amount of the security at its maturity.
BOND means a debt security with a long term maturity of usually 5 years
or longer
NRSRO: A nationally recognized statistical rating organization, such as
S & P, that rates fixed-income securities and certain other securities
by relative credit risk.
INVESTMENT GOAL High current income and high total return.
3
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES Using a value-oriented approach, Payson Balanced
Fund (a "Fund") primarily invests in stock of large and medium capitalization
domestic companies, and other convertible securities. The Fund also invests in
investment grade debt securities.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
GENERAL RISKS
You could lose money on your investment in a Fund or a Fund could underperform
other investments. The principal risks of an investment in a Fund includes the
following:
o The stock or bond market goes down.
o Value stocks fall out of favor with the stock market
o The stock market continues to undervalue the stocks in the Funds'
portfolios.
o The judgement of the investment adviser of a Fund (the "Adviser") or
portfolio manager as to the underlying fundamentals and value of a
stock proves to be wrong.
RISKS OF DEBT SECURITIES:
Because investing Payson Balanced Fund invests in debt securities, the Fund may
have the following additional risks:
o The Fund's share price, yield and total return will fluctuate in
response to price movements in the fixed income securities markets.
o The value of most fixed income securities fall when interest rates
rise; the longer a maturity and the lower its credit quality, the more
its value typically falls.
o The Fund will not collect interest and principal payments on a debt
security if the issuer defaults.
o The Fund's investment in mortgage-backed and asset-backed securities
has prepayment risk. A decline in interest rates may result in losses
in these securities' values and a reduction in their yields as the
holders of the assets backing the securities may prepay their debts.
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
o Seek income and more price stability than stocks offer.
4
<PAGE>
An investment in Payson Balanced Fund may also be appropriate for you if you
seek income with a greater degree of price stability than that which is offered
through stock investments.
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
PERFORMANCE
The return information in the charts provide some indication of the risks of
investing in a Fund by showing the Funds' performance from year to year and by
showing how the Funds' average annual returns for 1, 5, and 10 years (or for the
life of the Fund if shorter) compare to a broad range of market performance.
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
PAYSON VALUE FUND
The following chart shows the annual total returns for each full calendar year
that shares of the Fund have operated. Sales charges are not reflected in the
bar chart and if reflected, the annual total returns would be less than shown.
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendar Year Average Annual Total Return
- ------------- ---------------------------
1993 19.38%
1994 -3.67%
1995 28.18%
1996 18.95%
1997 31.62%
1998 5.79%
The year-to-date total return as of June 30, 1999 was _____%.
During the periods shown in the chart, the highest quarterly return was 16.87%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -15.50% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S&P 500 Index.
5
<PAGE>
<TABLE>
<S> <C> <C>
YEAR(S) PAYSON VALUE FUND S&P 500 INDEX
1 Year (1998) 1.56% 28.58%
5 Years 14.44% 24.03%
10 Years N/A N/A
</TABLE>
The S&P 500(R) Index is the Standard & Poor's 500 Index, a widely recognized,
unmanaged index of common stock. The index figures assume reinvestment of all
dividends paid by stocks included in the index.
PAYSON BALANCED FUND
The following chart shows the annual total returns for each full calendar year
that shares of the Fund have operated. Sales charges are not reflected in the
bar chart and if reflected, the annual total returns would be less than shown.
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendar Year Average Annual Total Return
- ------------- ---------------------------
1993 15.97%
1994 -4.20%
1995 28.33%
1996 11.20%
1997 20.99%
1998 3.53%
The year-to-date total return as of June 30, 1999 was _____%.
During the periods shown in the chart, the highest quarterly return was 15.81%
(for the quarter ended December 31, 1998) and the lowest quarterly return
was-12.26% (for the quarter ended September 30, 1998).
6
<PAGE>
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the S& P 500 Index.
<TABLE>
<S> <C> <C>
YEAR(S) PAYSON BALANCED FUND S&P 500 INDEX
1 Year (1998) 3.53% 28.58%
5 Years 11.35% 24.03%
</TABLE>
The S&P 500(R) Index is the Standard & Poor's 500 Index, a widely recognized,
unmanaged index of common stock. The index figures assume reinvestment of all
dividends paid by stocks included in the index.
FEE TABLES
The following tables describe the various gross fees and expenses that you will
pay if you invest in a Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases 4.00%
Maximum Sales Charge (Load) Imposed on Reinvested
Distributions 1.00%
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
(1) IRA accounts pay an annual $10 maintenance fee.
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (1)(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
PAYSON VALUE FUND
Advisory fees 0.80%
Distribution (12b-1) fees None
Other expenses(2) 0.95%
Total annual fund operating expenses 1.75%(2)
PAYSON BALANCED FUND
Management fees 0.60%
Distribution (12b-1) fees None
Other expenses 0.89%
Total annual fund operating expenses 1.49%(2)
</TABLE>
(1) Based on amounts incurred during each Fund's fiscal year ended
March 31, 1999 stated as a percentage of assets.
7
<PAGE>
(2) The Adviser and some of the Funds' service providers have
voluntarily waived a portion of their fees so that total annual
fund expenses actually were 1.45% for Payson Value Fund and and
1.15% for Payson Balanced Fund. Fee waivers may be reduced or
eliminated at any time.
EXAMPLE
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, you pay the maximum sales
load, 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 that distributions are reinvested. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
------------------------ -----------------------
PAYSON VALUE FUND PAYSON BALANCED FUND
- ----------------------- ------------------------ -----------------------
- ----------------------- ------------------------ -----------------------
After 1 year $571 $546
- ----------------------- ------------------------ -----------------------
- ----------------------- ------------------------ -----------------------
After 3 years $929 $852
- ----------------------- ------------------------ -----------------------
- ----------------------- ------------------------ -----------------------
After 5 years $1,311 $1,181
- ----------------------- ------------------------ -----------------------
- ----------------------- ------------------------ -----------------------
After 10 years $2,380 $2,108
- ----------------------- ------------------------ -----------------------
8
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
PAYSON VALUE FUND seeks high total return (capital appreciation and current
income) by investing in a diversified portfolio of common stock and securities
convertible into common stock which appear undervalued in the market place.
PAYSON BALANCED FUND seeks a combination of high current income and capital
appreciation by investing in common stock and securities convertible into common
stock which appear to be undervalued and in investment-grade debt securities,
including U.S. Government, government agency and corporate obligations.
INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
AMERICAN DEPOSITARY RECEIPTS are receipts of shares of a foreign-based
corporation held in the vault of a U.S. Bank entitling the shareholder
to all dividends and capital gains.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed as
to principal and interest by the U.S. Government, its agencies, or
its instrumentalities.
FUNDAMENTAL ANALYSIS is the analysis of a company's financial condition
to forecast the future value of its stock price. This analysis includes
review of a company's balance sheet and income statement, asset
history, earnings history, product or service development, and
management productivity.
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.
PRICE/BOOK RATIO is the price of a stock divided by the company's book
value.
DIVIDEND YIELD IS the percentage rate of return paid on common or
preferred stock in dividends.]
PAYSON VALUE FUND invests at least 65% of its total assets in common stock and
convertible securities of medium and large capitalization companies which appear
undervalued in the market place. The Fund may on occasion also invest in smaller
companies whose market capitalization is less than $2 billion. The Fund may also
invest up to 20% of its total assets in the securities of foreign issuers and in
American Depositary Receipts ("ADRs").
9
<PAGE>
PAYSON BALANCED FUND invests at least 65% of its total assets in common stock
and convertible securities of medium and large capitalization companies. The
Fund may also invest in the following investment-grade debt securities:
o Debt securities rated in one of the three highest rating categories by a
nationally recognized statistical ratings organization or which are unrated
and determined to be of comparable quality
o U.S. Government Securities
o Mortgage-backed securities that are U.S. Government Securities or are rated
in the two highest rating categories by an NRSRO or are unrated and judged
by the Adviser to be of comparable quality at the time of purchase
o Commercial paper and other money market instruments rated in one of the two
highest short-term categories by an NRSRO or are unrated and judged by the
Adviser to be of comparable quality at the time of purchase
o Banker's acceptanced or negociable cerifiicated of deposit issued by
commercial banks doing business in the United States , and at the time of
investment, having total assets exceeding $1 billion dollars and that are
insured by the FDIC
o Convertible securities rated as investment-grade by an NRSRO or are unrated
and judged by the Adviser to be of comparable quality at the time of
purchase
The average maturity of the Fund's fixed income investments normally ranges from
short-term (overnight) to thirty years. The average dollar-weighted maturity of
the Fund's fixed-income investments normally ranges between five and fifteen
years.
THE ADVISER'S PROCESSES The Adviser maintains a long-term, equity-oriented
perspective, being much less concerned with investment performance on a
quarterly or shorter basis than with real, long-term growth of income.
Investment time horizon is the paramount determinant of long-term investment
strategy, and each Fund is considered to have a long-term time horizon.
The Adviser uses both a quantative and a fundamental approach to identify stocks
and bonds that are undervalued compared to their fundamentals. The Adviser first
conducts a fundamental analysis of prospective companies to determine their near
and long term financial prospects and then uses technical measurements,
including price/earnings ratios, price-book ratios, dividend yields, and
profitability.
The Adviser sets a price target for each investment, that is, the price at which
a stock or bond may be sold even though there has been no fundamental change in
the company or the company's prospects. The Adviser monitors the investments in
the Funds' portfolios to determine if there have been fundamental changes in the
company that prompted the initial purchase of its stock. The Adviser may sell a
stock or bond if:
o It subsequently fails to meet the Adviser's initial investment criteria
o A more attractively priced instrument is found or if funds are needed for
other purposes
10
<PAGE>
INVESTMENT RISKS
GENERALLY There is no assurance that the Funds will achieve their investment
goals. Each Fund's net asset value and investment performance will fluctuate
based upon changes in the value of its portfolio securities. An investment in a
Fund is not by itself a complete or balanced investment program. The market
value of securities in which the Fund invests is based upon the market's
perception of value and is not necessarily an objective measure of a security's
value.
SPECIFIC RISKS Because the Funds invests in value stocks, there is also the risk
that the market will not recognize the intrinsic value of the stocks. There is
also the risk that the Adviser's judgment as to the growth potential or value of
a stock may prove to be wrong. Finally, a decline in investor demand for the
stocks held by the Fund may also adversely affect the value of these securities.
An investment in Payson Balanced Fund is subject to additional risks due to its
ability to purchase debt securities. You investment in this Fund may decline in
value if any of the following occur:
o Interest rates decline causing the value of fixed-rate securities,
including U.S. Government Securities, to decline. Changes in
interest rates will affect the value of longer-term fixed income
securities more than shorter-term securities.
o An issuer of a security held by the Fund defaults or otherwise is
unable to pay interest or principal due causing a potential
losses in the security's value or yield. This risk is greater for
securities that are not investment grade.
o An issuer prepays its obligation under a security held by a Fund
as interest rates decline causing the Fund to invest in
securities with lower interest rates. Prepayment of mortgage- and
asset-backed securities due to interest rate declines may result
in a potential loss of that security's value or a decline in its
yield. Rising interest rates may reduce the number of prepayments
causing the average maturity of a Fund's investments to rise.
Longer-term securities are more sensitive to rising interest
rates and potential losses in value.
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.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic, or
other conditions, each Fund may assume a temporary defensive position and invest
without limit in cash and cash equivalents such as high quality money market
instruments. As a result, the Fund may be unable to achieve its investment
objective.
11
<PAGE>
MANAGEMENT
The Funds are two series of Forum Funds (the "Trust"), an open-end, management
investment company (a mutual fund). The business of the Trust and of 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 the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
THE ADVISER
Subject to the general control of the Board, the Adviser makes investment
decisions for the Funds. For its services, the Adviser is entitled to receive an
advisory fee at an annual rate of 0.80% of the average daily net assets of
Payson Value Fund and 0.65% of the average daily net assets of Payson Balanced
Fund.
H. M. Payson & Co., One Portland Square, P.O. Box 31, Portland, Maine 04112,
serves as investment adviser to each Fund. The Adviser was founded in 1854 and
was incorporated in Maine in 1987, making it one of the oldest investment firms
in the United States operating under its original name.
As of the date of this Prospectus, the Adviser has approximately $____ billion
of assets under management.
PORTFOLIO MANAGERS
JOHN C. KNOX, a Managing Director and Senior Research Analyst of the Adviser,
has been primarily responsibility for the day-to-day management of Payson Value
Fund's portfolio since July 10, 1995. Mr. Knox has over ___ years of experience
in the investment industry and has been associated with the Adviser since 1981.
Mr. Knox is a Chartered Financial Analyst.
PETER E. ROBBINS, a Managing Director and Director of Research of the Adviser,
has been primarily responsible for the day-to-day management of Payson Balanced
Fund since April 1, 1993. Mr. Knox has over ____ years of experience in the
investment industry and has been associated with the Adviser since 1982, except
for the period from January 1988 to October 1990. During that period Mr. Robbins
was president of Mariner Capital Group, a real estate development and
non-financial asset management business. Mr. Robbins is a Chartered Financial
Analyst and has been associated with the Adviser since 1982.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide services to the Funds.
As of the date of this Prospectus , Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $___ billion.
12
<PAGE>
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 of 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 Administrative Services, LLC (the "Administrator") provides administrative
services to the Funds, Forum Accounting Services, LLC (the "Fund Accountant") is
the Funds' accountant and 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 Fund as well as expenses not attributable to any
particular series of the Trust that are allocated among the various series. The
Adviser or other service providers may voluntarily waive all or any portion of
their fees. 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 and the Administrator have undertaken to waive a portion of their
fees in order to limit the Funds' expenses (excluding taxes, interest, portfolio
transaction expenses and extraordinary expenses) to 1.45% or less of the average
daily net assets of Payson Value Fund and 1.15% or less of the average daily net
assets of the Payson Balanced Fund. Fee waivers are voluntary and may be reduced
or eliminated at any time.
13
<PAGE>
YOUR ACCOUNT
[Margin call out: HOW TO CONTACT THE FUNDS
Write to us at:
Forum Shareholder Services, LLC
P.O. Box 446
Two Portland Square
Portland, Maine 04112
Telephone us at:
(800) 805-8258 (toll free)
(207) 879-0001
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033
For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
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 may purchase or sell (redeem) shares at the public offering price next
calculated after your transaction request is received in proper form by the
Transfer Agent. The public offering price is the net asset value of a share (or
NAV) plus any applicable sales load (or minus any applicable sales load in the
case of redemptions. For instance, if the Transfer Agent receives your purchase
request in proper form after 4:00 p.m., your transaction will be priced at the
time of the next business 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 the Funds, you will receive quarterly
statements and a confirmation of each transaction. You should verify the
accuracy of all transactions in your account as soon as you receive your
confirmation.
The Funds reserve the right to impose minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
14
<PAGE>
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
that the New York Stock Exchange is open. The time at which NAV is calculated
may change in case of an emergency or if the Exchange closes early. The Fund's
NAV is determined by taking the market value of all securities owned by the Fund
(plus all other assets such as cash), subtracting liabilities and then dividing
the result (net assets) by the number of shares outstanding. The Fund values
securities for which market quotations are readily available at current market
value. If market quotations are not readily available, the Fund values
securities at fair value.
TRANSACTIONS THROUGH THIRD PARTIES When you invest through your adviser, a
broker or other financial intermediary, the policies and fees (other than sales
charges) charged by that institution may be different than those of the Funds.
For instance, a financial intermediary may charge transaction fees and may set
different minimum investments or limitations on buying or selling shares. Your
institution may also provide you with certain shareholder services such as
periodic account statements summarizing your investment activity and trade
confirmations. Consult a representative of your financial institution 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.
CHECK -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, you may not pay by travelers
checks).
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.
WIRE -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 Funds accept payments in the following minimum
amounts:
<TABLE>
<S> <C> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Standard Account $2,000 $250
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Traditional and Roth IRA Accounts $1,000 $250
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Accounts With Automatic Investments - $250
Plans
-------------------------------------- ------------------------- --------------------------
ACCOUNT REQUIREMENTS
- ------------------------------------------------------------ ---------------------------------------------------------
TYPE OF ACCOUNT REQUIREMENT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed
Individual accounts are owned by one person, as are sole by all persons required
proprietorship accounts. Joint accounts to sign exactly as their names
have two or more owners (tenants) appear on the account
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
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 money to a child. An individual custodial account under the Uniform Gift to
can give up to $10,000 a year per child without paying Federal gift tax. Minors Act or the Uniform Transfers to
Minors Act
The trustee must sign instructions in a
manner 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
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TYPE OF ACCOUNT REQUIREMENT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
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
- ------------------------------------------------------------ ---------------------------------------------------------
INVESTMENT PROCEDURES
- ------------------------------------------------------------ ---------------------------------------------------------
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 and 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 $250.
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).
16
<PAGE>
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 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
The Funds process redemption orders 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 a 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.
<PAGE>
- --------------------------------------------------------------------------------
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")
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
17
<PAGE>
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, a Fund may ask
you to increase your balance. If the account value remains below $1,000 after 60
days, the Fund may close your account and send you the proceeds. The 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.
18
<PAGE>
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of shares as follows:
SALES CHARGE (LOAD)
AS % OF
-------------------------------
<TABLE>
<S> <C> <C> <C> <C>
PUBLIC
OFFERING PRICE NET ASSET REALLOWANCE
AMOUNT OF PURCHASE VALUE*
------------------ ------
$0-$49,999 4.00 4.17% 3.50
$50,000 to $99,999 3.50 3.63% 3.00
$100,000 to $249,999 3.00 3.09% 2.50
$250,000 to $499,999 2.50 2.56% 2.10
$500,000 to $999,999 2.00 2.04% 1.70
$1,000,000 and up 0.00 0.00% 1.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The commission paid to the distributor is the sales charge less the Reallowance
paid to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
REDEMPTIONS A contingent deferred sales charge is assessed on redemptions of
shares that were part of a purchase of $1 million or more. The sales charge is
assessed as follows: (1) 1.00% of the amount redeemed of the shares are redeemed
after one year, but within two years of their purchase. The charge is paid on
the lower of the value of shares redeemed or the cost of the shares.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. If you qualify for
RIGHTS OF ACCUMULATION ("ROA"), the sales charge you pay is based on the total
of your current purchase and the net asset value (at the end of the previous
Fund Business Day) of shares that you already hold. To qualify for ROA on a
purchase, you must inform the transfer agent and supply sufficient information
to verify that each purchase qualifies for the privilege or discount. You may
also enter into a written Letter of Intent ("LOI"), which expresses your intent
to invest $100,000 or more in a Fund within a period of 13 months. Each purchase
of shares under a LOI will be made at the public offering price applicable at
19
<PAGE>
the time of the purchase to a single transaction of the dollar amount indicated
in the LOI. You are not bound by an LOI.
ELIMINATION OF SALES CHARGES No sales charge is assessed on the reinvestment of
Fund distributions. No sales charge is assessed on purchases made for investment
purposes by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any registered investment adviser which is acting on behalf of its
fiduciary customer accounts and for which it provides additional
investment advisory services
o any broker-dealer with whom the distributor has entered into a Processing
Organization Agreement and a Fee-Based or Wrap Account Agreement and which
is acting on behalf of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or similar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the
benefit of any such person or relative; or the estate of any such person or
relative
o any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment
o persons who exchange into a Fund from a mutual fund other than a fund of
the Trust that participates in the Trust's exchange program, (see
"Exchange Privileges" below) and
o employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. Because exchanges are 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.
20
<PAGE>
- --------------------------------------------------------------------------------
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
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
adviser. Whenever making an investment in an IRA, be sure to indicate the year
for which the contribution is made.
21
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Funds distribute their net investment income annually. Any net capital gain
realized by the Funds are distributed 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 intends to operate in a manner such that it will not be liable for
Federal income or excise tax.
Distributions of net income or (short-term capital gains) are taxable to you as
ordinary income. Distributions of long-term capital gains are taxable to you as
long-term capital gain. 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 mail you information about the income tax status of distributions
paid by the Funds shortly after December 1 of each year. Consult your tax
adviser about the Federal, state and local income tax consequences in your
particular circumstances. Consult your tax adviser about federal, state and
local tax consequences for your particular circumstances.
ORGANIZATION
The Trust is a Delaware business trust. 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 the Fund or the Trust.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Funds' financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in a Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
The Funds' financial statements and the auditor's report are included in the
Annual Report which is available upon request, without charge.
PAYSON VALUE FUND
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
Beginning Net Asset Value Per Share $21.67 $16.10 $15.99 $12.71 $12.11
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income 0.07 0.12 0.21 0.21 0.18
Net Realized and Unrealized Gain Loss on
Investments
(1.16) 6.93 1.80 3.29 0.60
------ ------ ------ ------ ------
Total from Investment Operations (1.09) 7.05 2.01 3.50 0.78
------ ------ ------ ------ ------
Less Distributions:
From Net Investment Income (0.07) (0.12) (0.20) (0.21) (0.18)
From Net Realized Capital Gain (1.21) (1.36) (1.70) (0.01) _
------ ------ ------ ------
Total Distributions (1.28) (1.48) (1.90) (0.22) (0.18)
------ ------ ------ ------ ------
Ending Net Asset Value $19.30 $21.67 $16.10 $15.99 $12.71
======= ====== ====== ====== ======
Ratios to Average Net Assets:
Expenses 1.45% 1.45% 1.45% 1.45% 1.46%
Expenses (gross) (a) 1.75% 1.87% 2.07% 2.16% 2.25%
Net Investment Income Including
Reimbursement/Waiver 0.35% 0.62% 1.30% 1.47% 1.59%
Total Return(b) (4.57)% 45.28% 13.01% 27.77% 6.52%
Portfolio Turnover Rate 40.82% 38.85% 24.13% 53.06% 27.20%
Net Assets at End of Period (000's omitted) $18,253 $19,918 $13,109 $10,319 $7,960
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
23
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PAYSON BALANCED FUND
YEAR ENDED MARCH 31,
-------------------------------------------------------------
1995 1998 1997 1996 1995
-------------------------------------------------------------
Beginning Net Asset Value Per Share $14.79 $13.20 $13.70 $11.90 $11.71
------ ------ ------ ------ ------
Income from Investment Operations:
Net Investment Income 0.28 0.37 0.42 0.43 0.44
Net Realized and Unrealized Gain on
Investments (1.51) 3.52 0.84 2.12 0.24
------ ---- ---- ---- ----
Total from Investment Operations (1.23) 3.89 1.26 2.55 0.68
------ ---- ---- ---- ----
Less Distributions:
From Net Investment Income (0.28) (0.37) (0.42) (0.43) (0.44)
From Net Realized Capital Gain (0.80) (1.93) (1.34) (0.32) (0.05)
------ ------ ------ ------ -------
Total Distributions (1.08) (2.30) (1.76) (0.75) (0.49)
====== ====== ====== ====== ======
Ending Net Asset Value $12.48 $14.79 $13.20 $13.70 $11.90
====== ====== ====== ====== ======
Ratios to Average Net Assets:
Expenses 1.15% 1.15% 1.15% 1.15% 1.15%
Expenses (gross) (a) 1.49% 1.57% 1.67% 1.70% 1.72%
Net Investment Income (Loss) Including
Reimbursement/Waiver 2.07% 2.58% 3.07% 3.25% 3.91%
Total Return(b) (8.20)% 31.27% 9.42% 21.70% 6.00%
Portfolio Turnover Rate 99.59% 66.13% 52.93% 61.77% 50.06%
Net Assets at End of Period (000's omitted) $23,189 $24,440 $18,163 $17,455 $13,872
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
..
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
PAYSON
ANNUAL/SEMI-ANNUAL REPORTS VALUE FUND
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual PAYSON
reports to shareholders. In each Fund's annual report, you will find a BALANCED FUND
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Funds and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI, request other information and discuss
your questions about the Funds by contacting the Funds at:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
800-805-8285
207-879-0001
You can also review the Funds' SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies, for a
fee, by writing to or calling the following:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009 Forum Funds
Telephone: 800-SEC-0330 P.O. Box 446
Two Portland Square
Free copies are available from the Commission's Internet website at Portland, Maine 04112
http://www.sec.gov. 800-805-8258
207-879-0001
Investment Company Act File No.811-3023.
</TABLE>
<PAGE>
LOGO
PROSPECTUS
AUGUST 1, 1999
AUSTIN GLOBAL EQUITY FUND
The Fund seeks capital appreciation by investing primarily in a
portfolio of common stock and securities convertible into common stock
of companies domiciled in the United States and abroad.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED THE FUND'S SHARES OR DETERMINED WHETHER
THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY.............................................
PERFORMANCE.....................................................
FEE TABLES......................................................
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS......................
MANAGEMENT......................................................
YOUR ACCOUNT....................................................
How to Contact the Fund
General Information
Buying Shares
Selling Shares
Exchange Privileges
Retirement Accounts
OTHER INFORMATION...............................................
FINANCIAL HIGHLIGHTS............................................
2
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
Capital appreciation
PRINCIPAL INVESTMENT STRATEGY
Austin Global Equity Fund (the "Fund")invests primarily in a diversified
portfolio of common stock and convertible securities of companies based in the
United States, Europe, Japan, and the Pacific Basin. The Fund principally
invests in the securities of companies that have above average growth potential.
PRINCIPAL RISKS OF INVESTING IN THE FUND
GENERAL
You could lose money on your investment in the Fund, or the Fund could
underperform other investments. The principal risks of the Fund include the
following:
o The stock market goes down.
o The demand for growth stocks declines.
o The stock market does not recognize the growth potential of the stocks
in the Fund's portfolio
o The judgment of the Fund's adviser (the Adviser's) or portfolio manager as
to the underlying fundamentals and growth potential of a stock proves to
be wrong.
RISKS OF FOREIGN SECURITIES
Because investing in the securities of foreign companies can have more risk than
investing in U.S. based companies, an investment in the Fund may have the
following additional risks:
o There may not be sufficient public information regarding foreign issuers
o Political and economic instability abroad may be adversely affect the value
of foreign securities
o Foreign exchange controls and rules governing repatriation of foreign
capital and nationalization may adversely affect the value of foreign
securities Fluctuations in the exchange rate of foreign securities may
adversely affect the value of foreign securities
o Foreign securities may be less liquid than the securities of U.S. issuers
These risks may be greater for investments in issuers located in emerging or
developing markets.
3
<PAGE>
WHO MAY WANT TO INVEST IN THE FUNDS
The Fund 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 Fund 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]
PERFORMANCE
The return information in the chartsprovide some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year and by showing how the Fund's average annual returns for 1, 5 and 10 years
(or for the life of the Fund is shorter) compare to a broad measure of market
performance. PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES
NOT NECESSARILY INDICATE FUTURE RESULTS.
The following chart shows the annual total return for each full calendar year
that the Fund has operated. Sales charges are not reflected in the chart and if
reflected, the return would be less than shown.
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendar Year Average Annual Total Return
1994 2.10%
1995 22.62%
1996 14.53%
1997 23.93%
1998 22.90%
The year-to-date total return as of June 30, 1999 was _____%.
During the periods shown in the chart, the highest quarterly return was 20.01%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -13.62%% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the M.S.C.I. World Index.
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
YEAR(S) AUSTIN GLOBAL EQUITY FUND MSCI WORLD INDEX
1 Year (1998) 22.90% 24.34%
5 Years 16.91% 15.68%
10 Years N/A N/A
</TABLE>
The M.S.C.I. World Index measures the performance of a diverse range of global
stock markets in the United States, Canada, Europe, Australia, New Zealand and
the Far East. The MSCI is unmanaged and its performance reflects the
reinvestment of dividends. Unlike the performance figures of the Fund, the
Index's performance does not reflect the effect of expenses.
FEE TABLES
The following tables describe the various gross fees and expenses that you will
pay if you invest in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on
Purchases (as a Percentage of the offering price) 4.00%
Maximum Deferred Sales Charge (Load) 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Distributions
None
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
(1) IRA accounts pay an annual $10 maintenance fee.
5
<PAGE>
ANNUAL FUND OPERATING EXPENSES(1)(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management fees 1.50%
Distribution (12b-1) fees None
Other expenses 0.92%
Total annual fund operating expenses 2.42%(2)
(1) Based on amounts incurred during the Fund's fiscal year ended March 31,
1999 stated as a percentage of assets.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the 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
those distributions are reinvested. Although your actual costs may be higher or
lower, under these assumptions your costs would be:
- ------------------- ------------------ -------------------- --------------------
- ------------------- ------------------ -------------------- --------------------
After 1 year After 3 years After 5 years After 10 years
- ------------------- ------------------ -------------------- --------------------
- ------------------- ------------------ -------------------- --------------------
$245 $755 $1,291 $2,756
- ------------------- ------------------ -------------------- --------------------
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
[Margin callout: CONCEPTS TO UNDERSTAND
COMMON STOCK means an equity or ownership interest in a company.
CONVERTIBLE SECURITY means is a security such as a preferred stock or
bond that may be converted into a specified number of shares of common
stock.]
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation by investing primarily in a portfolio of
common stock and convertible securities.
INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
NRSRO is a nationally recognized statistical rating organization, such
as S & P, that rates fixed-income securities and certain other
securities by relative credit risk.]
6
<PAGE>
FUNDAMENTAL ANALYSIS is the analysis of a company's financial condition
to forecast the future value of its stock price. This analysis includes
review of a company's balance sheet and income statement, asset
history, earnings history, product or service development, and
management productivity.]
The Fund invests at least 65% of its total assets in the common stock and
convertible securities of issuers located in three or more countries. The Fund
will generally invest more of its assets in the securities of U.S. issuers than
in the securities of issuers located outside the United States. Currently, the
Fund limits its investments in any one country or in securities denominated in
any one currency to 25% of its total assets. This limitation does not apply to
the securities of U.S. issuers or securities denominated in the U.S. dollar.
The Fund may invests up to 35% of its assets in convertible such as bonds
securities rated B or higher by an NRSRO at the time of investment and in
preferred stock rated B (or b) and higher by an NRSRO at the time of investment.
The Fund intends to invest up to 25% of its total assets in the common stock or
convertible securities of companies in the telecommunications industry.
THE ADVISER'S PROCESS The Adviser relies primarily on fundamental analyses of
prospective companies as well as the review of industry and economic trends to
identify companies in the United States, Europe, Japan, and the Pacific Basin
that have above average growth potential. The Adviser generally looks for
companies which, in the Adviser's opinion, are improving but whose improvement
has not been recognized by the market.
The Adviser continuously monitors the investment in the Fund's portfolio to
determine if there have been fundamental changes in the company that prompted
the initial purchase of its stock. The Adviser may sell a security if:
o The underlying company experiences negative internal developments
o The underlying company experiences a decline in financial condition
o The underlying company experiences a significant erosion in
profitability, earnings, or cash flow
o The security is overvalued compared to its fundamentals
o It is oversized compared to other holdings
o There are negative trends in inflation, recession or interest rates
INVESTMENT RISKS
GENERALLY There is no assurance that the Fund will achieve its investment goal.
The Fund's net asset value and investment performance will fluctuate based upon
changes in the value of its portfolio securities. An investment in the Fund is
7
<PAGE>
not by itself a complete or balanced investment program. The market value of
securities in which the Fund invests are based upon the market's perception of
value and is not necessarily an objective measure of a security's value.
SPECIFIC RISKS Because the Fund invests in foreign securities, an investment in
the Fund may have the following additional risks:
o Foreign securities may be subject to greater fluctuations in price than
securities of U.S. companies denominated in U.S. dollars
o Foreign securities and their markets may be less liquid than U.S. markets
o Political and economic instability abroad may adversely affect the
operations of foreign issuers and the value of their securities
o Changes in foreign tax laws, exchange controls, and policies on
nationalization, expropriation may also affect the operations of foreign
issuers and the value of their securities
o Foreign securities and their issuers are not subject to the same degree of
regulation as U.S. issuers regarding information disclosure, insider
trading and market manipulation
o There may not be sufficient public information regarding foreign issuers
and foreign companies may not be subject to uniform accounting, auditing,
financial reporting standards as are U.S, companies U.S. companies
o Foreign securities registration, custody and settlements may be subject to
delays or other operational and administrative problems o Foreign brokerage
commissions and custody fees are generally higher than those in the U.S. o
Investments in issuers denominated in foreign currencies will fluctuation
in value as the exchange rate between those currencies and the U.S.
dollar changes
The Adviser routinely invests in American Depositary Receipts (or ADRs). ADRs
typically are issued by an U.S. bank or trust company and evidence ownership of
securities issued by a foreign company. ADRs are traded in the U.S. securities
markets and are required to meet the disclosure requirements of the Securities
and Exchange Commission.
YEAR 2000 Certain computer systems may not process date-related information
properly on and after January 1, 2000. The Fund's Adviser is addressing this
matter for their systems. The Fund's other service providers have informed the
Fund that they are taking similar measures. Investments in foreign companies are
particularly vulnerable to Year 2000 risk as these companies may not have the
financial resources, technology, or personnel needed to address Year 2000
readiness concerns. This matter, if not corrected, could adversely affect the
services provided to the Fund or the companies in which the Fund invest and,
therefore, could lower the value of your shares.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic, or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and cash equivalents such as high quality money market
8
<PAGE>
instruments. As a result, the Fund may be unable to achieve its investment
objective.
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (a mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices, and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the SAI.
THE ADVISER
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. For its services, the Adviser is entitled to receive an
advisory fee at an annual rate of 1.50% of the average daily net assets of the
Fund.
Austin Investment Management, Inc., 375 Park Avenue, New York, New York 10152,
serves as investment adviser to the Fund. The Adviser is a privately owned
company, controlled by Peter Vlachos, who is President.
As of the date of this Prospectus, the Adviser has approximately $___ million of
assets under management.
PORTFOLIO MANAGER
PETER VLACHOS, president and chief portfolio manager of the Adviser, has been
primarily responsible for the day-to-day management of the Fund since its
inception on December 8, 1993. Mr. Vlachos has over __ years of experience in
the investment industry and prior to his association with the Adviser, Mr.
Vlachos was a portfolio manager at Neuberger & Berman, Inc.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provides services to the Fund.
As of the date of this Prospectus, 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 Fund's shares. The distributor acts as the agent of the
Trust in connection with the offering of the Fund's 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 Fund's shares.
9
<PAGE>
Forum Administrative Services, LLC (the "Administrator") provides administrative
services to the Fund, Forum Accounting Services, LLC (the "Accountant") is the
Fund's accountant, and Forum Shareholder Services, LLC ("Transfer Agent") is the
Fund's transfer agent.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of
expenses attributable to the Fund as well as expenses not attributable to any
particular series of the Trust that are allocated among the various series. The
Adviser or other service providers may voluntarily waive all or any portion of
their fees and assume certain expenses of the Fund. Any waiver or expense
reimbursement would have the effect of increasing the Fund's performance for the
period during which the waiver was in effect and may not be recouped at a later
date. Fee waivers and expense reimbursements are voluntary and may be reduced or
eliminated at any time.
YOUR ACCOUNT
[Margin call out: HOW TO CONTACT THE FUND
Write to us at:
Forum Funds
P.O. Box 446
Two Portland Square
Portland, Maine 04112
Telephone us at:
(800) 754-8759 (Toll Free)
(207) 879-0001
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033 For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: Austin Global Equity 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)]
10
<PAGE>
GENERAL INFORMATION
You may purchase or sell (redeem) shares at the public offering price next
calculated after your transaction request is received in proper form by the
Transfer Agent. The public offering price is the net asset value of a share (or
NAV) plus any applicable sales load (or minus any applicable sales load in the
case of redemptions). For instance, if the Transfer Agent receives your purchase
request in proper form after 4:00 p.m., your transaction will be priced at the
time of the next business day's NAV. The Fund cannot accept orders that request
a particular day or price for the transaction or any other special conditions.
The Fund does not issue share certificates.
If you purchase shares directly from the Fund, you will receive quarterly
statements and a confirmation of each transaction. You should verify the
accuracy of all transactions in your account as soon as you receive your
confirmation.
The Fund reserves the right to impose minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED. The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern Time) on each weekday
that the New York Stock Exchange is open. The time at which NAV is calculated
may change in case of an emergency or if the Exchange closes early. The Fund's
NAV is determined by taking the market value of all securities owned by the Fund
(plus all other assets such as cash), subtracting liabilities and then dividing
the result (net assets) by the number of shares outstanding. The Fund values
securities for which market quotations are readily available at current market
value. If market quotations are not readily available, the Fund values
securities at fair value.
TRANSACTIONS THROUGH THIRD PARTIES. When you invest through your adviser, a
broker or other financial intermediary, the policies and fees (other than sales
charges) charged by that institution may be different than those of the Fund.
For instance, a financial intermediary may charge transaction fees and may set
different minimum investments or limitations on buying or selling shares. Your
institution may also provide you with certain shareholder services such as
periodic account statements summarizing your investment activity and trade
confirmations. Consult a representative of your financial institution 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.
CHECK 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, you may
not pay by travelers checks).
11
<PAGE>
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.
WIRE 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 payments in the following minimum amounts:
<TABLE>
<S> <C> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Standard Account $10,000 $2,500
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Traditional and Roth IRA Accounts $2,000 $1,000
-------------------------------------- ------------------------- --------------------------
-------------------------------------- ------------------------- --------------------------
Accounts With Automatic Investment - $250
Plans
-------------------------------------- ------------------------- --------------------------
</TABLE>
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
TYPE OF ACCOUNT REQUIREMENT
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons required
Individual accounts are owned by one person, as are sole to sign exactly as their names appear on
proprietorship accounts. Joint accounts the account
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 money to a custodial account under the Uniform Gift to Minors
child. An individual can give up to $10,000 a year per Act or the Uniform Transfers to Minors Act.
child without paying Federal gift tax. o The trustee must sign instructions in a manner
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>
12
<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 assign 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 the 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 $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts 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 expenses incurred by the
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
13
<PAGE>
account (or another identically registered account in any Fund) as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase or exchange due to nonpayment.
