-------------------------
OMB Number:3235-0307
Expires:May 31, 2000
Estimated average
burden hours per
response:212.95
-------------------------
As filed with the Securities and Exchange Commission on July 30, 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. 74
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 76
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 LLP
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)
X 60 days after filing pursuant to Rule 485, paragraph (a)(1)
on _______________ pursuant to Rule 485, paragraph (a)(1)
75 days after filing pursuant to Rule 485, paragraph (a)(2)
on _________________ pursuant to Rule 485, paragraph (a)(2)
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Equity Index Fund, International
Equity Fund and Polaris Global Value Fund. Equity Index Fund is structured as a
master-feeder fund and this amendment is also executed by Core Trust (Delaware).
<PAGE>
LOGO
Prospectus
October 1, 1999
Investors Equity Fund
Equity Index Fund
Investors Equity Fund seeks to provide capital appreciation by investing
primarily in the common stock of companies domiciled in the United States.
Equity Index Fund seeks to replicate the return of the Standard &
Poor's 500 Composite Stock Price.
Purchases of Fund shares and certain redemptions are
subject to a sales charge. Neither Fund pays
Rule 12b-1 (distribution) fees.
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 2
FEE TABLES 5
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS 6
MANAGEMENT 8
YOUR ACCOUNT 11
How to Contact the Funds 11
General Information 11
Buying Shares 12
Selling Shares 14
Sales Charges 15
Exchange Privileges 16
Retirement Accounts 16
OTHER INFORMATION 17
FINANCIAL HIGHLIGHTS 24
2
<PAGE>
RISK/RETURN SUMMARY
[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 is expected to
continue to show high levels of profit growth in the future
STANDARD & POOR'S 500 COMPOSITE INDEX ("S&P 500 INDEX") means an
unmanaged index composed of common stocks of 500 publicly traded
companies.
INVESTORS EQUITY FUND
INVESTMENT OBJECTIVE Capital appreciation
PRINCIPAL INVESTMENT STRATEGY Investors Equity Fund invests primarily in the
common stock of established growth oriented domestic companies.
EQUITY INDEX FUND
INVESTMENT OBJECTIVE Replication of the return of the S&P 500 Index
PRINCIPAL INVESTMENT STRATEGY Equity Index Fund invests in Index Portfolio, a
separate series of Wells Fargo Core Trust ("Wells Fargo"). Wells Fargo is
another registered, open-end management investment company. Index Portfolio and
the Fund have substantially similar investment objectives and similar investment
policies. Through its investment in Index Portfolio, the Fund primarily invests
in all of the common stocks listed on the S&P 500 Index.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
GENERAL RISKS You could lose money on your investment in a Fund, or a Fund could
under perform other investments, if any of the following occur:
o The stock market does not recognize the growth potential of the stocks in
the Fund's portfolio
o The judgement of a Fund's investment adviser as to the growth potential of
a stock proves to be wrong
o The stock market goes down
WHO MAY WANT TO INVEST IN THE FUNDS
A Fund may be an appropriate investment for you if you:
o Are willing to tolerate significant changes in the value of your investment
o Are pursuing a long-term investment goal
o Are willing to accept higher short-term risk
An investment in a 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 investment goal or investing emergency reserves
3
<PAGE>
PERFORMANCE
The following charts illustrate the variability of the Funds' returns. These
charts and the following tables provide some indication of the risks of
investing in the Funds by showing changes in each Fund's performance for the
recent fiscal year and how each Fund's returns compare to a broad measure of
market performance. Performance information presented here represents only past
performance and does not necessarily indicate future results.
INVESTORS EQUITY FUND
The following chart shows the annual total returns for the only 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.
PAST PERFORMANCE CHART
[EDGAR Representation of Bar Chart]
Year Average Annual
Total Return
1998 30.70%
The calendar year-to-date total return as of August 31, 1999 was
___%.
During the periods shown in the chart, the highest quarterly return was 26.07%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -10.25% (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.
YEAR(S) INVESTORS EQUITY FUND S&P 500 INDEX
1 Year 30.70% 28.58%
Since Inception (12/17/97) 31.04% 28.58%
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses.