SELLING SHARES
The Fund processes redemption orders 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")
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
14
<PAGE>
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 $10,000. 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 Fund 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.
15
<PAGE>
SMALL ACCOUNTS. If the value of your account falls below $1,000 ($500 for IRAs),
a Fund may ask you to increase your balance. If the account value remains below
$1,000 ($500 for IRAs) after 60 days, the Fund may close your account and send
you the proceeds. The 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 Fund reserves the right to make a redemption in kind.
The 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 the 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.
16
<PAGE>
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. Because exchanges are 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 Fund reserves 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 Fund 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
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 Fund offers IRA accounts, including traditional and Roth IRAs. Before
investing in any IRA or other retirement plan, you should consult your tax
adviser. Whenever making an investment in an IRA, be sure to indicate the year
for which the contribution is made.
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income annually. Any net capital gain
realized by the Fund is distributed at least annually.
17
<PAGE>
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
The Fund intends to operate in a manner such that it will not be liable for
Federal income or excise tax.
Distributions of net income or short-term capital gains are taxable to you as
ordinary income. Distributions of long-term capital gains are taxable to you as
long-term capital gain. Distributions also may be subject to certain state and
local taxes.
If you buy shares just before the 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 Fund will mail reports containing information about the Fund's distributions
during the year after December 31 of each year.
Consult your tax adviser about the Federal, state and local income tax
consequences in your particular circumstances.
ORGANIZATION
The Trust is a Delaware business trust. The Fund is one of several 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 the Fund or the Trust.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by [Name of Auditor]. The
Fund's financial statements and the auditor's report are included in the Annual
Report, which is available upon request without charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
NINE MONTHS
YEAR ENDED ENDED
YEAR ENDED MARCH 31, MARCH 31, 1997 YEAR YEAR
MARCH 31, 1998 ENDED ENDED
1999 JUNE 30, 1996 JUNE 30, 1995
Beginning Net Asset Value Per Share
$16.27 $12.84 $13.19 $11.60 $9.80
Income from Investment Operations:
Net Investment Income (Loss) 0.15 (0.07) (0.11) (0.12) 0.04(b)
Net Realized and Unrealized Gain on
Investments 1.32 4.95 0.86 1.98 1.76
Total from Investment Operations
1.47 4.88 0.75 1.86 1.80
Less Distributions:
From Net Investment Income (0.18) _ _ _ _
From Net Realized Gain (0.98) (1.45) (1.10) (0.27) _
Total Distributions
Ending Net Asset Value $16.58 $16.27 $12.84 $13.19 $11.60
Ratios to Average Net Assets:
Expenses 2.42% 2.50% 2.50%(a) 2.50% 2.50%
Expenses (gross)(b) 2.42% 2.69% 3.38%(a) 3.25% 3.19%
Net Investment Income (Loss) Including
Reimbursement/Waiver 0.92% (0.50)% (1.09%)(a) (0.98%) 0.41%
Total Return 9.51% 39.88% 5.38% 16.22% 18.37%
Portfolio Turnover Rate 51.15% 57.37% 44.79% 93.55% 35.31%
Net Assets at End of Period (000's omitted)
$22,014 $15,379 $10,289 $10,326 $8,474
</TABLE>
(a) Annualized.
(b) Reflects expense ration in the absence of fee waivers and expense
reimbursements.
19
<PAGE>
<TABLE>
<S> <C> <C> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
AUSTIN GLOBAL EQUITY FUND
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual
reports to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Fund and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI, request other information and discuss
your questions about the Fund by contacting the Fund at:
Forum Shareholder Services, LLC
P.O. Box 446
Two Portland Square
Portland, Maine 04101
800-805-8285
207-879-0001
You can also review the Fund's SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies, for a Forum
Funds
fee, by writing to or calling the following: P.O. Box 446
Portland, Maine 04112
Public Reference Room 800-754-8759
Securities and Exchange Commission 207-879-0001
Washington, D.C. 20549-6009
Telephone: 800-SEC-0330
Free copies are available from the SEC's Internet website
at http://www.sec.gov.
</TABLE>
Investment Company Act File No.811-3023.
19
<PAGE>
LOGO
OAK HALL SMALL CAP CONTRARIAN FUND
PROSPECTUS
AUGUST 1, 1999
The Fund seeks capital appreciation by investing primarily
investing in common stocks of domestic companies.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY................................. 3
PERFORMANCE......................................... 4
FEE TABLES.......................................... 6
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS......... 8
MANAGEMENT.......................................... 11
YOUR ACCOUNT........................................ 14
How to Contact the Fund 14
General Information 14
Buying Shares 15
Selling Shares 17
Exchange Privileges 18
Retirement Accounts 19
OTHER INFORMATION................................... 20
FINANCIAL HIGHLIGHTS................................ 21
2
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
Capital appreciation
PRINCIPAL INVESTMENT STRATEGY OF THE FUND
[Margin callout: CONCEPT TO UNDERSTAND
MARKET CAPITALIZATION means the value of the company's common stock in
the stock market.
CONTRARIAN VALUE INVESTING means investing in companies that are
temporarily out of favor or undiscovered, that have upside growth
potential, and whose stock prices are low relative to comparable
companies.] CONVERTIBLE SECURITY means a security such as preferred
stock or bonds that may be converted into a specified number of shares
of common stock.
Using a contrarian value-oriented approach, the Oak Hall Small Cap Contrarian
Fund (the "Fund") invests primarily in common stock and convertible securities
of domestic companies with small market capitalizations. A small capitalization
company has a market capitalization of less than the largest stock in the
Russell 2000 Index or $___ billion. The Russell 2000(R) Index is a market
weighted index composed of 2000 companies with market capitalizations from $50
million to $___ billion.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
You could lose money on your investment in the Fund, or the Fund could
underperform other investments. The principal risks of an investment in the Fund
include the following:
o The stock market goes down o The demand for value stocks declines
o The stock market continues to undervalue the stocks in the Fund's
portfolios
o The judgment of the Fund's investment adviser (the "Adviser") or the
portfolio manager as to the underlying fundamentals and value of a
stock proves to be wrong
WHO MAY WANT TO INVEST IN THE FUNDS
The Fund may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of their
investment o
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk for higher potential
long-term returns
3
<PAGE>
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
PERFORMANCE
The return information in the charts provide some indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year and by showing how the Fund's average annual returns for 1, 5 and 10 years
(or for the life of the Fund is shorter) compare to a broad measure of market
performance. PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES
NOT NECESSARILY INDICATE FUTURE RESULTS.
The following chart shows the annual total return for each full calendar year
that the Fund has operated. Sales charges are not reflected in the chart and if
reflected, the return would be less than shown.
Calendar Year Average Annual Total Return
- ------------- ---------------------------
1993 42.09%
1994 -11.62%
1995 9.93%
1996 17.19%
1997 14.46%
1998 4.79
For the period January 1, 1999 through June 30, 1999, the Fund's return was
_____.
During the periods shown in the chart, the highest quarterly return was 23.12%
(for the quarter ended March 31, 1998) and the lowest quarterly return was
- -25.18% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1998 to the Russell 2000 Index.
4
<PAGE>
<TABLE>
<S> <C> <C>
YEAR(S) OAK HALL SMALL CAP CONTRARIAN
FUND RUSSELL 2000 INDEX
1 Year (1998) 4.79% -2.24%
5 Year (1994-1998) 6.43% 11.46%
10 Year N/A N/A
</TABLE>
The Russel 2000(R) Index is a market weighted index of 2,000 companies with
market capitalizations from $162 million to $1 billion. The index is unmanaged
and reflects the reinvestment of dividends. Unlike the performance figures of
the Fund, the Index's performance does not reflect the effect of expenses.
FEE TABLES
The following tables describe the various fees and expenses that you will pay if
you invest in the Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested None
Distributions
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0
ANNUAL FUND OPERATING EXPENSES(1)(EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Advisory fees 0.75%
Distribution (12b-1 fees) None
Other expenses 2.89%
Total annual fund operating expenses 3.64%(2)
</TABLE>
(1) Based on amounts incurred during the Fund's fiscal year ended March
31, 1999 stated as a percentage of assets.
(2) The Adviser has voluntarily undertaken to waive a portion of its fees
and assume certain expenses of the Fund to the extent that total
annual fund operating expenses exceed 1.50% of net assets. This
undertaking may be terminated by the Adviser at any time.
5
<PAGE>
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes a $10,000 investment in the Fund, a 5% annual return, the Fund's
operating expenses remain the same as stated in the table above, reinvestment of
all distributions and redemption at the end of each period. Although your actual
costs may be higher or lower, under these assumptions your costs would be:
- ------------------- ----------------- ---------------- -----------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------- ----------------- ---------------- -----------------
- ------------------- ----------------- ---------------- -----------------
$366 $1,114 $1,883 $3,897
- ------------------- ----------------- ---------------- -----------------
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation by investing primarily in a portfolio of
common stock and securities convertible into common stock.
INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
QUALITATIVE ANALYSIS is an analysis that evaluates important factors
for their presence or absence but does not measure them precisely.
QUANTITATIVE ANALYSIS is a mathematical analysis of factors.
PRICE/EARNINGS RATIO the price of a stock divided by the company's
earnings per share.
The Fund invests at least 65% of its total assets in a diversified portfolio of
common stocks and convertible securities of domestic small capitalization
companies that are temporarily out of favor or undiscovered, that have upside
growth potential, and whose stock prices are low relative to comparable
companies.
THE ADVISER'S PROCESS The Adviser selects individual stocks and does not try to
predict when the stock market might rise or fall. The Adviser uses a combination
of QUALITATIVE AND QUANTITATIVE ANALYSES to identify potential investments for
the Fund. The Adviser identifies small capitalization value stocks based on the
following QUANTITATIVE factors:
o 30-40% price decline from its 3 or 5 year high
o Market value decline exceeding its estimated decline in earnings
o Valuation measurements such as PRICE/EARNINGS RATIOs
o Liquidity
The Adviser then conducts a QUALITATIVE ANALYSIS to isolate financially stable
companies that are out of favor in the market but are otherwise leaders in their
respective industries.
6
<PAGE>
In the opinion of the Adviser, industry leaders include companies that offer
their own products or services, control a significant percentage of their
respective markets, or that are low cost producers. The Adviser's QUALITATIVE
ANALYSIS of a prospective company includes extensive management interviews,
company visits, and a review of the fundamental aspects of the company, its
competitors, and suppliers. Fundamental attributes of a company include its
balance sheet, income statement, and other basis economic and managerial data.
Typically, the Fund is fully invested in 35-40 different stocks. Each stock
represents approximately 1-5% of the Fund's market value at the time of
purchase. The Adviser sets a target price for each stock at the time of
purchase. The target price is the price at which a stock may be sold even
through there has been no change in change in the fundamental attributes of the
company.
An important function of the Adviser is to set a price target, that is, the
price at which the stock will be sold event though there has been no change in
the fundamental attributes of the company. The Adviser constantly monitors the
companies in the Fund's portfolio to determine if there have been any
significant changes in the reasons that prompted the initial purchase of the
stock. If significant changes for the better have not materialized, the stock
will be sold.
INVESTMENT RISKS
GENERALLY There is no assurance that the Fund will achieve its investment goal.
The Fund's net asset value and investment performance will fluctuate based upon
changes in the value of its portfolio securities. An investment in the Fund is
not by itself a complete or balanced investment program. The market value of
securities in which the Fund invests are based upon the market's perception of
value and is not necessarily an objective measure of a security's value.
SPECIFIC RISKS Because the Fund invests in value stocks, there is also the risk
that the market will not recognize the intrinsic value of the stocks. There is
also the risk that the Adviser's judgment as to the growth potential or value of
a stock may prove to be wrong. Finally, a decline in investor demand for the
stocks held by the Fund may also adversely affect the value of these securities.
Because the Fund's investment in smaller companies, an investment in the Fund
may entail 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
7
<PAGE>
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 potentially 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, the net asset value of the Fund's shares of may exhibit a higher degree
of volatility than the market averages.
YEAR 2000 Like other organizations around the world, the Fund could be adversely
affected if the computer systems used by its various service providers (or the
market in general) do not properly operate after January 1, 2000. The Fund is
taking steps to address the Year 2000 issue with respect to the computer systems
that they rely on. There can be no assurance, however, that these steps will be
sufficient to avoid a temporary service disruption or any adverse impact on the
Fund.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic, or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and cash equivalents such as high quality money market
instruments. As a result, the Fund may be unable to achieve its investment
objective.
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (a mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices, and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the SAI.
THE ADVISER
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. For its services, the Adviser is entitled to receive an
advisory fee at an annual rate of 0.75% of the average daily net assets of the
Fund.
Oak Hall(R) Capital Advisors, L.P., 122 East 42nd Street, 24th Floor, New York,
New York 10168, serves as investment adviser to the Fund. The Adviser is a New
York Corporation and is a wholly owned subsidiary of American Securities Holding
Corporation ("ASHC"). ASHC is wholly owned by a trust, the beneficiaries of
which are the William Rosenwald family.
As of the date of this Prospectus, the Adviser has approximately $___ billion of
assets under managemnet.
8
<PAGE>
PORTFOLIO MANAGERS
The day-to-day management of the Fund is shared by Ed Cimilluca and John W.
Morosani. Each portfolio manager's business experience and educational
background is as follows:
ED CIMILLUCA, Co-Chief Executive of the Adviser and Portfolio Manager of the
Adviser. has been primarily responsible for the day-to-day management of the
Fund's portfolio since January 1, 1997. Mr. Cimilucca has over twenty-five years
of experience in the investment business and prior to his association with the
Adviser, Mr. Cimilucca was Director of Research at J. & W. Seligman. Before
that, Mr. Cimilucca was a Managing Director of Lehman Brothers, Inc.
JOHN W. MOROSANI, Co-Chief Executive of the Adviser and Portfolio Manager of the
Adviser, has been primarily responsible for the day-to-day management of the
Fund's portfolio since January 1, 1997. Mr. Morosani has over twenty years of
experience in the investment business and prior to his association with the
Adviser, Mr. Morosani was Director of Research at J. & W. Seligman. Before that,
Mr. Morosani was an associate Director at C.J. Lawrence, Inc.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide services to the Fund.
As of the date of this Prospectus, 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 Fund's shares. The distributor acts as the agent of the
Trust in connection with the offering of the Fund's 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 Fund's shares.
Forum Administrative Services, LLC (the "Administrator") provides administrative
services to the Fund, Forum Accounting Services, LLC (the "Accountant") is the
Fund's accountant and Forum Shareholder Services, LLC (the "Transfer Agent") is
the Funds' transfer agent.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of
expenses attributable to the Fund as well as expenses not attributable to any
particular series of the
9
<PAGE>
Trust that are allocated among the various series. The Adviser or other service
providers may voluntarily waive all or any portion of their fees and/or assume
certain expenses of the Fund. Any waiver or expense reimbursement would have the
effect of increasing the 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 a portion of their fees and assume certain
Fund expenses in order to limit the Fund's expenses (excluding taxes, interest,
portfolio transaction expenses and extraordinary expenses) to 1.50% or less of
the average daily net assets of the Fund. Fee waivers and expense reimbursements
are voluntary and may be reduced or eliminated at any time.
10
<PAGE>
YOUR ACCOUNT
HOW TO CONTACT THE FUND
Write to us at:
Forum Funds
P.O. Box 446
Portland, ME 04112
Telephone us at:
(207) 879-0001 or (800) 625-4255 (Toll Free)
E-Mail us at:
www.oakhallfund.com
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033 For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: Oak Hall Small Cap Contrarian 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 may purchase or sell (redeem) shares at the public offering price next
calculated after your transaction request is received in proper form by the
Transfer Agent. The public offering price is the net asset value of a share (or
NAV) plus any applicable sales load (or minus any applicable sales load in the
case of redemptions. For instance, if the Transfer Agent receives your purchase
request in proper form after 4:00 p.m., your transaction will be priced at the
time of the next business day's NAV. The Fund cannot accept orders that request
a particular day or price for the transaction or any other special conditions.
The Fund does not issue share certificates.
11
<PAGE>
If you purchase shares directly from the Fund, you will receive quarterly
statements and a confirmation of each transaction. You should verify the
accuracy of all transactions in your account as soon as you receive your
confirmation.
The Fund reserves the right to impose minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern Time) on each weekday
that the New York Stock Exchange is open. The time at which NAV is calculated
may change in case of an emergency or if the Exchange closes early. The Fund's
NAV is determined by taking the market value of all securities owned by the Fund
(plus all other assets such as cash), subtracting liabilities and then dividing
the result (net assets) by the number of shares outstanding. The Fund values
securities for which market quotations are readily available at current market
value. If market quotations are not readily available, the Fund values
securities at fair value.
TRANSACTIONS THROUGH THIRD PARTIES When you invest through your adviser, a
broker or other financial intermediary, the policies and fees (other than sales
charges) charged by that institution may be different than those of the Fund.
For instance, a financial intermediary may charge transaction fees and may set
different minimum investments or limitations on buying or selling shares. Your
institution may also provide you with certain shareholder services such as
periodic account statements summarizing your investment activity and trade
confirmations. Consult a representative of your financial institution 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.
CHECK For individual or Uniform Gift to Minors Act ("UGMA") accounts,
the check must be made payable to "Oak Hall Small Cap Contrarian Fund"
or to one or more owners of the account and endorsed to "Oak Hall Small
Cap Contrarian Fund." For all other accounts, the check must be made
payable on its face to "Oak Hall Small Cap Contrarian Fund." No other
method of check payment is acceptable (for instance, you may not pay by
travelers checks).
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.
12
<PAGE>
WIRE 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 payments in the following minimum amounts:
<TABLE>
<S> <C> <C>
------------------------- --------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
-------------------------------------- ------------------------- --------------------------
Standard Account $10,000 $5,000
-------------------------------------- ------------------------- --------------------------
Traditional and Roth IRA Accounts $2,000 $250
-------------------------------------- ------------------------- --------------------------
Accounts With Automatic - $250
Investments-Plans
-------------------------------------- ------------------------- --------------------------
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT REQUIREMENTS
<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, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account.
owners (tenants).
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a custodial
These custodial accounts provide a way to give money account under the Uniform Gift to Minors
to a child. An individual can give up to Act or the Uniform Transfers to Minors Act
$10,000 a year per child without paying Federal gift tax. o The trustee must sign instructions in a manner
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>
<TABLE>
<CAPTION>
INVESTMENT PROCEDURES
<S> <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 a 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 and we will assigned you an account number o Instruct your bank to wire your money to us
o Mail us your application
o Instruct your bank to wire your money to us
BY ACH PAYMENT
o Call or write us for an account application BY AUTOMATIC INVESTMENT
o Complete the application o Call or write us for an "Automatic Investment
o Call us and we will assigned you an account number Plan" form
o Mail us your application o Complete the form
o Make an ACH payment o Attach a voided check to your form
o Mail us the form
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
AUTOMATIC INVESTMENT You may invest a specified amount of money in the 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 $250.
LIMITATIONS ON PURCHASES The Funds reserve the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or their operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts 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 expenses incurred by the
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account in any Fund) as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase or exchange due to nonpayment.
13
<PAGE>
SELLING SHARES
The Fund processes redemption orders 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.
14
<PAGE>
- --------------------------------------------------------------------------------
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 $10,000 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")
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.
15
<PAGE>
The minimum amount that may be redeemed by wire is $10,000. 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, a Fund may ask
you to increase your balance. If the account value remains below $1,000 after 60
days, the Fund may close your account and send you the proceeds. The 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 Fund reserve the right to make a redemption in kind. The
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 the 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
16
<PAGE>
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 of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. Because exchanges are 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 Fund reserves 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 name of the Fund 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 If opening a new account, complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
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 Fund offers IRA accounts, including traditional and Roth IRAs. Before
investing in any IRA or other retirement plan, you should consult your tax
adviser. Whenever making an investment in an IRA, be sure to indicate the year
for which the contribution is made.
17
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income annually. Any net capital gain
realized by the Fund is distributed 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
The Fund intends to operate in a manner such that it will not be liable for
Federal income or excise tax.
Distributions of net income or short-term capital gains are taxable to you as
ordinary income. Distributions of long-term capital gains are taxable to you as
long-term capital gain.
If you buy shares just before the 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 Fund will mail reports containing information about the Fund's distributions
during the year after December 31 of each year.
Consult your tax adviser about the Federal, state and local income tax
consequences in your particular circumstances.
ORGANIZATION
The Trust is a Delaware business trust. The Fund is only one of several 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 a specific series (such
as approval of an advisory agreement for a Fund.) From time to time, large
shareholders may control the Fund or the Trust.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by [Name of Independent
Auditor]. The Fund's financial statements and the auditor's report are included
in the Annual Report which is available upon request, without charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
NINE MONTHS
YEAR ENDED ENDED
YEAR ENDED MARCH 31, MARCH 31, 1997 YEAR YEAR ENDED
MARCH 31, 1998 ENDED JUNE 30, 1995
1999 JUNE 30,
1996
Beginning Net Asset Value Per Share $20.66 $13.80 $13.61 $11.33 $12.55
Income From Investment Operations:
Net Investment Income (Loss) (0.11) (0.24) (0.15) (0.32)(a) (0.03)(a)
Net Realized and Unrealized Gain (Loss)
on Investments (4.50) 7.10 0.34 2.60 (0.10)
Total from Investment Operations (4.61) 6.86 0.19 2.28 (0.13)
Less Distributions:
From Net Realized Capital Gain (0.10) - - - (1.09)
Ending Net Asset Value $15.95 $20.66 $13.80 $13.61 $11.33
Ratios to Average Net Assets:
Expenses 1.50% 1.93%(e) 2.00%(b) 2.00% 2.00%
Expenses (gross) (c) 3.64% 2.96% 2.93%(b) 2.44% -
Net Investment Income (Loss) Including (0.56%) (1.29)% (1.13%)(b) (1.14%) (0.23%)
Reimbursement/Waiver
Total Return (22.30%) 49.71% 1.40% 20.12% (1.07%)
Portfolio Turnover Rate 118.40% 100.61% 95.05% 157.01% 115.33%
Net Assets at End of Period (000's omitted)
$4,067 $7,208 $7,310 $12,257 $16,399
</TABLE>
(a) Calculated using the weighted average shares outstanding.
(b) Annualized.
(c) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
OAK HALL SMALL CAP CONTRARIAN
ANNUAL/SEMI-ANNUAL REPORTS FUND
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during their last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Fund and is
incorporated by reference into this Prospectus.
You can get free copies of both reports and the SAI, request other
information and discuss your questions about the Fund by contacting your
broker or the Fund at:
Forum Funds
Two Portland Square
Portland, Maine 04101
800-625-4255
207-879-0001
You can also review the Fund's reports and SAI at the Public Reference
Room of the Securities and Exchange Commission. You can get text-only
copies, for a fee, by writing to or calling the following:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009 Forum Funds
Telephone: 800-SEC-0330 P.O. Box 446
Portland, ME 04112
Free copies are available from the Commission's Internet website at 800-625-4255
http://www.sec.gov. 207-879-0001
Investment Company Act File No. 811-3023.
Web Site:
www.oakhallfund.com
</TABLE>
<PAGE>
LOGO
PROSPECTUS
AUGUST 1, 1999
INVESTORS GROWTH FUND
The Fund seeks to provide long-term capital appreciation by investing primarily
in a portfolio of the common stock of companies domiciled in the United States.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY..................................
PERFORMANCE..........................................
FEE TABLES...........................................
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS...........
MANAGEMENT...........................................
YOUR ACCOUNT.........................................
How to Contact the Fund
General Information
Buying Shares
Selling Shares
Sales Charges
Exchange Privileges
Retirement Accounts
OTHER INFORMATION....................................
FINANCIAL HIGHLIGHTS.................................
2
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
Long-term capital appreciation
PRINCIPAL INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
COMMON STOCK means an equity or ownership interest in a company.
GROWTH COMPANY means stock of a company that has exhibited faster than
average gains in earnings over the past few years and are expected to
continue to show high levels of profit growth in the future.
VALUE COMPANY means stock of a company whose price is low relative to
comparable companies.]
Investors Growth Fund (the "Fund") invests primarily in a diversified portfolio
of common stock of domestic growth and value companies.
PRINCIPAL RISKS OF INVESTING IN THE FUND
You could lose money on your investment in the Fund or the Fund could
underperform other investments. An investment in the Fund is not a deposit of
any bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. The principal risks of an investment
in the Fund include the following:
o The stock market goes down.
o The demand for growth or value stocks declines
o The stock market continues to undervalue the stocks in the Fund's
portfolio.
o The judgement of the Fund's investment adviser (the Adviser's) or
portfolio manager as to the underlying fundamentals and values of a
stock proves to be wrong.
WHO MAY WANT TO INVEST IN THE FUND
The Fund 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 return
The Fund may NOT be appropriate for you if you:
3
<PAGE>
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
PERFORMANCE
The return information in the table provides some indication of the risks of
investing in the Fund by showing the Fund's performance from year to year and by
showing how the Fund's average annual returns for 1, 5, and 10 years (or for the
life of the Fund if shorter) compare to a broad measure of market performance.
PERFORMANCE INFORMATION REPRESENTS ONLY PAST PERFORMANCE AND DOES NOT
NECESSARILY INDICATE FUTURE RESULTS.
The following chart shows the annual total return for the only full calendar
year that the Fund has operated. Sales charges are not reflected in the chart
and if reflected, the return would be less than shown.
[EDGAR REPRESENTATION OF GRAPH CHART]
Calendar Year Average Annual Total Return
- ------------- ---------------------------
1998 16.66%
The year -to-date total return as of June 30, 1999 was ___%.
During the period shown in the chart, the highest quarterly return was 16.96%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -10.18% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total return as of
December 31, 1998 to the S&P 500 Index.
<TABLE>
<S> <C> <C>
INVESTORS GROWTH
YEAR(S) FUND S&P 500 INDEX
1 Year 16.66% 28.58%
5 Years N/A
10 Years N/A
</TABLE>
The S&P 500(R) Index is the Standard & Poor's 500 Index, a widely recognized,
unmanaged index of common stock. The index figures assume reinvestment of all
dividends paid by stocks included in the index. Unlike the performance figures
of Investors Growth Fund, the Index's performance does not reflect the effect of
expenses.
FEE TABLES
The following tables describe the various gross fees and expenses that you will
pay if you invest in the Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a
Percentage of the offering price 4.00%
Maximum Deferred Sales Charge (Load) 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Redemption Fee None
Exchange Fee None
Maximum Account Fee $0(1)
(1) IRA accounts pay an annual $10 maintenance fee.
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1) (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
Management fees 0.65%
Distribution (12b-1) fees None
Other expenses 0.79%
Total annual fund operating expenses 1.44%(2)
(1) Based on amounts incurred during the Fund's fiscal year ended March
31, 1999 stated as a percentage of assets.
(2) Some of the Fund's service providers have voluntarily waived a portion
of their fees so that total annual fund expenses actually were 1.10%.
Fee waivers may be reduced or eliminated at any time.
</TABLE>
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the 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
4
<PAGE>
the same, and that distributions are reinvested. Although your actual costs may
be higher or lower, under these assumptions your costs would be:
<TABLE>
<S> <C> <C> <C>
- ---------------------- ---------------------- -------------------- -------------------
After 1 year After 3 years After 5 years After 10 years
- ---------------------- ---------------------- -------------------- -------------------
$541 $837 $1,155 $2,055
- ---------------------- ---------------------- -------------------- -------------------
</TABLE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
Long-term capital appreciation.
INVESTMENT STRATEGIES
[Margin callout: 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.]
The Fund invests at least 65% of its total assets in a diversified portfolio of
common stock of domestic companies that possess above average growth potential
or that possess value not yet fully reflected in the market price of the
companies' shares.
The Fund may invest in other types of securities. These securities include
preferred stock, convertible securities and warrants.
THE ADVISER'S PROCESS The Adviser may invest in companies that have performed
well in the recent past as well as those that have not, but have the potential
for doing so in the future. The Adviser utilizes fundamental analysis and
valuation measures, and technical analysis to determine those companies whose
shares are attractive for purchase. In evaluating companies, the Adviser
considers the:
o Company's historical growth rate and return on capital
o Company's expected future growth rate and return on capital
o Company's financial condition
o Company's industry and competitive position in the industry
o Quality of the company's management
The Adviser constantly monitors the companies in the Fund's portfolio 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:
5
<PAGE>
o A more attractively priced stock is found or if funds are needed for
other purposes
o The underlying company experiences negative internal developments
o The underlying company experiences a decline in financial condition
o The underlying company experiences a significant erosion in
profitability, earnings, or cash flow
o The security is overvalued compared to its fundamentals
o It is oversized compared to other holdings
INVESTMENT RISKS
GENERALLY There is no assurance that the Fund will achieve its investment goal.
The Fund's net asset value and investment performance will fluctuate based upon
changes in the value of its portfolio securities. An investment in the Fund is
not by itself a complete or balanced investment program. The market value of
securities in which the Fund invests are based upon the market's perception of
value and is not necessarily an objective measure of a security's value.
SPECIFIC RISKS Because the Fund invests in growth and value stocks, there is
also the risk that the market will not recognize the intrinsic value of the
stocks. There is also the risk that the Adviser's judgment as to the growth
potential or value of a stock may prove to be wrong. Finally, a decline in
investor demand for the stocks held by the Fund may also adversely affect the
value of these securities.
YEAR 2000 Certain computer systems may not process date-related information
properly on and after January 1, 2000. The Adviser is addressing this matter for
its systems. The Fund's other service providers have informed the Fund that they
are taking similar measures. This matter, if not corrected, could adversely
affect the services provided to the Fund or the companies in which the Fund
invest and, therefore, could lower the value of your shares.
TEMPORARY DEFENSIVE MEASURES The Fund may invest a portion of its assets in cash
and cash equivalents such as high quality money market instruments pending
investment and to retain flexibility in meeting redemptions and paying expenses.
In addition, in order to respond to adverse market, economic, or other
conditions, the Fund may assume a temporary defensive position and invest
without limit in these instruments. As a result, the Fund may be unable to
achieve its investment objective.
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (a mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices, and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI")..
6
<PAGE>
THE ADVISER
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. For its services, the Adviser is entitled to receives an
advisory fee at an annual rate of 0.65% of the average daily net assets of the
Fund.
Forum Investment Advisors, LLC, Two Portland Square, Portland, Maine 04101,
serves as investment adviser to the Fund. The Adviser is a privately owned
company controlled by John Y. Keffer, who is Chairman of the Board. As of the
date of this Prospectus, the Adviser has approximately [___] billion of assets
under management.
PORTFOLIO MANAGER
MARK D. KAPLAN, Director and Senior Portfolio Manager of the Adviser, has been
primarily responsible for the day-to-day management of the Fund's portfolio
since its inception on December 12, 1997. Mr. Kaplan has over fifteen years of
experience in the investment industry and prior to his association with the
Adviser in September 1995, Mr. Kaplan was Managing Director and Director of
Research at H.M. Payson & Co., an investment advisory and trust services
company. Mr. Kaplan is a CFA and has a Masters in Business Administration degree
from Boston University.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide services to the Fund.
As of the date of this Prospectus, 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 Fund's shares. The distributor acts as the agent of the
Trust in connection with the offering of the Fund's 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 Fund's shares.
Forum Administrative Services, LLC (the "Administrator) provides administrative
services to the Fund, Forum Accounting Services, LLC (the "Accountant") is the
Fund's accountant, and Forum Shareholder Services, LLC ("Transfer Agent") is the
Fund's transfer agent.
7
<PAGE>
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of
expenses attributable to the Fund as well as expenses not attributable to any
particular series of the Trust that are allocated among the various series. The
Adviser or other service providers may voluntarily waive all or any portion of
their fees and assume certain expenses of the Fund. Any waiver or expense
reimbursement would have the effect of increasing the Fund's performance for the
period during which the waiver was in effect and may not be recouped at a later
date.
The Administrator and the Transfer Agent have undertaken to waive a portion of
their fees in order to limit the Fund's expenses (excluding taxes, interest,
portfolio transaction expenses and extraordinary expenses) to 1.10% or less of
the average daily net assets of the Fund. Fee waivers and expense reimbursements
are voluntary and may be reduced or eliminated at any time.
YOUR ACCOUNT
[Margin call out: HOW TO CONTACT THE FUND
Write to us at:
Forum Funds
P.O. Box 466
Two Portland Square
Portland, Maine 04112
Telephone us at:
(800) 94FORUM or (800) 943-6786 (Toll Free)
(207) 879-0001
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033 For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: Investors Growth 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 may purchase or sell (redeem) shares at the public offering price next
calculated after your transaction request is received in proper form by the
Transfer Agent. The public offering price is the net asset value of a share (or
NAV) plus any applicable
8
<PAGE>
sales load (or minus any applicable sales load in the case of redemptions). For
instance, if the Transfer Agent receives your purchase request in proper form
after 4:00 p.m., your transaction will be priced at the time of the next
business day's NAV. The Fund cannot accept orders that request a particular day
or price for the transaction or any other special conditions.
The Fund does not issue share certificates.
If you purchase shares directly from the 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
confirmation.
The Fund reserves the right to impose minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
that the New York Stock Exchange is open. The time at which NAV is calculated
may change in case of an emergency or if the Exchange closes early. The Fund's
NAV is determined by taking the market value of all securities owned by the Fund
(plus all other assets such as cash), subtracting liabilities and then dividing
the result (net assets) by the number of shares outstanding. The Fund values
securities for which market quotations are readily available at current market
value. If market quotations are not readily available, the Fund values
securities at fair value.
TRANSACTIONS THROUGH THIRD PARTIES When you invest through your adviser, a
broker or other financial intermediary, the policies and fees (other than sales
charges) charged by that institution may be different than those of the Fund.
For instance, a financial intermediary may charge transaction fees and may set
different minimum investments or limitations on buying or selling shares. Your
institution may also provide you with certain shareholder services such as
periodic account statements summarizing your investment activity and trade
confirmations. Consult a representative of your financial institution 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.
CHECK 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, you may not pay by travelers
checks).
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.
9
<PAGE>
WIRE 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 payments in the following minimum
amounts:
<TABLE>
<S> <C> <C>
-------------------------- ----------------------------
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
- ------------------------------------------------ -------------------------- ----------------------------
Standard Account $2,000 $250
- ------------------------------------------------ -------------------------- ----------------------------
Traditional and Roth IRA Accounts $1,000 $250
- ------------------------------------------------ -------------------------- ----------------------------
Accounts With Automatic Investment Plans - $250
- ------------------------------------------------ -------------------------- ----------------------------
</TABLE>
<TABLE>
<CAPTION>
ACCOUNT REQUIREMENTS
<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, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts the account
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 money to a custodial account under the Uniform Gift to Minors
child. An individual can give up to $10,000 a year per Act or the Uniform Transfers to Minors Act.
child without paying Federal gift tax. o The trustee must sign instructions in a manner
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>
10
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PROCEDURES
<S> <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 assign 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 the 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 $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (usually
defined as more than four exchanges out of the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts 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 expenses incurred by the
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account in any Fund) as
reimbursement. The Fund and its agents have the right to reject or cancel any
purchase or exchange due to nonpayment.
11
<PAGE>
SELLING SHARES
The Fund processes redemption orders 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")
AUTOMATICALLY
o Call or write us for an "Automatic Redemption" form
o Attach a voided check to your form
o Mail us your form
- --------------------------------------------------------------------------------
12
<PAGE>
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 Fund 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, a Fund may ask
you to increase your balance. If the account value remain below $1,000 after 60
days, the Fund may close your account and send you the proceeds. The 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 Fund reserves the right to make a redemption in kind.
The 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 the Fund's operations (for
example, if it represents more than 1% of the Fund's assets).
13
<PAGE>
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.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of shares as follows:
<TABLE>
<CAPTION>
SALES CHARGE (LOAD)
AS % OF
-------------------------------
<S> <C> <C> <C>
PUBLIC
OFFERING PRICE NET ASSET REALLOWANCE
AMOUNT OF PURCHASE -------------- VALUE* -----------
------------------ ------
$0-$49,999 4.00 4.17 3.50
$50,000 to $99,999 3.50 3.63 3.00
$100,000 to $249,999 3.00 3.09 2.50
$250,000 to $499,999 2.50 2.56 2.10
$500,000 to $999,999 2.00 2.04 1.70
$1,000,000 and up 0.00 0.00 1.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The commission paid to the distributor is the sales charge less the Reallowance
paid to certain financial institutions purchasing shares as principal or agent.
Normally, reallownances are paid as indicated in th e above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include: (1) the provision of travel arrangements and lodging,
(2) tickets for entertainment events and (3) merchandise.
REDEMPTIONS A contingent deferred sales charge is assessed on redemptions of
shares that were part of a purchase of $1 million or more. The sales charge is
assessed as follows: (1) 1.00% of the amount redeemed of the shares are redeemed
after one year, but within two years of their purchase. The charge is paid on
the lower of the value of shares redeemed or the cost of the shares.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. If you qualify for
RIGHTS OF ACCUMULATION ("ROA"), the
14
<PAGE>
sales charge you pay is based on the total of your current purchase and the net
asset value (at the end of the previous Fund Business Day) of shares that you
already hold. To qualify for ROA on a purchase, you must inform the transfer
agent and supply sufficient information to verify that each purchase qualifies
for the privilege or discount. You may also enter into a written Letter of
Intent ("LOI"), which expresses your intent to invest $100,000 or more in a Fund
within a period of 13 months. Each purchase of shares under a LOI will be made
at the public offering price applicable at the time of the purchase to a single
transaction of the dollar amount indicated in the LOI. You are not bound by an
LOI.
ELIMINATION OF SALES CHARGES No sales charge is assessed on the reinvestment of
Fund distributions. No sales charge is assessed on purchases made for investment
purposes by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any registered investment adviser which is acting on behalf of its
fiduciary customer accounts and for which it provides additional investment
advisory services
o any broker-dealer with whom the distributor has entered into a Processing
Organization Agreement and a Fee-Based or Wrap Account Agreement and which
is acting on behalf of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or similar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the
benefit of any such person or relative; or the estate of any such person or
relative
o any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment
o persons who exchange into a Fund from a mutual fund other than a fund of
the Trust that participates in the Trust's exchange program, (see "Exchange
Privileges" below) and
o employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
15
<PAGE>
EXCHANGE PRIVILEGES
You may sell your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. Because exchanges are 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 Fund reserves 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 Fund 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
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 Fund offers IRA accounts, including traditional and Roth IRAs. Before
investing in any IRA or other retirement plan, you should consult your tax
adviser. Whenever making an investment in an IRA, be sure to indicate the year
for which the contribution is made.
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income annually. Any net capital gain
realized by the Fund is distributed 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
16
<PAGE>
received in cash or reinvested. Shares become entitled to receive distributions
on the day after the shares are issued.
TAXES
The Fund intends to operate in a manner such that it will not be liable for
Federal income or excise tax.
Distributions of net income or short-term capital gains are taxable to you as
ordinary income. Distributions of long-term capital gains are taxable to you as
long-term capital gain. Distributions also may be subject to certain state and
local taxes.
If you buy shares just before the 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 Fund will mail reports containing information about the Fund's distributions
during the year after December 31 of each year.
Consult your tax adviser about the Federal, state and local income tax
consequences in your particular circumstances.
ORGANIZATION
The Trust is a Delaware. The Fund is one of several 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 the Fund or the Trust.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by [Name of Independent
Auditor]. The Fund's financial statements and the auditor's report are included
in the Annual Report which is available upon request, without charge.
<TABLE>
<S> <C> <C>
Year Ended Year Ended
March 31,1999 March 31,1998(a)
--------------------- ---------------------
Beginning Net Asset Value Per Share $11.35 $10.00
Income from Investment Operations:
Net Investment Income 0.06 0.03
Net Realized and Unrealized Gain on Investments 0.61 1.32
Total from Investment Operations 0.67 1.35
Less Distributions:
From Net Investment Income (0.09) -
From Net Realized Capital Gain (0.33) -
Total Distributions (0.42) -
Ending Net Asset Value $11.60 $11.35
Ratios to Average Net Assets:
Expenses 1.10% 1.10%(b)
Expenses (gross) (c) 1.44% 1.56%(b)
Net Investment Income (Loss) Including Reimbursement/Waiver 0.51% 0.96%(b)
Total Return(d) 6.25% 13.50%
Portfolio Turnover Rate 15.09% 0.00%
Net Assets at End of Period (000's omitted) $29,107 $33,899
</TABLE>
(a) The Fund commenced operations on December 12, 1997.
(b) Annualized.
(c) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(d) Does not include sales charges.
18
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
INVESTORS GROWTH FUND
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual
Reports to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI") The SAI provides
more detailed information about the Fund and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI, request other information and discuss
your questions about the Fund by contacting the Fund at:
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04112
800-943-6786
800-94FORUM
207-879-0001
You can also review the Fund's SAI at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies, for a Forum
Funds
fee, by writing to or calling the following: P.O. Box 446
Two Portland Square
Public Reference Room Portland, Maine 04101
Securities and Exchange Commission 800-943-6786
Washington, D.C. 20549-6009 800-94FORUM
Telephone: 800-SEC-0330 207-879-0001
Free copies are available from the SEC's Internet website
at http://www.sec.gov.
Investment Company Act File No. 811-3023.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999
INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
MAINE MUNICIPAL BOND FUND
NEW HAMPSHIRE BOND FUND
INVESTMENT ADVISER:
Forum Investment Advisers, LLC
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
(800) 943-6786
This Statement of Additional Information (the "SAI") supplements the
Prospectuses dated August 1, 1999, as may be amended from time to time, offering
shares of Investors High Grade Bond Fund, Investors Bond Fund, TaxSaver Bond
Fund, Maine Municipal Bond Fund, and New Hampshire Bond Fund (the "Funds"), five
separate series of Forum Funds, a registered, open-end management investment
company (the "Trust"). This SAI is not a prospectus and should only be read in
conjunction with the Prospectus applicable to each Fund. You may obtain any
Prospectus relating to a Fund without charge by contacting Forum Shareholder
Services at the address or telephone number listed above.
Financial Statements for the Funds for the year ended March 31, 1999, included
in the Annual Report to shareholders, are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting shareholder services at the address or telephone number
listed above.
<PAGE>
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
Glossary ...............................................................................1
1. Investment Policies and Risks...........................................................
2. Certain Information About the State of Maine and New Hampshire..........................
3. Investment Limitations..................................................................
4. Performance Data and Advertising........................................................
5. Management..............................................................................
6. Portfolio Transactions..................................................................
7. Additional Purchase and Redemption Information..........................................
8. Taxation ...............................................................................
9. Other Matters...........................................................................
Appendix A - Description of Securities Ratings...................................................A-1
Appendix B - Miscellaneous Tables................................................................B-1
Appendix C - Performance Data....................................................................C-1
Appendix D - Advertising Matters.................................................................D-1
</TABLE>
2
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Forum Investment Advisers, LLC.
"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.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
1. INVESTMENT POLICIES AND RISKS
Investors High Grade Bond Fund is a diversified series of the Trust, and each of
Investors Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, and New
Hampshire Bond Fund is a non-diversified series of the Trust. This section
discusses in greater detail than the Prospectus certain of the investments the
Funds may make. A Fund will make only those investments described below that are
in accordance with its investment objectives and policies.
A. SECURITY RATINGS INFORMATION
A Fund's investments in fixed income securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, Investors High Grade Bond Fund may only invest
in debt securities that are considered high grade while each other Fund
primarily invests in debt securities considered to be investment grade. High
grade means rated in the top three long-term rating categories by an NRSRO.
Investment grade means rated in the top four long-term rating categories, or
unrated and determined by the Adviser to be of comparable quality. Investors
Bond Fund may invest up to 10% of its assets, TaxSaver Bond Fund may invest up
to 25% of its assets, and Maine Municipal Bond Fund and New Hampshire Bond Fund
may each invest up to 20% of their assets in securities rated below investment
grade. Non-investment grade securities (commonly known as "junk bonds") have
significant speculative characteristics and generally involve greater volatility
of price than investment grade securities.
The lowest ratings that are high grade for corporate bonds are "A" in the case
of Moody's, S&P and Fitch. The lowest ratings that are investment grade for
corporate bonds, including 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. 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 a 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
4
<PAGE>
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.
B. FIXED INCOME INVESTMENTS
1. GENERAL
CORPORATE DEBT OBLIGATIONS. Corporate debt obligations include corporate bonds,
debentures, notes, commercial paper and other similar corporate debt
instruments. These instruments are used by companies to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
must repay the amount borrowed at maturity. Commercial paper (short-term
unsecured promissory notes) is issued by companies to finance their current
obligations and normally has a maturity of less than 9 months.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include securities issued
by the U.S. Treasury and by U.S. Government agencies and instrumentalities. U.S.
Government Securities may be supported by the full faith and credit of the
United States (e.g., mortgage-related securities and certificates of the
Government National Mortgage Association and securities of the Small Business
Administration); by the right of the issuer to borrow from the U.S. Treasury
(e.g., Federal Home Loan Bank securities); by the discretionary authority of the
U.S. Treasury to lend to the issuer (e.g., Fannie Mae (formerly the Federal
National Mortgage Association) securities); or solely by the creditworthiness of
the issuer (e.g., Federal Home Loan Mortgage Corporation securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. No assurance can be given that the U.S. Government would provide
support if it is not obligated to do so by law. Neither the U.S. Government nor
any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MORTGAGE-RELATED SECURITIES. The Funds may invest in mortgage-related
securities. Mortgage-related securities represent interests in a pool of
mortgage loans originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-related securities may
be issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by commercial lenders.
Pools of mortgages consist of whole mortgage loans or participations in mortgage
loans. The majority of these loans are made to purchasers of 1-4 family homes.
The terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, the Funds may purchase pools of adjustable-rate mortgages,
growing equity mortgages, graduated payment mortgages and other types. Mortgage
poolers apply qualification standards to lending institutions which originate
mortgages for the pools as well as credit standards and underwriting criteria
5
<PAGE>
for individual mortgages included in the pools. In addition, many mortgages
included in pools are insured through private mortgage insurance companies.
Mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. Most mortgage-related
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments to holders of these securities are caused by prepayments resulting
from the sale or foreclosure of the underlying property or refinancing of the
underlying loans. As prepayment rates of individual pools of mortgage loans vary
widely, it is not possible to predict accurately the average life of a
particular mortgage-related security. Although mortgage-related securities are
issued with stated maturities of up to forty years, unscheduled or early
payments of principal and interest on the mortgages may shorten considerably the
securities' effective maturities.
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The principal and interest on GNMA
pass-through securities are backed by the full faith and credit of the U.S.
Government.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Mortgage-related
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
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interest and principal on the securities. The market for privately-issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers.
STRIPPED MORTGAGE-RELATED SECURITIES. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus, a
Fund could suffer some principal loss if the Fund sold the securities before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates. Some adjustable rate securities (or the underlying mortgages) are
subject to caps or floors, that limit the maximum change in interest rates
during a specified period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs as they are received, although certain
classes (often referred to as "tranches") of CMOs have priority over other
classes with respect to the receipt of mortgage prepayments.
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and that have multiple classes similar to those of CMOs.
Payments of principal of and interest on the underlying Mortgage Assets (and in
the case of CMOs, any reinvestment income thereon) provide funds to pay debt
service on the CMOs or to make scheduled distributions on the multi-class
mortgage pass-through securities. Parallel pay CMOs are structured to provide
payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. Planned amortization class mortgage-related
securities ("PAC Bonds") are a form of parallel pay CMO. PAC Bonds are designed
to provide relatively predictable payments of principal provided that, among
other things, the actual prepayment experience on the underlying mortgage loans
falls within a contemplated range. CMOs may have complicated structures and
generally involve more risks than simpler forms of mortgage-related securities.
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ASSET-BACKED SECURITIES. Asset-backed securities, which have structural
characteristics similar to mortgage-related securities but have underlying
assets that are not mortgage loans or interests in mortgage loans. Asset-backed
securities represent fractional interests in, or are secured by and payable
from, pools of assets such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (e.g., credit card) agreements.
Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Asset-backed
securities have structures and characteristics similar to those of
mortgage-related securities and, accordingly, are subject to many of the same
risks, although often, to a greater extent.
MUNICIPAL SECURITIES. Municipal securities are issued by the states, territories
and possessions of the United States, their political subdivisions (such as
cities, counties and towns) and various authorities (such as public housing or
redevelopment authorities), instrumentalities, public corporations and special
districts (such as water, sewer or sanitary districts) of the states,
territories and possessions of the United States or their political
subdivisions. In addition, municipal securities include securities issued by or
on behalf of public authorities to finance various privately operated
facilities, such as industrial development bonds, that are backed only by the
assets and revenues of the non-governmental user (such as hospitals and
airports).
Municipal securities are issued to obtain funds for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities are
classified as general obligation or revenue bonds or notes. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable from revenue derived from a particular facility, class of facilities or
the proceeds of a special excise tax or other specific revenue source but not
from the issuer's general taxing power. Private activity bonds and industrial
revenue bonds do not carry the pledge of the credit of the issuing municipality,
but generally are guaranteed by the corporate entity on whose behalf they are
issued.
Muncipal leases are entered into by state and local governments and authorities
to acquire equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other assets. Municipal leases (which normally
provide for title to the leased assets to pass eventually to the government
issuer) have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt-issuance limitations of many state constitutions and
statutes are deemed to be inapplicable because of the inclusion in many leases
or contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis.
VARIABLE AND FLOATING RATE SECURITIES. Debt securities have variable or floating
rates of interest and, under certain limited circumstances, may have varying
principal amounts. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to one or
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more interest rate indices or market interest rates (the "underlying index").
The interest paid on these securities is a function primarily of the underlying
index upon which the interest rate adjustments are based. These adjustments
minimize changes in the market value of the obligation. Similar to fixed rate
debt instruments, variable and floating rate instruments are subject to changes
in value based on changes in market interest rates or changes in the issuer's
creditworthiness. The rate of interest on securities may be tied to U.S.
Government Securities or indices on those securities as well as any other rate
of interest or index. Certain variable rate securities pay interest at a rate
that varies inversely to prevailing short-term interest rates (sometimes
referred to as "inverse floaters"). Certain inverse floaters may have an
interest rate reset mechanism that multiplies the effects of changes in the
underlying index. This mechanism may increase the volatility of the security's
market value while increasing the security's yield.
Variable and floating rate demand notes of corporations are redeemable upon a
specified period of notice. These obligations include master demand notes that
permit investment of fluctuating amounts at varying interest rates under direct
arrangements with the issuer of the instrument. The issuer of these obligations
often has the right, after a given period, to prepay the outstanding principal
amount of the obligations upon a specified number of days' notice.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Funds intend to purchase these securities only when the Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Adviser may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that the Adviser
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. A Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Adviser monitors the liquidity of
each Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
STAND-BY COMMITMENTS. A stand-by commitment is the rights to resell a security
to the seller at an agreed upon price or yield within a specified period prior
to its maturity date. Securities with a stand-by commitment are generally more
expensive if the same securities were without the commitment. Stand-by
commitments allow a Fund to invest in a security while preserving its liquidity
to meet unanticipated redemptions. A Fund will enter into stand-by commitments
only with banks or municipal security dealers that the Adviser believes have
minimal credit risk. The value of a stand-by commitment is dependent on the
ability of the writer to meet its repurchase obligation.
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PARTICIPATION INTERESTS. Participation interests are interests in loans or
securities in which a Fund may invest directly that are owned by banks or other
institutions. A participation interest gives a Fund an undivided proportionate
interest in a loan or security determined by the Fund's investment.
Participation interests may carry a demand feature permitting the holder to
tender the interests back to the bank or other institution. Participation
interests, however, do not provide the Fund with any right to enforce compliance
by the borrower, nor any rights of set-off against the borrower and the
Portfolio may not directly benefit from any collateral supporting the loan in
which it purchased a participation interest. As a result, the Fund will assume
the credit risk of both the borrower and the lender that is selling the
participation interest.
2. RISKS
GENERAL. The market value of the interest-bearing fixed income securities held
by the Funds will be affected by changes in interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. Changes in the ability of an issuer to make payments of interest and
principal and in the markets' perception of an issuer's creditworthiness will
also affect the market value of that issuer's debt securities. As a result, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk, which refers
to the change in total return on a security resulting from an extension or
abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. A portion of the
municipal securities held by the Funds may be supported by credit and liquidity
enhancements, such as letters of credit (which are not covered by federal
deposit insurance) or puts or demand features of third party financial
institutions, generally domestic and foreign banks.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK. The Funds' investments in fixed income securities are subject to
credit risk relating to the financial condition of the issuers of the securities
that each Fund holds. To limit credit risk, each Fund will generally buy debt
securities that are rated in the top four long-term rating categories by an
NRSRO or in the top two short-term rating categories by an NRSRO. Moody's,
Standard & Poor's and other NRSROs are private services that provide ratings of
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the credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of securities by
several NRSROs is included in Appendix B. The Adviser may use these ratings to
determine whether to purchase, sell or hold a security. Ratings are not,
however, absolute standards of quality. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Consequently, similar securities with the same
rating may have different market prices. In addition, rating agencies may fail
to make timely changes in credit ratings and the issuer's current financial
condition may be better or worse than a rating indicates.
Each Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
Each Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of the Funds to successfully utilize mortgage-related
securities depends in part upon the ability of the Advisers to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting the Fund's yield. Because prepayments of
principal generally occur when interest rates are declining, it is likely that
the Funds, to the extent they retain the same percentage of debt securities, may
have to reinvest the proceeds of prepayments at lower interest rates then those
of their previous investments. If this occurs, a Fund's yield will
correspondingly decline. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates (when
prepayment of principal is more likely) than other fixed income securities of
comparable duration, although they may have a comparable risk of decline in
market value in periods of rising interest rates. A decrease in the rate of
prepayments may extend the effective maturities of mortgage-related securities,
reducing their sensitivity to changes in market interest rates. To the extent
that the Funds purchase mortgage-related securities at a premium, unscheduled
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prepayments, which are made at par, result in a loss equal to any unamortized
premium.
To lessen the effect of the failures by obligors on Mortgage Assets to make
payments, CMOs and other mortgage-related securities may contain elements of
credit enhancement, consisting of either (1) liquidity protection or (2)
protection against losses resulting after default by an obligor on the
underlying assets and allocation of all amounts recoverable directly from the
obligor and through liquidation of the collateral. This protection may be
provided through guarantees, insurance policies or letters of credit obtained by
the issuer or sponsor from third parties, through various means of structuring
the transaction or through a combination of these. The Funds will not pay any
additional fees for credit enhancements for mortgage-related securities,
although the credit enhancement may increase the costs of the mortgage-related
securities.
ASSET-BACKED SECURITIES. Like mortgages underlying mortgage-related securities,
the collateral underlying asset-backed securities are subject to prepayment,
which may reduce the overall return to holders of asset-backed securities.
Asset-backed securities present certain additional and unique risks. Primarily,
these securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-related
securities. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set-off certain amounts owed
on the credit cards, thereby reducing the balance due. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and the technical requirements under
state laws, the trustee for the holders of the automobile receivables may not
have a proper security interest in the underlying automobiles. As a result, the
risk that recovery on repossessed collateral might be unavailable or inadequate
to support payments on asset-backed securities is greater for asset-backed
securities than for mortgage-related securities. In addition, because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of an interest rate or economic cycle has not been tested.
NON-INVESTMENT GRADE SECURITIES. Each Fund except Investors High Grade Bond Fund
may invest in securities rated below the fourth highest rating category by an
NRSRO or which are unrated and judged by the Adviser to be comparable quality.
Such high risk securities (commonly referred to as "junk bonds") are not
considered to be investment grade and have speculative or predominantly
speculative characteristics. Non-investment grade, high risk securities provide
poor protection for payment of principal and interest but may have greater
potential for capital appreciation than do higher quality securities. These
lower rated securities involve greater risk of default or price changes due to
changes in the issuers' creditworthiness than do higher quality securities. The
market for these securities may be thinner and less active than that for higher
quality securities, which may affect the price at which the lower rated
securities can be sold. In addition, the market prices of lower rated securities
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may fluctuate more than the market prices of higher quality securities and may
decline significantly in periods of general economic difficulty or rising
interest rates.
C. TEMPORARY DEFENSIVE POSITION
A Fund may assume a temporary defensive position and may invest without limit in
money market instruments that are of prime quality. Prime quality money market
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. Certain additional Funds may invest in
commercial paper as an investment and not as a temporary defensive position.
Except as noted below with respect to variable master demand notes, issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
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, commercial paper, time deposits, bankers acceptances
and certificates of deposit of banks doing business in the United States that
have, at the time of investment, total assets in excess of one billion dollars
and that are insured by the Federal Deposit Insurance Corporation, 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.
D. OPTIONS AND FUTURES
1. GENERAL
The Funds do not currently invest in options and futures contracts. In the
future, each Fund may seek to hedge against a decline in the value of securities
it owns or an increase in the price of securities which it plans to purchase by
purchasing options and writing (i.e., selling) covered options. Each Fund may
purchase or write options on securities in which it invests and on any
securities index based in whole or in part on securities in which it may invest.
The Funds may buy and sell interest rate futures contracts on Treasury bills,
Treasury bonds and on other financial instruments. TaxSaver Bond Fund may also
purchase and sell municipal bond index futures contracts. The Funds may write
put and call options and purchase options on permissible futures contracts.
The Funds may only invest in options traded on an exchange or in an
over-the-counter market.
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
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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 INDICES. An index assigns relative values to the securities in the
index, and the index fluctuates with changes in the market values of the
securities included in the index. Index options operate in the same way as the
more traditional options on securities except that index options are settled
exclusively in cash and do not involve delivery of securities. Thus, upon
exercise of index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the 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 sescurity, 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 index
futures contract involves the delivery of an amount of cash equal to a specified
dollar amount times the difference between the bond 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
The Fund will not hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, the Fund
will not buy futures contracts or write put options whose underlying value
exceed 5% of the Funds total assets. The Fund will also not purchase call
options if the underlying value of all such options would exceed 5% of the
Fund's total assets. The Fund will not enter into futures contracts and options,
if immediately thereafter, more than 5% of the Fund's total assets would be in
vested in these options or committed to margin on futures contracts.
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4. 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.
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
E. 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 in satisfying redemptions. There can be
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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.
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.
F. REPURCHASE AGREEMENTS
1. GENERAL
Each Fund may enter into repurchase agreements. Repurchase agreements are
transactions in which a Fund purchases securities from a bank or securities
dealer and simultaneously commits to resell the securities to the bank or dealer
at an agreed-upon date and at a price reflecting a market rate of interest
unrelated to the purchased security. During the term of a repurchase agreement,
each Fund's custodian maintains possession of the purchased securities and any
underlying collateral, which is maintained at not less than 100% of the
repurchase price. Repurchase agreements allow a Fund to earn income on its
uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments.
3. RISKS
Repurchase Agreements involves credit risk. Credit risk is the risk that a
counterparty to a transaction will be unable to honor its financial obligation.
In the event that bankruptcy, insolvency or similar proceedings are commenced
against a counterparty, a Fund may have difficulties in exercising its rights to
the underlying securities or currencies, as applicable. A Fund may incur costs
and expensive time delays in disposing of the underlying securities and it may
suffer a loss. Failure by the other party to deliver a security or currency
purchased by a Fund may result in a missed opportunity to make an alternative
investment. Counterparty insolvency risk with respect to repurchase agreements
is reduced by favorable insolvency laws that allow a Fund, among other things,
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to liquidate the collateral held in the event of the bankruptcy of the
counterparty
G. LEVERAGE TRANSACTIONS
Each Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to a Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into reverse
repurchase agreements, purchasing securities on a when-issued, delayed delivery
or forward commitment basis and the use of swaps and related agreements are
transactions that result in leverage. The Funds use these investment techniques
only when the Advisers believe that the leveraging and the returns available to
the Funds from investing the cash will provide investors a potentially higher
return.
1. BORROWING
Each Fund may borrow money from banks for temporary or emergency purposes in an
amount up to 33 1/3% of the Fund's total assets. Each Fund may borrow money for
any other purpose so long as such borrowings to not exceed 10% of the Fund's
total assets. The purchase of securities is prohibited if a Fund's borrowings
10% or more of the Fund's total assets.
Each Fund may also enter into reverse repurchase agreements. A reverse
repurchase agreement is a transaction in which a Fund sells securities to a bank
or securities dealer and simultaneously commits to repurchase the security from
the bank or dealer at an agreed upon date and at a price reflecting a market
rate of interest unrelated to the sold security. An investment of a Fund 's
assets in reverse repurchase agreements will increase the volatility of the
Fund's net asset value per unit. A Fund will use the proceeds of reverse
repurchase agreements to fund redemptions or to make investments.
2. SECURITIES LENDING
As a fundamental policy, each Fund may lend portfolio securities in an amount up
to 10% of its total assets to brokers, dealers and other financial institutions.
Securities loans must be continuously collateralized and the collateral must
have market value at least equal to value of the Fund's loaned securities, plus
accrued interest. In a portfolio securities lending transaction, a Fund receives
from the borrower an amount equal to the interest paid or the dividends declared
on the loaned securities during the term of the loan as well as the interest on
the collateral securities, less any fees (such as finders or administrative
fees) the Fund pays in arranging the loan. The Fund may share the interest it
receives on the collateral securities with the borrower. The terms of a Fund's
loans permit the Fund to reacquire loaned securities on five business days'
notice or in time to vote on any important matter. Loans are subject to
termination at the option of a Fund or the borrower at any time, and the
borrowed securities must be returned when the loan is terminated.
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3. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Funds may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
4. SWAPS, CAPS FLOORS AND COLLARS
Investors Bond Fund and TaxSaver Bond Fund may enter into interest rate,
currency and mortgage (or other asset) swaps, and may purchase and sell interest
rate "caps," "floors" and "collars." Interest rate swaps involve the exchange by
a Fund and a counterparty of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed rate payments).
Mortgage swaps are similar to interest rate swap agreements, except that the
contractually-based principal amount (the "notional principal amount") is tied
to a reference pool of mortgages. Currency swaps' notional principal amount is
tied to one or more currencies, and the exchange commitments can involve
payments in the same or different currencies. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments of interest on the notional
principal amount from the party selling the cap. The purchase of an interest
rate floor entitles the purchaser, to the extent that a specified index falls
below a predetermined value, to receive payments on a notional principal amount
from the party selling such floor. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed range.
A Fund will enter into these transactions primarily to preserve a return or a
spread on a particular investment or portion of its portfolio or to protect
against any interest rate fluctuations or increase in the price of securities it
anticipates purchasing at a later date. A Fund use these transactions as a hedge
and not as a speculative investment, and will enter into the transactions in
order to shift the Fund's investment exposure from one type of investment to
another.
The use of interest rate protection transactions is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If an Adviser
incorrectly forecasts market values, interest rates and other applicable
factors, there may be considerable impact on a Fund's performance. Even if the
Advisers are correct in their forecasts, there is a risk that the transaction
may correlate imperfectly with the price of the asset or liability being hedged.
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4. RISKS
Leverage creates the risk of magnified capital losses. Losses incurred by a Fund
may be magnified by borrowings and other liabilities that exceed the equity base
of the Fund. Leverage may involve the creation of a liability that requires a
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
a Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to a Fund's
commitments under these transactions.
2. CERTAIN INFORMATION CONCERNING THE STATES OF MAINE AND NEW HAMPSHIRE
STATE OF MAINE
Material in this section has been compiled from numerous sources including "The
Maine Economy: Year-End Review and Outlook, 1997" prepared and published by the
Economics Division of the Maine State Planning Office; "State of Maine, General
Fund Budget, Revenue and Economic Data, May 13, 1998;" and "State of Maine
Presentation to Moody's Investors Service, Standard and Poors, and Fitch
Investors Service, Inc., May 13, 1998." In addition, certain information was
obtained from the Preliminary Official Statement of the State of Maine dated May
17, 1999 and published in connection with the proposed issuance on June 22, 1999
of $71,285,000 State of Maine general obligation bonds dated June 1, 1999. Other
information concerning Maine budgetary matters was obtained from official
legislative documents, the Office of the Commissioner of the Maine Department of
Administrative and Financial Services, the Office of the Treasurer of the State
of Maine, the Bureau of the Budget of the Maine Department of Administrative and
Financial Services, the Office of Fiscal and Program Review of the Maine
Legislature, the Maine State Planning Office, and the Maine State Retirement
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System. The most recent information concerning credit ratings on debt issued by
or on behalf of the State of Maine and its subordinate agencies was obtained
from credit reports for the State of Maine published by S&P on June 5, 1998, by
Moody's on June 5, 1998, and by Fitch on June 8, 1998, and restated by Fleet
Securities, Portland, Maine as part of the issuance of $5,725,000 State of Maine
bond anticipation notes dated August 26, 1998 and maturing January 21, 1999, and
$33,695,000 State of Maine bond anticipation notes dated January 21, 1999 and
maturing June 23, 1999.
Although the information derived from the above sources is believed to be
accurate, none of the information obtained from these sources has been verified
independently. While the following summarizes the most current information
available from the above sources, it does not reflect economic conditions or
developments which may have occurred or trends which may have materialized since
the dates indicated.
The State of Maine, which includes nearly one-half of the total land area of the
six New England states, currently has a population of approximately 1,242,000.
The structure of the Maine economy is similar to that of the nation as a whole,
except that the Maine economy historically has had more activity in
manufacturing, defense-related activities, and tourism, and less activity in
finance and services. Recently, however, the manufacturing and defense-related
sectors of Maine's economy have decreased significantly, and the service
industry, retail, and financial services sectors of Maine's economy have
increased significantly.
During the 1980's, Maine's economy surpassed national averages in virtually all
significant measures of economic growth. During this ten-year period, Maine real
economic growth was 40% as measured by the Maine Economic Growth Index ("EGI"),
a broad-based measure of economic growth which is corrected for inflation. This
economic growth compares to national real economic growth during the 1980's of
26% and 29%, measured by the United States Economic Growth Index and real Gross
National Product respectively. During this time period, resident employment in
Maine increased by 21%, while resident employment nationally increased by 19%.
Inflation-adjusted retail sales in Maine during this period increased by 72%, as
opposed to a 32% increase in such retail sales nationally. During the 1980's,
per capita personal income in Maine rose from 44th in the nation in 1979, to
26th in the nation in 1989, or from 81% to 92% of the national average of per
capita personal income.
Beginning in the fourth quarter of 1989, however, the Maine economy experienced
a substantial temporary decline. For example, the Maine economy sustained only
0.8% real growth in 1989, and experienced real growth of -1.1% in 1990 and -2.6%
in 1991. Data show that the Maine economy began a sustained decline during the
fourth quarter of 1989, and the second quarter of 1991 saw the seventh
consecutive quarterly decline in the Maine EGI. The third and fourth quarters of
1991 showed barely positive economic growth of 0.9% and 0.2% respectively.
Economic recovery in Maine also has been hindered by significant losses in
defense-related jobs, with the State losing since 1990 approximately 20% of its
defense-dependent employment which peaked at 63,000 jobs in 1989. During the
1989-1991 period also, the State lost 6% of its entire job base.
Since 1991 the Maine economy has experienced a modest and sustained recovery,
and this recovery has continued through the end of calendar year 1997. In the
words of the Economics Division of the Maine State Planning Office, "Maine
economic performance in 1997 was stronger than in recent years, with nearly all
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major indicators describing improvement over last year. However, national
economic growth was again stronger than Maine's." This conclusion is illustrated
by the fact that growth of Maine total personal income in 1997, while strong,
continued to lag behind that of the nation as a whole, with real growth in Maine
total personal income during 1997 of approximately 5.0% compared to real growth
in national total personal income during 1997 of approximately 5.7%. This means
that for 1997 Maine total personal income grew at only approximately 88% of the
national average. Furthermore, these data are part of a continuing trend that
show the growth of the Maine economy consistently lagging behind that of the
nation as a whole for the past several years.
On the positive side, in spite of the fact that the growth of the Maine economy
continues to be less than the growth of the national economy, most of the major
economic indicators monitored by the Economics Division of the Maine State
Planning Office, show that the Maine economy in 1997 improved steadily over its
performance in 1996. For example, Maine payroll employment in 1997 expanded
2.0%, or more than twice the 0.8% expansion in Maine payroll employment
experienced in 1996. During 1997, the Maine economy added 11,000 new jobs - more
than in any year since 1994. In addition, Maine construction contract awards
increased 14.2% in 1997 as opposed to an 8.7% decrease in such awards in 1996.
State government General Fund revenues grew at a rate of 7.3% in 1997 as opposed
to a 6.4% growth rate in 1996. Help wanted advertising in Portland-area
newspapers increased 27.4% over the amount of such advertising recorded in the
same geographic area in 1996, and social assistance caseloads in Maine (Aid to
Families with Dependent Children and Food Stamps) decreased 11.4% and 6.0%
respectively over such caseload totals for 1996. Additional positive indicators
were that, during 1997, unit sales of homes in Maine increased 5% over such
sales in 1996, the average sales price of a home in Maine increased to over
$114,000, and the average time on the market prior to sale for homes in Maine
decreased to less than 100 days. Another indicator of the character of Maine's
economy through the first nine months of fiscal year 1998 was that Maine
individual income tax payments for the period were 10% above official
projections.
A further positive factor in the growth of Maine's economy is that Maine
employers recently have experienced a substantial decrease in workers'
compensation costs. For many years, Maine possessed the highest workers'
compensation insurance rates in the country. The issue was so divisive that it
caused a shutdown of State government in 1992. Since that time, however, the
Maine Legislature has created the Maine Employers' Mutual Insurance Co. and has
passed numerous reforms in Maine's workers' compensation laws. As a result,
workers' compensation loss ratios have declined 79% since 1991, and workers'
compensation insurance rates in Maine have declined 41% since 1994. Another
positive step concerning workers' compensation insurance rates in Maine was
taken in May of 1997 when the Maine Legislature, at the request of the Governor,
refused to accede to a effort by organized labor to roll back many of the
reforms in Maine's workers' compensation laws enacted since 1992.
The only major economic indicators for Maine not showing significant improvement
in 1997 were taxable consumer retail sales, Maine manufacturing employment, and
personal bankruptcy filings. Specifically, Maine taxable consumer retail sales
in 1997 increased 3.8% over the same sales figures for 1996, but slowed from the
5.1% annual increase in such sales recorded in 1996. Also, Maine manufacturing
employment decreased by 0.9% in 1997, continuing its long-term decline. Also,
the number of personal bankruptcies approved in Maine over the Federal fiscal
year ended September 30, 1997 increased by 44% over that of the previous Federal
fiscal year ended September 30, 1996 (nationally, bankruptcies increased during
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the same period by only 24%). The slowing of the rate of increase in Maine
taxable consumer retail sales (including, among other items, taxable retail
sales related to the tourist industry) is particularly significant for State of
Maine credit purposes. Since over one-third of Maine State government General
Fund revenues are derived from a 6% retail sales tax, the performance of taxable
retail sales in Maine is directly related to the ability of Maine State
government to fund necessary governmental expenditures, and to repay its debt.
Prior to October 1, 1998, the rate of tax on the value of most such taxable
retail sales (the "General Sales Tax Rate") was 6%. On October 1, 1998, the
General Sales Tax Rate was reduced by 0.5% to its current rate of 5.5% as a
result of an automatic adjustment to the General Sales Tax Rate enacted in 1993
and set forth at 36 MRSA ss.1811 (the "Automatic Adjustment Act"). The Automatic
Adjustment Act provides that, if General Fund revenues for a fiscal year, as
determined by the State Controller at the close of that fiscal year, exceed
General Fund revenues for the prior fiscal year by 8% or more, on a base-to-base
comparison excluding one-time revenue gains and losses, then the General Sales
Tax Rate shall be reduced by 0.5% on the subsequent October 1. The Automatic
Adjustment Act further provides that each month following the end of a fiscal
year during which General Fund revenues for the current fiscal year exceed
General Fund revenues for the prior fiscal year by 8% or more, on a base-to-base
comparison excluding one-time revenue gains and losses, the State Controller
shall transfer an amount equivalent to that generated over the preceding month
by 0.5% of the General Sales Tax Rate to the Maine Rainy Day Fund until
reduction of the General Sales Tax Rate on the subsequent October 1 (See
discussion below of the Maine Rainy Day Fund).
Therefore, under current law, if General Fund Revenues for the fiscal year
ending June 30, 1999 exceed General Fund Revenues for the fiscal year ended June
30, 1998 by 8% or more, on a base-to-base comparison excluding one-time revenue
gains and losses, then transfers to the Maine Rainy Day Fund of amounts
equivalent to that generated over the preceding month by 0.5% of the General
Sales Tax Rate would be made monthly beginning in July, 1999 and the General
Sales Tax Rate would be reduced to 5% from its current rate of 5.5% on October
1, 1999. Furthermore, there can be no assurance that the General Sales Tax Rate
will not be reduced by 0.5% on October 1 of any subsequent year pursuant to the
Automatic Adjustment Act.
The Governor, as part of his supplemental budget proposal, has proposed repeal
of the Automatic Adjustment Act retroactive to May 15, 1999 and reduction of the
General Sales Tax Rate from its current rate of 5.5% to 5% effective July 1,
2000. There can be no assurance, however, that the Governor's proposal will be
enacted into law.
One other factor in the Maine economy is that while the statewide economic
statistics show, in the words of the Economics Division of the State Planning
Office, "fairly solid economic performance," the data tend to mask regional
disparities in economic performance within the State of Maine. For example, by
all of the usual indicators of economic performance, the southern and
mid-coastal counties of Maine are experiencing rapid economic growth. Cumberland
County (including the Portland metropolitan area) alone accounted for 80% of all
job gains in the State from 1990 to 1996 and Cumberland County has a per capita
income level that is 25% above the statewide average. The counties that lie
along the I-95 corridor are also experiencing some economic prosperity. The "rim
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counties" of Maine, however, from Oxford County in the West, to Aroostook County
in the North, to Washington County in the East are struggling economically.
On the whole, however, according the Economics Division of the State Planning
Office, "the outlook for Maine's economy is for slow but steady growth."
The fiscal policies of the State of Maine are very conservative, and the State
is required by its Constitution to operate on a balanced budget. The Maine
Constitution does this by prohibiting the Legislature, by itself, from issuing
any debt by or on behalf of the State which exceeds $2,000,000 "except to
suppress insurrection, to repel invasion, or for purposes of war, and except for
temporary loans to be paid out of money raised by taxation during the fiscal
year in which they are made." The Maine Constitution also provides for the
prohibition of debt issued by or on behalf of the State to fund "current
expenditures." The Maine Constitution allows the issuance of long-term debt when
two-thirds of both houses of the Legislature pass a law authorizing the issuance
of such debt, and when the voters of the State ratify and enact such a law at a
general or special statewide election. Amendments to the Maine Constitution also
have been adopted to permit the Legislature to authorize the issuance of bonds
to insure payment of up to: (i) $6,000,000 of revenue bonds of the Maine School
Building Authority; (ii) $4,000,000 of loans to Maine students attending
institutions of higher education; (iii) $1,000,000 of mortgage loans for Indian
housing; (iv) $4,000,000 of mortgage loans to resident Maine veterans including
businesses owned by resident Maine veterans; and (v) $90,000,000 of mortgage
loans for industrial, manufacturing, fishing, agricultural and recreational
enterprises. The Maine Constitution provides that if the Legislature fails to
appropriate sufficient funds to pay principal and interest on general obligation
bonds of the State, the State Treasurer is required to set aside sufficient
funds from the first General Fund revenues received thereafter by the State to
make such payments.