4
<PAGE>
EQUITY INDEX 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.
PAST PERFORMANCE CHART
[EDGAR Representation of Bar Chart]
Year Average Annual
Total Return
1998 23.71%
The calendar year-to-date total return as of August 31,
1999 was ___%.
During the periods shown in the chart, the highest quarterly return was 21.13%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
- -9.54% (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.
YEAR(S) EQUITY INDEX FUND S&P 500 INDEX
1 Year 23.71% 28.58%
Since Inception (12/24/97) 27.32% 28.58%
The S&P 500 Index is a widely recognized unmanaged index of common stocks. The
index figures assume reinvestment of all dividends paid by stocks included in
the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses.
5
<PAGE>
FEE TABLES
The following tables describe the various fees and expenses that you will pay if
you invest in the Funds.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of the offering 4.00%
price)
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) 1.00%(1)
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses(2) (expenses that are deducted from Fund assets)
Investors Equity Fund
Management Fees 0.65%
Distribution (12b-1) Fees None
Other Expenses 0.79%
Total Annual Fund Operating Expenses (3) 1.44%
Equity Index Fund
Management Fees 0.15%
Distribution (12b-1) Fees None
Other Expenses 1.11%
Total Annual Fund Operating Expenses(3) 1.26%
</TABLE>
(1) Applicable only on purchases of $1 million or more. No charge is imposed if
shares are held for more than two years.
(2) Based on amounts incurred during each Fund's fiscal year ended May 31,
1999, stated as a percentage of assets.
(3) During each Fund's fiscal year ended May 31, 1999, certain service
providers voluntarily waived a portion of their fees and/or reimbursed
certain expenses of each Fund to limit Operating Expenses to 1.10% for
Investors Equity Fund and 0.25% for Equity Index Fund. Fee waivers and
expense reimbursements may be reduced or eliminated at any time.
EXAMPLE
The following hypothetical examples are intended to help you compare the cost of
investing in a Fund to the cost of investing in other mutual funds. The examples
assume that you invest $10,000 in a Fund for the time periods indicated, you pay
the maximum sales load, and then redeem all of your shares at the end of those
periods. The examples also assume that your investment has a 5% annual return
that a 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:
INVESTORS EQUITY FUND EQUITY INDEX FUND
1 year $541 $523
3 years $837 $784
5 years $1,155 $1,064
10 years $2,055 $1,862
6
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
INVESTORS EQUITY FUND seeks to provide capital appreciation by investing
primarily in the common stock of U.S. growth companies.
EQUITY INDEX FUND seeks to duplicate the return of the S&P 500 Index by
investing in the common stock of companies in the S&P 500 Index.
INVESTMENT STRATEGIES
[Margin callout: CONCEPTS TO UNDERSTAND
FUNDAMENTAL ANALYSIS means the analysis of a company's financial
condition to help 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.
MARKET CAPITALIZATION means the value of a company's common stock in
the stock market
THE ADVISER'S PROCESS
INVESTORS EQUITY FUND
The advisers concentrate on companies with a market capitalization in excess of
$2 billion. These companies are screened for quality, with emphasis placed on a
history of sustained profitability. The Fund does not normally invest in
companies which would be termed "turnaround situations" or in companies with a
high exposure to economic cyclicality.
The advisers select from investment economic sectors and industries with the
potential for above average rates of growth for period of five years or more.
Companies within these areas are chosen based on their leadership positions
within their sectors. The primary factors condsidered by the advisers are:
o The possession of a sustainable competitive advantage (such as a dominant
technological position or a strong business franchise)
o An ability to maintain a high gross operating marginrelative to the
competition
o A strong, experienced management team
Although valuation levels are considered in the management process, the primary
focus is on the fundamental strengths of the company and its ability to provide
above average growth in revenues, earning, and cash flow for a multi-year
period.
The advisers will sell stocks in the Fund's portfolio if:
o There is a sustained deterioration in the fundamentals of a company
o If a more attractive investment is found
o To maintain appropriate diversification within the Fund's portfolio
EQUITY INDEX FUND
The adviser generally executes portfolio transactions to replicate the
composition of the S&P 500 Index with minimal transaction costs, to invest cash
received from portfolio security dividends or investments in the Fund, and to
raise cash to fund redemptions.