In recent years, Maine State government has avoided the Maine constitutional
balanced budget requirement by annually issuing significant amounts of tax
anticipation notes ("TANs") during the first few days after the July 1 beginning
of each new fiscal year and leaving such TANs outstanding until almost the
beginning of the next fiscal year. For example, on June 26, 1996 the State
issued $150,000,000 in TANs due June 27, 1997. Both the size of these issues and
fiscal legitimacy for them, however, have recently been criticized, and the
State is becoming more conservative with regard to the issuance of TANS . This
has been made possible largely by the continued imposition of tightly
conservative State fiscal policies that allowed the State to end fiscal year
1997 with an estimated $59.7 million surplus, and to end fiscal year 1998 with
an estimated approximate $125 million surplus. No TANs was issued in the 1998
fiscal year, and no TANs currently are planned for issuance in fiscal years 1999
or 2000.
As of April 30, 1999, there were outstanding general obligation bonds of the
State in the principal amount of $424,585,000. On June 22,1999, the State
proposes to issue $71,285,000 general obligation bonds dated June 1, 1999. As of
May 17, 1999, there were outstanding bond anticipation notes of the State in the
principal amount of $33,695,000 with a maturity of June 23, 1999. As of May 17,
1999, there were authorized by the voters of the State for certain purposes but
unissued, general obligation bonds of the State in the aggregate principal
amount of $117,790,316, including the $71,285,000 in general obligation bonds to
be issued on June 22, 1999. As of May 17, 1999, there were authorized by the
Constitution of the State and implementing legislation but unissued, general
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obligation bonds of the State in the aggregate principal amount of $99,000,000.
Various other Maine governmental agencies and quasi-governmental agencies
including, but not limited to, the Maine Municipal Bond Bank, the Maine Court
Facilities Authority, the Maine Health and Higher Educational Facilities
Authority, Maine Turnpike Authority, the Maine State Housing Authority, the
Maine Public Utility Financing Bank, and the Maine Educational Loan Authority,
issue debt for Maine governmental purposes, but this debt does not pledge the
credit of the State.
The strength of Maine's economy during the 1980's enabled the State to
accumulate relatively large unappropriated surpluses of general fund revenues.
During the economic recession of 1989 through 1992, however, Maine State
government repeatedly reduced its expenditures in order to comply with the
requirement of the Maine Constitution that State government operate on a
balanced budget. Such cuts in General Fund expenditures, other fiscal cost
reductions, and a continuing policy by the current Governor not to allow the
creation of significant new State governmental programs or the taxes to fund
such programs, have allowed the Governor and Legislature most recently to enact
a series of balanced budgets funding State services for fiscal years 1999, 2000,
and 2001.
Laws authorizing budgeted expenditures for fiscal year 1999 have been enacted
and provide for General Fund expenditures of $2,201,734,442 and Highway Fund
expenditures of $220,267,045. Laws authorizing certain expenditures to maintain
current services for fiscal years 2000 and 2001 also have been enacted and
provide, for fiscal year 2000 General Fund expenditures of $2,159,897,758 and
Highway Fund expenditures of $237,526,837 and, for fiscal year 2001, General
Fund expenditures of $2,241,357,100 and Highway Fund expenditures of
$238,848,325. In addition, the Governor has proposed to the first regular
session of the Legislature in 1999, for fiscal year 2000, supplemental General
Fund expenditures of $77,725,430 and supplemental Highway Fund expenditures of
$27,372,877 and, for fiscal year 2001, supplemental General Fund expenditures of
$92,392,457 and supplemental Highway Fund expenditures of $29,470,736.
The State also maintains a "Rainy Day Fund" to be used for significant
unforeseen capital and operational expenditures. As of June 30, 1998 the balance
in the State's Rainy Day Fund was approximately $91.7 million, the highest
amount ever. There can be no assurance that the budget acts for fiscal years
1999, 2000, and 2001, and the various other statutes passed by the Maine
Legislature which affect the State's fiscal position, will not be amended by the
Legislature from time to time.
The unfunded liability of the Maine State Retirement System is a significant and
continuing problem for Maine State government. This unfunded liability was
certified by the State's independent actuaries as of June 30, 1998 to be
approximately $2.5 billion. Because of this, the State has adopted a
constitutional amendment (Me. Const. art. IX, ss.18-B) that required the Maine
Legislature, beginning in fiscal year 1997, annually to appropriate funds that
will retire in 31 years or less the System's unfunded liability attributable to
State employees and teachers. In the Second Regular Session of the 118th Maine
Legislature, the State reduced by statute the amount of time to retire the
unfunded liability to 25 years from June 30, 1998. The State also has adopted a
separate constitutional amendment (Me. Const. art. IX, ss.18-A) that requires
the Maine Legislature, beginning in fiscal year 1998, annually to appropriate
monies to fund the System on an actuarily sound basis. Under Article IX, ss.18-B
of the Maine Constitution, unfunded liabilities henceforth may not be created
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for the System except those resulting from experience losses, and such unfunded
liabilities resulting from experience losses must be retired over a period not
exceeding 10 years.
During the next several years, Maine may be the recipient of certain additional
revenues. Pursuant a settlement agreement (the "Settlement Agreement"), the
State of Maine is one of forty-six states that recently settled litigation
against certain manufacturers of cigarettes and other tobacco products (the
"Manufacturers"). The forty-six states (the "Settling States") had sued to
recover smoking related Medicaid costs (the "Claims"). Pursuant to the
Settlement Agreement, the Manufacturers have agreed to make certain payments to
the Settling States and the Settling States have agreed to relinquish the
Claims, subject to certain conditions set forth in the Settlement Agreement.
Commencing in January, 1999, certain initial payments were made by the
Manufacturers for the benefit of the State of Maine to a national escrow account
in accordance with the Settlement Agreement. The initial payments are expected
to continue through 2003. The initial payments to the national escrow account
are expected to be received by the State of Maine no later than June 30, 2000.
Certain annual payments by the Manufacturers to the State of Maine pursuant to
the Settlement Agreement are expected to commence in April, 2000 and to continue
for as long as the Manufacturers remain in business. The Maine State Treasurer
has estimated the maximum amount of such payments to be made to the State of
Maine at $1.58 billion.
The monies expected to be received by the State of Maine pursuant to the
Settlement Agreement are subject to decreases, offsets, and reductions,
including a possible claim by the Federal government that up to sixty-six
percent (66%) of the settlement payments should be paid to the Federal
government as compensation for extra costs paid by the Federal government for
smoking related Medicaid costs. Accordingly, there can be no assurance as to the
amount of monies that will be received by the State of Maine pursuant to the
Settlement Agreement or as to when, if ever, such monies, will be received.
Because of Maine's conservative debt policies and its constitutional requirement
that the State government operate under a balanced budget, Maine general
obligation bonds had been rated AAA by S&P and Aa1 by Moody's for many years.
On June 6, 1991, however, S&P lowered its credit rating for Maine general
obligation bonds from AAA to AA+, and at the same time lowered its credit rating
on bonds issued by the Maine Municipal Bond Bank and the Maine Court Facilities
Authority, and on State of Maine Certificates of Participation for highway
equipment, from AA to A+. In taking this action, S&P said, "The rating action is
a result of declines in key financial indicators, and continued softness in the
state economy. The new rating continues to reflect the low debt burden of the
state, an economic base that has gained greater income levels and diversity over
the 1980's, and a legislative history of dealing effectively with financial
difficulties." These ratings have remained unchanged since June 6, 1991. Because
of slow but continuing improvements in the State of Maine economy, S&P currently
views the State's financial outlook as "stable," stating in its most recent June
5, 1998 credit report: "The AA+ rating on Maine's bonds reflects the state's:
Diversifying economy, which is growing at a slow, steady pace; Improving
financial performance; and Low debt burden with a rapid amortization schedule."
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On August 24, 1993, citing the "effects of protracted economic slowdown and the
expectation that Maine's economy will not soon return to the pattern of robust
growth evident in the mid-1980's," Moody's lowered its State of Maine general
obligation bond rating from Aa1 to Aa. At the same time, Moody's lowered from
Aa1 to Aa the ratings assigned to state-guaranteed bonds of the Maine School
Building Authority and the Finance Authority of Maine, and confirmed at A1 the
ratings assigned to the bonds of the Maine Court Facilities Authority and State
of Maine Certificates of Participation. These ratings remained unchanged until
1997. On May 13, 1997, Moody's "confirmed and refined from Aa to Aa3" the
State's general obligation bond rating. Moody's refinement of the State's bond
rating on May 13, 1997 was part of a general redefinition by Moody's of its bond
rating symbols published on January 13, 1997, and was not a substantive rating
change. In its most recent June 5, 1998 credit report, however, Moody's raised
its credit rating for Maine general obligation bonds from Aa3 to Aa2, stating:
"The Aa2 rating upgrade reflects steady improvement in fund balances and
spending control, an increased pace of economic recovery, and moderate debt
ratios. The rating also acknowledges the ongoing fixed costs associated with the
state's unfunded pension liability."
For its June 25, 1998 general obligation bond issue dated June 1, 1998, Maine
also received a credit report from Fitch. In this credit report dated June 8,
1998, Fitch assigned a rating of AA to Maine general obligation bonds, saying:
"The State of Maine's general obligation bonds are well secured with strength
especially in the low burden that debt places on resources and in the unusually
rapid rate of amortization. The economy is again growing and financial
operations have been very successful in the past two years. Institutionalization
of financial reforms, including accounting, the revenue estimation process and
debt control are of benefit, and the reserve level continues to increase."
STATE OF NEW HAMPSHIRE
Material in this section has been abstracted from the State of New Hampshire
Information Statement dated March 27, 1998 and the supplement thereto, dated
June 23, 1998, compiled by the Treasurer of the State of New Hampshire and
provided to prospective purchasers of debt securities offered by the State.
While information in the Information Statement is believed to be accurate, none
of that information has been independently verified. Also, it does not reflect
economic conditions or developments that may have occurred or trends that may
have materialized since the date of the Information Statement. Additionally,
economic and fiscal conditions in individual municipalities within the State may
vary from general economic and fiscal conditions.
New Hampshire is located in the New England Region and is bordered by the states
of Maine, Massachusetts, and Vermont and the Province of Quebec, Canada. New
Hampshire's geographic area is 9,304 square miles and its 1996 population was
1,163,000, representing a 1.3% increase from 1995 levels. New Hampshire's
population had increased by more than 25% in the 1980-1996 period.
New Hampshire's per capita personal income increased by 106.4% between 1980 and
1990. In 1991 it continued to grow faster than the New England region as a whole
and in 1992 and 1993 it grew at a slightly lower rate than the region, resuming
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faster growth relative to the region in 1994 and 1995. New Hampshire's per
capita personal income in 1996 was 109% of the national level, ranking 8th in
the United States.
In 1997, New Hampshire's largest employment sector was the service sector (29%
of employment), followed by retail and wholesale trade (26% of employment).
Manufacturing was the third largest sector (18.8% of employment).
Non-agricultural employment levels have remained fairly stable. The unemployment
rate declined to 3.1% in 1997, less than the national average of 4.9%.
After a significant growth in residential building activity in the period
1980-86 (data based on residential building permits), New Hampshire's
residential building activity declined beginning in 1987, and declined below
1980 levels in 1990, 1991 and 1992. In 1993, residential building activity
surpassed 1980 levels and activity in 1994, 1995 and 1996 surpassed 1993.
New Hampshire finances the operations of state government through specialized
taxes, user charges and revenues received from the State liquor sales and
distribution system. There is no general tax on sales or earned income. The two
highest revenue-producing taxes are the Meals and Rooms Tax and the Business
Profits Tax. In 1994, State and local taxes amounted to $97 per $1,000 of
personal income, which was the third lowest in the United States. However,
because local property taxes are the principal source of funding for municipal
operations and primary and secondary education, New Hampshire was highest among
all states in local property tax collections per $1,000 of personal income. See
the concluding paragraph of this section for a description of litigation
challenging the constitutionality of the State's statutory system of financing
operation of elementary and secondary public schools primarily through local
taxes.
New Hampshire State government's budget is enacted to cover a biennial period
through a series of legislative bills that establish appropriations and
estimated revenues for each sub-unit of State government, along with
supplemental and special legislation. By statute, the budget process is
initiated by the Governor, who is required to submit operating and capital
budget proposals to the Legislature by February 15 in each odd-numbered year.
While the Governor is required to state the means through which all expenditures
will be financed, there is no constitutional or statutory requirement that the
Governor propose or the Legislature adopt a budget without resorting to
borrowing. There is no line item veto.
State government funds include the General Fund, four special purpose funds and
three enterprise funds, as well as certain "fiduciary" funds. All obligations of
the State are paid from the State Treasury, and must be authorized by a warrant
signed by the Governor and approved by the Executive Council, except for
payments of debt obligations, which are paid by the State Treasurer under
statutory authority.
By statute, at the close of each fiscal year, 50% of any General Fund operating
surplus must be deposited in a Revenue Stabilization Reserve Account ("Rainy Day
Fund") which may contain up to 10% of General Fund unrestricted revenue. With
approval of the Legislative Fiscal Committee, the Governor and the Executive
Council, the Rainy Day Fund is available to defray operating deficits in ensuing
years if there is a shortfall in forecast revenue. By statute, the Rainy Day
Fund may not be used for any other purpose except by special appropriation
27
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approved by two-thirds of each Legislative chamber and the Governor. As of June
30, 1997 there was a designated balance of $20 million in the Rainy Day Fund.
The Department of Administrative Services is responsible for maintenance of
State government's accounting system, annual reports and general budget
oversight. Expenditures are controlled against appropriations through an
integrated accounting system which compares the amount of an appropriation to
expenditures and encumbrances previously charged against that appropriation
before creating an expenditure. By law, with certain exceptions unexpended and
unencumbered balances of appropriations lapse to surplus in the applicable fund
at the end of each fiscal year, along with unappropriated revenues in excess of
legislative estimates. Legislative financial controls involve the Office of
Legislative Budget Assistant ("LBA") which acts under supervision of the
Legislative Fiscal Committee and Joint Legislative Capital Budget Overview
Committee. LBA conducts overall post-audit and review of the budgetary process.
State government financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") and are independently audited annually.
During the 1992-1993 biennium, State revenues began recovering from the decline
that had characterized the recession years of 1989, 1990 and 1991. The General
Fund undesignated fund balance at June 30, 1994, was $12.0 Million. For the
fiscal year ended June 30, 1995, the General Fund undesignated fund balance was
zero, after transferring $35.1 Million from the Healthcare Transition Fund to
offset a delay in receipt of federal funds from disproportionate share
expenditures under the Medicaid program. At June 30, 1996, the General Fund
undesignated fund balance was ($44.2 Million) after a net transfer to the
Healthcare Transition Fund of $21.9 Million, and was ($1.2 million) at June 30,
1997.
There is no constitutional limit on the State's power to issue obligations or
incur indebtedness, and no constitutional requirement for referendum to
authorize incurrence of indebtedness by the State. Authorization and issuance of
debt is governed entirely by statute. New Hampshire pursues a debt management
program designed to minimize use of short-term debt for operating purposes and
to coordinate issuance of tax-exempt securities by the State and its agencies.
State-guaranteed bonded indebtedness is authorized not only for general purposes
of State government, but also for the New Hampshire Turnpike System, University
System of New Hampshire, water supply and pollution control, water resources
acquisition and construction, School Building Authority, Pease Development
Authority, Business Finance Authority, Municipal Bond Bank and cleanup of
municipal Super Fund sites and landfills. In addition, the Housing Finance
Authority and Higher Education and Health Facilities Authority are authorized to
issue bonds that do not constitute debts or obligations of the State.
Procedure for incurrence of bonded indebtedness by individual municipalities is
governed by State statutes, which prescribe actions that must be pursued by
municipalities in incurring bonded indebtedness and limitations on the amount of
such indebtedness. In general, incurrence of bonded indebtedness by a
municipality must be for a statutorily authorized purpose and requires a
two-thirds majority vote of the municipality's legislative body.
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On December 17, 1997, the New Hampshire Supreme Court ruled that the State's
present system of financing public elementary and secondary schools primarily
through local property taxes violates the New Hampshire Constitution, because
(1) providing an adequate public education is a duty of State government; (2)
local school property taxes are levied to fulfill a State purpose; and (3) local
school property taxes, levied at different rates in different localities, are
not proportional and reasonable throughout the State. The court also indicated
that a State-funded, constitutionally adequate elementary and secondary
education is a fundamental constitutional right. However, the court stayed all
further proceedings in the case "until the end of the [1998] legislative session
and further order of this court to permit the legislature to address the issues
involved in this case." The court allowed the present funding mechanism to
remain in effect "during the 1998 tax year" i.e. through March 31, 1999. On June
23, 1998, responding to a request for an advisory opinion from the New Hampshire
Senate, the court advised that certain legislation passed by the New Hampshire
House of Representatives to address the court's December 1997 decision would
violate State constitutional requirements by failing to provide funding of
adequate public elementary and secondary education at a uniform tax rate
throughout the State. On June 30, 1998, the legislature recessed without
enacting legislation addressing the court's December 1997 decision. The 1998
legislative session may be reconvened at the call of the presiding officer of
each legislative chamber, until 12:01 a.m., December 1, 1998, when the current
legislature will be dissolved. The potential impact of the court's decisions on
the State's finances cannot presently be determined. However, in absence of
further order of the court, it appears that the present system of
locally-assessed school property taxes may become legally unenforceable as of
April 1, 1999.
3. 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.
29
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A. FUNDAMENTAL LIMITATIONS
INVESTORS HIGH GRADE BOND FUND
The Fund may not:
1. BORROWING
Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests) and except for entering into reverse
repurchase agreements, and provided that borrowings do not exceed 33
1/3% of the Fund's total assets (computed immediately after the
borrowing).
2. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of
the 1933 Act.
3. MAKING LOANS
Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the
purchase of commercial paper or debt securities which are otherwise
permissible investments.
4. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
5. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.
6. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act
and except that the Fund may borrow money subject to investment
limitations specified in the Fund's Prospectus.
7. OIL, GAS & MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
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<PAGE>
8. DIVERSIFICATION
With respect to 75% of its assets, purchase securities, other than U.S.
Government Securities, of any one issuer, if (a) more than 5% of the
Fund's total assets taken at market value would at the time of purchase
be invested in the securities of that issuer, or (b) such purchase
would at the time of purchase cause the Fund to hold more than 10% of
the outstanding voting securities of that issuer.
9. CONCENTRATION
Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of issuers
conducting their principal business activity in the same industry.
INVESTORS BOND FUND
The Fund may not
1. BORROWING
Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests) and except for entering into reverse
repurchase agreements, and provided that borrowings do not exceed 33
1/3% of the Fund's total assets (computed immediately after the
borrowing).
2. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of
the 1933 Act.
3. MAKING LOANS
Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the
purchase of commercial paper or debt securities which are otherwise
permissible investments.
4. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
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5. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.
6. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act
and except that the Fund may borrow money subject to investment
limitations specified in the Fund's Prospectus.
7. OIL, GAS & MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
8. NON-DIVERSIFICATION
Purchase securities, other than U.S. Government Securities, of any one
issuer, if (a) more than 5% of the Fund's total assets taken at market
value would at the time of purchase be invested in the securities of
that issuer, or (b) such purchase would at the time of purchase cause
the Fund to hold more than 10% of the outstanding voting securities of
that issuer. Up to 50% of the Fund's total assets may be invested
without regard to this limitation. These limitations do not apply to
securities of an issuer payable solely from the proceeds of escrowed
U.S. Government Securities.
9. CONCENTRATION
Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of issuers
conducting their principal business activity in the same industry.
TAXSAVER BOND FUND
The Fund may not
1. BORROWING
Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests) and except for entering into reverse
repurchase agreements, and provided that borrowings do not exceed 33
1/3% of the Fund's total assets (computed immediately after the
borrowing).
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<PAGE>
2. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of
the 1933 Act.
3. MAKING LOANS
Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the
purchase of commercial paper or debt securities which are otherwise
permissible investments.
4. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
5. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.
6. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act
and except that the Fund may borrow money subject to investment
limitations specified in the Fund's Prospectus.
7. OIL, GAS & MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
8. NON-DIVERSIFICATION
Purchase securities, other than U.S. Government Securities, of any one
issuer, if (a) more than 5% of the Fund's total assets taken at market
value would at the time of purchase be invested in the securities of
that issuer, or (b) such purchase would at the time of purchase cause
the Fund to hold more than 10% of the outstanding voting securities of
that issuer. Up to 50% of the Fund's total assets may be invested
without regard to this limitation. These limitations do not apply to
33
<PAGE>
securities of an issuer payable solely from the proceeds of escrowed
U.S. Government Securities.
9. CONCENTRATION
Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of issuers
conducting their principal business activity in the same industry.
For purposes of the Fund's diversification policy, the District of Columbia,
each state, each political subdivision, agency, instrumentality and authority
thereof, and each multi-state agency of which a state is a member is deemed to
be a separate "issuer." When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from the government
creating the subdivision and the security is backed only by the assets and
revenues of the subdivision, such subdivision would be deemed to be the sole
issuer. Similarly, in the case of private activity bonds, if the bond is backed
only by the assets and revenues of the nongovernmental user, then such
nongovernmental user would be deemed to be the sole issuer. However, if in
either case, the creating government or some other agency guarantees a security,
that guarantee would be considered a separate security and would be treated as
an issue of such government or other agency.
MAINE MUNICIPAL BOND FUND
The Fund may not
1. BORROWING
Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests) and except for entering into reverse
repurchase agreements, and provided that borrowings do not exceed 33
1/3% of the Fund's total assets (computed immediately after the
borrowing).
2. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of
the 1933 Act.
3. MAKING LOANS
Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the
purchase of commercial paper or debt securities which are otherwise
permissible investments.
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4. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
5. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.
6. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act
and except that the Fund may borrow money subject to investment
limitations specified in the Fund's Prospectus.
7. OIL, GAS & MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
8. CONCENTRATION
Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of issuers
conducting their principal business activity in the same industry. For
this purpose, consumer finance companies, industrial finance companies,
and gas, electric, water and telephone utility companies are each
considered to be separate industries.
9. VOTING RIGHTS
Purchase securities having voting rights except securities of other
investment companies.
NEW HAMPSHIRE BOND FUND
The Fund may not:
1. BORROWING
Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests) and except for entering into reverse
repurchase agreements, provided that borrowings do not exceed 33 1/3%
of the Fund's net assets.
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<PAGE>
2. UNDERWRITING ACTIVITIES
Underwrite securities of other issuers, except to the extent that the
Fund may be considered to be acting as an underwriter in connection
with the disposition of portfolio securities.
3. MAKING LOANS
Make loans except for loans of portfolio securities, through the use
of repurchase agreements, and through the purchase of debt securities
that are otherwise permitted investments.
4. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the
Fund may invest in debt obligations secured by real estate or interests
therein or issued by companies that invest in real estate or interests
therein.
5. PURCHASES AND SALES OF COMMODITIES
Invest in commodities or in commodity contracts, except that, to the
extent the Fund is otherwise permitted, the Fund may enter into
financial futures contracts and options on those futures contracts and
may invest in currencies and currency-related contracts.
6. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except as appropriate to evidence indebtedness
that the Fund is permitted to incur, and provided that the Fund may
issue shares of additional series or classes that the Board may
establish.
7. NON-DIVERSIFICATION
With respect to 50% of its assets, purchase a security other than a
U.S. Government Security of any one issuer if, as a result, more than
5% of the Fund's total assets would be invested in the securities of
that issuer or the Fund would own more than 10% of the outstanding
voting securities of that issuer.
8. CONCENTRATION
Purchase securities if, immediately after the purchase, more than 25%
of the value of the Fund's total assets would be invested in the
securities of issuers having their principal business activities in the
same industry, provided there is no limit on investments in U.S.
Government Securities, municipal securities or in the securities of
domestic financial institutions (not including their foreign branches).
For this purpose, consumer finance companies, industrial finance
companies, and gas, electric, water and telephone utility companies are
each considered to be separate industries.
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<PAGE>
B. NON-FUNDAMENTAL POLICIES
No Fund may:
1. BORROWING
Purchase or otherwise acquire any security if, the total of borrowings
and liabilities under leverage transactions, would exceed an amount
equal to 5% of the Fund's total assets.
2. SECURITIES LENDING
Lend a security if, as a result, the amount of loaned securities would
exceed an amount equal to 33 1/3% of the Fund's total assets, as
determined by SEC guidelines.
3. ILLIQUID SECURITIES
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. Each Fund may treat certain restricted securities
as liquid pursuant to guidelines adopted by the Board of Trustees.
4. INVESTING FOR CONTROL
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.
5. MARGIN
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.
6. SHORT SALES
Each 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.
7. INVESTMENTS IN INVESTMENT COMPANIES
Each Fund may not invest in the securities of any investment company
except to the extent permitted by the 1940 Act.
No more than 25% of a Fund's total assets may be invested in the securities of
one issuer. This limitation, however, does not apply to securities of an issuer
payable soley from the proceeds of U.S. Government Securities.
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<PAGE>
Except as required by the 1940 Act, the percentage limitations described above
apply to the time of investment. A later change in market value will not be
considered a violation of
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 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.
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B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Funds.
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 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.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
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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.
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.
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.
40
<PAGE>
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 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
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<PAGE>
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 $1,188 at the end
of the second year (an increase of $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:
<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
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<PAGE>
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)
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner-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
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein,Vice President General Counsel, Forum Financial Group
Born: Secretary, Forum Fund Services, Inc. (Trust's underwriter)
Two Portland Square
Portland, Maine 04101
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
43
<PAGE>
- ------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
AGE AND ADDRESS PAST 5 YEARS
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
Stacey Hong, Treasurer Director, Fund Accounting, Forum Financial Group, LLC
Born: May 10, 1966 Treasurer, Core Trust (Delaware)
Two Portland Square
Portland, Maine 04101
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
Dawn Taylor, Asst. Treasurer Manager/Senior Tax Specialist, Tax Department, Forum Financial Group,
Born:: May 14, 1964 LLC since 1997
Two Portland Square Senior Tax Accountant, Pardy Bingham &Burrell during 1997
Portland, Maine 04101 Senior Tax Specialist, Forum Financial Group, LLC from 1994 to 1997
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
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 March 31, 1999.
44
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
Total Compensation from
Compensation from Trust
Trustee Trust(1) Benefits Retirement and Fund Complex(1)
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
John Y. Keffer $0 $0 $0 $0
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
Costas Azariadis $11,200 $0 $0 $11,200
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
James C. Cheng $12,700 $0 $0 $12,700
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
J. Michael Parish $12,700 $0 $0 $12,700
- ---------------------------- -------------------- --------------------- --------------------- -----------------------------
</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.
45
<PAGE>
2. OWNERSHIP OF ADVISER
The Adviser is 99% owned by Forum Trust LLC and 1% owned by Forum Holdings Corp.
I. Forum Investment Advisors, LLC is registered as an investment adviser with
the SEC under the 1940 Act.
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.
Table 1 in Appendix B shows the dollar amount of the fees payable by each Fund
to the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data is for the past three fiscal years (or shorter
period depending on a Fund's commencement of operations).
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 30 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 90 days'
written notice to the Trust. The Agreement terminates immediately upon
assignment.
Under its agreement, the Adviser is not liable for any mistake of judgment or in
any event whatsoever except for breach of fiduciary duty, 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.
46
<PAGE>
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. Prior to August 1, 1999, Forum Financial Services, Inc.
was the distributor of the each Fund pursuant to similar terms and compensation.
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 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.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Funds. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Funds are sold with a sales charges.
These financial institutions may otherwise act as processing agents, and will be
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of each Fund's
shares.
Table 2 in Appendix B shows the aggregate sales charges paid to FFSI, the amount
of sales charge reallowed by FFSI, and the amount of sales charge retained by
FFSI. The data is for the past three years (or shorter depending on a Fund's
commencement of operations).
47
<PAGE>
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' 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 of 0.20% of
the average daily net assets of each Fund. The fee is accrued daily by the Funds
and is paid monthly based on average net assets for the previous month.
48
<PAGE>
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.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Funds
to FadS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data is for the past three fiscal years.
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
$36,000 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.
49
<PAGE>
Under the agreement, FAcS is not liable for any action or inaction 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 (1) 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.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data is for the past three fiscal years.
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 with respect to each Fund 0.25% of
the average daily net assets of the Fund, an annual fee of $12,000 plus $18 per
shareholder account.
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 or inaction 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.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Funds
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data is for the past three fiscal years.
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.
50
<PAGE>
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 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 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.
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<PAGE>
B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions with respect to
each Fund. The data presented are for the past three fiscal years. The table
also indicates the reason for any material change in the last two years in the
amount of brokerage commissions paid by a Fund.
C. 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.
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.
52
<PAGE>
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.
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
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<PAGE>
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.
D. 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.
Table 7 in Appendix B lists the regular broker and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
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.
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<PAGE>
B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share plus the applicable sales charge.
Set forth below is an example of the method of computing the ofering price of a
Fund's shares. The example assumes a purchase of shares of beneficial interest
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of the
Fund on March 31, 1999.
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
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.
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<PAGE>
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.
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<PAGE>
D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily 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 March 31 (the same as the Fund's fiscal year
end).
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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 (i.e., taxable
interest, dividends net short-term capital gains, and other taxable ordinary
income, net of expenses) and net capital gain (i.e., the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
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.
Each Fund generally intends to operate in a manner such that it will not be
liable for federal income tax.
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.
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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
ordinary income. 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 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.
Each Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Funds' financial statements. Any
such losses may not be carried back.
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 reduces 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 distribution
in the form of additional share, it 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 you 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.
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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 the 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 the Fund. When a Fund exercises a put, the
proceeds from the sale of the underlying security are 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 is considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts which 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.
If a Fund invests in the securities of foreign issuers, the Fund's income may be
subject to foreign withholding taxes.
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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
ordinary its 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 (or December 31 if it has made the
election described above) 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 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").
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. BACKUP WITHHOLDING
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 correct tax payer
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
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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, ordinary income distributions paid
to a 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, capital gain distributions
from a Fund and amounts retained by a Fund that are designated as undistributed
capital gain.
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 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.,
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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:
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
Austin Global Equity Fund Investors Equity Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
BIA Growth Equity Fund Investors Growth Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
BIA Small-Cap Growth Fund Investors High Grade Bond Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Assets Cash Fund(1) Maine Municipal Bond Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Assets Government Fund(1) New Hampshire Bond Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Assets Government Obligations Fund(1) Payson Balanced Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Asset Municipal Fund(1) Payson Value Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Assets Treasury Obligations Fund(1) Polaris Global Value Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Emerging Markets Fund Oak Hall Small Cap Contrarian Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Equity Index Fund Small Company Opportunties Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
International Equity Fund TaxSaver Bond Fund
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
Investors Bond 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 Fund reserves the right to invest in one or more other investment companies
in a Core and Gateway(R) structure.
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, you may contact the Transfer Agent.
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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 aggregate and not by individual series and
(2) when the Trustees determine that the matter affect 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 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.
A shareholder or shareholders representing 33 1/3% or more the outstanding
shares entitled to vote 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.
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B. FUND OWNERSHIP
As of July 1, 1999, the percentage of shares owned by all officers and trustees
of the Trust as a group was as follows. To the extent officers and trustees own
less than 1% of the shares of each class of shares of a Fund (or of the Trust),
the table reflects "N/A" for not applicable.
PERCENTAGE OF SHARES
FUND (OR TRUST) OWNED
The Trust %
Investors High Grade Bond Fund %
Investors Bond Fund %
TaxSaver Fund
Maine Municipal Bond Fund
New Hampshire Bond Fund
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of a Fund. Shareholders known by a Fund to own beneficially 5% or more
of a class of shares of the Fund are listed in Table 8 in Appendix B.
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 July 1, 1999, the following
persons beneficially owned 25% or more of the shares of a Fund (or of the Trust)
and may be deemed to control the Fund (or the Trust). For each person listed
that is a company, the jurisdiction under the laws of which the company is
organized (if applicable) and the company's parents are listed.
CONTROLLING PERSON INFORMATION
<TABLE>
<S> <C> <C>
PERCENTAGE OF
SHARES OWNED
SHAREHOLDER FUND (OR TRUST)
Investors High Grade Bond Fund
Investors Bond Fund %
TaxSaver Fund
Maine Municipal Bond Fund
New Hampshire Bond Fund
</TABLE>
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 securities regulators of some states,
however, have indicated that they and the courts in their state may decline to
apply Delaware law on this point. The Trust's Trust Instrument contains an
express disclaimer of shareholder liability for the debts, liabilities,
obligations and expenses of the Trust and requires that a disclaimer be given in
each bond,note or contract, or other undertaking entered into or executed by the
65
<PAGE>
trust or the Trustees. The Trust's Trust Instrument (the document that governs
the operations of the Trust) provides for indemnification out of each series'
property of any shareholder or former shareholder held personally liable for the
obligations of the series if held to be personnally liable solely by reason of
being or having been a shareholder of a 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, the copy of such contract or other documents filed as exhibits
to the registration statement.
FINANCIAL STATEMENTS
The financial statements of each of Investors High Grade Bond Fund, Investors
Bond Fund, TaxSaver Fund, Maine Municipal Bond Fund, and New Hampshire Bond Fund
for the year ended March 31, 1999, which are included in the Annual Report to
Shareholders of each Fund, are incorporated herein by reference. These financial
statements include the schedules of investments, statements of assets and
liabilities, statements of operations, statements of changes in net assets,
financial highlights, notes and independent auditors' reports.
66
<PAGE>
APPENDIX A - 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
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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.
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 credi 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-3
<PAGE>
A+
A, A- Protection factors are average but adequate. However, risk factors are
more variable in periods of greater economic stress.
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-4
<PAGE>
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.
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.
A-5
<PAGE>
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.
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.
A-6
<PAGE>
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.
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:
A-7
<PAGE>
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.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation. o
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.
A-8
<PAGE>
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.
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.
A-9
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable to the Adviser with
respect to each Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
INVESTORS HIGH GRADE BOND FUND
ADVISORY FEE
Year Ended March 31, 1999 $140,442
Year Ended March 31, 1998 $5,970
INVESTORS BOND FUND ADVISORY FEE
Year Ended March 31, 1999 $328,113
Year Ended March 31, 1998 $171,777
Year Ended March 31, 1997 $100,163
TAXSAVER BOND FUND ADVISORY FEE
Year Ended March 31, 1999 $157,824
Year Ended March 31, 1998 $102,003
Year Ended March 31, 1997 $70,634
MAINE MUNICIPAL BOND FUND ADVISORY FEE
Year Ended March 31, 1999 $119,844
Year Ended March 31, 1998 $107,471
Year Ended March 31, 1997 $101,549
NEW HAMPSHIRE BOND FUND ADVISORY FEE
Year Ended March 31, 1999 $57,031
Year Ended March 31, 1998 $43,782
Year Ended March 31, 1997 $31,774
B-1
<PAGE>
TABLE 2 - SALES CHARGES
<TABLE>
<S> <C> <C> <C>
INVESTORS HIGH GRADE BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
1999 $ $ $0
1998 $ $ $
INVESTORS BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE
AMOUNT RETAINED AMOUNT REALLOWED
1999 $ $ $0
1998 $ $ $0
TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE
AMOUNT RETAINED AMOUNT REALLOWED
1999 $ $ $0
1998 $ $0
MAINE MUNICIPAL BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE
AMOUNT RETAINED AMOUNT REALLOWED
1999 $ $ $0
1998 $ $ $0
NEW HAMPSHIRE BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE
AMOUNT RETAINED AMOUNT REALLOWED
1999 $ $ $0
1998 $ $ $0
</TABLE>
B-2
<PAGE>
TABLE 3 - ADMINISTRATION FEES
The following Table shows the dollar amount of fees payable to FAdS with respect
to each Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
<TABLE>
<S> <C> <C> <C>
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
INVESTORS HIGH GRADE BOND FUND PAYABLE RETAINED
Year Ended March 31, 1999 $70,221 $70,221 $0
Year Ended March 31, 1998 $2,985 $2,985 $0
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
INVESTORS BOND FUND PAYABLE RETAINED
Year Ended March 31, 1999 $164,056 $164,056 $0
Year Ended March 31, 1998 $108,198 $180,198 $0
Year Ended March 31, 1997 $75,122 $75,122 $0
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
TAXSAVER BOND FUND PAYABLE RETAINED
Year Ended March 31, 1999 $78,912 $78,912 $0
Year Ended March 31, 1998 $66,898 $66,898 $0
Year Ended March 31, 1997 $52,975 $52,975 $0
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
MAINE MUNICIPAL BOND FUND PAYABLE RETAINED
Year Ended March 31, 1999 $59,922 $59,922 $0
Year Ended March 31, 1998 $73,724 $73,164 $0
Year Ended March 31, 1997 $76,162 $76,162 $0
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
NEW HAMPSHIRE BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $28,516 $28,516 $0
Year Ended March 31, 1998 $29,727 $29,727 $0
Year Ended March 31, 1997 $23,831 $23,831 $0
</TABLE>
B-3
<PAGE>
TABLE 4 - ACCOUNTING FEES
The following Table shows the dollar amount of fees payable to FAcS with respect
to each Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
<TABLE>
<S> <C> <C> <C>
INVESTORS HIGH GRADE BOND FUND ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Year Ended March 31, 1999 $40,000 $0 $40,000
Year Ended March 31, 1998 $3,548 $3,548 $0
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
INVESTORS BOND FUND RETAINED
Year Ended March 31, 1999 $40,000
Year Ended March 31, 1998 $41,000
Year Ended March 31, 1997 $41,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
TAXSAVER BOND FUND RETAINED
Year Ended March 31, 1999 $38,000
Year Ended March 31, 1998 $41,000
Year Ended March 31, 1997 $36,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
MAINE MUNICIPAL BOND FUND RETAINED
Year Ended March 31, 1999 $48,000 $48,000 $0
Year Ended March 31, 1998 $48,000 $0 $48,000
Year Ended March 31, 1997 $48,000 $48,000 $48,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE PAYABLE
NEW HAMPSHIRE BOND FUND
Year Ended March 31, 1999 $37,000 $37,000 $0
Year Ended March 31, 1998 $36,000 $0 $36,000
Year Ended March 31, 1997 $37,000 $0 $37,000
</TABLE>
B-4
<PAGE>
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees payable
to the Transfer Agent with respect to Shares of each Fund.