7
<PAGE>
INVESTMENT POLICIES
INVESTORS EQUITY FUND invests primarily in common stock of established growth
oriented domestic companies.
EQUITY INDEX FUND invests all of its assets in Index Portfolio, which is a
series of Wells Fargo Core Trust, another open-end registered management
company, with substantially similar investment objectives and policies. Through
Index Portfolio, the Fund invests in substantially all of the common stocks
listed on the S&P 500 Index. The Portfolio attempts to achieve a 95% correlation
between its own performance and that of the S&P 500 Index. A 100% correlation
between the performance of the Fund and the S&P 500 Index is not possible.
Unlike the performance of the S&P 500 Index, the Fund's performance is affected
by its operational expenses, transaction costs and shareholder purchases and
redemptions.
TEMPORARY DEFENSIVE POSITION In order to respond to adverse market, economic, or
other conditions, a Fund may assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and money market instruments. While assuming a temporary position, a Fund
may be unable to achieve its investment objective.
INVESTMENT RISKS
INVESTORS EQUITY FUND
Because Investors Equity Fund primarily invests in the common stocks of growth
companies, there is a risk that the stocks will not continue to grow at expected
rates, thus causing the price of the stock to decline. There is also the risk
that the market will not recognize the growth potential of a stock. The
Adviser's judgment as to the growth potential of a stock may also prove to be
wrong. A decline in investor demand for growth stocks may also adversely affect
the value of these securities.
EQUITY INDEX FUND The Fund may withdraw its entire investment from Index
Portfolio at any time if the trustees of Wells Fargo decide it is in your best
interests to do so. The inability of the Fund to find a suitable replacement
investment, in the event that the adviser did not manage the fund's assets
directly, could adversely affect your investment in the Fund.
GENERALLY The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. 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. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program.
YEAR 2000 Risk Certain computer systems may not process date-related information
properly on and after January 1, 2000. Each 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 could, therefore, lower the value of your Fund shares.
8
<PAGE>
MANAGEMENT
Each Fund is a series of Forum Funds (the "Trust"), which is an open-end,
management investment company. 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 each Fund and meets periodically to review
each Fund's performance, monitor investment activities and practices and discuss
other matters affecting each Fund. Additional information about the Board, as
well as the Trust's executive officers, may be found in the Funds' Statement of
Additional Information ("SAI").
THE ADVISERS
INVESTORS EQUITY FUND
The Fund's Adviser is H. M. Payson & Co. ("Payson"), One Portland Square, P.O.
Box 31, Portland, Maine 04112. Payson was founded in 1854 and incorporated in
Maine in 1987, making it one of the oldest investment firms in the United States
operating under its original name. Payson has provided investment advisory and
management services to clients for 145 years. As of May 31, 1999, Payson had
approximately $____ billion of assets under management.
Peoples Heritage Bank ("Peoples"), One Portland Square, Portland, Maine 04101,
serves as investment subadviser to the Fund. Peoples is a subsidiary of Peoples
Heritage Financial Group, a multi-bank holding company. Peoples has provided
investment advisory and management services to clients for ___ years. As of May
31, 1999, Peoples had approximately $___ billion of assets under management.
Subject to the general control of the Board, the advisers make investment
decisions for the Fund. For their services, the Fund paid the Advisers an
aggregate advisory fee of 0.65% of the Fund's average daily net assets during
its most recent fiscal year. Pursuant to an investment subadvisory agreement,
Payson pays Peoples an investment subadvisory fee at an annual rate based on
0.25% of the average daily net assets of the Fund. This fee is borne by Payson
and does not increase the fees paid by the shareholders of the Fund.
EQUITY INDEX FUND
Norwest Investment Management, Inc. ("NIM"), Norwest Center, Sixth Street and
Marquette, Minneapolis, Minnesota 55749, serves as investment adviser to the
Index Portfolio in which the Fund invests. NIM is a wholly owned subsidiary of
Wells Fargo & Company, a national bank holding company. As of __________, 1999,
Wells Fargo and its affiliates provided advisory services for over $ ___ billion
in assets.