<TABLE>
<S> <C> <C> <C>
INVESTORS HIGH GRADE BOND FUND TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $99,845 $76,092 $23,753
Year Ended March 31, 1998 $4,248 $3,731 $517
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
INVESTORS BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $218,175 $96,856 $121,319
Year Ended March 31, 1998 $120,533 $102,298 $18,235
Year Ended March 31, 1997 $76,562 $58,271 $18,291
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
TAXSAVER BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $111,354 $97,734 $13,620
Year Ended March 31, 1998 $76,553 $59,098 $17,455
Year Ended March 31, 1997 $57,010 $40,248 $16,762
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
MAINE MUNICIPAL BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $96,618 $74,804 $21,814
Year Ended March 31, 1998 $86,179 $43,753 $42,426
Year Ended March 31, 1997 $82,456 $39,581 $42,875
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
NEW HAMPSHIRE BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $50,028 $36,422 $13,606
Year Ended March 31, 1998 $40,793 $11,618 $29,175
Year Ended March 31, 1997 $33,317 $6,539 $26,778
</TABLE>
B-5
<PAGE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C> <C> <C>
INVESTORS HIGH MAINE MUNCIPAL NEW HAMPSHIRE
GRADE BOND FUND INVESTORS BOND FUND TAXSAVER BOND BOND FUND BOND FUND
YEAR ENDED FUND
March 31, 1999 $0 $0 $0 $0 $0
March 31, 1998 $0 $0 $0 $0 $0
March 31, 1997 $0 $0 $0 $0 $0
</TABLE>
B-6
<PAGE>
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
<TABLE>
<S> <C> <C> <C> <C> <C>
REGULAR BROKER OR INVESTORS HIGH MAINE MUNCIPAL NEW HAMPSHIRE
DEALER GRADE BOND FUND INVESTORS BOND FUND TAXSAVER BOND BOND FUND BOND FUND
FUND
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
$0 $0 $0 $0 $0
</TABLE>
B-7
<PAGE>
TABLE 8 - 5% SHAREHOLDERS
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund and (2) any person known by a
Fund to own beneficially 5% or more of a class of shares of a Fund, as of July
1, 1999.
<TABLE>
<S> <C> <C> <C> <C>
% OF % OF FUND
FUND/CLASS OF SHARES NAME AND ADDRESS SHARES CLASS
Investors High Grade
Bond Fund
Investors Bond Fund
TaxSaver Bond Fund
Maine Municipal Bond Fund
New Hampshire Bond Fund
</TABLE>
B-8
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGES)
The average annual total return without sales charges of each Fund for the
period ended March 31, 1999, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------- ----------- ------------- --------------- ---------- ---------- ----------- ---------- ------------------
CALENDAR YEAR SINCE INCEPTION
ONE MONTH THREE MONTHS TO DATE ONE YEAR THREE FIVE YEARS TEN YEARS (ANNUALIZED)
YEARS
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
Investors High 0.57% -0.82% -0.82% 6.12% N/A N/A N/A 5.70%
Grade
Bond Fund
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
Investors Bond Fund 1.04% -0.28% -0.28% 4.45% 7.50% 7.36% N/A 8.66%
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
TaxSaver Bond Fund -0.09% 0.45% 0.45% 4.95% 5.94% 6.27% N/A 7.16%
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
Maine Municipal -0.08% 0.54% 0.54% 5.19% 6.03% 6.34% N/A 6.62%
Bond Fund
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
New Hampshire Bond -0.10% 0.49% 0.49% 5.61% 6.32% 6.53% N/A 6.20%
Fund
- -------------------- ----------- ------------- --------------- ---------- ---------- ---------- ----------- ------------------
</TABLE>
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGES)
The average annual total return with sales charges of each Fund for the period
ended March 31, 1999, was as follows.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------- -------------- -------------- -------------- ------------------
SINCE INCEPTION
ONE YEAR FIVE YEARS TEN YEARS (ANNUALIZED)
- -------------------------------- -------------- -------------- -------------- ------------------
Investors High Grade 2.14% N/A N/A 1.90%
Bond Fund
- -------------------------------- -------------- -------------- -------------- ------------------
- -------------------------------- -------------- -------------- -------------- ------------------
Investors Bond Fund 0.53% 6.55% N/A 8.22%
- -------------------------------- -------------- -------------- -------------- ------------------
- -------------------------------- -------------- -------------- -------------- ------------------
TaxSaver Bond Fund 1.01% 5.46% N/A 6.73%
- -------------------------------- -------------- -------------- -------------- ------------------
- -------------------------------- -------------- -------------- -------------- ------------------
Maine Municipal Bond Fund 2.56% 5.81% N/A 6.25%
- -------------------------------- -------------- -------------- -------------- ------------------
- -------------------------------- -------------- -------------- -------------- ------------------
New Hampshire Bond Fund 2.97% 5.99% N/A 5.77%
- -------------------------------- -------------- -------------- -------------- ------------------
</TABLE>
C-1
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which is currently in use is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over [ ]
mutual funds for [ ] different fund managers, with more than [$ ] billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than [ ] professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
D-1
<PAGE>
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has 8 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible.
Serving as portfolio managers for the Forum Family of Funds are individuals with
decades of experience with some of the country's major financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over $175 billion as of September 30, 1997.
D-2
<PAGE>
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately [$ ] billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately [$ ] billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-3
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 146 funds with
more than $36 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.7 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1 billion in assets under management and $300 million in
non-managed custodial accounts. The Payson value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
D-4
<PAGE>
Peoples Heritage Financial Group is a [$ ] billion multi-state bank and
financial services holding company headquartered in Portland, Maine. Its Maine
banking affiliate, Peoples Heritage Bank, has the state's leading deposit market
share. Its New Hampshire banking affiliate, Bank of New Hampshire, has the
state's leading deposit market share. Family Bank, the Company's Massachusetts
banking subsidiary, has the state's tenth largest deposit market share and the
leading market share in many of the northern Massachusetts communities it
serves. Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
D-5
<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance,
expense accounting, budgeting for all funds
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: $36.9 billion
*Client Assets Processed by Fund Accounting: $47.6 billion
*Client Funds under Administration and Distribution: 146 mutual funds with 219
share classes
--------------------------------------------------
*International Ventures:
----------------------
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*Forum Employees: United States -198, Poland - 61, Bermuda - 3
---------------
FORUM CONTACTS:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment Advisers,
LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
D-6
<PAGE>
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: [$ ] Billion
*Non-managed Custody Assets: [$ ] Million
*Client Base: 85% individuals; [ %] institutional
*Owned by [ ] shareholders; [ ] managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: [ ]
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
D-7
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999
PAYSON VALUE FUND
PAYSON BALANCED FUND
INVESTMENT ADVISER:
H.M. Payson & Co.
P.O. Box 31
One Portland Square
Portland, Maine 04112
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04101
(207) 879-0001
(800) 805-8258
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 1, 1999, as may be amended from time to time, offering shares of
Payson Value Fund and Payson Balanced Fund (the "Funds"), two separate series of
Forum Funds, a registered, open-end management investment company (the "Trust").
This SAI is not a prospectus and should only be read in conjunction with the
Prospectus. You may obtain the Prospectus without charge by contacting Forum
Shareholder Services at the address or telephone number listed above.
<PAGE>
TABLE OF CONTENTS
Glossary .............................................. 1
1. Investment Policies and Risks..........................
2. Investment Limitations.................................
3. Performance Data and Advertising.......................
4. Management.............................................
5. Portfolio Transactions.................................
6. Additional Purchase and Redemption Information.........
7. Taxation ..............................................
8. Other Matters..........................................
Appendix A - Description of Securities Ratings.................. A-1
Appendix B Miscellaneous Tables.............................. B-1
Appendix C Performance Data.................................. C-1
Appendix D Advertising Matters............................... D-1
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means H.M. Payson & Co.
"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 Payson Value Fund or the Payson Balanced Fund.
"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.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
1
<PAGE>
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 Fund will make only those investments
described below that are in accordance with its investment objectives and
policies
A. SECURITY RATINGS INFORMATION
A Fund's investments in fixed income securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, Investors High Grade Bond Fund may only invest
in debt securities that are considered to be investment grade. Investment grade
means rated in the top four long-term rating categories by an NRSRO, or unrated
and determined by the Adviser to be of comparable quality
The lowest ratings that are investment grade for corporate bonds, including
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. 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 a 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.
B. EQUITY SECURITIES
1. GENERAL
COMMON AND PREFERRED STOCK. Common stock represents an equity (ownership)
interest in a company, and usually possesses voting rights and earns dividends.
Dividends on common stock
2
<PAGE>
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.
CONVERTIBLE SECURITIES. 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 in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
WARRANTS 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.
DEPOSITARY RECEIPTS A depositary receipt is a receipt for shares of a
foreign-based company that entitles the holder to distributions on the
underlying security. Depositary receipts include sponsored and unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and
other similar global instruments. 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. EDRs (sometimes
called Continental Depositary Receipts) are receipts issued by a European
financial institution evidencing an arrangement similar to that of ADRs, and are
designed for use in European securities markets. The Fund invests in depositary
receipts in order to obtain exposure to foreign securities markets.
3
<PAGE>
2. RISKS
COMMON AND PREFERRED STOCK 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 the 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.
CONVERTIBLE SECURITIES 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.
WARRANTS 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.
DEPOSITARY RECEIPTS 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.
C. FIXED-INCOME SECURITIES
1. GENERAL
Fixed income securities include corporate debt obligations, U.S. Government
Securities, municipal securities, mortgage-related securities, asset-backed
securities, guaranteed investment contracts, zero coupon securities, variable
and floating rate securities, financial institution obligations and
participation interests.
CORPORATE DEBT OBLIGATIONS. Corporate debt obligations include corporate bonds,
debentures, notes, commercial paper and other similar corporate debt
instruments. These instruments are
4
<PAGE>
used by companies to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and must repay the amount borrowed at
maturity. Commercial paper (short-term unsecured promissory notes) is issued by
companies to finance their current obligations and normally has a maturity of
less than 9 months.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include securities issued
by the U.S. Treasury and by U.S. Government agencies and instrumentalities. U.S.
Government Securities may be supported by the full faith and credit of the
United States (e.g., mortgage-related securities and certificates of the
Government National Mortgage Association and securities of the Small Business
Administration); by the right of the issuer to borrow from the U.S. Treasury
(e.g., Federal Home Loan Bank securities); by the discretionary authority of the
U.S. Treasury to lend to the issuer (e.g., Fannie Mae (formerly the Federal
National Mortgage Association) securities); or solely by the creditworthiness of
the issuer (e.g., Federal Home Loan Mortgage Corporation securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. No assurance can be given that the U.S. Government would provide
support if it is not obligated to do so by law. Neither the U.S. Government nor
any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent interests in
a pool of mortgage loans originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-related securities may
be issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by commercial lenders.
Pools of mortgages consist of whole mortgage loans or participations in mortgage
loans. The majority of these loans are made to purchasers of 1-4 family homes.
The terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, the Funds may purchase pools of adjustable-rate mortgages,
growing equity mortgages, graduated payment mortgages and other types. Mortgage
poolers apply qualification standards to lending institutions which originate
mortgages for the pools as well as credit standards and underwriting criteria
for individual mortgages included in the pools. In addition, many mortgages
included in pools are insured through private mortgage insurance companies.
Mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. Most mortgage-related
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments to holders of
5
<PAGE>
these securities are caused by prepayments resulting from the sale or
foreclosure of the underlying property or refinancing of the underlying loans.
As prepayment rates of individual pools of mortgage loans vary widely, it is not
possible to predict accurately the average life of a particular mortgage-related
security. Although mortgage-related securities are issued with stated maturities
of up to forty years, unscheduled or early payments of principal and interest on
the mortgages may shorten considerably the securities' effective maturities.
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The principal and interest on GNMA
pass-through securities are backed by the full faith and credit of the U.S.
Government.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Mortgage-related
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
interest and principal on the securities. The market for privately-issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers.
STRIPPED MORTGAGE-RELATED SECURITIES. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets.
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ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus, a
Fund could suffer some principal loss if the Fund sold the securities before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates. Some adjustable rate securities (or the underlying mortgages) are
subject to caps or floors, that limit the maximum change in interest rates
during a specified period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs as they are received, although certain
classes (often referred to as "tranches") of CMOs have priority over other
classes with respect to the receipt of mortgage prepayments.
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and that have multiple classes similar to those of CMOs.
Payments of principal of and interest on the underlying Mortgage Assets (and in
the case of CMOs, any reinvestment income thereon) provide funds to pay debt
service on the CMOs or to make scheduled distributions on the multi-class
mortgage pass-through securities. Parallel pay CMOs are structured to provide
payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. Planned amortization class mortgage-related
securities ("PAC Bonds") are a form of parallel pay CMO. PAC Bonds are designed
to provide relatively predictable payments of principal provided that, among
other things, the actual prepayment experience on the underlying mortgage loans
falls within a contemplated range. CMOs may have complicated structures and
generally involve more risks than simpler forms of mortgage-related securities.
VARIABLE AND FLOATING RATE SECURITIES. Debt securities have variable or floating
rates of interest and, under certain limited circumstances, may have varying
principal amounts. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to one or
more interest rate indices or market interest rates (the "underlying index").
The interest paid on these securities is a function primarily of the underlying
index upon which the interest rate adjustments are based. These adjustments
minimize changes in the market value of the obligation. Similar to fixed rate
debt instruments, variable and floating rate instruments are subject to changes
in value based on changes in market interest rates or changes in the issuer's
creditworthiness. The rate of interest on securities may be tied to U.S.
Government Securities or
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indices on those securities as well as any other rate of interest or index.
Certain variable rate securities pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as "inverse
floaters"). Certain inverse floaters may have an interest rate reset mechanism
that multiplies the effects of changes in the underlying index. This mechanism
may increase the volatility of the security's market value while increasing the
security's yield.
Variable and floating rate demand notes of corporations are redeemable upon a
specified period of notice. These obligations include master demand notes that
permit investment of fluctuating amounts at varying interest rates under direct
arrangements with the issuer of the instrument. The issuer of these obligations
often has the right, after a given period, to prepay the outstanding principal
amount of the obligations upon a specified number of days' notice.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Funds intend to purchase these securities only when the Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Adviser may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that the Adviser
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. A Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Adviser monitors the liquidity of
each Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
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2. RISKS
GENERAL. The market value of the interest-bearing fixed income securities held
by the Funds will be affected by changes in interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. Changes in the ability of an issuer to make payments of interest and
principal and in the markets' perception of an issuer's creditworthiness will
also affect the market value of that issuer's debt securities. As a result, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk, which refers
to the change in total return on a security resulting from an extension or
abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. A portion of the
municipal securities held by the Funds may be supported by credit and liquidity
enhancements, such as letters of credit (which are not covered by federal
deposit insurance) or puts or demand features of third party financial
institutions, generally domestic and foreign banks.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
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CREDIT RISK. The Funds' investments in fixed income securities are subject to
credit risk relating to the financial condition of the issuers of the securities
that each Fund holds. To limit credit risk, each Fund will generally buy debt
securities that are rated in the top four long-term rating categories by an
NRSRO or in the top two short-term rating categories by an NRSRO. Moody's,
Standard & Poor's and other NRSROs are private services that provide ratings of
the credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of securities by
several NRSROs is included in Appendix B. The Adviser may use these ratings to
determine whether to purchase, sell or hold a security. Ratings are not,
however, absolute standards of quality. Credit ratings attempt to evaluate the
safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Consequently, similar securities with the same
rating may have different market prices. In addition, rating agencies may fail
to make timely changes in credit ratings and the issuer's current financial
condition may be better or worse than a rating indicates.
Each Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
Each Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of the Funds to successfully utilize mortgage-related
securities depends in part upon the ability of the Advisers to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting the Fund's yield. Because prepayments of
principal generally occur when interest rates are declining, it is likely that
the Funds, to the extent they retain the same percentage of debt securities, may
have to reinvest the proceeds of prepayments at lower interest rates then those
of their previous investments. If this occurs, a Fund's yield will
correspondingly decline. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates (when
prepayment of principal is more likely)
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than other fixed income securities of comparable duration, although they may
have a comparable risk of decline in market value in periods of rising interest
rates. A decrease in the rate of prepayments may extend the effective maturities
of mortgage-related securities, reducing their sensitivity to changes in market
interest rates. To the extent that the Funds purchase mortgage-related
securities at a premium, unscheduled prepayments, which are made at par, result
in a loss equal to any unamortized premium.
To lessen the effect of the failures by obligors on Mortgage Assets to make
payments, CMOs and other mortgage-related securities may contain elements of
credit enhancement, consisting of either (1) liquidity protection or (2)
protection against losses resulting after default by an obligor on the
underlying assets and allocation of all amounts recoverable directly from the
obligor and through liquidation of the collateral. This protection may be
provided through guarantees, insurance policies or letters of credit obtained by
the issuer or sponsor from third parties, through various means of structuring
the transaction or through a combination of these. The Funds will not pay any
additional fees for credit enhancements for mortgage-related securities,
although the credit enhancement may increase the costs of the mortgage-related
securities.
C. OPTIONS AND FUTURES
1. GENERAL
Each Fund may seek to hedge against a decline in the value of securities it owns
or an increase in the price of securities which it plans to purchase by
purchasing and writing (i.e., selling) covered options on securities in which it
invests and on any securities index based in whole or in part on securities in
which the Fund may invest. The Funds may also buy and sell stock and bond index
futures as well as futures contracts on Treasury bills, Treasury bonds and other
financial instruments and may write covered call options and purchase and sell
out and call options on those futures contracts. The Fund may only invest in
options traded on an exchange or in an over-the-counter market.
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.
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OPTIONS ON INDICES. An index assigns relative values to the securities in the
index, and the index fluctuates with changes in the market values of the
securities included in the index. Index options operate in the same way as the
more traditional options on securities except that index options are settled
exclusively in cash and do not involve delivery of securities. Thus, upon
exercise of index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the 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 sescurity, 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. An index futures
contract involves the delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
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
The Fund will not hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, the Fund
will not buy futures contracts or write put options whose underlying value
exceeds 10% of the Funds total assets. The Fund will also not purchase call
options if the underlying value of all such options would exceed 5% of the
Fund's total assets. The Fund will not enter into futures contracts and options,
if immediately thereafter, more than 5% of the Fund's total assets would be in
vested in these options or committed to margin on futures contracts.
Each Fund will only invest in futures and options contracts after providing
notice to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on
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the contract held with a futures commission merchant and cash proceeds from
existing Fund investments due in 30 days; and (2) subject to certain other
limitations.
4. RISKS OF OPTIONS AND FUTURES TRANSACTIONS
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.
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.
D. LEVERAGE TRANSACTIONS
1. GENERAL
Each Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to a Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into reverse
repurchase agreements, and purchasing securities on a when-issued, delayed
delivery or forward commitment basis. The Funds use these investment techniques
only when the Adviser believes that the leveraging and the returns available to
the Funds from investing the cash will provide investors a potentially higher
return.
BORROWING Each Fund may borrow money from banks for temporary or emergency
purposes in an amount up to 33 1/3% of the Fund's total assets. Each Fund may
borrow money for any other purpose so long as such borrowings do not exceed 5%
of the Fund's total assets. Each Fund may not purchase securities if borrowings
for non-temporary or emergency purposes exceed 5% of the Fund's total assets.
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Each Fund may also enter into reverse repurchase agreements. A reverse
repurchase agreement is a transaction in which a Fund sells securities to a bank
or securities dealer and simultaneously commits to repurchase the security from
the bank or dealer at an agreed upon date and at a price reflecting a market
rate of interest unrelated to the sold security. An investment of a Fund 's
assets in reverse repurchase agreements will increase the volatility of the
Fund's net asset value per unit. A Fund will use the proceeds of reverse
repurchase agreements to fund redemptions or to make investments.
SECURITIES LENDING Each Fund may lend portfolio securities or participate in
repurchase agreements in an amount up to 10% of its total assets to brokers,
dealers and other financial institutions. Repurchase agreements are transactions
in which a Fund purchases a security and simultaneously agrees to resell that
security to the seller at an agreed upon price on an agreed upon future date,
normally, one to seven days later. If a Fund enters into a repurchase agreement,
it will maintain possession of the purchased securities and any underlying
collateral. Securities loans and repurchase agreements must be continuously
collateralized and the collateral must have market value at least equal to the
value of the Fund's loaned securities, plus accrued interest or, in the case of
repurchase agreements, equal to the repurchase price of the securities, plus
accrued interest. In a portfolio securities lending transaction, a Fund receives
from the borrower an amount equal to the interest paid or the dividends declared
on the loaned securities during the term of the loan as well as the interest on
the collateral securities, less any fees (such as finders or administrative
fees) the Fund pays in arranging the loan. The Fund may share the interest it
receives on the collateral securities with the borrower. The terms of a Fund's
loans permit the Fund to reacquire loaned securities on five business days'
notice or in time to vote on any important matter. Loans are subject to
termination at the option of a Fund or the borrower at any time, and the
borrowed securities must be returned when the loan is terminated.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Funds may purchase securities
offered on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. When these transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the securities
purchased by the purchaser and, thus, no interest accrues to the purchaser from
the transaction. At the time a Fund makes the commitment to purchase securities
on a when-issued or delayed delivery basis, the Fund will record the transaction
as a purchase and thereafter reflect the value each day of such securities in
determining its net asset value.
2. RISKS
Leverage creates the risk of magnified capital losses. Losses incurred by a Fund
may be magnified by borrowings and other liabilities that exceed the equity base
of the Fund. Leverage may involve the creation of a liability that requires a
Fund to pay interest (for instance, reverse
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repurchase agreements) or the creation of a liability that does not entail any
interest costs (for instance, forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
a Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to a Fund's
commitments under these transactions.
D. 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.
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; (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
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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. TEMPORARY DEFENSIVE POSITION
A Fund may assume a temporary defensive position and may invest without limit in
money market instruments that are of prime quality. Prime quality money market
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. Certain additional Funds may invest in
commercial paper as an investment and not as a temporary defensive position.
Except as noted below with respect to variable master demand notes, issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
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, commercial paper, time deposits, bankers acceptances
and certificates of deposit of banks doing business in the United States that
have, at the time of investment, total assets in excess of one billion dollars
and that are insured by the Federal Deposit Insurance Corporation, 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.
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.
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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. Neither Fund may:
1. BORROWING
Borrow money, except for temporary or emergency purposes (including the
meeting of redemption requests) and except for entering into reverse
repurchase agreements, and provided that borrowings do not exceed 33
1/3% of the Fund's total assets (computed immediately after the
borrowing).
2. CONCENTRATION
Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of issuers
conducting their principal business activity in the same industry.
3. DIVERSIFICATION
With respect to 75% of its assets, purchase securities, other than U.S.
Government Securities, of any one issuer, if (a) more than 5% of the
Fund's total assets taken at market value would at the time of purchase
be invested in the securities of that issuer, or (b) such purchase
would at the time of purchase cause the Fund to hold more than 10% of
the outstanding voting securities of that issuer.
4. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of
the Securities Act of 1933.
17
<PAGE>
5. MAKING LOANS
Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the
purchase of commercial paper or debt securities which are otherwise
permissible investments.
6. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
7. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts
will not be deemed to be physical commodities.
8. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the Investment
Company Act of 1940 ("1940 Act") and except that the Fund may borrow
money subject to investment limitations specified in the Fund's
Prospectus.
9. OIL, GAS & MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral
exploration or development programs.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Neither Fund may:
1. BORROWING
Borrow money or enter into leverage transactions if, as a result, the
total of borrowings and liabilities under leverage transactions (other
than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or
otherwise acquire any security if, the total of borrowings and
liabilities under leverage transactions, would exceed an amount equal
to 5% of the Fund's total assets.
18
<PAGE>
2. SECURITIES LENDING
Lend a security if, as a result, the amount of loaned securities would
exceed an amount equal to 33 1/3% of the Fund's total assets, as
determined by SEC guidelines.
3. ILLIQUID SECURITIES
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 Fund may treat certain restricted securities as
liquid pursuant to guidelines adopted by the Board of Trustees.
4. INVESTING FOR CONTROL
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.
5. MARGIN
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.
6. SHORT SALES
Sell securities short unless it owns or has the right to obtain
seurities 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.
7. INVESTMENTS IN INVESTMENT COMPANIES
Invest in the securities of any investment company except to the extent
permitted by the 1940 Act.
8. OPTIONS AND FUTURES
Hedge more than 30% of its total assets by selling futures contracts,
buying put options, and writing call options (so called "short
positions"), (ii) buy futures contracts or write put options whose
19
<PAGE>
underlying value exceeds 10% of the Fund's total assets, and (iii) will
not buy call options with a value exceeding 5% of the Fund's total
assets. The Fund may invest in futures or options contracts regulated
by the CFTC for (i) bona fide hedging purposes within the meaning of
the rules of the CFTC and (ii) for other purposes if, as a result, no
more than 5% of the Fund's net assets would be invested in initial
margin and premiums (excluding amounts "in-the-money") required to
establish the contracts.
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 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.
20
<PAGE>
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. Table 1 in
Appendix C includes performance information for the Funds.
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 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.
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<PAGE>
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.
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.
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
22
<PAGE>
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 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
23
<PAGE>
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 $1,188 at the end
of the second year (an increase of $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:
<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
24
<PAGE>
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)
- ------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner-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
- ------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein,Vice President General Counsel, Forum Financial Group
Born: Secretary, Forum Fund Services, Inc. (Trust's underwriter)
Two Portland Square
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
- ------------------------------------------- -----------------------------------------------------------------------
25
<PAGE>
- ------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
AGE AND ADDRESS PAST 5 YEARS
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
Dawn Taylor, Asst. Treasurer Manager/Senior Tax Specialist, Tax Department, Forum Financial Group,
Born:: May 14, 1964 LLC since 1997
Two Portland Square Senior Tax Accountant, Pardy Bingham &Burrell during 1997
Portland, Maine 04101 Senior Tax Specialist, Forum Financial Group, LLC from 1994 to 1997
- ------------------------------------------- -----------------------------------------------------------------------
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 March 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
Compensation Total Compensation from Trustand
Trustee from Trust(1) Benefits Retirement Fund Complex(1)
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
John Y. Keffer $0 $0 $0 $0
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
Costas Azariadis $11,200 $0 $0 $11,200
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
James C. Cheng $12,700 $0 $0 $12,700
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
J. Michael Parish $12,700 $0 $0 $12,700
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
</TABLE>
26
<PAGE>
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 privately-owned company incorporated under the laws of the
State of Maine in 1987.
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.
Table 1 in Appendix B shows the dollar amount of the fees payable by each Fund
to the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data is for the past three fiscal years.
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 not more
than 60 days' (but not less than 30 days') written notice to the Trust. The
Agreement terminates immediately upon assignment.
Under its agreement, the Adviser is not liable for any mistake of judgment, or
in any event whatsoever, except for willful misfeasance, bad faith, gross
negligence or reckless disregard in
27
<PAGE>
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. Prior to August 1, 1999, Forum Financial Services, Inc.
was the distributor of the each Fund pursuant to similar terms and compensation.
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 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.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Funds. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Funds are sold with a sales charges.
These financial institutions may otherwise act as processing agents, and will be
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of each Fund's
shares. The aggregate sales charges payable to FFS with respect to each Fund are
outlined in the following table:
28
<PAGE>
Table 2 in Appendix B shows the aggregate sales charges paid to FFSI, the amount
of sales charge reallowed by FFSI, and the amount of sales charge retained by
FFSI. The data is for the past three years (or shorter depending on a Fund's
commencement of operations).
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' 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 of 0.20% of
the average daily net assets of each Fund. The fee is accrued daily by the Funds
and is paid monthly based on average net assets for the previous month.
29
<PAGE>
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.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Funds
to FadS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data is for the past three fiscal years.
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
$36,000 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.
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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 (1) 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.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data is for the past three fiscal years.
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 with respect to each Fund 0.25% of
the average daily net assets of the Fund, an annual fee of $12,000 plus $18 per
shareholder account.
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.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Funds
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data is for the past three fiscal years.
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.
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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 Auditors], [Address of Independent Auditors], 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 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.
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B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions with respect to
each Fund. The data presented are for the past three fiscal years. The table
also indicates the reason for any material change in the last two years in the
amount of brokerage commissions paid by a Fund.
C. 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.
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.
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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.
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
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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.
Table 7 in Appendix B lists the regular broker and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
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.
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B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share plus the applicable sales charge.
Set forth below is an example of the method of computing the offering price of
the Fund's shares. The example assumes a purchase of shares of beneficial
interest aggregating less than $100,000 subject to the schedule of sales charges
set forth in the Prospectus at a price based on the net asset value per share of
the Fund on March 31, 1999.
Payson Value Fund Payson Balanced Fund
----------------- --------------------
Net Asset Value Per Share
Shares Charge, 4.00% of
offering price (4.17% of net
asset value per share)
Offering to Public
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
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.
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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 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
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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 March 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 net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of long-term capital gains over long-term capital
losses) that it distributes to shareholders. In order to qualify 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 (i.e., net investment income and capital gain net 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.)
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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.
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 net investment
income for each tax year. These distributions are taxable to you ordinary
income. 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 distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares.
Each Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Funds' financial statements. Any
such losses may not be carried back.
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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 reduces 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 distribution
in the form of additional share, it 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.
If you hold shares for six months or less and redeems shares at a loss after
receiving a capital gain distribution, the loss will be treated as a long-term
capital loss to the extent 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 you 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 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.
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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 is considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts which 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
ordinary its 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. If the Fund changes its tax year end to November 30 or December 31, it may
elect to use that date instead of the October 31 date in making this
calculation. 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 ending in a calendar 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 (or November 30 or December 31 if
it has made the election described above) in determining the amount of ordinary
taxable income for the current calendar year. The Fund will include foreign
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currency gains and losses incurred after October 31 in determining ordinary
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 other shares of the Fund within 30 days before or after the sale or
redemption (a so called "wash sale"). 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. For this purpose, the special holding period rules of Code Section
246(c) (3) and (4) generally will apply in determining the holding period of
shares. 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 correct tax payer
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."
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, ordinary income distributions paid
to a 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
42
<PAGE>
income tax on gain realized on the sale of shares of a Fund, capital gain
distributions from a Fund and amounts retained by a Fund that are designated as
undistributed capital gain.
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 rules for U.S. federal income taxation 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, distributions from a Fund, the applicability
of foreign taxes and related matters.
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 rules for U.S.
federal income taxation 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, distributions from a Fund, the applicability of state and local taxes and
related matters.
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:
43
<PAGE>
<TABLE>
<S> <C>
Investors Bond Fund Payson Balanced Fund
TaxSaver Bond Fund Payson Value Fund
Investors High Grade Bond Fund Oak Hall Small Cap Contrarian Fund
Maine Municipal Bond Fund Austin Global Equity Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund(1) Investors Equity Fund
Daily Assets Treasury Obligations Fund(1) Equity Index Fund
Daily Assets Cash Fund(1) Investors Growth Fund
Daily Assets Government Obligations Fund(1) BIA Small-Cap Growth Fund
Daily Assets Municipal Fund(1) BIA Growth Equity 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 aggregate and not by individual series and
(2) when the Trustees determine that the matter affect 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
44
<PAGE>
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 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 July 1, 1999, the percentage of shares owned by all officers and trustees
of the Trust as a group was as follows. To the extent officers and trustees own
less than 1% of the shares of each class of shares of a Fund (or of the Trust),
the table reflects "N/A" for not applicable.
<TABLE>
<S> <C>
- ----------------------------------------------------- ----------------------
PERCENTAGE OF SHARES
FUND (OR TRUST) OWNED
- ----------------------------------------------------- ----------------------
The Trust %
- ----------------------------------------------------- ----------------------
Payson Value Fund %
- ----------------------------------------------------- ----------------------
Payson Balanced Fund %
- ----------------------------------------------------- ----------------------
</TABLE>
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of a Fund. Shareholders known by a Fund to own beneficially 5% or more
of a class of shares of the Fund are listed in Table 8 in Appendix B.
45
<PAGE>
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 July 1, 1999, the following
persons beneficially owned 25% or more of the shares of a Fund (or of the Trust)
and may be deemed to control the Fund (or the Trust). For each person listed
that is a company, the jurisdiction under the laws of which the company is
organized (if applicable) and the company's parents are listed.
<TABLE>
<CAPTION>
CONTROLLING PERSON INFORMATION
<S> <C> <C>
--------------------------------------- ----------------------------------------- ------------------------
PERCENTAGE OF
SHAREHOLDER FUND (OR TRUST) SHARES OWNED
--------------------------------------- ----------------------------------------- ------------------------
--------------------------------------- ----------------------------------------- ------------------------
Payson Value Fund
--------------------------------------- ----------------------------------------- ------------------------
Payson Balanced Fund %
--------------------------------------- ----------------------------------------- ------------------------
</TABLE>
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 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
46
<PAGE>
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.
FINANCIAL STATEMENTS
The financial statements of Payson Value Fund and of Payson Balanced
Fund for the year ended March 31, 1999, which are included in the Annual Report
to Shareholders of each Fund, are incorporated herein by reference. These
financial statements only include the schedules of investments, statements of
assets and liabilities, statements of operations, statements of changes in net
assets, financial highlights, notes and independent auditors' reports.
47
<PAGE>
APPENDIX A - 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.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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.
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-3
<PAGE>
A+
A, A- Protection factors are average but adequate. However, risk factors are
more variable in periods of greater economic stress.
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-4
<PAGE>
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.
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.
A-5
<PAGE>
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.
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.
A-6
<PAGE>
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.
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:
A-7
<PAGE>
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.
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
A-8
<PAGE>
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.
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.
A-9
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable to the Adviser with
respect to each Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
PAYSON VALUE FUND
Year Ended March 31, 1999 $148,850 $46,719 $102,131
Year Ended March 31, 1998 $131,769 $0 $131,769
Year Ended March 31, 1997 $92,360 $0 $92,360
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
PAYSON BALANCED FUND
Year Ended March 31, 1999 $140,477 $50,090 $90,387
Year Ended March 31, 1998 $131,512 $0 $131.512
Year Ended March 31, 1997 $107,243 $0 $107,243
TABLE 2 - SALES CHARGES
PAYSON VALUE FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
1999
1998 $3,715 $462 $3,253
PAYSON BALANCED FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE
AMOUNT RETAINED AMOUNT REALLOWED
1999
1998 $186 $186 $0
</TABLE>
B-1
<PAGE>
TABLE 3 - ADMINISTRATION FEES
The following Table shows the dollar amount of fees payable to FAdS with respect
to each Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
<TABLE>
<S> <C> <C> <C>
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
PAYSON VALUE FUND PAYABLE RETAINED
Year Ended March 31, 1999 $37,213 $9,758 $27,455
Year Ended March 31, 1998 $32,942 $28,750 $4,192
Year Ended March 31, 1997 $23,090 $23,090 $0
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYSON BALANCED FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $46,826 $29,359 $17,467
Year Ended March 31, 1998 $43,837 $38,278 $5,559
Year Ended March 31, 1997 $35,748 $35,748 $0
</TABLE>
TABLE 4 - ACCOUNTING FEES
The following Table shows the dollar amount of fees payable to FAcS with respect
to each Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
<TABLE>
<S> <C> <C> <C>
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
PAYSON VALUE FUND RETAINED
Year Ended March 31, 1999 $36,000 $0 $36,000
Year Ended March 31, 1998 $36,000 $0 $36,000
Year Ended March 31, 1997 $36,000 $0 $36,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
PAYSON BALANCED FUND RETAINED
Year Ended March 31, 1999 $38,000 $0 $38,000
Year Ended March 31, 1998 $37,000 $0 $37,000
Year Ended March 31, 1997 $37,000 $0 $37,000
</TABLE>
B-2
<PAGE>
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees payable
to the Transfer Agent with respect to Shares of each Fund.
<TABLE>
<S> <C> <C> <C>
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYSON VALUE FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $65,203 $0 $65,203
Year Ended March 31, 1998 $58,869 $39,896 $18,973
Year Ended March 31, 1997 $45,916 $27,131 $18,785
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYSON BALANCED FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $77,383 $0 $77,383
Year Ended March 31, 1998 $73,628 $53,159 $20,469
Year Ended March 31, 1997 $63,723 $42,011 $21,712
</TABLE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
PAYSON VALUE PAYSON BALANCED
YEAR ENDED FUND FUND
MARCH 31,
1999 $34,078 $60,534
1998 $29,682 $41,370
1997 $17,303 $37,474
B-3
<PAGE>
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
<TABLE>
<S> <C> <C>
REGULAR BROKER OR DEALER VALUE HELD BY PAYSON VALUE FUND VALUE HELD BY PAYSON BALANCED FUND
</TABLE>
TABLE 8 - 5% SHAREHOLDERS
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund and (2) any person known by a
Fund to own beneficially 5% or more of a class of shares of a Fund, as of July
1, 1999.