Subject to the general control of the Core Trust (Delaware) Board, NIM makes
investment decisions for the Index Portfolio. For its services to the Index
Portfolio, the Portfolio paid NIM an advisory fee of 0.15% of Portfolio's
average daily net assets for the fiscal year ending May 31, 1999. The Fund pays
to NIM the Fund's pro rata share of the advisory fee, which is based on the
percentage of the Portfolio's assets held by the Fund.
PORTFOLIO MANAGERS
INVESTORS EQUITY FUND
William N. Weickert, Jr., Dana R. Mitiguy, and Jonathan W. White are responsible
for the day-to-day management of the Fund. Each of the members of the Fund's
portfolio management team is a Chartered Financial Analyst. Each portfolio
manager's business experience is as follows:
WILLIAM N. WEICKERT, JR. Director, Equity and Fixed income Research Analyst, and
Portfolio Manager of the Fund. Mr. Weickert has been associated with Payson
since 1989 and has been responsible for the day-to-day management of the Fund
9
<PAGE>
since its inception. Mr. Weickert has seventeen years of experience in the
investment industry.
DANA R. MITIGUY Chief Investment Officer of the Adviser. Mr. Mitiguy has been
associated with Peoples since 1995 and has been responsible for the day-to-day
management of the Fund since its inception. Mr. Mitiguy has 15 years of
experience in the investment industry and prior to his association with Peoples
was a Vice President at Key Trust of Maine.
JONATHAN W. WHITE Member of the Peoples Heritage Bank Investment Committee and
Chief Investment Officer for the Bank of New Hampshire (another subsidiary of
Peoples Heritage Financial Group). Mr. White has been associated with the Bank
of New Hampshire since 1974 and has been responsible for the day-to-day
management of the Fund since its inception. Mr. White has over 25 years of
experience in the investment industry and prior to his association with Peoples,
he was an investment associate with Connecticut Seed Ventures.
EQUITY INDEX FUND
David D. Sylvester and Laurie R. White are responsible for the day-to-day
management of the Portfolio. Each portfolio manager's business experience is as
follows:
DAVID D. SYLVESTER Executive Vice President, Wells Capital Management. Mr.
Sylvester has been associated with NIM since 1979 and has been responsible for
the day-to-day management of the Fund since 1996. Mr. Sylvester has 25 years of
experience in the investment industry.
LAURIE R. WHITE Managing Director, Wells Capital Management. Ms. White has been
associated with NIM since 1991 and has been responsible for the day-to-day
management of the Fund since 1996. Ms. White has 13 years of experience in the
investment industry.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide certain services to the
Funds. As of May 31, 1999, Forum provided administration and distribution
services to investment companies and collective investment funds with assets of
approximately $__ billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of each Fund's shares. The distributor acts as the agent of the
Trust in connection with the offering of each 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 Funds' shares.
Forum Administrative Services, LLC provides administrative services to each
Fund, Forum Accounting Services, LLC is each Fund's accountant, Forum
Shareholder Services, LLC (the "Transfer Agent") is each Fund's transfer agent,
and Forum Trust, LLC is the custodian for each Fund.
FUND EXPENSES
Each Fund pays for all of its own expenses. Each Fund's expenses include its own
expenses as well as Trust expenses that are allocated among the various other
Funds of the Trust. The advisers and other service providers may voluntarily
waive all or any portion of their fees and reimburse certain expenses of a Fund.
Any waiver or expense reimbursement increases a Fund's performance for the
period during which the waiver is in effect.
Certain service providers of each Fund have undertaken to waive its fees and
assume certain expenses of the Fund 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 Investors Equity
Fund and 0.25% or less of the average daily net assets of Equity Index 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 FUNDS
Write to us at:
Forum Shareholder Services, LLC
Attn: (Name of Your Fund)
P.O. Box 446
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)
(Your Account Number)]
GENERAL INFORMATION
You may purchase or sell (redeem) Fund shares at the net asset value of a share
("NAV"), plus any applicable sales charge (or minus any applicable sales charge
in the case of redemptions), next calculated after the Transfer Agent receives
your request in proper form. For instance, if the Transfer Agent receives your
purchase request in proper form after 4:00 p.m., Eastern time your purchase will
be priced at the next day's NAV plus any applicable sales charge. A Fund cannot
accept orders that request a particular day or price for the transaction or any
other special conditions.