<TABLE>
<S> <C> <C> <C> <C>
% OF % OF FUND
FUND/CLASS OF SHARES NAME AND ADDRESS SHARES CLASS
Payson Value Fund
Payson Balanced Fund
</TABLE>
B-4
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGES)
The average annual total return of each Fund for the period ended March 31,
1999, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------- ----------- ------------ -------------- ------------ ----------- ----------- ---------- ------------------
CALENDAR SINCE INCEPTION
ONE MONTH THREE YEAR TO DATE ONE YEAR THREE FIVE YEARS TEN YEARS (ANNUALIZED)
MONTHS YEARS
- -------------------- ----------- ------------ -------------- ------------ ----------- ----------- ---------- ------------------
Payson Value Fund 4.10% 0.95% 0.95% (4.57)% 16.14% 16.35% N/A 15.65%
- -------------------- ----------- ------------ -------------- ------------ ----------- ----------- ---------- ------------------
- -------------------- ----------- ------------ -------------- ------------ ----------- ----------- ---------- ------------------
Payson Balanced 2.32% (4.09)% (4.09)% (8.20)% 9.66% 11.21% N/A 11.05%
Fund
- -------------------- ----------- ------------ -------------- ------------ ----------- ----------- ---------- ------------------
</TABLE>
C-1
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which
is currently in use is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 120
mutual funds for 17 different fund managers, with more than $30 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 230 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
D-1
<PAGE>
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has 8 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals with decades of experience with some of the country's major
financial institutions.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over $175 billion as of September 30, 1997.
D-2
<PAGE>
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.4 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-3
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 146 funds with
more than $36 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.7 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1 billion in assets under management and $300 million in
non-managed custodial accounts. The Payson value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
D-4
<PAGE>
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
D-5
<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance,
expense accounting, budgeting for all funds
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: $36.9 billion
*Client Assets Processed by Fund Accounting: $47.6 billion
*Client Funds under Administration and Distribution: 146 mutual funds with 219
share classes
--------------------------------------------------
*International Ventures:
----------------------
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*Forum Employees: United States -198, Poland - 61, Bermuda - 3
---------------
FORUM CONTACTS:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment Advisers,
LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
D-6
<PAGE>
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.15 Billion
*Non-managed Custody Assets: $388 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 12 shareholders; 12 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
D-7
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
AUSTIN GLOBAL EQUITY FUND
Investment Adviser:
Austin Investment Management, Inc.
375 Park Avenue
New York, New York 10152
Account Information and Shareholder Services:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 041112
(800) 805-8258
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 1, 1999, as may be amended from time to time, offering shares of
Austin Global Equity Fund (the "Fund"), a separate series of Forum Funds, a
registered, open-end management investment company (the "Trust"). This SAI is
not a prospectus and should only be read in conjunction with the Prospectus. You
may obtain the Prospectus without charge by contacting Forum Shareholder
Services at the address or telephone number listed above.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Glossary ............................................................................... 1
1. Investment Policies and Risks...........................................................
2. Investment Limitations..................................................................
3. Performance Data and Advertising........................................................
4. Management..............................................................................
5. Portfolio Transactions..................................................................
6. Additional Purchase and Redemption Information..........................................
7. Taxation ...............................................................................
8. Other Matters...........................................................................
Appendix A - Description of Securities Ratings................................................... A-1
Appendix B Miscellaneous Tables............................................................... B-1
Appendix C Performance Data................................................................... C-1
</TABLE>
2
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Austin Investment Management, Inc.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of the Fund's assets.
"FAdS" means Forum Administrative Services, LLC, the administrator of
the 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 the Fund's
shares.
"Fund" means Austin Global Equity Fund.
"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 the Fund.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The 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. SECURITY RATINGS INFORMATION
The Fund's investments in convertible securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund may only invest in (1) convertible
debt securities that are rated B or higher by Moody's or S&P at the time of
purchase and (2) preferred stock rated b or higher by Moody's or B or higher by
S&P at the time of purchase. The Fund will limit its investment in convertible
securities rated BBB by S&P or bbb by Moody's to 10% of its total assets. The
Fund may purchase unrated convertible securities if, at the time of purchase,
the Adviser believes that ethey are of comparable quality to rated securities
that the Fund may purchase.
Securities in the lowest permissible rating category are characterized by
Moody's as generally lacking characteristics of a desireable investment any by
S&P as being predominantly speculative.. 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 convertible
securities by several NRSROs is included in Appendix A to this SAI. The Fund 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 a 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.
4
<PAGE>
B. 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 the 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 in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
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.
5
<PAGE>
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. Depositary Receipts
General. The Fund 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 Fund invests 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.
C. FOREIGN SECURITIES FORWARD CONTRACT
1. General
The Fund may conduct foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign exchange market or
by entering into a forward foreign currency contract. A forward foreign currency
contract ("forward contract") involves an obligation to purchase or sell a
specific amount of a specific currency at a future date, which may be any fixed
number of days (usually less than one year) from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. Forward
contracts are considered to be "derivatives" -- financial instruments whose
performance is derived, at least in part, from the performance of another asset
(such as a security, currency or an index of securities). The Fund enters into
forward contracts in order to "lock in" the exchange rate between the currency
it will deliver and the currency it will receive for the duration of the
contract. In addition, the Fund may enter into forward contracts to hedge
against risks arising from securities the Fund owns or anticipates purchasing,
or the U.S. dollar value of interest and dividends paid on those securities. The
Fund does not intend to enter into forward contracts on a regular or continuing
basis. The Fund will not have more than 25% of its total assets committee to
forward contracts, or maintain a net exposure to forward contracts that would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Portfolio's investment securities or other assets denominated in
that currency.
If the Fund makes delivery of the foreign currency at or before the settlement
of a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. The Fund may close out a
forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
6
<PAGE>
2. Risks
Foreign currency transactions involve certain costs and risks. The Fundo incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
D. OPTIONS AND FUTURES CONTRACTS
1. General
The Fund may purchase or sell (write) put and call options to enhance the Fund's
performance or to hedge against a decline in the value of securities owned by
the Fund or an increase in the price of securities that the Fund plans to
purchase. The Fund may purchase or sell (write) options on securities,
currencies and stock indices. The Fund may also invest in stock index and
foreign currency futures contracts and options on those contracts. The Fund may
purchase put and call options written by others and may write covered calls. The
Fund may not write puts on futures contracts and may only write covered put
options on securities, foreign currencies and stock indices to effect closing
transactions. The Fund may only invest in options that trade on an exchange or
over-the-counter.
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.
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Options on Indices. An index assigns relative values to the securities in the
index, and the index fluctuates with changes in the market values of the
securities included in the index. Index options operate in the same way as the
more traditional options on securities except that index options are settled
exclusively in cash and do not involve delivery of securities. Thus, upon
exercise of index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the index.
Options on Foreign Currency. Options on foreign currency operate in the same way
as more traditional options on securities except that currency options are
settled exclusively in the currency subject to the option. The value of a
currency option is dependent upon the value of the currency relative to the U.S.
dollar and has no relationship to the investment merits of a foreign security,
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, the Fund may be disadvantaged by having to deal in an
odd lot market (generally consisting in transactions of less than $1 million)
for the underlying currencies at prices that are less favorable than round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies are open, significant price and rate movements may take
place in the underlying markets that can not be reflected in the options
markets.
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 a security or currency, 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. An index futures
contract involves the delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
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
The Fund will not hedge more than 25% of its total assets by selling futures
contracts, buying put options and writing call options. The Fund will not buy
futures contracts or write put options whose underlying value exceeds 25% of the
Fund's total assets. The Fund will not purchase call options if the value of
purchased call options would exceed 5% of the Fund's total assets.
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The Fund will only invest in futures and options contracts after providing
notice to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain other limitations.
4. Risks of Options and Futures Transactions
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.
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.
D. LEVERAGE TRANSACTIONS
1. General
Each Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to a Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into reverse
repurchase agreements, and purchasing securities on a when-issued, delayed
delivery or forward commitment basis. The Funds use these investment techniques
9
<PAGE>
only when the Adviser believes that the leveraging and the returns available to
the Funds from investing the cash will provide investors a potentially higher
return.
Borrowing The Fund may borrow money from banks for temporary or emergency
purposes in an amount up to 33 1/3% of the Fund's total assets. The Fund may
borrow money for any other purpose so long as such borrowings do not exceed 5%
of the Fund's total assets. Each Fund may not purchase securities if borrowings
for non-temporary or emergency purposes exceed 5% of the Fund's total assets.
The Fund may also enter into reverse repurchase agreements. A reverse repurchase
agreement is a transaction in which a Fund sells securities to a bank or
securities dealer and simultaneously commits to repurchase the security from the
bank or dealer at an agreed upon date and at a price reflecting a market rate of
interest unrelated to the sold security. An investment of a Fund 's assets in
reverse repurchase agreements will increase the volatility of the Fund's net
asset value per unit. A Fund will use the proceeds of reverse repurchase
agreements to fund redemptions or to make investments.
Securities Lending Each Fund may lend portfolio securities or participate in
repurchase agreements in an amount up to 33 1/3% of its total assets to brokers,
dealers and other financial institutions. Repurchase agreements are transactions
in which a Fund purchases a security and simultaneously agrees to resell that
security to the seller at an agreed upon price on an agreed upon future date,
normally, one to seven days later. If a Fund enters into a repurchase agreement,
it will maintain possession of the purchased securities and any underlying
collateral. Securities loans and repurchase agreements must be continuously
collateralized and the collateral must have market value at least equal to the
value of the Fund's loaned securities, plus accrued interest or, in the case of
repurchase agreements, equal to the repurchase price of the securities, plus
accrued interest. In a portfolio securities lending transaction, the Fund
receives from the borrower an amount equal to the interest paid or the dividends
declared on the loaned securities during the term of the loan as well as the
interest on the collateral securities, less any fees (such as finders or
administrative fees) the Fund pays in arranging the loan. The Fund may share the
interest it receives on the collateral securities with the borrower. The terms
of a Fund's loans permit the Fund to reacquire loaned securities on five
business days' notice or in time to vote on any important matter. Loans are
subject to termination at the option of a Fund or the borrower at any time, and
the borrowed securities must be returned when the loan is terminated.
When-Issued Securities and Forward Commitments The Fund may purchase securities
offered on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. When these transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the securities
purchased by the purchaser and, thus, no interest accrues to the purchaser from
the transaction. At the time a Fund makes the commitment to purchase securities
on a when-issued or delayed delivery basis, the Fund will record the transaction
10
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as a purchase and thereafter reflect the value each day of such securities in
determining its net asset value.
2. Risks
Leverage creates the risk of magnified capital losses. Losses incurred by a Fund
may be magnified by borrowings and other liabilities that exceed the equity base
of the Fund. Leverage may involve the creation of a liability that requires a
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
a Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
Segregated Accounts. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to a Fund's
commitments under these transactions.
E. 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 the 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").
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<PAGE>
2. Risks
Limitations on resale may have an adverse effect on the marketability of a
security and the 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.
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.
F. FOREIGN SECURITIES
The 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; (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
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<PAGE>
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.
G. TEMPORARY DEFENSIVE POSITION
A Fund may assume a temporary defensive position and may invest without limit in
money market instruments that are of prime quality. Prime quality money market
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. Certain additional Funds may invest in
commercial paper as an investment and not as a temporary defensive position.
Except as noted below with respect to variable master demand notes, issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
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, commercial paper, time deposits, bankers acceptances
and certificates of deposit of banks doing business in the United States that
have, at the time of investment, total assets in excess of one billion dollars
and that are insured by the Federal Deposit Insurance Corporation, 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.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (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
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of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the 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 the Fund may be changed by the Board without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. The Fund may not:
1. Borrowing
Borrow money, except that the Fund may enter into commitments to
purchase securities in accordance with its investment program,
including delayed-delivery and when-issued securities and reverse
repurchase agreements, provided that the total amount of any such
borrowing does not exceed 33 1/3% of the Fund's total assets.
2. Concentration
Purchase securities, other than U.S. Government Securities, if,
immediately after each purchase, more than 25% of the Fund's total
assets taken at market value would be invested in securities of issuers
conducting their principal business activity in the same industry.
3. Diversification
With respect to 75% of the value of its total assets, purchase
securities, other than U.S. Government Securities, of any one issuer,
if (a) more than 5% of the Fund's total assets taken at market value
would at the time of purchase be invested in the securities of that
issuer, or (b) such purchase would at the time of purchase cause the
Fund to hold more than 10% of the outstanding voting securities of that
issuer.
4. Underwriting Activities
Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purposes of
the Securities Act of 1933.
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5. Make Loans
Make loans to other persons except for loans of portfolio securities
and except through the use of repurchase agreements and through the
purchase of debt securities which are otherwise permissible
investments.
6. Purchases and Sales of Real Estate
Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
7. Purchases and Sales of Commodities
Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent a Fund from purchasing or selling options and futures contracts
or from investing in securities or other instruments backed by physical
commodities).
8. Issuance of Senior Securities
Issue any senior security(as defined in the 1940 Act), except that (a)
the Fund may engage in transactions that may result in the issuance of
senior securities to the extent permitted under applicable regulations
and interpretations of the 1940 Act or an exemptive order; (b) the Fund
may acquire securities to the extent otherwise permitted by its
investment policies, the acquisition of which may result in the
issuance of a senior security, to the extent permitted under applicable
regulations or interpretations of the 1940 Act; and (c) subject to the
restrictions set forth above, the Fund may borrow money as authorized
by the 1940 Act.
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. The Fund may not
1. Borrowing
Borrow money or enter into leverage transactions if, as a result, the
total of borrowings and liabilities under leverage transactions (other
than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or
otherwise acquire any security if, the total of borrowings and
liabilities under leverage transactions, would exceed an amount equal
to 5% of the Fund's total assets.
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2. Securities Lending
Lend a security if, as a result, the amount of loaned securities would
exceed an amount equal to 33 1/3% of the Fund's total assets, as
determined by SEC guidelines.
3. Illiquid Securities
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 Fund may treat certain restricted securities as
liquid pursuant to guidelines adopted by the Board of Trustees.
4. Investing for Control
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.
5. Margin
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.
6. Short Sales
Sell securities short unless it owns or has the right to obtain
seurities 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.
7. Investments in Investment Companies
Invest in the securities of any investment company except to the
extent permitted by the 1940 Act.
8. Options and Futures
Hedge more than 30% of its total assets by selling futures contracts,
buying put options, and writing call options (so called "short
positions"), (ii) buy futures contracts or write put options whose
16
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underlying value exceeds 10% of the Fund's total assets, and (iii) will
not buy call options with a value exceeding 5% of the Fund's total
assets. The Fund may invest in futures or options contracts regulated
by the CFTC for (i) bona fide hedging purposes within the meaning of
the rules of the CFTC and (ii) for other purposes if, as a result, no
more than 5% of the Fund's net assets would be invested in initial
margin and premiums (excluding amounts "in-the-money") required to
establish the contracts.
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
The 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.
The 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 the 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 securities with similar, but not identical,
characteristics as the Fund.
The 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.
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The Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Funds.
1. SEC Yield
Standardized SEC yields for the 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 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 Fund
charges no sales charges.
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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
The 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 Fund
charges 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.
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
19
<PAGE>
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 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
20
<PAGE>
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 $1,188 at the end
of the second year (an increase of $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:
<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
21
<PAGE>
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)
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner-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
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein,Vice President General Counsel, Forum Financial Group
Born: Secretary, Forum Fund Services, Inc. (Trust's underwriter)
Two Portland Square
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
- ------------------------------------------- -----------------------------------------------------------------------
22
<PAGE>
- ------------------------------------------- -----------------------------------------------------------------------
Name, Position with the Trust, Principal Occupation(s) During
Age and Address Past 5 Years
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
Dawn Taylor, Asst. Treasurer Manager/Senior Tax Specialist, Tax Department, Forum Financial Group,
Born:: May 14, 1964 LLC since 1997
Two Portland Square Senior Tax Accountant, Pardy Bingham &Burrell during 1997
Portland, Maine 04101 Senior Tax Specialist, Forum Financial Group, LLC from 1994 to 1997
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
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 March 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
Compensation Total Compensation from Trustand
Trustee from Trust(1) Benefits Retirement Fund Complex(1)
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
John Y. Keffer $0 $0 $0 $0
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
Costas Azariadis $11,200 $0 $0 $11,200
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
James C. Cheng $12,700 $0 $0 $12,700
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
J. Michael Parish $12,700 $0 $0 $12,700
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
</TABLE>
23
<PAGE>
C. INVESTMENT ADVISER
1. Services of Adviser
The Adviser serves as investment adviser to the 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 privately-owned company controlled by Peter A. Vlachos.
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 Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in theFund. If you have a separately managed account with
the Adviser with assets invested in the 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.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data is for the past three fiscal years.
4. Other Provisions of Adviser's Agreement
The Adviser's agreement remains in effect for a period of one 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 the
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, for any loss arising out of any investment, 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.
24
<PAGE>
D. DISTRIBUTOR
1. Distributor; Services and Compensation of Distributor
FFS, the distributor (also known as principal underwriter) of the shares of the
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 Fund. FFS continually distributes
shares of the Fund on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
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 Fund.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of each Fund's
shares. The aggregate sales charges payable to FFS with respect to each Fund are
outlined in the following table:
Table 2 in Appendix B shows the aggregate sales charges paid to FFSI, the amount
of sales charge reallowed by FFSI, and the amount of sales charge retained by
FFSI. The data is for the past three years (or shorter depending on a Fund's
commencement of operations).
25
<PAGE>
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' 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 of 0.25% of
the average daily net assets of each Fund. The fee is accrued daily by the Fund
and is paid monthly based on average net assets for the previous month.
26
<PAGE>
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.
Table 2 in Appendix B shows the dollar amount of the fees payable by the Funds
to FadS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data is for the past three fiscal years.
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 Fund's financial statements and
tax returns.
For its services, FAcS receives a fee from each Fund at an annual rate of
$36,000 and certain surcharges based upon the number and type of a Fund's
portfolio transactions and positions. The fee is accrued daily by the Fund 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.
27
<PAGE>
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 (1) 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
Fund.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data is for the past three fiscal years.
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 with respect to each Fund annual
fee of $12,000 plus $18 per shareholder account.
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.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Funds
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data is for the past three fiscal years.
4. Custodian
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Fund's 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.
28
<PAGE>
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
Fund 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 Fund and provide the Fund with an audit
opinion. The auditors also review certain regulatory filings of the Fund and the
Fund' 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 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.
29
<PAGE>
A. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions with respect to
each Fund. The data presented are for the past three fiscal years. The table
also indicates the reason for any material change in the last two years in the
amount of brokerage commissions paid by a Fund.
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 Fund 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 Fund 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.
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 Fund, and not all research services may be
used by the Adviser in connection with the Fund. The Adviser's fees are not
reduced by reason of the Adviser's receipt of research services.
30
<PAGE>
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.
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 Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. 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
31
<PAGE>
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.
Table 6 in Appendix B lists the regular broker and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
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 Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
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B. ADDITIONAL PURCHASE INFORMATION
Shares of the 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 Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The 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 Fund.
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
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 Fund may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
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Investors purchasing shares of the Fund 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.
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D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily 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 Fund 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 Fund 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 March 31 (the same as the Fund's fiscal year
end).
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1. Meaning of Qualification
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its net investment company taxable income (i.e., taxable
interest, dividends, net short-term capital gains and other taxable ordinary
income, net of expenses) and net capital gain (i.e., the excess of net long-term
capital gains over net short-term capital losses) that it distributes to
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 the 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 the 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
The Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you
ordinary income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
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The 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 Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions may not qualify fro the dividends-received deduction.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduces 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 the 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 distribution
in the form of additional share, 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 the 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 the 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 the 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 FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the 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 the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
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<PAGE>
paid. When a put or call written by the 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 the 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 the Fund on Section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses. The Fund can elect to
exempt its Section 1256 contracts which 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 the 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 the 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 the 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 the 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.
The 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, the 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
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foreign currency gains and losses incurred after October 31 in determining
ordinary taxable income for the succeeding calendar year.
The 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 the 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 the 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 the 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
The 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 the 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 the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
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If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(an short-term capital gains) paid to a 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
the Fund and distributions of net capital gain from the Fund and amounts
retained by the Fund.
If the income from the 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 the 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, the 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 the 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 the Fund can differ from the rules for U.S.
federal income taxation 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 the
Fund, distributions from the Fund, the applicability of state and local taxes
and related matters.
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.
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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:
<TABLE>
<S> <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.
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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 aggregate and not by individual series and
(2) when the Trustees determine that the matter affect 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 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.
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B. FUND OWNERSHIP
As of July 1, 1999, the percentage of shares owned by all officers and trustees
of the Trust as a group was as follows. To the extent officers and trustees own
less than 1% of the shares of each class of shares of a Fund (or of the Trust),
the table reflects "N/A" for not applicable.
Percentage of Shares
Fund (or Trust) Owned
The Trust %
Austin Global Equity Fund %
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of the Fund. Shareholders known by a Fund to own beneficially 5% or
more of a class of shares of the Fund are listed in Table 7 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of July 1, 1999, the
following persons beneficially owned 25% or more of the shares of a Fund (or of
the Trust) and may be deemed to control the Fund (or the Trust). For each person
listed that is a company, the jurisdiction under the laws of which the company
is organized (if applicable) and the company's parents are listed.
Controlling Person Information
- ----------------------------------------------------- ----------------
Percentage of
Shares Owned
Shareholder
- ----------------------------------------------------- ----------------
- ----------------------------------------------------- ----------------
- ----------------------------------------------------- ----------------
- ----------------------------------------------------- ----------------
%
- ----------------------------------------------------- ----------------
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 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
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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.
Financial Statements
The financial statements of Austin Global Equity Fund for the year ended March
31, 1999, which are included in the Annual Report to Shareholders of each Fund,
are incorporated herein by reference. These financial statements only include
the schedules of investments, statements of assets and liabilities, statements
of operations, statements of changes in net assets, financial highlights, notes
and independent auditors' reports.
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APPENDIX A - 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.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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.
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-3
<PAGE>
A+
A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
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-4
<PAGE>
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.
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 Default. Securities are not meeting current obligation and
DD, D 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.
A-5
<PAGE>
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.
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.
A-6
<PAGE>
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.
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:
A-7
<PAGE>
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.
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.
A-8
<PAGE>
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.
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.
A-9
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
Table 1 - Investment Advisory Fees
The following Table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
Advisory Fee Payable Advisory Fee Waived Advisory Fee Retained
Austin Global Equity Fund
Year Ended March 31, 1999 $274,672 $0 $274,672
Year Ended March 31, 1998 $195,053 $24,463 $170,590
Year Ended March 31, 1997 $118,156 $69,562 $48,594
</TABLE>
B-1
<PAGE>
Table 2 - Administration Fees
The following Table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
<TABLE>
<S> <C> <C> <C>
Administration Fee Administration Fee Waived Administration Fee
Austin Global Equity Fund Payable Retained
Year Ended March 31, 1999 $45,779 $0 $45,779
Year Ended March 31, 1998 $32,509 $0 $32,509
Year Ended March 31, 1997 $19,693 $0 $19,693
</TABLE>
Table 3 - Accounting Fees
The following Table shows the dollar amount of fees payable to FAcS with respect
to the Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
<TABLE>
<S> <C> <C> <C>
Accounting Fee Payable Accounting Fee Waived Accounting Fee
Austin Global Equity Fund Retained
Year Ended March 31, 1999 $36,000 $0 $36,000
Year Ended March 31, 1998 $36,000 $0 $36,000
Year Ended March 31, 1997 $27,000 $0 $27,000
</TABLE>
B-2
<PAGE>
Table 4 - Transfer Agency Fees
The following table shows the dollar amount of shareholder service fees payable
to the Transfer Agent with respect to Shares of the Fund.
<TABLE>
<S> <C> <C> <C>
Transfer Agency Transfer Agency Transfer Agency Fee
Austin Global Equity Fund Fee Payable Fee Waived Retained
Year Ended March 31, 1999 $19,647 $0 $19,647
Year Ended March 31, 1998 $25,482 $0 $25,482
Nine Months Ended March 31, 1997 $20,781 $0 $20,781
</TABLE>
Table 5 - Commissions
The following table shows the aggregate brokerage commissions with respect to
the Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C>
Austin Global Equity Fund March 31, 1999 March 31, 1998 March 31, 1997
$26,205 $19,974 $11,976
</TABLE>
B-3
<PAGE>
Table 6 - Securities of Regular Brokers or Dealers
The following table lists the regular brokers and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
Regular Broker Dealer Value Held
Table 7 - 5% Shareholders
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund and (2) any person known by
the Fund to own beneficially 5% or more of a class of shares of the Fund, as of
July 1, 1999.
<TABLE>
<S> <C> <C> <C>
Austin Global Equity Fund Name and Address Shares % of Fund
</TABLE>
B-4
<PAGE>
APPENDIX C - PERFORMANCE DATA
Table 1 - Total Returns
The average annual total return without sales charges of the Fund for the period
ended March 31, 1999, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------- ----------- ------------- -------------- ---------- ----------- ----------- ------------------
Calendar Since Inception
Austin Global Equity One Month Three Months Year to Date One Year Three Five Years (annualized)
Fund Years
- ---------------------- ----------- ------------- -------------- ---------- ----------- ----------- ------------------
2.73% (0.36)% (0.36)% 9.51% 18.46% 17.08% 15.77%
- ---------------------- ----------- ------------- -------------- ---------- ----------- ----------- ------------------
</TABLE>
C-1
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999
OAK HALL SMALL CAP CONTRARIAN FUND
FUND INFORMATION:
Forum Funds
Two Portland Square
Portland, Maine 04101
(800) 625-4255
` (207) 879-0001
http://www.oakhallfund.com
INVESTMENT ADVISER:
Oak Hall Capital Advisors, L.P.
122 East 42nd Street
New York, New York 10005
(212) 455-9600
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O Box 446
Portland, Maine 04112
(800) 625-4255
` (207) 879-0001
This Statement of Additional Information or SAI supplements the Prospectuses
dated August 1, 1999 as may be amended from time to time, offering shares of Oak
Hall Small Cap Contrarian Fund (the "Fund"), a series of Forum Funds (the
"Trust"), a registered open-end management investment company. This SAI is not a
prospectus and should only be read in conjunction with a prospectus. The
Prospectus may be obtained without charge by contacting shareholder services at
the address or telephone number listed above.
The financial statements for the Fund for the year ended March 30, 1999,
included in the Annual Report to shareholders, are incorporated into this SAI by
reference.
<PAGE>
TABLE OF CONTENTS
Glossary ......................................................
1. Investment Policies and Risks..................................
2. Investment Limitations.........................................
3. Performance Data and Advertising...............................
4. Management.....................................................
5. Portfolio Transactions.........................................
6. Additional Purchase and Redemption Information.................
7. Taxation ......................................................
8. Other Matters..................................................
Appendix A - Description of Securities Ratings..........................
Appendix B - Miscellaneous Tables.......................................
Appendix C - Performance Data...........................................
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Oak Hall(R) Capital Advisors, L.P.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of the Fund's assets.
"FAdS" means Forum Administrative Services, LLC, the administrator of the Fund.
"Fitch" means Fitch IBCA, Inc.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of the Fund.
"FFS" means Forum Fund Services, LLC, distributor of the Fund's shares.
"Fund" means Oak Hall Small Cap Contrarian Fund.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, A Division of the McGraw Hill Company.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer agent and
distribution disbursing agent of the Fund.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The Fund is a diversified series of the Trust. The following discussion
supplements the disclosure in the Prospectus for the Fund's investment
techniques, strategies and risks.
A. SECURITY RATINGS INFORMATION
The Fund's investments in convertible securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund may only invest in (1) convertible
debt securities that are rated B or higher by Moody's or S&P at the time of
purchase and (2) convertible preferred stock rated b or higher by Moody's or B
or higher by S&P at the time of purchase. The Fund may purchase unrated
convertible securities if, at the time of purchase, the Adviser believes that
they are of comparable quality to rated securities that the Fund may purchase.
Securities in the lowest permissible rating category are characterized by
Moody's as generally lacking characteristics of a desireable investment any by
S&P as being predominantly speculative. The 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 convertible
securities by several NRSROs is included in Appendix A to this SAI. The Fund 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 the Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by a 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.
B. 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,
<PAGE>
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 the 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 in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
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.
<PAGE>
3. DEPOSITARY RECEIPTS
GENERAL. The Fund 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 Fund invests 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.
C. FOREIGN SECURITIES FORWARD CONTRACTS
1. GENERAL
The Fund may conduct foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign exchange market or
by entering into a forward foreign currency contract. A forward foreign currency
contract ("forward contract") involves an obligation to purchase or sell a
specific amount of a specific currency at a future date, which may be any fixed
number of days (usually less than one year) from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. Forward
contracts are considered to be "derivatives" -- financial instruments whose
performance is derived, at least in part, from the performance of another asset
(such as a security, currency or an index of securities). The Fund enters into
forward contracts in order to "lock in" the exchange rate between the currency
it will deliver and the currency it will receive for the duration of the
contract. In addition, the Fund may enter into forward contracts to hedge
against risks arising from securities the Fund owns or anticipates purchasing,
or the U.S. dollar value of interest and dividends paid on those securities. The
Fund does not intend to enter into forward contracts on a regular or continuing
basis. The Fund will not have more than 25% of its total assets committee to
forward contracts, or maintain a net exposure to forward contracts that would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Portfolio's investment securities or other assets denominated in
that currency.
If the Fund makes delivery of the foreign currency at or before the settlement
of a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. The Fund may close out a
forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
<PAGE>
2. RISKS
Foreign currency transactions involve certain costs and risks. The Fundo incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
D. OPTIONS AND FUTURES CONTRACTS
1. GENERAL
The Fund may purchase or sell (write) put and call options to enhance the Fund's
performance or to hedge against a decline in the value of securities owned by
the Fund or an increase in the price of securities that the Fund plans to
purchase. The Fund may purchase or sell (write) options on securities,
currencies and stock indices. The Fund may also invest in stock index and
foreign currency futures contracts and options on those contracts. The Fund may
purchase put and call options written by others and may write covered calls. The
Fund may not write puts on futures contracts and may only write covered put
options on securities, foreign currencies and stock indices to effect closing
transactions. The Fund may only invest in options that trade on an exchange or
over-the-counter.
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.
<PAGE>
OPTIONS ON INDICES. An index assigns relative values to the securities in the
index, and the index fluctuates with changes in the market values of the
securities included in the index. Index options operate in the same way as the
more traditional options on securities except that index options are settled
exclusively in cash and do not involve delivery of securities. Thus, upon
exercise of index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the index.
OPTIONS ON FOREIGN CURRENCY. Options on foreign currency operate in the same way
as more traditional options on securities except that currency options are
settled exclusively in the currency subject to the option. The value of a
currency option is dependent upon the value of the currency relative to the U.S.
dollar and has no relationship to the investment merits of a foreign security,
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, the Fund may be disadvantaged by having to deal in an
odd lot market (generally consisting in transactions of less than $1 million)
for the underlying currencies at prices that are less favorable than round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies are open, significant price and rate movements may take
place in the underlying markets that can not be reflected in the options
markets.
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 a security or currency, 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. An index futures
contract involves the delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
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
The Fund will not hedge more than 25% of its total assets by selling futures
contracts, buying put options and writing call options. The Fund will not buy
futures contracts or write put options whose underlying value exceeds 25% of the
Fund's total assets. The Fund will not purchase call options if the value of
purchased call options would exceed 5% of the Fund's total assets.
<PAGE>
The Fund will only invest in futures and options contracts after providing
notice to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by the Fund, the underlying commodity value of such
contract at all times does not exceed the sum of cash, short-term United States
debt obligations or other United States dollar denominated short-term money
market instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain other limitations.
4. RISKS OF OPTIONS AND FUTURES TRANSACTIONS
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
the 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 the Fund's ability to limit exposures by closing its
positions.
Other risks include the inability of the 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. The 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. The 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. The Fund's activities in the
futures and options markets may result in higher portfolio turnover rates and
additional brokerage costs, which could reduce the Fund's yield.
D. LEVERAGE TRANSACTIONS
1. GENERAL
The Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to the Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into reverse
<PAGE>
repurchase agreements, and purchasing securities on a when-issued, delayed
delivery or forward commitment basis. The Funds use these investment techniques
only when the Adviser believes that the leveraging and the returns available to
the Funds from investing the cash will provide investors a potentially higher
return.
BORROWING The Fund may borrow money from banks for temporary or emergency
purposes in an amount up to 33 1/3% of the Fund's total assets. The Fund may
borrow money for any other purpose so long as such borrowings do not exceed 5%
of the Fund's total assets. The Fund may not purchase securities if borrowings
for non-temporary or emergency purposes exceed 5% of the Fund's total assets.
The Fund may also enter into reverse repurchase agreements. A reverse repurchase
agreement is a transaction in which the Fund sells securities to a bank or
securities dealer and simultaneously commits to repurchase the security from the
bank or dealer at an agreed upon date and at a price reflecting a market rate of
interest unrelated to the sold security. An investment of the Fund 's assets in
reverse repurchase agreements will increase the volatility of the Fund's net
asset value per unit. The Fund will use the proceeds of reverse repurchase
agreements to fund redemptions or to make investments.
SECURITIES LENDING THE Fund may lend portfolio securities or participate in
repurchase agreements in an amount up to 33 1/3% of its total assets to brokers,
dealers and other financial institutions. Repurchase agreements are transactions
in which the Fund purchases a security and simultaneously agrees to resell that
security to the seller at an agreed upon price on an agreed upon future date,
normally, one to seven days later. If the Fund enters into a repurchase
agreement, it will maintain possession of the purchased securities and any
underlying collateral. Securities loans and repurchase agreements must be
continuously collateralized and the collateral must have market value at least
equal to the value of the Fund's loaned securities, plus accrued interest or, in
the case of repurchase agreements, equal to the repurchase price of the
securities, plus accrued interest. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any fees (such
as finders or administrative fees) the Fund pays in arranging the loan. The Fund
may share the interest it receives on the collateral securities with the
borrower. The terms of the Fund's loans permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter. Loans are subject to termination at the option of the Fund or the
borrower at any time, and the borrowed securities must be returned when the loan
is terminated.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Fund may purchase securities
offered on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. When these transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the securities
purchased by the purchaser and, thus, no interest accrues to the purchaser from
the transaction. At the time the Fund makes the commitment to purchase
<PAGE>
securities on a when-issued or delayed delivery basis, the Fund will record the
transaction as a purchase and thereafter reflect the value each day of such
securities in determining its net asset value.
2. RISKS
Leverage creates the risk of magnified capital losses. Losses incurred by the
Fund may be magnified by borrowings and other liabilities that exceed the equity
base of the Fund. Leverage may involve the creation of a liability that requires
the Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
the Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on the Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
the Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, the Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions.
E. 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 the 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
<PAGE>
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 the Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. The 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.
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.
F. FOREIGN SECURITIES
The 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; (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
<PAGE>
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 the 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 the 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 the Fund's income has been earned and computed in
U.S. dollars may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
G. TEMPORARY DEFENSIVE POSITION
The Fund may assume a temporary defensive position and may invest without limit
in money market instruments that are of prime quality. Prime quality money
market 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. Certain additional Funds may invest in
commercial paper as an investment and not as a temporary defensive position.
Except as noted below with respect to variable master demand notes, issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
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 the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund 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
<PAGE>
or represented. A nonfundamental policy of the Fund may be changed by the Board
without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. The Fund may not:
1. ISSUANCE OF SENIOR SECURITIES
Issue any senior securities (as defined in the Investment Company Act
of 1940 (the "1940 Act"), except that: (a) the Fund may engage in
transactions that may result in the issuance of senior securities to
the extent permitted under applicable regulations and interpretations
of the 1940 Act or an exemptive order; (b) the Fund may acquire
securities to the extent otherwise permitted by its investment
policies, the acquisition of which may result in the issuance of a
senior security, to the extent permitted under applicable regulations
or interpretations of the 1940 Act; and (c) subject to the restrictions
set forth in the prospectus, the Fund may borrow money as authorized by
the 1940.
2. BORROWING
Borrow money, except that the Fund may enter into commitments to
purchase securities in accordance with its investment program,
including delayed-delivery and when-issued securities and reverse
repurchase agreements, provided that the total amount of any such
borrowing does not exceed 33 1/3% of the Fund's total assets.
3. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Fund may be deemed to be an underwriter for purpose of
the Securities Act of 1933.
4. CONCENTRATION
Purchase the securities of issuers (other than U.S. Government
Securities) conducting their business activity in the same industry if,
immediately after such purchase, the value of the Fund's investments in
such industry would comprise 25% or more of the value of its total
assets.
5. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities issued or guaranteed by corporate or
governmental entities secured by real estate or interests therein, such
as mortgage pass-throughs and collateralized mortgage obligations, or
issued by companies that invest in real estate or interests therein.
<PAGE>
6. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent a Fund from purchasing or selling options and futures contracts
or from investing in securities or other instruments backed by physical
commodities
7. MAKING LOANS
Make loans to other persons except for the purchase of debt securities
that are otherwise permitted investments or loans of portfolio
securities through the use of repurchase agreements.
<PAGE>
8. DIVERSIFICATION
Purchase a security 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. This limitation applies only with
respect to 75% of the Fund's total assets and does not apply to U.S.
Government Securities.
9. PLEDGING
Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted to be incurred by the Fund. The deposit in
escrow of securities in connection with the writing of put and call
options, collateralized loans of securities and collateral arrangements
with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund. The Fund may not:
1. BORROWING
Borrow money or enter into leverage transactions if, as a result, the
total of borrowings and liabilities under leverage transactions (other
than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or
otherwise acquire any security if, the total of borrowings and
liabilities under leverage transactions, would exceed an amount equal
to 5% of the Fund's total assets.
2. SECURITIES LENDING
Lend a security if, as a result, the amount of loaned securities would
exceed an amount equal to 33 1/3% of the Fund's total assets, as
determined by SEC guidelines.
3. ILLIQUID SECURITIES
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 Fund may treat certain restricted securities as
liquid pursuant to guidelines adopted by the Board of Trustees.
<PAGE>
4. INVESTING FOR CONTROL
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.
5. MARGIN
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.
6. SHORT SALES
Sell securities short unless it owns or has the right to obtain
seurities 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.
7. INVESTMENTS IN INVESTMENT COMPANIES
Invest in the securities of any investment company except to the
extent permitted by the 1940 Act.