The Funds do not issue share certificates.
If you purchase shares directly from a Fund, you will receive 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.
Each 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 Each Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
except days when the New York Stock Exchange is closed. The time at which NAV is
calculated may be changed in case of an emergency. A 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 all liabilities and then dividing the result
by the number of shares outstanding. A Fund values securities for which market
quotations are readily available at current market value. If market quotations
are not readily available, then a Fund values securities at fair value under
procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through your broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of a Fund. Financial
institutions may charge transaction fees and may set different minimum
investment amounts or limitations on buying or selling shares. These
11
<PAGE>
institutions also may 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 for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual or Uniform Gift/Transfer to Minors Act ("UGMA" or
"UTMA") 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 a Fund. These payments typically
take two days. Your financial institution may charge you a fee for this
service.
WIRES Instruct your financial institution to make a Federal Funds wire
payment to a Fund. Your financial institution may charge you a fee for
this service.
MINIMUM INVESTMENTS The Fund accepts payments in the following minimum amounts:
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
Standard Account $2,000 $250
Traditional and Roth IRA Accounts $1,000 $250
Accounts With Systematic Investment Plans $250 $250
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, 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 account under the Uniform Gift to Minors
These custodial accounts provide a way to give money to a Act or the Uniform Transfers to Minors Act
child and obtain tax benefits. An
individual can give up to $10,000 a
year per child without paying Federal gift tax o The trustee must signindicating trustee capacity
instructions in a manner
BUSINESS ENTITIES o For entities with officers, provide an
original or certified copy of a resolution that
identifies the authorized signers for the account
o For entities with partners or other interested
parties, provide a certified partnership agreement or
organizational document, or certified pages from the
partnership agreement or organizational document,
that identify the partners or interested parties
Trusts o The trust must be established before an
account can be opened
o Provide a certification for the trust, or the
pages from the trust document that identify the
trustees
12
<PAGE>
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 write us a letter
o Mail us your application and a check for the o Write your account number on your check
minimum initial investment amount o Mail us the slip (or your letter) and the check
BY WIRE BY WIRE
o Call or write us for an account application o Call to notify us of your incoming wire
o Complete the application o Instruct your bank to wire your money to us
o Call us and you will be assigned an account number
o Mail us your application
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application o Complete the systematic investment section of
o Complete the application the application
o Call us and you will be assigned an account number o Attach a voided check to your application
o Mail us your application o Mail us the completed application
o Make an ACH payment
</TABLE>
SYSTEMATIC 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. After the minimum initial investment amount is received,
subsequent systematic 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
a Fund or its operations. This includes requests from any individual or group
who, in a Fund's view, is likely to engage in excessive trading (which is
usually defined as more than four exchanges out of a Fund within a calendar
year).
CANCELED OR FAILED PAYMENTS Each Fund accepts checks and ACH transfers at full
value, subject to collection. If a Fund does not receive your payment for
shares, 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 a Fund may redeem shares you own
in the account (or another identically registered account in any Fund of the
Trust) as reimbursement. Each Fund and its agents have the right to reject or
cancel any purchase or exchange due to nonpayment.
SELLING SHARES
A Fund processes redemption orders promptly. Generally, a Fund will send
redemption proceeds to you within a week of receiving your request in proper
form. Delays may occur in cases of very large redemptions, excessive trading or
during unusual market conditions. Each Fund may delay sending redemption
proceeds until it has collected payment for the shares you are selling, which
may take up to 15 calendar days.
13
<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 your redemption is for $10,000
or more and you did not decline wire redemption privileges on your
account application
o Call us with your request (unless you declined telephone redemption
privileges - See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges -
See "By Wire")
SYSTEMATICALLY
o Call or write us for an "Systematic Withdrawal" form
o Attach a voided check to your completed form
o Mail us your form
TELEPHONE REDEMPTION Privileges You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. 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 redeem your shares by wire unless you
declined wire redemption privileges on your account application. 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.
SYSTEMATIC WITHDRAWALS 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. Systematic withdrawals 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." A signature
guarantee verifies the authenticity of your signature. You can obtain a
signature guarantee from most banking institutions or securities brokers, but
not from a notary public. 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
14
<PAGE>
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 systematic investment or withdrawals, distribution,
telephone redemption or exchange option or any other election in
connection with your account
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 continues to remain below
these amounts 60 days after a Fund has notified you that you need to increase
your account value, a Fund may close your account and send you the proceeds. A
Fund will not close your account if the value of your account falls below this
amount solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND Each Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions in kind usually
occur if the amount to be redeemed is large enough to [adversely] affect a
Fund's operations (for example, if the redemption 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.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of a Fund's shares as follows:
<TABLE>
<S> <C> <C> <C>
Sales Charge
as a % of:
Public Net Asset
Amount of Purchase Offering Price Value* Reallowance
$0-$49,999 4.00% 0.50% 3.50%
$50,000 to $99,999 3.50% 0.50% 3.00%
$100,000 to $249,999 3.00% 0.50% 2.50%
$250,000 to $499,999 2.50% 0.40% 2.10%
$500,000 to $999,999 2.00% 0.30% 1.70%
$1,000,000 and up 0.00% 0.00% 1.00%
</TABLE>
* Rounded to the nearest one-hundredth percent.
The offering price for the Funds' shares includes the relevant sales charge. The
commission paid to the distributor is the sales charge less the reallowance paid
to certain financial institutions purchasing shares. Normally, reallowances are
paid as indicated in the above table. From time to time, 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 the provision of travel arrangements and lodging
tickets for entertainment events and 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 value of any shares redeemed within the
first year of their purchase; and (2) 0.50% of the value of any shares redeemed
during the second year after purchase. The charge is paid on the lower of the
value of shares redeemed or the cost of the shares.
15
<PAGE>
EXCHANGE PRIVILEGES
You may exchange your Fund shares for 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. If you exchange into a fund that has a higher sales
charge than the fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge. If you exchange into a fund that has
no sales charge or a lower sales charge than the Fund, you will not have to pay
a sales charge at the time of exchange. 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 each Fund reserves the right to limit exchanges. You may exchange
your shares by mail or by telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account numbers
o The names of the funds from which you are selling 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 Obtain a signature guarantee if required
o Mail Forum Funds your request and documentation
BY TELEPHONE
o Call Forum Funds with your request (unless you declined telephone
redemption privileges on your account application)
o Provide the following information:
o Your account numbers
o Exact name(s) in which the accounts are registered
o Additional form of identification
RETIREMENT ACCOUNTS
Each Fund offers both traditional and Roth IRA accounts. 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 in which the
contribution is being made.
16
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
Each Fund distributes its net investment income annually and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
A Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. A Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held Fund shares.
Distributions of capital gain reduce the net asset value of the Fund's shares by
the amount of the distribution. If you buy shares just before your Fund makes a
distribution, 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 income tax
purposes.
Your Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in a Fund, including
state and local tax matters, please see the SAI and consult your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust. Neither Fund expects to hold
shareholders' meetings unless 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.
17
<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 _____________. The
Funds' financial statements and the auditor's report are included in the Funds'
Annual Report dated ___________, 1999, which is available upon request, without
charge.
<TABLE>
<S> <C> <C>
-------------------------------- --------------------------------
Investors Equity Fund (a) Equity Index Fund (a)_
-------------------------------- --------------------------------
Period Ended Period Ended
May 31, 1999 May 31, 1998 May 31, 1999 May 31, 1998
Net Asset Value, Beginning of Period $10.00 $10.00
Investment Operations:
Net Investment Income (Loss) 0.00 0.07
Net Realized and Unrealized Gain
(Loss) on Investments 1.43 1.62
Total from Investment Operations 1.43 1.69
Net Asset Value, End of Period $11.43 $11.69
Total Return(b) 14.30%(c) 16.90%(c)
Ratio/Supplementary Data:
Net Assets at End of Period (000's $30,090 $5,038
omitted)
Ratios to Average Net Assets:
Expenses Including 1.10% 0.25%
Reimbursement/Waiver(d)
Expenses Excluding 2.09% 2.25%%
Reimbursement/Waiver(d)
Net Investment Income (Loss) Including
Reimbursement/Waiver(d) 0.09% 1.41%
Average Commission Rate(e) $0.0549 $0.0339(f)
Portfolio Turnover Rate 11.35% $6.68%(f)
</TABLE>
(a) Investors Equity Fund and Small Company Opportunities Fund commenced
operations on December 17, 1997 and March 31, 1998,respectively. Equity
Index Fund, International Equity Fund, and Emerging Markets Fund commenced
operations on December 24, 1997.