8. OPTIONS AND FUTURES
Hedge more than 25% of its total assets by selling futures contracts,
buying put options, and writing call options (so called "short
positions"), (ii) 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. The Fund may invest in futures or options contracts regulated
by the CFTC for (i) bona fide hedging purposes within the meaning of
the rules of the CFTC and (ii) for other purposes if, as a result, no
more than 5% of the Fund's net assets would be invested in initial
margin and premiums (excluding amounts "in-the-money") required to
establish the contracts.
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
The 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.
<PAGE>
The 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 the 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 securities with similar, but not identical,
characteristics as the Fund.
The 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.
The Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Funds.
1. SEC YIELD
Standardized SEC yields for the 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.
<PAGE>
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining the 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 the 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 the
Fund's performance, investors should be aware that the 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 the 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 the Fund are not fixed or guaranteed, and an investment in the
Fund is not insured or guaranteed. Accordingly, yield information should not be
used to compare shares of the 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 the Fund's yield information directly
to similar information regarding investment alternatives which are insured or
guaranteed.
Yield quotations are based on amounts invested in the Fund net of any applicable
sales charges that 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 Fund charges no sales charges.
<PAGE>
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
<TABLE>
<S> <C> <C> <C> <C> <C>
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
</TABLE>
2. TOTAL RETURN CALCULATIONS
The 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 the 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 Fund charges 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 the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the 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.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
<TABLE>
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
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.
The Fund may quote unaveraged or cumulative total returns which reflect
the 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 the 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
The 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 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
<PAGE>
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 $1,188 at the end
of the second year (an increase of $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 the Fund's performance.
The 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 the 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 the Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <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, the 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.
<PAGE>
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> <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)
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner-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
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein,Vice President General Counsel, Forum Financial Group
Born: Secretary, Forum Fund Services, Inc. (Trust's underwriter)
Two Portland Square
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
- ------------------------------------------- -----------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
AGE AND ADDRESS PAST 5 YEARS
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
Dawn Taylor, Asst. Treasurer Manager/Senior Tax Specialist, Tax Department, Forum Financial Group,
Born:: May 14, 1964 LLC since 1997
Two Portland Square Senior Tax Accountant, Pardy Bingham &Burrell during 1997
Portland, Maine 04101 Senior Tax Specialist, Forum Financial Group, LLC from 1994 to 1997
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
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 March 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
Compensation Total Compensation from Trustand
Trustee from Trust(1) Benefits Retirement Fund Complex(1)
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
John Y. Keffer $0 $0 $0 $0
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
Costas Azariadis $11,200 $0 $0 $11,200
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
James C. Cheng $12,700 $0 $0 $12,700
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
J. Michael Parish $12,700 $0 $0 $12,700
- ------------------------- ------------------ -------------- ---------------- ----------------------------------
</TABLE>
<PAGE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to the 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 the Fund's investments and effecting portfolio
transactions for the Fund.
2. OWNERSHIP OF ADVISER
The Adviser was incorporated under the laws of the state of New York in 1984 and
is a wholly owned subsidiary of American Securities Holding Corporation
("ASHC"). ASHC is wholly owned by a trust, the beneficaries of which are members
of the William Rosenwald family.
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 Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in theFund. If you have a separately managed account with
the Adviser with assets invested in the 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.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data is for the past three fiscal years.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement remains in effect for a period of one 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 the
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, for any loss arising out of any investment, or in any event
whatsoever except for willful misfeasance, bad faith or gross negligence in the
<PAGE>
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 the
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 Fund. FFS continually distributes
shares of the Fund on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares. FFS does not receive a fee for its
distribution services.
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 Fund.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
FFS does not receive a fee for its distribution services Pursuant to the
Distribution Agreement, FFS receives, and may reallow to certain financial
<PAGE>
institutions, the sales charge paid by the purchasers of the Fund's shares. The
aggregate sales charges payable to FFS with respect to the Fund are outlined in
the following table:
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 the
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 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 the
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the 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 the 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 the Fund at an annual rate of 0.25%
of the average daily net assets of the Fund. The fee is accrued daily by the
Fund and is paid monthly based on average net assets for the previous month.
<PAGE>
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 the 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.
Table 2 in Appendix B shows the dollar amount of the fees payable by the Funds
to FadS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data is for the past three fiscal years.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust, FAcS provides fund
accounting services to the Fund. These services include calculating the NAV per
share of the Fund (and class) and preparing the Fund's financial statements and
tax returns.
For its services, FAcS receives a fee from the Fund at an annual rate of $36,000
and certain surcharges based upon the number and type of the Fund's portfolio
transactions and positions. The fee is accrued daily by the Fund 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 the 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 the 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.
<PAGE>
Under the agreement, in calculating the Fund's NAV per share, FAcS is deemed not
to have committed an error if the NAV per share it calculates is (1) 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
Fund.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data is for the past three fiscal years.
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 the 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 with respect to the Fund annual
fee of $12,000 plus $18 per shareholder account.
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 the 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 the 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.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Funds
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data is for the past three fiscal years.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Fund's cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of the Fund's domestic and foreign assets. The Custodian is
<PAGE>
located at Two Portland Square, Portland, Maine 04101.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of the Fund. The Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Fund 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 the Fund. The auditors audit the
annual financial statements of the Fund and provide the Fund with an audit
opinion. The auditors also review certain regulatory filings of the Fund and the
Fund' 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 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.
<PAGE>
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.
A. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions with respect to
the Fund. The data presented are for the past three fiscal years. The table also
indicates the reason for any material change in the last two years in the amount
of brokerage commissions paid by the Fund.
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 the 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 the Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
1. CHOOSING BROKER-DEALERS
The Fund 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 Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) take into
account payments made by brokers effecting transactions for the 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.
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 the 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 Fund, and not all research services may be
<PAGE>
used by the Adviser in connection with the Fund. 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 the Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
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 Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
<PAGE>
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 the 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 the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time
the Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. An annual
portfolio turnover rate of 100% would occur if all of the securities in the Fund
were replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses.
C. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the 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.
Table 6 in Appendix B lists the regular broker and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
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.
<PAGE>
The Fund accepts 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 the 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 Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The 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 Fund.
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 the Fund directly. When you purchase the 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
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 Fund may
<PAGE>
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Fund 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
The 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
the 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 the Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of the 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 the
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 the Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
<PAGE>
D. NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily 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 the 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
the 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 the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the 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 Fund 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 Fund 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
The 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 the Fund.
The tax year end of the Fund is March 31 (the same as the Fund's fiscal year
end).
<PAGE>
1. MEANING OF QUALIFICATION
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its net investment company taxable income (i.e.,
taxable interest, dividends, net short-term capital gains and other taxable
ordinary income, net of expenses) and net capital gain (i.e., the excess of net
long-term capital gains over net short-term capital losses) that it distributes
to shareholders. In order to qualify to be taxed as a regulated investment
company the 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 the 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 the 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 the 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 the Fund's income and performance. It is possible that the Fund will
not qualify as a regulated investment company in any given tax year.
<PAGE>
B. FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you
ordinary income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
The 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 Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions may not qualify fro the dividends-received deduction.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduces 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 the 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 distribution
in the form of additional share, 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 the 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 the 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 the 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 FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
<PAGE>
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by the 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 the 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 the Fund on Section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses. The Fund can elect to
exempt its Section 1256 contracts which 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 the 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 the 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 the 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 the 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.
The Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year.
<PAGE>
For purposes of calculating the excise tax, the 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 taxable income for the succeeding calendar year.
The 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 the 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 the 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 the 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.
<PAGE>
F. WITHHOLDING TAX
The 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 the 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 the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(an short-term capital gains) paid to a 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
the Fund and distributions of net capital gain from the Fund and amounts
retained by the Fund.
If the income from the 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 the 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, the 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 the 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 the Fund.
<PAGE>
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 the Fund can differ from the rules for U.S.
federal income taxation 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 the
Fund, distributions from the Fund, the applicability of state and local taxes
and related matters.
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:
<TABLE>
<S> <C> <C>
Investors Bond Fund Payson Value Fund
TaxSaver Bond Fund Payson Balanced Fund
Investors High Grade Bond Fund Oak Hall Small Cap Contrarian Fund
Maine Municipal Bond Fund Austin Global Equity Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund(1) Investors Equity Fund
Daily Assets Treasury Obligations Fund(1) Equity Index Fund
Daily Assets Cash Fund(1) Investors Growth Fund
Daily Assets Government Obligations Fund(1) BIA Small-Cap Growth Fund
Daily Assets Municipal Fund(1) BIA Growth Equity 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 the Fund will continue indefinitely until terminated.
<PAGE>
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 aggregate and not by individual series and
(2) when the Trustees determine that the matter affect 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 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 the 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
<PAGE>
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 July 1, 1999, the percentage of shares owned by all officers and trustees
of the Trust as a group was as follows. To the extent officers and trustees own
less than 1% of the shares of each class of shares of the Fund (or of the
Trust), the table reflects "N/A" for not applicable.
- ----------------------------------------------------- ----------------------
PERCENTAGE OF SHARES
FUND (OR TRUST) OWNED
- ----------------------------------------------------- ----------------------
- ----------------------------------------------------- ----------------------
The Trust %
- ----------------------------------------------------- ----------------------
- ----------------------------------------------------- ----------------------
Austin Global Equity Fund %
- ----------------------------------------------------- ----------------------
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of the Fund. Shareholders known by the Fund to own beneficially 5% or
more of a class of shares of the Fund are listed in Table 7 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of July 1, 1999, the
following persons beneficially owned 25% or more of the shares of the Fund (or
of the Trust) and may be deemed to control the Fund (or the Trust). For each
person listed that is a company, the jurisdiction under the laws of which the
company is organized (if applicable) and the company's parents are listed.
CONTROLLING PERSON INFORMATION
- ----------------------------------------------------- ----------------
PERCENTAGE OF
SHARES OWNED
SHAREHOLDER
- ----------------------------------------------------- ----------------
- ----------------------------------------------------- ----------------
- ----------------------------------------------------- ----------------
- ----------------------------------------------------- ----------------
%
- ----------------------------------------------------- ----------------
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 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
<PAGE>
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.
FINANCIAL STATEMENTS
The financial statements of Austin Global Equity Fund for the year ended March
31, 1999, which are included in the Annual Report to Shareholders of the Fund,
are incorporated herein by reference. These financial statements only include
the schedules of investments, statements of assets and liabilities, statements
of operations, statements of changes in net assets, financial highlights, notes
and independent auditors' reports.
<PAGE>
APPENDIX A - 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
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
A+
A, A- Protection factors are average but adequate. However, risk factors are
more variable in periods of greater economic stress.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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:
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following Table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
Year Ended March 31, 1999 $38,224 $38,224 $0
Year Ended March 31, 1998 $49,135 $49,135 $0
Year Ended March 31, 1997 $54,263 $54,263 $0
</TABLE>
TABLE 2 - ADMINISTRATION FEES
The following Table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
<TABLE>
<S> <C> <C> <C>
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $12,741 $0 $12,741
Year Ended March 31, 1998 $16,378 $0 $16,378
Year Ended March 31, 1997 $18,088 $0 $18,088
</TABLE>
TABLE 3 - ACCOUNTING FEES
The following Table shows the dollar amount of fees payable to FAcS with respect
to the Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
<TABLE>
<S> <C> <C> <C>
ACCOUNTING FEE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Year Ended March 31, 1999 $39,000 $0 $39,000
Year Ended March 31, 1998 $41,000 $0 $41,000
Year Ended March 31, 1997 $30,000 $0 $30,000
</TABLE>
<PAGE>
TABLE 4 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees payable
to the Transfer Agent with respect to Shares of the Fund.
<TABLE>
<S> <C> <C> <C> <C>
TRANSFER AGENCY TRANSFER AGENCY TRANSFER AGENCY
FEE PAYABLE FEE WAIVED FEE RETAINED
Year Ended March 31, 1999 $17,599 $0 $17,599
Year Ended March 31, 1998 $18,095 $0 $18,095
Nine Months Ended March 31, 1997 $16,755 $0 $16,755
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
the Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1997
$31,367 $26,268 $66,316
</TABLE>
<PAGE>
TABLE 6 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
REGULAR BROKER OR DEALER VALUE HELD
$0
TABLE 7 - 5% SHAREHOLDERS
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund and (2) any person known by
the Fund to own beneficially 5% or more of a class of shares of the Fund, as of
July 1, 1999.
% OF % OF
NAME AND ADDRESS SHARES CLASS FUND
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of the Fund for the period ended March 31, 1999,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CALENDAR SINCE INCEPTION
ONE MONTH THREE YEAR TO DATE ONE YEAR THREE FIVE YEARS (ANNUALIZED)
MONTHS YEARS
6.26% (8.80)% (8.80)% (22.30)% 6.21% 5.16% 10.02%
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
INVESTORS GROWTH FUND
Investment Adviser:
Forum Investment Advisors, LLC
Two Portland Square
Portland, Maine 04101
Account Information and Shareholder Services:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 94FORUM
(800) 943-6786
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 1, 1999, as may be amended from time to time, offering shares of
Investors Growth Fund (the "Fund"), a separate series of Forum Funds, a
registered, open-end management investment company (the "Trust"). This SAI is
not a prospectus and should only be read in conjunction with the Prospectus. You
may obtain the Prospectus without charge by contacting Forum Shareholder
Services at the address or telephone number listed above.
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
Glossary ............................................................................... 1
1. Investment Policies and Risks...........................................................
2. Investment Limitations..................................................................
3. Performance Data and Advertising........................................................
4. Management..............................................................................
5. Portfolio Transactions..................................................................
6. Additional Purchase and Redemption Information..........................................
7. Taxation ...............................................................................
8. Other Matters...........................................................................
Appendix A Description of Securities Ratings.................................................. A-1
Appendix B Miscellaneous Tables............................................................... B-1
Appendix C Performance Data................................................................... C-1
Appendix D Advertising Matters................................................................ D-1
</TABLE>
2
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Forum Investment Advisors, LLC.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means Forum Trust, LLC, the custodian of the Fund's assets.
"FAdS" means Forum Administrative Services, LLC, the administrator of the
Fund.
"Fitch" means Fitch IBCA, Inc.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of the
Fund.
"FFS" means Forum Fund Services, LLC, the distributor of the Fund's shares.
"Fund" means Investors Growth Fund.
"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 the Fund.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The Fund is a diversified series of the Trust. The following discussion
supplements the disclosure in the Prospectus of the 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 the 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 in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
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.
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<PAGE>
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. The Fund will limit its purchases of warrants to not more than 5% of the
value of its total assets.
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. A depositary receipt is a receipt for shares of a foreign-based company
that entitles the holder to distributions on the underlying security. Depositary
receipts include sponsored and unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and other similar global
instruments. 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. EDRs (sometimes called Continental
Depositary Receipts) are receipts issued by a European financial institution
evidencing an arrangement similar to that of ADRs, and are designed for use in
European securities markets. The Fund invests 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. TEMPORARY DEFENSIVE POSITION
The 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 the 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 Fund may only
invest in money market mutual funds to the extent permitted by the 1940 Act.
The money market instruments in which the 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.
5
<PAGE>
C. ILLIQUID AND RESTRICTED SECURITIES
1. General
The Fund may not 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 the 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 the Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. The 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.
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.
D. FOREIGN SECURITIES
The 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) 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.
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<PAGE>
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by the 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 the 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 the Fund's income has been earned and computed in
U.S. dollars may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
E. 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 the 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 the Fund buys securities with borrowed funds and the value of the securities
declines, the 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. The 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 the 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 the Fund's investment portfolio, the
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 the 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 the Fund.
To help minimize the risks associated with borrowing, the 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.
F. LENDING FUND SECURITIES
The Fund may lend Fund securities in an amount up to 33-1/3% of its total assets
to brokers, dealers and other financial institutions. Securities loans must be
continuously collateralized and the collateral must have market value at least
equal to value of the Fund's loaned securities, plus accrued interest. In a
portfolio securities lending transaction, the Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan as well as the interest on the collateral
securities, less any fees (such as finders or administrative fees) that the Fund
pays in arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower. The terms of the Fund's loans permit
the Fund to reacquire loaned securities on five business days' notice or in time
to vote on any important matter. Loans are subject to termination at the option
of the Fund or the borrower at any time, and the borrowed securities must be
returned when the loan is terminated. The Fund will not lend portfolio
securities to any officer, director, employee or affiliate of the Fund or the
Adviser.
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<PAGE>
G. CORE AND GATEWAY(R)
The Fund may seek to achieve its investment objective by converting to a Core
and Gateway(R) structure. The 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 the Fund's shareholders.
H. OTHER INVESTMENTS
1. When-Issued Securities and Forward Commitments
The Fund may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but settlements delayed beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
dividends or interest accrues to the purchaser from the transaction. At the time
the Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, the Fund will record the transaction as a purchase and
thereafter reflect the value each day of such securities in determining its net
asset value.
The use of when-issued transactions and forward commitments enables the Fund to
hedge against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling bond prices, the Fund might sell
securities that it owned on a forward commitment basis to limit its exposure to
falling prices. In periods of falling interest rates and rising bond prices, the
Fund might sell a security and purchase the same or a similar security on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to forecast
incorrectly the direction of interest rate movements, the Fund might be required
to complete such when-issued or forward commitment transactions at prices
inferior to the current market values.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitment
transactions only with the intention of actually receiving or delivering the
securities, as the case may be. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss. When-issued securities may include bonds purchased on a "when, as and if
issued" basis under which the issuance of the securities depends upon the
occurrence of a subsequent event. Any significant commitment of the Fund's
assets to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value.
The Fund will establish and maintain with its custodian a separate account with
cash, U.S. Government Securities (as defined in the Prospectus) and other liquid
assets in an amount at least equal to its commitments to purchase securities on
a when-issued or forward commitment basis.
2. Securities of Investment Companies
The Fund may invest in the securities of other investment companies within the
limits proscribed by the 1940 Act. Under normal circumstances, the Fund intends
to invest less than 5% of the value of its net assets in the securities of other
investment companies. In addition to the Fund's expenses (including the various
fees), as a shareholder in another investment company, the Fund would bear its
pro rata portion of the other investment company's expenses (including fees).
8
<PAGE>
3. Repurchase Agreements
The Fund may enter into repurchase agreements. Repurchase agreements are
transactions in which the Fund purchases securities from a bank or securities
dealer and simultaneously commits to resell the securities to the bank or dealer
at an agreed-upon date and at a price reflecting a market rate of interest
unrelated to the purchased security. During the term of a repurchase agreement,
the Fund's custodian maintains possession of the purchased securities and any
underlying collateral, which is maintained at not less than 100% of the
repurchase price. Repurchase agreements allow the Fund to earn income on its
uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments.
The Fund may be exposed to the risks of financial failure or insolvency of
another party. To help reduce those risks, the Adviser, subject to the Board's
supervision, monitor and evaluate the creditworthiness of counterparties to the
Fund's transactions and intend to enter into a transaction only when they
believe that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (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 the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund, including the Fund's investment objective of
long-term capital appreciation, 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 the Fund may be changed by the Board
without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are
fundamental policies of the Fund.
The Fund:
1. Diversification
May, with respect to 75% of its assets, purchase a security if as a
result: (i) more than 5% of its assets would be invested in the
securities of any single issuer or (ii) the Fund would own more than
10% of the outstanding voting securities of any single issuer. This
restriction does not apply to securities issued by the U.S. Government,
its agencies or instrumentalities.
2. Illiquid Securities
Will not invest more than 15% of its net assets in "illiquid
securities", which are securities that cannot be disposed of within
seven days at their then current value. For purposes of this
limitation, "illiquid securities" includes, except in those
circumstances described below, (i) "restricted securities", which are
securities that cannot be resold to the public without registration
under the Federal securities laws, and (ii) securities of issuers
having a record (together with all predecessors) of less than three
years of continuous operation.
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<PAGE>
3. Concentration
Will not Invest 25% or more of the value of its total assets in any one
industry.
4. Underwriting Activities
Will not underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under U.S.
securities laws.
5. Borrowing
May borrow money for temporary or emergency purposes, including the
meeting of redemption requests, but not in excess of 33 1/3% of the
value of the Fund's total assets (computed immediately after the
borrowing).
6. Margin and Short Sales
May not purchase securities on margin; however, the Fund may make
margin deposits in connection with any Hedging Instruments, which it
may use as permitted by any of its other fundamental policies. The Fund
may not sell securities short.
7. Investing for Control
May not make investments for the purpose of exercising control or
management.
8. Real Estate
May not purchase or sell real estate, provided that the Fund may invest
in securities issued by companies which invest in real estate or
interests therein.
9. Lending
Will not lend money except in connection with the acquisition of that
portion of publicly-distributed debt securities which the Fund's
investment policies and restrictions permit it to purchase; the Fund
may also make loans of portfolio securities and enter into repurchase
agreements.
10. Senior Securities
Will not issue senior securities except pursuant to Section 18 of the
Investment Company Act of 1940 ("1940 Act") and except that the Fund
may borrow money subject to investment limitations specified in the
Fund's Prospectus.
11. Purchases and Sales of Commodities
Will not invest in commodities or commodity contracts (other than
Hedging Instruments which it may use as permitted by any of its other
fundamental policies, whether or not any such Hedging Instrument is
considered to be a commodity or a commodity contract).
12. Options and Futures Contracts
May not purchase or write puts or calls except as permitted by any of
its other fundamental investment policies.
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<PAGE>
13. Warrants
May not invest in warrants, valued at the lower of cost or market, more
than 5% of the value of the Fund's net assets (included within that
amount, but not to exceed 2% of the value of the Fund's net assets, may
be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by the Fund in units or attached to
securities may be deemed to be without value).
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following nonfundamental investment limitation that may
be changed by the Board without shareholder approval. The Fund may not:
1. Borrowing
The Fund may not purchase or otherwise acquire any security if, the
total of borrowings and liabilities under leverage transactions, would
exceed an amount equal to 5% of the Fund's total assets.
2. Investments in Investment Companies
The Fund may not 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
The 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.
The 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 the 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 securities with similar, but not identical,
characteristics as the Fund.
The 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
11
<PAGE>
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.
The Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Funds.
1. SEC Yield
Standardized SEC yields for the 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 the 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 the 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 the
Fund's performance, investors should be aware that the 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 the 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 the Fund are not fixed or guaranteed, and an investment in the
Fund is not insured or guaranteed. Accordingly, yield information should not be
used to compare shares of the 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 the Fund's yield information directly
to similar information regarding investment alternatives which are insured or
guaranteed.
Yield quotations are based on amounts invested in the Fund net of any applicable
sales charges that 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.
Yield is calculated according to the following formula:
a - b 6
Yield = 2[(------ + 1) - 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
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<PAGE>
2. Total Return Calculations
The 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 the 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.
Average Annual Total Return. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the 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.
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.
The Fund may quote unaveraged or cumulative total returns which reflect
the 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 the 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
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<PAGE>
C. OTHER MATTERS
The 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 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 $1,188 at the end
of the second year (an increase of $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 the Fund's performance.
The 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 the 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 the Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <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>
14
<PAGE>
In connection with its advertisements, the 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 (*). The Board
supervises the Fund's activities, monitors its contractual arrangements with
various service providers and decides upon matters of general policy.
<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 Azariadis, 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)
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner,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
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein,Vice President General Counsel, Forum Financial Group, LLC
Born: August 3, 1961 Secretary, Forum Fund Services, LLC (Trust's underwriter)
Two Portland Square
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
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
Dawn Taylor, Asst. Treasurer Manager/Senior Tax Specialist, Tax Department, Forum Financial Group,
Born: May 14, 1964 LLC since 1997
Two Portland Square Senior Tax Accountant, Pardy Bingham & Burrell during 1997
Portland, Maine 04101 Senior Tax Specialist, Forum Financial Group, LLC from 1994 to 1997
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
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>
15
<PAGE>
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 March 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
Compensation Total Compensation from Trust
Trustee from Trust Benefits Retirement and Core Trust (Delaware)
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
John Y. Keffer $0 $0 $0 $0
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
Costas Azariadis $11,200 $0 $0 $11,200
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
James C. Cheng $12,700 $0 $0 $12,700
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
J. Michael Parish $12,700 $0 $0 $12,700
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
</TABLE>
C. INVESTMENT ADVISER
1. Services of Adviser
The Adviser serves as investment adviser to the 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 the Fund's investments and effecting portfolio
transactions for the Fund.
2. Ownership of Adviser
The Adviser is 99% owned by Forum Trust, LLC and 1% owned by Forum Holdings
Corp. I, both of which are mutual fund services holding companies controlled by
John Y. Keffer, Chairman and President of the Trust. Forum Investment Advisors,
LLC is registered as an investment adviser with the SEC under the 1940 Act.
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 Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in the Fund. If you have a separately managed account with
the Adviser with assets invested in the 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.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data is for the past three fiscal years.
16
<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 the
Fund on 30 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 90 days'
written notice to the Trust. The Agreement terminates immediately upon
assignment.
Under its agreement, the Adviser is not liable for any mistake of judgment or in
any event whatsoever except for breach of fiduciary duty, 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 the
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. Prior to August 1, 1999, Forum Financial Services, Inc.
was the distributor of the each Fund pursuant to similar terms and compensation.
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 Fund. FFS continually distributes
shares of the Fund on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
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 Fund.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold with a sales charge. These
financial institutions may otherwise act as processing agents, and will be
responsible for promptly transmitting purchase, redemption and other requests to
the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read this Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of the Fund's
shares. Table 2 in Appendix B shows the aggregate sales charges paid to FFSI,
the amount of sales charge reallowed by FFSI, and the amount of sales charge
retained by FFSI. The data is for the past three years (or shorter depending on
a Fund's commencement of operations).
17
<PAGE>
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 the
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 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 the
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the 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 the 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 the Fund at an annual rate of 0.20%
of the average daily net assets of the Fund. The fee is accrued daily by the
Fund 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 the 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.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data is for the past three fiscal years.
2. Fund Accountant
As fund accountant, pursuant to an agreement with the Trust, FAcS provides fund
accounting services to the Fund. These services include calculating the NAV per
share of the Fund and preparing the Fund's financial statements and tax returns.
18
<PAGE>
For its services, FAcS receives a fee from the Fund at an annual rate of $36,000
with certain surcharges based upon the number and type of the Fund's portfolio
transactions and positions. The fee is accrued daily by the Fund 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 the 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 the 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 the Fund's NAV per share, FAcS is deemed not
to have committed an error if the NAV per share it calculates is (1) 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
Fund.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data is for the past three fiscal years.
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 the 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 0.25% of the average daily net
assets of the Fund, an annual fee of $12,000 and $18 per shareholder account.
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 the 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 the 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.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Fund to
FSS, the amount of the fee waived by FSS, and the actual fees received by FSS.
The data is for the past three fiscal years.
4. Custodian
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Fund's cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of the Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
19
<PAGE>
For its services, the Custodian receives an annualized percentage of the average
daily net assets of the Fund. The Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Fund 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 Auditors], [Address of Auditor], independent auditors, have been
selected as auditors for the Fund. The auditors audit the annual financial
statements of the Fund and provide the Fund with an audit opinion. The auditors
also review certain regulatory filings of the Fund and the Fund's 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 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. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions with respect to
the Fund. The data presented are for the past three fiscal years. The table also
indicates the reason for any material change in the last two years in the amount
of brokerage commissions paid by the Fund.
C. 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. The Fund does not
have 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 the Fund rather
than by any formula.
20
<PAGE>
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 the Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
1. Choosing Broker-Dealers
The Fund 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 Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) take into
account payments made by brokers effecting transactions for the 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.
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 the 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 Fund, and not all research services may be
used by the Adviser in connection with the Fund. 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.
21
<PAGE>
3. Counterparty Risk
The Adviser monitors the creditworthiness of counterparties to the Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
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 Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. 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 the 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 the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time
the Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. An annual
portfolio turnover rate of 100% would occur if all of the securities in the Fund
were replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the 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.
Table 7 in Appendix B lists the regular broker and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
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 Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
22
<PAGE>
B. ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor. Set forth
below is an example of the method of computing the offering price of the Fund's
shares. The example assumes a purchase of shares of beneficial interest
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of the
Fund on March 31, 1999.
Net Asset Value Per Share [$ ]
Sales Charge, 4.00% of offering
price (4.17% of net asset value
per share) [$ ]
Offering to Public [$ ]
The Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The 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 Fund.
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 the Fund directly. When you purchase the 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
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 Fund may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
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Investors purchasing shares of the Fund 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
The 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
the 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 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 the Fund of its securities
is not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net assets; or (3)
the SEC may by order permit for the protection of the shareholders of the 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 the
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 the Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily 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 the 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
the 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 the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the 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 Fund or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
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<PAGE>
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 Fund 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
The 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 the Fund.
The tax year end of the Fund is March 31 (the same as the Fund's fiscal year
end).
1. Meaning of Qualification
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of long-term capital gains over long-term capital
losses) that it distributes to shareholders. In order to qualify as a regulated
investment company the Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income (i.e., net investment income and capital gain net
income) for the tax year. (Certain distributions made by the 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.
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 the 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 the 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 the Fund's income and performance. It is possible that the Fund will
not qualify as a regulated investment company in any given tax year.
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B. FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its net investment income
for each tax year. These distributions are taxable to you ordinary income. These
distributions may qualify for the 70% dividends-received deduction for corporate
shareholders.
The 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 Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares.
The Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Fund's financial statements. Any
such losses may not be carried back.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduces 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 the 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 distribution
in the form of additional share, it 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 the 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 the 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.
If you hold shares for six months or less and redeems shares at a loss after
receiving a capital gain distribution, the loss will be treated as a long-term
capital loss to the extent of the distribution.
Ordinarily, you are required to take distributions by the 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 you 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 FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the 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 the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by the Fund is exercised, the purchase price
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(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 the 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 the Fund on Section 1256 contracts generally is considered
60% long-term and 40% short-term capital gains or losses. The Fund can elect to
exempt its Section 1256 contracts which 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 the 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 the 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 the 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 the 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
ordinary its 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. If the Fund changes its tax year end to November 30 or December 31, it may
elect to use that date instead of the October 31 date in making this
calculation. The balance of the Fund's income must be distributed during the
next calendar year. The Fund will be treated as having distributed any amount on
which it is subject to income tax for any tax year ending in a calendar year.
For purposes of calculating the excise tax, the 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 (or November 30 or December 31 if
it has made the election described above) 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
taxable income for the succeeding calendar year.
The 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 the 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 the 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 other shares of the Fund within 30 days before or after
the sale or redemption (a so called "wash sale"). In general, any gain or loss
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<PAGE>
arising from the sale or redemption of shares of the 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. For this purpose, the special holding period rules of
Code Section 246(c) (3) and (4) generally will apply in determining the holding
period of shares. 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
The 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 correct tax payer
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 the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
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 the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a 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 the Fund, capital gain distributions
from the Fund and amounts retained by the Fund that are designated as
undistributed capital gain.
If the income from the 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 the 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, the 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 the Fund can
differ from the rules for U.S. federal income taxation 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 the Fund, distributions from the Fund, the
applicability of foreign taxes and related matters.
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 the Fund can differ from the rules for U.S.
federal income taxation 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 the
Fund, distributions from the Fund, the applicability of state and local taxes
and related matters.
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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:
<TABLE>
<S> <C>
Investors Bond Fund Payson Value Fund
TaxSaver Bond Fund Payson Balanced Fund
Investors High Grade Bond Fund Oak Hall Small Cap Contrarian Fund
Maine Municipal Bond Fund Austin Global Equity Fund
New Hampshire Bond Fund Polaris Global Value Fund
Daily Assets Government Fund(1) Investors Equity Fund
Daily Assets Treasury Obligations Fund(1) Equity Index Fund
Daily Assets Cash Fund(1) Investors Growth Fund
Daily Assets Government Obligations Fund(1) BIA Small-Cap Growth Fund
Daily Assets Municipal Fund(1) BIA Growth Equity 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 the 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 aggregate and not by individual series and
(2) when the Trustees determine that the matter affect 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
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<PAGE>
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 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 the 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 July 1, 1999, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding Shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of the
Fund. These shareholders and any shareholder known by the Fund to own
beneficially 5% or more of the Fund are listed in Table 8 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of July 1, 1999, the
following persons beneficially owned 25% or more of the shares of a Fund (or of
the Trust) and may be deemed to control the Fund (or the Trust). For each person
listed that is a company, the jurisdiction under the laws of which the company
is organized (if applicable) and the company's parents are listed.
Controlling Person Information
Shareholder Percentage of
Shares Owned
%
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
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<PAGE>
regulators of some states, however, have indicated that they and the 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.
G. FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended March 31, 1999, which
are included in the Annual Report to Shareholders of the Fund, are incorporated
herein by reference. These financial statements only include the schedules of
investments, statements of assets and liabilities, statements of operations,
statements of changes in net assets, financial highlights, notes and independent
auditors' reports.
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APPENDIX A - 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.
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.
A-1
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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.
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.
A-2
<PAGE>
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+ High credit quality. Protection factors are strong. Risk is modest but
AA may vary slightly from time to time because of economic conditions.
A+ Protection factors are average but adequate. However, risk factors
A, are more variable in periods of greater economic stress.
A-
BBB+ Below-average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+ Below investment grade but deemed likely to meet obligations when
BB due. Present or prospective financial protection factors fluctuate
BB- according to industry conditions. Overall quality may move up or down
frequently within this category.
B+ Below investment grade and possessing risk that obligations will not
B, be met when due. Financial protection factors will fluctuate widely
B- 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-3
<PAGE>
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.
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 Default. Securities are not meeting current obligations and are
DD, extremely speculative. `DDD' designates the highest potential for
D 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.
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.
A-4
<PAGE>
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.
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.
A-5
<PAGE>
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:
Leading market positions in well-established industries. High rates of
return on funds employed.
Conservative capitalization structure with moderate reliance on debt
and ample asset protection. Broad margins in earnings coverage of fixed
financial charges and high internal cash generation. Well-established
access to a range of financial markets and assured sources of alternate
liquidity.
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-6
<PAGE>
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.
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.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
Table 1 - Investment Advisory Fees
The following Table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
Advisory Fee Payable Advisory Fee Advisory Fee Retained
Investors Growth Fund Waived
Year Ended March 31, 1999 $207,130 $0 $207,130
Period Ended March 31, 1998 $59,250 $0 $59,250
Table 2 - Sales Charges
Aggregate Sales Charge
Fiscal Year Ended March 31, Amount Retained Amount Reallowed
1999
1998 $ $ $
</TABLE>
Table 3 - Administration Fees
The following Table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
<TABLE>
<S> <C> <C> <C>
Administration Fee Administration Fee Waived Administration Fee
Payable Retained
Year Ended March 31, 1999 $63,732 $63,732 $0
Period Ended March 31, 1998 $18,231 $18,231 $0
</TABLE>
Table 4 - Accounting Fees
The following Table shows the dollar amount of fees payable to FAcS with respect
to each Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
Accounting Fee Payable
Year Ended March 31, 1999 $37,000
Period Ended March 31, 1998 $10,935
B-1
<PAGE>
Table 5 - Transfer Agency Fees
The following Table shows the dollar amount of fees payable to FSS with respect
to each Fund, the amount of fee that was waived by FSS, if any, and the actual
fee received by FSS.
<TABLE>
<S> <C> <C> <C>
Accounting Fee Payable Accounting Fee Waived Accounting Fee
Retained
Year Ended March 31, 1999 $91,741 $44,032 $47,709
Period Ended March 31, 1998 $26,445.00 $22,744.00 $3,701.00
</TABLE>
Table 6 - Commissions
The following table shows the aggregate brokerage commissions with respect to
the Fund that incurred brokerage costs. The data is for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
Aggregate Commission
Investors Growth Fund Paid
Year Ended March 31, 1999 $37,518
Period Ended March 31, 1998 $9,612
Table 7 - Securities of Regular Brokers or Dealers
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
Table 8 - 5% Shareholders
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund and (2) any person known by
the Fund to own beneficially 5% or more of a class of shares of the Fund, as of
July 1, 1999.
Name and Address % of Fund
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
Table 1 - Total Returns (without sales charge)
The average annual total return of the Fund for the period ended March 31, 1999,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar
One Three Year to One Year Three Five Ten Since
Investors Growth Fund Month Months Date Years Years Years Inception
1.96% 1.25% 1.25% 6.25% N/A N/A N/A 15.51%
</TABLE>
Table 2 - Total Returns (with sales charge)
The average annual total return of the Fund for the period ended March 31, 1999,
was as follows.
One Year Since
Investors Growth Fund Inception
2.00% 11.94%
C-1
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text which is currently in use is set forth below.
Forum Financial Group of Companies
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over [ ]
mutual funds for [ ] different fund managers, with more than [$ ] billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than [ ] professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start- up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
C-2
<PAGE>
Forum's full service commitment includes providing state-of- the-art accounting
support (Forum has [ ] CPAs on staff, as well as senior accountants who have
been associated with Big 6 accounting firms). Forum's proprietary accounting
system is continually upgraded and can provide custom-built modules to satisfy a
fund's specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
Investment Advisers
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible.
Serving as portfolio managers for the Forum Family of Funds are individuals with
decades of experience with some of the country's major financial institutions.
[Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over [$ ] billion as of September 30, 1997.]