(b) Total return calculations do not include sales charge.
(c) Not annualized.
(d) Annualized.
(e) Amount represents the average commission per share paid to brokers on
the purchase of sale of equity securities.
(f) Information presented is that of the Portfolio in which the Fund invests.
(g) The average commission rates for Small Company Value Portfolio, Small Cap
Index Portfolio and Small Cap Value Portfolio were $0.0522, $0.0199 and
$0.0556, respectively.
(h) The turnover rates for Small Company Value Portfolio, Small Cap Index
Portfolio and Small Cap Value Portfolio were 99.08%, 2.25% and 79.43%,
respectively.
18
<PAGE>
INVESTORS Equity FUND
Equity Index Fund
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
Annual/Semi-Annual Reports
Additional information about each Fund's investments is available in each
Fund's annual and semi-annual
Report to shareholders. In a 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 Funds and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI and each Fund's reports, request other
information and discuss your questions about the Funds by contacting the
Funds at:
Forum Funds
P.O. Box 446
Portland, Maine 04112
800-94FORUM or 800-943-6786
207-879-0001
You can also review the Funds' reports and 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
Telephone: 800-SEC-0330
Free copies are available from the SEC's Internet website
at http://www.sec.gov.
Forum Funds
P.O. Box 446
Investment Company Act File No. 811-3023 Portland, Maine 04112
LOGO
Prospectus
October 1, 1999
Polaris Global Value Fund
The Fund seeks capital appreciation by investing
primarily in a portfolio of equity securities of issuers worldwide.
You may purchase Fund shares without a sales charge and the Fund does not pay
Rule 12b-1 (distribution) fees.
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 2
FEE TABLES 4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS 5
MANAGEMENT 7
YOUR ACCOUNT 8
How to Contact the Funds 8
General Information 8
Buying Shares 9
Selling Shares 10
Exchange Privileges 12
Retirement Accounts 13
OTHER INFORMATION 14
FINANCIAL HIGHLIGHTS 15
<PAGE>
RISK/RETURN SUMMARY
[Margin callout: CONCEPTS TO UNDERSTAND
AMERICAN DEPOSITARY RECEIPTS ("ADRs") means a receipt for the shares
of a foreign-based company held in the vault of a U.S. bank and
entitling the holder of the shares to all dividends and capital gains.
COMMON STOCK means an equity or ownership interest in a company
VALUE COMPANY means stock of a company whose price is low relative to
comparable companies]
INVESTMENT OBJECTIVE Capital appreciation
PRINCIPAL INVESTMENT STRATEGY The Fund invests primarily in the common stock and
ADRs of value companies located worldwide. The Fund selects investments based on
a fundamental analysis of a company's financial condition.
PRINCIPAL RISKS OF INVESTING IN THE FUND
GENERAL RISKS You could lose money on your investment in the Fund or the Fund
could underperform other investments if any of the following occurs:
o The stock 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 Fund's
portfolio
o The judgement of the Fund's investment adviser (the "Adviser") as to
the value of a stock proves to be wrong
RISK OF FOREIGN INVESTMENTS Because the Fund invests in foreign securities, an
investment in the Fund is subject to the following additional risks:
o Foreign securities may be subject to greater fluctuations in price
than securities of U.S. companies because foreign markets may be
smaller and less liquid than U.S. markets
o Reporting, accounting and auditing standards of foreign countries
differ, sometimes significantly, from U.S. standards
o Political and economic instability abroad could adversely affect the
value of the Fund's investments in a foreign country
o Investments in issuers denominated in foreign currencies will
fluctuate in value as the exchange rate between those currencies and
the U.S. dollar changes and may cause the value of your investment to
decline
These risks may be greater for investments in companies located in emerging
markets countries.