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately [$ ]billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
Forum Investment Advisors, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately [$ ] billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
Forum Family of Funds
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
C-3
<PAGE>
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
<PAGE>
PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in [ ] funds, including the unique
Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered through the
branches of Peoples' affiliate banks in Maine, New Hampshire and northern
Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers [ ] funds with
more than [$ ] billion in assets. Forum manages mutual funds for independent
investment advisors such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment advisor with approximately
[$ ] billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly [$ ] billion in assets under management and [$ ] million in
non-managed custodial accounts. The Payson Value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson president and managing director. "We have the region's premier
community banking company, a community-based investment advisor, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
C-4
<PAGE>
Forum Financial Group:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisors and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance, expense
accounting, budgeting for all funds *Fund Accounting Services: Portfolio
valuation, accounting, dividend declaration, and tax advice *Shareholder
Services: Preparation of statements, distribution support, inquiries and
processing of trades
*Client Assets under Administration and Distribution: [$ ] billion
*Client Assets Processed by Fund Accounting: [$ ] billion
*Client Funds under Administration and Distribution:[]mutual funds with[ ] share
classes
*International Ventures:
Joint venture with Bank Handlowy in Warsaw, Poland, using Forum's
proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of
operations
*Forum Employees: United States -[ ], Poland - [ ], Bermuda - [ ]
Forum Contacts:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment Advisors,
LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
C-5
<PAGE>
H.M. Payson & Co.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: [$ ] Billion
*Non-managed Custody Assets: [$ ] Million
*Client Base: [ %] individuals; [ %] institutional
*Owned by [ ] shareholders; [ ] managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: [ ]
H.M. Payson & Co. Contact:
Joel Harris, Marketing Coordinator, (207) 772-3761
C-6
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Trust Instrument of Registrant dated August 29, 1995 (see Note 1).
(b) By-Laws of Registrant (see Note 2).
(c) See the Sections 2.04 and 2.07 of the Trust Instrument filed as Exhibit
(a).
(d) (1) Investment Advisory Agreement between Registrant and H.M. Payson & Co.
relating to Payson Value Fund and Payson Balanced Fund dated December
18, 1995 (see Note 3).
(2) Investment Advisory Agreement between Registrant and Austin Investment
Management, Inc. relating to Austin Global Equity Fund dated as of
June 14, 1996 (see Note 3).
(3) Investment Advisory Agreement between Registrant and Oak Hall Capital
Advisors, Inc. relating to Oak Hall Small Cap Contrarian Fund dated as
of June 14, 1996 (see Note 3).
(4) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC relating to Investors Bond Fund, Investors Growth Fund,
Investors High Grade Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund and TaxSaver Bond Fund dated as of January 2, 1998
(see Note 5).
(5) Investment Subadvisory Agreement between Quadra Capital Partners, L.P.
and Smith Asset Management Group, L.P. relating to Quadra Growth Fund
dated as of November 1, 1997 (see Note 6).
(6) Investment Advisory Agreement between Registrant and Polaris Capital
Management, Inc. dated as of June 1, 1998 (see Note 7).
(7) Investment Advisory Agreement between Registrant and H.M. Payson & Co.
relating to Investors Equity Fund dated as of December 5, 1997 (see
Note 8).
(8) Investment Subadvisory Agreement between H.M. Payson & Co. and Peoples
Heritage Bank relating to Investors Equity Fund dated as of December
5, 1997 (see Note 9).
(9) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC relating to Small Company Opportunities Fund dated as of
March 30, 1998 (see Note 8).
(10) Form of Investment Advisory Agreement between Registrant and Brown
Investment Advisory & Trust Company relating to BIA Small-Cap Growth
Fund and BIA Growth Equity Fund, undated (see Note 15).
(e) (1) Form of Selected Dealer Agreement between Forum Financial Services,
Inc. and securities brokers (see Note 3).
(2) Form of Bank Affiliated Selected Dealer Agreement between Forum
Financial Services, Inc. and bank affiliates (see Note 3).
(3) Distribution Agreement between Registrant and Forum Financial
Services, Inc. relating to Austin Global Equity Fund, Investors Bond
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, and TaxSaver Bond Fund dated as of June 19, 1997
(see Note 3).
(4) Form of Distribution Agreement undated between Registrant and Forum
Fund Services, LLC relating to Austin Global Equity Fund, Investors
Bond 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, and TaxSaver Bond Fund, undated (see Note 10).
(5) Distribution Agreement between Registrant and Forum Fund Services, LLC
relating to Emerging Markets Fund, Equity Index Fund, International
Equity Fund, Investors Equity Fund, Small Company Opportunities Fund,
and Investor Shares, Institutional Shares and Institutional Service
<PAGE>
Shares of Daily Assets Government Fund, Daily Assets Treasury
Obligations Fund, Daily Assets Government Obligations Fund, Daily
Assets Cash Fund and Daily Assets Municipal Fund dated as of February
28, 1999 (see Note 15).
(6) Form of Distribution Agreement undated between Registrant and Forum
Fund Services, LLC relating to BIA Small-Cap Growth Fund and BIA
Growth Equity Fund, undated (see Note 15).
(f) None.
(g) (1) Custodian Agreement between Registrant and Investors Bank & Trust
Company 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 dated as
of February 16, 1999 (see Note 15).
(2) Form of Custodian Agreement between Registrant and Forum Trust undated
relating to 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, undated (see Note 15).
(3) Form of Master Custodian Agreement between Forum Trust and Bankers
Trust Company relating to 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, undated
(see Note 15).
(h) (1) 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, 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 dated as
of June 19, 1997 and amended as of December 5, 1997 (see Note 3).
(2) Form of Administration Agreement between Registrant and Forum
Administrative Services, LLC relating to BIA Small-Cap Growth Fund and
BIA Growth Equity Fund, undated (see Note 15).
(3) Fund Accounting Agreement between Registrant and Forum Accounting
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
<PAGE>
Fund, Daily Assets Cash Fund and Daily Assets Municipal Fund dated as
of June 19, 1997, as amended December 5, 1997 (see Note 15).
(4) Form of Fund Accounting Agreement between Registrant and Forum
Accounting Services, LLC relating to BIA Small-Cap Growth Fund and BIA
Growth Equity Fund, undated (see Note 15)
(5) 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 dated as of May 19, 1998 (see Note 3).
(6) 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, undated (see Note 15).
(7) Shareholder Service Plan of Registrant dated December 5, 1997 and Form
of Shareholder Service Agreement relating to the Daily Assets
Government Obligations Fund, Daily Assets Cash Fund, Daily Assets
Government Fund, Daily Assets Municipal Fund and Daily Assets Treasury
Obligations Fund (see Note 12).
(8) Shareholder Service Plan of Registrant dated March 18, 1998 and Form
of Shareholder Service Agreement relating to Polaris Global Value Fund
(see Note 8).
(9) Shareholder Service Plan of Registrant dated December 5, 1997 and Form
of Shareholder Service Agreement relating to Oak Hall Small Cap
Contrarian Fund (see Note 8).
(i) Opinion of Seward & Kissel dated January 5, 1996 (see Note 13).
(j) Not Applicable.
(k) None.
(l) Investment Representation letter of Reich & Tang, Inc. as original
purchaser of shares of Registrant (see Note 3).
(m) (1) Rule 12b-1 Plan adopted by the Investor Shares of Daily Assets
Treasury Obligations Fund, Daily Assets Government Fund, Daily Assets
Government Obligations Fund, Daily Asset Cash Fund, and Daily Assets
Municipal Fund dated December 5, 1997 (see Note 14).
(2) Rule 12b-1 Plan effective January 1, 1999 adopted by the Investor
Shares of Daily Assets Treasury Obligations Fund, Daily Assets
Government Fund, Daily Assets Government Obligations Fund, Daily Asset
Cash Fund, and Daily Assets Municipal Fund (see Note 14).
(n) Financial Data Schedules (see Note 15).
(o) 18f-3 plan adopted by Registrant (see Note 3).
Other Exhibits:
Power of Attorney for James C. Cheng (see Note 1).
Power of Attorney for Costas Azariadis (see Note 1).
Power of Attorney for J. Michael Parish (see Note 1).
Power of Attorney for John Y. Keffer (see Note 8).
<PAGE>
- ---------------
Note:
(1) Exhibit incorporated by reference as filed in post-effective amendment No.
34 via EDGAR on May 9, 1996, accession number 0000912057-96-008780.
(2) Exhibit incorporated by reference as filed in post-effective amendment No.
43 via EDGAR on July 31, 1997, accession number 0000912057-97-025707.
(3) Exhibit incorporated by reference as filed in post-effective amendment No.
62 via EDGAR on May 26, 1998, accession number 0001004402-98-000307.
(4) Exhibit incorporated by reference as filed in post-effective amendment No.
41 via EDGAR on December 31, 1996, accession number 0000912057-96-030646.
(5) Exhibit incorporated by reference as filed in post-effective amendment No.
56 via EDGAR on December 31, 1997, accession number 0001004402-97-000281.
(6) Exhibit incorporated by reference as filed in post-effective amendment No.
48 via EDGAR on October 31, 1997, accession number 0001004402-97-000152.
(7) Exhibit incorporated by reference as filed in post-effective amendment No.
63 via EDGAR on June 8, 1998, accession number 0001004402-98-000339.
(8) Exhibit incorporated by reference as filed in post-effective amendment No.
65 via EDGAR on September 30, 1998, accession number 0001004402-98-000530.
(9) Exhibit incorporated by reference as filed in post-effective amendment No.
64 via EDGAR on July 31, 1998, accession number 0001004402-98-000421.
(10) Exhibit incorporated by reference as filed in post-effective amendment No.
68 via EDGAR on November 30, 1998, accession number 0001004402-98-000620.
(11) Exhibit incorporated by reference as filed in post-effective amendment No.
49 via EDGAR on November 5, 1997, accession number 0001004402-97-000163.
(12) Exhibit incorporated by reference as filed in post-effective amendment No.
50 via EDGAR on November 12, 1997, accession number 0001004402-97-000189.
(13) Exhibit incorporated by reference as filed in post-effective amendment No.
33 via EDGAR on January 5, 1996, accession number 0000912057-96-000216.
(14) Exhibit incorporated by reference as filed in post-effective amendment No.
69 via EDGAR on December 15, 1998, accession number 0001004402-98-000648.
(15) Exhibit incorporated by reference as filed in post-effective amendment No.
70 via EDGAR on March 18, 1999, accession number 0001004402-99-000185.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH FUNDS
Daily Assets Treasury Obligations Fund, Daily Assets Government Fund,
and Daily Assets Municipal Fund may be deemed to control Treasury Cash
Portfolio, Government Portfolio, and Municipal Cash Portfolio,
respectively, each a series of Core Trust (Delaware).
ITEM 25. INDEMNIFICATION
In accordance with Section 3803 of the Delaware Business Trust Act,
Section 10.02 of Registrant's Trust Instrument provides as follows:
"10.02. INDEMNIFICATION.
"(a) Subject to the exceptions and limitations contained in Section
(b) below:
"(i) Every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
<PAGE>
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of being or having
been a Trustee or officer and against amounts paid or incurred by him
in the settlement thereof;
"(ii) The words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other liabilities.
"(b) No indemnification shall be provided hereunder to a Covered
Person:
"(i) Who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Holders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of the
Covered Person's office or (B) not to have acted in good faith in the
reasonable belief that Covered Person's action was in the best interest
of the Trust; or
"(ii) In the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the Trustee's or officer's office,
"(A) By the court or other body approving the
settlement;
"(B) By at least a majority of those Trustees who are
neither Interested Persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or
"(C) By written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full
trial-type inquiry);
provided, however, that any Holder may, by appropriate legal
proceedings, challenge any such determination by the Trustees or by
independent counsel.
"(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other persons may be
entitled by contract or otherwise under law.
"(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in paragraph (a) of this Section 5.2 may be paid by the Trust
or Series from time to time prior to final disposition thereof upon
receipt of an undertaking by or on behalf of such Covered Person that
such amount will be paid over by him to the Trust or Series if it is
ultimately determined that he is not entitled to indemnification under
this Section 5.2; provided, however, that either (a) such Covered
Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance
payments or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Section 5.2.
"(e) Conditional advancing of indemnification monies under this Section
5.2 for actions based upon the 1940 Act may be made only on the
following conditions: (i) the advances must be limited to amounts used,
or to be used, for the preparation or presentation of a defense to the
<PAGE>
action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or
on behalf of, the recipient to repay that amount of the advance which
exceeds that amount which it is ultimately determined that he is
entitled to receive from the Trust by reason of indemnification; and
(iii) (a) such promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that any
repayments may be obtained by the Trust without delay or litigation,
which bond, insurance or other form of security must be provided by the
recipient of the advance, or (b) a majority of a quorum of the Trust's
disinterested, non-party Trustees, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be
found entitled to indemnification.
"(f) In case any Holder or former Holder of any Series shall be held to
be personally liable solely by reason of the Holder or former Holder
being or having been a Holder of that Series and not because of the
Holder or former Holder acts or omissions or for some other reason, the
Holder or former Holder (or the Holder or former Holder's heirs,
executors, administrators or other legal representatives, or, in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, on behalf of
the affected Series, shall, upon request by the Holder, assume the
defense of any claim made against the Holder for any act or obligation
of the Series and satisfy any judgment thereon from the assets of the
Series."
With respect to indemnification of an adviser to the Trust, the
Investment Advisory Agreements between the Trust and Austin Investment
Management, Inc., H.M. Payson & Co., Oak Hall Capital Advisors, Inc.
and Quadra Capital Partners, Inc. provide as follows:
"Section 4. We shall expect of you, and you will give us the benefit
of, your best judgment and efforts in rendering these services to us,
and we agree as an inducement to your undertaking these services that
you shall not be liable hereunder for any mistake of judgment or in any
event whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, you against
any liability to us or and to our security holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder."
With respect to indemnification of an adviser to the Trust, the
Investment Advisory Agreements between the Trust and Forum Investment
Advisors, LLC and Polaris provide as follows:
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.
With respect to indemnification of the underwriter of the Trust,
Section 8 of the Distribution Agreement provides:
(a) The Trust will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls
the Distributor within the meaning of section 15 of the Securities Act
<PAGE>
or section 20 of the 1934 Act ("Distributor Indemnitees") free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable
counsel fees and other expenses of every nature and character
(including the cost of investigating or defending such claims, demands,
actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, or under common law or otherwise, arising out
of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectuses or arising
out of or based upon any alleged omission to state a material fact
required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished in writing to the Trust in connection with the preparation of
the Registration Statement or exhibits to the Registration Statement by
or on behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Trust shall indemnify and hold each Distributor Indemnitee
free and harmless from and against any Distributor Claim; provided,
that the term Distributor Claim for purposes of this sentence shall
mean any Distributor Claim related to the matters for which the
Distributor has requested amendment to the Registration Statement and
for which the Trust has not filed a Required Amendment, regardless of
with respect to such matters whether any statement in or omission from
the Registration Statement was made in reliance upon, or in conformity
with, information furnished to the Trust by or on behalf of the
Distributor.
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the
Trust and approved by the Distributor, which approval shall not be
withheld unreasonably. The Trust shall advise the Distributor that it
will assume the defense of the suit and retain counsel within ten (10)
days of receipt of the notice of the claim. If the Trust assumes the
defense of any such suit and retains counsel, the defendants shall bear
the fees and expenses of any additional counsel that they retain. If
the Trust does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Trust or has been
advised that it may have available defenses or claims that are not
available to or conflict with those available to the Trust, the Trust
will reimburse any Distributor Indemnitee named as defendant in such
suit for the reasonable fees and expenses of any counsel that person
retains. A Distributor Indemnitee shall not settle or confess any claim
without the prior written consent of the Trust, which consent shall not
be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its
several officers and trustees (collectively, the "Trust Indemnitees"),
free and harmless from and against any and all claims, demands,
actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent
that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other
expenses result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus or any alleged omission of a
material fact required to be stated or necessary to make the statements
therein not misleading, if such statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust in writing in connection with the preparation of the Registration
Statement or Prospectus by or on behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement ("Trust Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Trust Claim and may retain counsel of good standing chosen
by the Distributor and approved by the Trust, which approval shall not
be withheld unreasonably. The Distributor shall advise the Trust that
it will assume the defense of the suit and retain counsel within ten
(10) days of receipt of the notice of the claim. If the Distributor
<PAGE>
assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel
that they retain. If the Distributor does not assume the defense of any
such suit, or if Trust does not approve of counsel chosen by the
Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to
the Distributor, the Distributor will reimburse any Trust Indemnitee
named as defendant in such suit for the reasonable fees and expenses of
any counsel that person retains. A Trust Indemnitee shall not settle or
confess any claim without the prior written consent of the Distributor,
which consent shall not be unreasonably withheld or delayed.
(e) The Trust's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Trust or the
Distributor receiving notice of any action brought against a
Distributor Indemnitee or Trust Indemnitee, respectively, by the person
against whom such action is brought within twenty (20) days after the
summons or other first legal process is served. Such notice shall refer
to the person or persons against whom the action is brought. The
failure to provide such notice shall not relieve the party entitled to
such notice of any liability that it may have to any Distributor
Indemnitee or Trust Indemnitee except to the extent that the ability of
the party entitled to such notice to defend such action has been
materially adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
Distributor Indemnitee or Trust Indemnitee and shall survive the sale
and redemption of any Shares made pursuant to subscriptions obtained by
the Distributor. The indemnification provisions of this Section will
inure exclusively to the benefit of each person that may be a
Distributor Indemnitee or Trust Indemnitee at any time and their
respective successors and assigns (it being intended that such persons
be deemed to be third party beneficiaries under this Agreement).
(g) Each party agrees promptly to notify the other party of the
commencement of any litigation or proceeding of which it becomes aware
arising out of or in any way connected with the issuance or sale of
Shares.
(h) Nothing contained herein shall require the Trust to take any action
contrary to any provision of its Organic Documents or any applicable
statute or regulation or shall require the Distributor to take any
action contrary to any provision of its Articles of Incorporation or
Bylaws or any applicable statute or regulation; provided, however, that
neither the Trust nor the Distributor may amend their Organic Documents
or Articles of Incorporation and Bylaws, respectively, in any manner
that would result in a violation of a representation or warranty made
in this Agreement.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or its security holders
to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Forum Investment Advisors, LLC
The description of Forum Investment Advisors, LLC (investment adviser
to Investors High Grade Bond Fund, Investors Bond Fund, TaxSaver Bond
Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund, Small Company
Opportunities Fund, Investors Growth Fund, and the Institutional,
Institutional Service, and Investor classes of Daily Assets Treasury
Obligations Fund, Daily Assets Government Fund, Daily Assets Government
Obligations Fund, Daily Assets Cash Fund, and Daily Assets Municipal
Fund) contained in Parts A and B of this registration statement and in
Post-Effective Amendment ("PEA") #67 and #69 to the Trust's
Registration Statement (accession numbers 0001004402-98-000589 and
0001004402-98-000648, respectively), is incorporated by reference
herein.
<PAGE>
The following are the members of Forum Investment Advisors, LLC, Two
Portland Square, Portland, Maine 04101, including their business
connections, which are of a substantial nature.
Forum Holdings Corp. I., Member.
Forum Trust, LLC, Member.
Both Forum Holdings Corp. I. and Forum Trust are controlled indirectly
by John Y. Keffer, Chairman and President of the Registrant. Mr.
Keffer is President of Forum Trust and Forum Financial Group, LLC. Mr.
Keffer is also a director and/or officer of various registered
investment companies for which the various Forum Financial Group's
operating subsidiaries provide services.
The following are the officers of Forum Investment Advisors, LLC,
including their business connections that are of a substantial nature.
Each officer may serve as an officer of various registered investment
companies for which the Forum Financial Group provides services.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Sara M. Morris Treasurer Forum Investment Advisors, LLC.
------------------------------------- ----------------------------------
Chief Financial Officer Forum Financial Group, LLC.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Officer Other Forum affiliated companies
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
David I. Goldstein Secretary Forum Investment Advisors, LLC.
------------------------------------- ----------------------------------
General Counsel Forum Financial Group, LLC.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Officer Other Forum affiliated companies
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Mark D. Kaplan Director Forum Investment Advisors, LLC.
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(b) H.M. Payson & Co.
The description of H.M. Payson & Co.(investment adviser to Payson Value
Fund, Payson Balanced Fund and Investors Equity Fund) contained in
Parts A and B of this Registration Statement (accession numbers
0001004402-98-000421 and 0001004402-98-000589, respectively) is
incorporated by reference herein.
The following are the directors and principal executive officers of
H.M. Payson & Co., including their business connections, which are of a
substantial nature. The address of H.M. Payson & Co. is One Portland
Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Adrian L. Asherman Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John C. Downing Managing Director, Treasurer H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Thomas M. Pierce Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Peter E. Robbins Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
John H. Walker Managing Director, President H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Teresa M. Esposito Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John C. Knox Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Harold J Dixon Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Michael R. Currie Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
William O. Hall, III Managing Director H.M. Payson & Co.
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(c) Austin Investment Management, Inc.
The description of Austin Investment Management, Inc. (investment
adviser to Austin Global Equity Fund) contained in Parts A and B of
this registration statement is incorporated by reference herein.
The following is the director and principal executive officer of Austin
Investment Management, Inc. 375 Park Avenue, New York, New York 10152,
including his business connections, which are of a substantial nature.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Peter Vlachos Director, President, Treasurer, Austin Investment Management Inc.
Secretary
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(d) Oak Hall Capital Advisors, LLP
The description of Oak Hall Capital Advisors, LLP (investment adviser
to Oak Hall Small Cap Contrarian Fund) contained in Parts A and B of
this registration statement is incorporated by reference herein.
The following are the directors and principal executive officers of Oak
Hall Capital Advisors, Inc. 122 East 42nd Street, New York, New York
10168, including their business connections which are of a substantial
nature.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Alexander G. Anagnos Director, Portfolio Manager Oak Hall Capital Advisors, LLP
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Consultant American Securities and
affiliates
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Financial Advisor WR Family Associates
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Ed M. Cimilluca Co-Chief Executive, Co-Portfolio Oak Hall Capital Advisors, LLP
Manager
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John W. Morosani Co- Chief Executive, Co- Portfolio Oak Hall Capital Advisors, LLP
Manager
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Charles D. Klein Portfolio Manager Oak Hall Capital Advisors, LLP
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director American Securities and
affiliates
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Financial Advisor WR Family Associates
----------------------------------- ------------------------------------- ----------------------------------
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
David P. Steinmann Executive Vice President, Director Oak Hall Capital Advisors, LLP
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Secretary, Treasurer American Securities and
affiliates
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Administrator WR Family Associates
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(e) Smith Asset Management Group, L.P.
The description of Smith Asset Management Group, L.P. (investment
sub-adviser to Small Company Stock Portfolio of Core Trust (Delaware)
contained in Parts A and B of this registration statement and in PEA
#67 to the Trust's Registration Statement (accession number
0001004402-98-000589), is incorporated by reference herein.
The following are the directors and principal executive officers of
Smith Asset Management Group, L.P., including their business
connections, which are of a substantial nature.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Stephen S. Smith Chief Executive Officer Smith Asset Management Group
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Partner Discovery Management
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Stephen J. Summers Partner Smith Asset Management Group
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Chief Executive Officer Discovery Management
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Sarah C. Castleman Partner/Portfolio Manager Smith Asset Management Group
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Partner/Portfolio Manager Discovery Management
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John D. Brim Vice President/Portfolio Manager Smith Asset Management Group
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Vice President/Portfolio Manager Discovery Management
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(f) Norwest Investment Management, Inc.
The description of Norwest Investment Management, Inc. ("NIM")
(investment adviser to Index Portfolio, Small Company Stock Portfolio,
Small Company Value Portfolio, Small Cap Value Portfolio, and Small Cap
Index Portfolio, each a series of Core Trust (Delaware)) contained in
PEA # 67 of the Trust's Registration Statement (accession number
0001004402-98-000589), is incorporated by reference herein.
The following are the directors and principal executive officers of
NIM, including their business connections, which are of a substantial
nature. The address of Norwest Corporation, the parent of Norwest Bank
Minnesota, N.A. ("Norwest Bank"), which is the parent of NIM, is
Norwest Center, Sixth Street and Marquette Avenue, Minneapolis, MN
55479. Unless otherwise indicated below, the principal business address
of any company with which the directors and principal executive
officers are connected is also Sixth Street and Marquette Avenue,
Minneapolis, MN 55479.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
P. Jay Kiedrowski Chairman, Chief Executive Officer, Norwest Investment Management,
President Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Executive Vice President, Employee Norwest Bank Minnesota, N.A.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Chairman Galliard Capital Management, Inc.
----------------------------------- ------------------------------------- ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
James W. Paulsen Senior Vice President, Chief Norwest Investment Management,
Invest Officer Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Stephen P. Gianoli Senior Vice President, Chief Norwest Investment Management,
Executive Officer Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Crestone Capital Management, Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Richard C. Villars Vice President, Senior Portfolio Norwest Investment Management,
Manager Inc.
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Lee K. Chase Senior Vice President Norwest Investment Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Andrew Owen Vice President Norwest Investment Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Eileen A. Kuhry Investment Compliance Specialist Norwest Investment Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(g) Schroder Capital Management International Inc.
The description of Schroder Capital Management International Inc.
("SCMI") (investment adviser to International Portfolio, a series of
Core Trust (Delaware) and EM Schroder Core, a series of Schroder
Capital Funds) contained in Parts A and B of PEA #67 of the Trust's
Registration Statement (accession number 0001004402-98-000589), is
incorporated by reference herein.
The following are the directors and principal officers of SCMI,
including their business connections of a substantial nature. The
address of each company listed, unless otherwise noted, is 787 Seventh
Avenue, 34th Floor, New York, New York 10019. Schroder Capital
Management International Limited ("Schroder Ltd.") is a United Kingdom
affiliate of SCMI, which provides investment management services to
international clients, located principally in the United States.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
David M. Salisbury Chairman, Director SCMI
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Director Schroders plc.*
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Trustee and Officer Schroder Series Trust II
----------------------------------- ------------------------------------- ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
John A. Troiano Chief Executive, Director SCMI
------------------------------------
----------------------------------
Chief Executive, Director Schroder Ltd.*
------------------------------------ ----------------------------------
----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Richard R. Foulkes Deputy Chairman, Director SCMI
------------------------------------ ----------------------------------
Deputy Chairman Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael M. Perelstein Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Senior Vice President, Director Schroders Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Sharon L. Haugh Executive Vice President, Director SCMI
----------------------------------
------------------------------------ ----------------------------------
Director, Chairman Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman, Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Gavin D. L. Ralston Senior Vice President, Managing SCMI
Director
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Robert G. Davy Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Mark J. Smith Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
Senior Vice President, Director Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director, Senior Vice President Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jane P. Lucas Senior Vice President SCMI
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David R. Robertson Group Vice President SCMI
------------------------------------ ----------------------------------
Senior Vice President Schroder Fund Advisors Inc.
----------------------------------
------------------------------------
Director of Institutional Business Oppenheimer Funds, Inc.
resigned 2/98
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Louise Croset Senior Vice President, Director SCMI
------------------------------------ ----------------------------------
First Vice President Schroder Ltd.*
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Schroder Series Trust II
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ellen B. Sullivan Group Vice President SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Catherine A. Mazza Group Vice President SCMI
------------------------------------ ----------------------------------
Executive Vice President, Director Schroder Fund Advisors Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director, Group Vice President Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Heather F. Crighton First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Ira Unschuld Group Vice President, Director SCMI
------------------------------------ ----------------------------------
Officer Certain open end management
investment companies for which
SCMI and/or its affiliates
provide investment services
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Paul M. Morris Senior Vice President SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Schroder Capital Management Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Principal, Senior Portfolio Manager Weiss, Peck & Greer LLC
resigned 12/96
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Susan B. Kenneally First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Jennifer A. Bonathan First Vice President, Director SCMI
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
First Vice President, Director Schroder Ltd.*
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
*Schroder Ltd. and Schroders plc. are located at 31 Gresham St., Londo
EC2V 7QA, United Kingdom.
(h) Polaris Capital Management, Inc.
The description of Polaris Capital Management, Inc. ("Polaris")
(investment adviser to Polaris Global Value Fund) contained in Parts A
and B of PEA # 64 of the Trust's Registration Statement (accession
number 0001004402-98-000421), is incorporated by reference herein.
The following are the directors and principal officers of Polaris,
including their business connections of a substantial nature. The
address of the company is 125 Summer Street, Boston, Massachusetts
02110.
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Bernard R. Horn, Jr. President, Portfolio Manager Polaris Capital Management, Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Edward E. Wendell, Jr. Treasurer President, Boston Investor
Services, Inc.
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
Peoples Heritage Bank
The description of Peoples Heritage Bank ("Peoples") (investment
sub-adviser to Investors Equity Fund) contained in Parts A and B of
PEA #67 to the Trust's Registration Statement (accession number
0001004402-98-000589), is incorporated by reference herein.
The following are the officers of Peoples Trust and Investment Group,
including their business connections, which are of a substantial
nature, who provide investment advisory related services. Unless
otherwise indicated below, the principal business address of Peoples
with which these are connected is One Portland Square, Portland, Maine
04101.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Gary L. Robinson Executive Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Dorothy M. Wentworth Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Stephen L. Eddy Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Dana R. Mitiguy Chief Investment Officer Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Larry D. Pelletier Vice President Peoples
217 Main Street
Lewiston, Maine 04240
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Carolyn B. May Vice President Peoples
217 Main Street
Lewiston, Maine 04240
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Kevin K. Brown Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Donald W. Smith Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John W. Gibbons Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Joseph M. Pratt Vice President Peoples
74 Hammond Street
Bangor, Maine 04401
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Lucy L. Tucker Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Nancy W. Bard Assistant Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Douglas P. Adams Trust Officer Peoples
----------------------------------- ------------------------------------- ----------------------------------
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
Melanie L. Bishop Trust Officer Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Jeffrey Oldfield Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Janet E. Milley Assistant Vice President Peoples
74 Hammond Street
Bangor, Maine 04401
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Kathryn Dion Vice President Peoples
217 Main Street
Lewiston, Maine 04240
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(j) Peregrine Capital Management, Inc.
The description of Peregrine Capital Management, Inc.
("Peregrine")(investment sub-adviser to Small Company Value Portfolio,
a series of Core Trust (Delaware) contained in Parts A and B of PEA #67
to the Trust's Registration Statement (accession number
0001004402-98-000589), is incorporated by reference herein.
The following are the directors and principal executive officers of
Peregrine, including their business connections, which are of a
substantial nature. The address of Peregrine is LaSalle Plaza, 800
LaSalle Avenue, Suite 1850, Minneapolis, Minnesota 55402 and, unless
otherwise indicated below, that address is the principal business
address of any company with which the directors and principal executive
officers are connected.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
James R. Campbell Director Peregrine Capital Management,
Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
President, Chief Executive Officer, Norwest Bank
Director Sixth and Marquette Ave.
Minneapolis, MN 55479-0116
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Patricia D. Burns Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Tasso H. Coin Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John S. Dale Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Julie M. Gerend Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
William D. Giese Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Daniel J. Hagen Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
Ronald G. Hoffman Senior Vice President, Secretary Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Frank T. Matthews Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Jeannine McCormick Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Barbara K. McFadden Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Robert B. Mersky Chairman, President, Chief Peregrine Capital Management,
Executive Officer Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Gary E. Nussbaum Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
James P. Ross Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Jonathan L. Scharlau Assistant Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Jay H. Strohmaier Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Paul E. von Kuster Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Janelle M. Walter Assistant Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Paul R. Wurm Senior Vice President Peregrine Capital Management,
Inc.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
J. Daniel Vendermark Vice President Peregrine Capital Management,
Inc.
Sixth and Marquette Avenue
Minneapolis, MN 55479-1013
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Albert J. Edwards Senior Vice President Peregrine Capital Management,
Inc.
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
Vice President/Marketing U.S. Trust Company of California
(prior to June 9, 1997)
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(k) Brown Investment Advisory & Trust Company
The description of Brown Investment Advisory & Trust Company
("Brown")(investment adviser to BIA Small-Cap Growth Fund and BIA
Growth Equity Fund) contained in Parts A and B incorporated by
reference herein.
<PAGE>
The following are the directors and principal executive officers of
Brown, including their business connections, which are of a substantial
nature. The address of Brown is Furness House, 19 South Street,
Baltimore, Maryland 21202 and, unless otherwise indicated below, that
address is the principal business address of any company with which the
directors and principal executive officers are connected.
<TABLE>
<S> <C> <C>
------------------------------------ ------------------------------------ ----------------------------------
Name Title Business Connection
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael D. Hankin President, Chief Executive Brown
Officer, Trustee
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
President The Maryland Zoological Society
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Valleys Planning Council
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David L. Hopkins, Jr. Chairman Brown
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Westvaco Corporation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Metropolitan Opera Association
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Chairman, Finance Episcopal Church Foundation
Committee
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Maryland Historical Society
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Charles W. Cole, Jr. Vice Chairman of the Board of Brown
Trustees
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Flag Investors Mutual Funds
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Provident Bankshares Corporation
and Provident Bank of Maryland
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director, Chairman of Investment The University of Maryland
Committee Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Regents The University of Maryland
Systems
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Member The Governor's Committee on
School Funding
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Member Investment Committee of Helix
Health System
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman of Investment Committee France-Merrick Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee and Chairman Baltimore Council on Foreign
Affairs
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Truman T. Semans Vice Chairman of the Board of Brown
Trustees
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee, Member and Former Duke University
Chairman of Investment Committee
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee, Chairman of Finance Lawrenceville School
Committee and Member of Investment
and Executive Committees
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors, Member of Chesapeake Bay Foundation
Investment and Executive Committees
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Flag Investors Mutual Funds
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Committee Member Mercy Medical Center
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Committee Member St. Mary's Seminary
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Committee Member Archdiocese of Baltimore
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Committee Member Robert E. Lee Memorial Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Investment Committee Member W. Alton Jones Foundation
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
William C. Baker Trustee Brown
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
President and Chief Executive Chesapeake Bay Foundation
Officer
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee John Hopkins Hospital
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Member Washington College Board of
Visitors and Governors
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Baltimore Community Foundation
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Jack S. Griswold Trustee Brown
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Managing Director Armata Partners
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Alex. Brown Realty
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Baltimore Community
Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Chesapeake Bay Foundation
Living Classrooms
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Maryland Historical Society
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Member Washington College Board of
Visitors and Governors
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Treasurer Washington College
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chair Campaign for Washington's College
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Earl L. Linehan Trustee Brown
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
President Woodbrook Capital, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Strescon Industries
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman UMBC Board of Visitors
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman Investment Committee Gilman School
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member Stoneridge, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member Sagemaker, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member Medical Mutual Liability
Insurance Society of Maryland
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member Heritage Properties, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member St. Mary's Seminary & University
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member St. Ignatius Loyola Academy
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member University of Notre Dame
Advisory Council
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
Walter D. Pinkard, Jr. Trustee Brown
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
President and Chief Executive Colliers Pinkard
Officer
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman The Americas region of Colliers
International
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Vice President France Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Chairman The Baltimore Community
Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Directors Member France-Merrick Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The John Hopkins University
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Greater Baltimore Committee
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Gilman School
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee Calvert School
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Baltimore Community
Foundation
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The East Baltimore Community
Development Bank
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Greater Baltimore Alliance
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Baltimore Reads, Inc.
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Downtown Baltimore District
Authority
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Yale University Development
Board
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee The Maryland Business Roundtable
for Education
------------------------------------ ------------------------------------ ----------------------------------
<PAGE>
------------------------------------ ------------------------------------ ----------------------------------
John J.F. Sherrerd Trustee Brown
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director Provident Mutual Life Insurance
Company
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director C. Brewer and Company
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee, Vice Chairman of Princeton University
Executive Committee
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee, Chairman of Investment The Robertson Foundation
Committee
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Trustee GESU School
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Director and Executive Committee Princeton Investment Management
Member
------------------------------------ ----------------------------------
------------------------------------ ----------------------------------
Board of Overseers University of Pennsylvania
Wharton School.
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
David M. Churchill, CPA Chief Financial Officer Brown
------------------------------------ ------------------------------------ ----------------------------------
------------------------------------ ------------------------------------ ----------------------------------
Michael D. Hankin Chief Executive Officer Brown
------------------------------------ ------------------------------------ ----------------------------------
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Forum Financial Services, Inc., Registrant's underwriter, or its
affiliate, Forum Fund Services, LLC, serve as underwriter for the
following investment companies registered under the Investment Company
Act of 1940,as amended:
The CRM Funds Monarch Funds
The Cutler Trust Norwest Advantage Funds
Forum Funds Norwest Select Funds
Memorial Funds Sound Shore Fund, Inc.
(b) The following director of Forum Financial Services, Inc. and officer of
Forum Fund Services, LLC, the Registrant's underwriters, holds the
following positions with the Registrant. His business address is Two
Portland Square, Portland, Maine 04101.
<TABLE>
<S> <C> <C>
Name Position with Underwriter Position with Registrant
---- ------------------------- ------------------------
John Y. Keffer President Chairman, President
</TABLE>
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The majority of the accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained at the offices of Forum
Administrative Services, LLC and Forum Shareholder Services, LLC, Two
Portland Square, Portland, Maine 04101. The records required to be
maintained under Rule 31a-1(b)(1) with respect to journals of receipts
and deliveries of securities and receipts and disbursements of cash are
maintained at the offices of the Registrant's custodian, BankBoston,
100 Federal Street, Boston, Massachusetts 02106. The records required
to be maintained under Rule 31a-1(b)(5), (6) and (9) are maintained at
the offices of the Registrant's adviser or subadviser, as listed in
Item 26 hereof.
<PAGE>
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Registrant undertakes to furnish each person, to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders relating to the portfolio or class thereof, to which the
prospectus relates upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
post-effective amendment number 71 to Registrant's registration statement to be
signed on its behalf by the undersigned, duly authorized in the City of
Portland, State of Maine on May 28, 1999.
FORUM FUNDS
By: /s/ John Y. Keffer
----------------------------
John Y. Keffer, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons on May 28,
1999.
(a) Principal Executive Officer
/s/ John Y. Keffer
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John Y. Keffer
President and Chairman
(b) Principal Financial Officer
/s/ Stacey Hong
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Stacey Hong
Treasurer
(c) A majority of the Trustees
/s/ John Y. Keffer
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John Y. Keffer
Trustee
James C. Cheng, Trustee
J. Michael Parish, Trustee
Costas Azariadis, Trustee
By: /s/ John Y. Keffer
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John Y. Keffer
Attorney in Fact*
* Pursuant to powers of attorney filed as Other Exhibits to this
Registration Statement.