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
1
<PAGE>
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 investment goal or investing emergency
reserves
2
<PAGE>
FEE TABLES
The following table describes 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 (as a percentage of the offering None
price)
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (1) (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
POLARIS GLOBAL VALUE FUND
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses(1) 1.06%
TOTAL ANNUAL FUND OPERATING EXPENSES (2) 2.06%
</TABLE>
(1) Based on amounts incurred during the Fund's fiscal year ended May 31,
1999 stated as a percentage of assets.
(2) Certain service providers have voluntarily waived a portion of their fees
and/or reimbursed certain expenses of the Fund to limit Operating
Expenses to 1.75%. 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 the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of these periods. 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:
1 Year 3 Years 5 Years 10 Years
$209 $646 $1,108 $2,390
3
<PAGE>
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation by investing primarily in a portfolio of
equity securities of issuers worldwide.
INVESTMENT STRATEGIES
[Margin callout: Concepts to Understand
FUNDAMENTAL RESEARCH 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 ADVISER'S PROCESS
The Adviser uses a three-step process to identify potential companies. First,
the Adviser uses a global valuation model to identify the most undervalued
countries and industries based on corporate earning yield, inflation, interest
rates and other variables. Second, the Adviser uses traditional valuation
criteria to analyze its database of 20,000+ global companies. The Adviser uses
the valuation criteria to identify approximately 500 companies with the greatest
potential for undervalued streams of sustainable cash flow. Finally, the Adviser
uses fundamental research to select the 50-100 companies in which the Fund
invests.
Because most investments are held for three to five years the portfolio turnover
rate is 25% to 30%. The Adviser consistently monitors the companies in the
Fund's portfolio as well as those companies on the Adviser's "watch list." The
Adviser's "watch list" is comprised of approximately 250 companies. If a company
held by the Fund no longer meets the firm's valuation and fundamental criteria
or becomes less attractively valued than one on the Adviser's "watch list," it
may be sold and replaced by the other company.
INVESTMENT POLICIES
[Margin callout: CONCEPTS TO UNDERSTAND
EMERGING MARKEt countries are countries not included at the time of
investment in the Morgan Stanley International World Index of major
world economies]
Although there is no limit on the amount of Fund assets that may be invested in
companies located in any one country, to achieve broad diversification the Fund
typically invests in 10 to 12 countries and 10 to 12 industries.
Under normal conditions, the Fund invests all of its total assets in common
stock and ADRs of value companies located worldwide. 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 SEC disclosure requirements. The Fund may invest in companies
located in emerging market countries.
TEMPORARY DEFENSIVE POSITION 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 prime quality cash equivalents such as commercial
paper and money market instruments. The Fund may also use securities to hedge
its positions in currencies and markets. Normally, the Fund is fully invested at
all times and it has never used securities for hedging purposes. While assuming
a temporary position, the Fund may be unable to achieve its investment
objective.
4
<PAGE>
INVESTMENT RISKS
General The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. 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. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program. As a
globally diversified fund, the manager attempts to provide the investor with
sound diversification and above average return. In addition, by using a pure
value philosophy, the manger attempts to provide investors with a portfolio that
performs well in down markets.
RISKS OF FOREIGN INVESTMENTS Because the Fund invests in foreign securities, an
investment in the Fund is subject to the following additional risks:
o Foreign securities may be subject to greater fluctuations in price
than securities of U.S. companies and foreign markets may be smaller
and less liquid than U.S. markets
o Changes in foreign tax laws, exchange controls, and policies on
nationalization and expropriation may affect the operations of foreign
issuers and the value of their securities
o Fluctuations in currency exchange rates could adversely affect the
value of the Fund's investments in foreign 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. There may be less public
information regarding foreign issuers and foreign companies may not be
subject to uniform accounting, auditing, and financial reporting
standards as are U.S. companies
o Foreign securities registration, custody and settlements may be
subject to delays or other operational and administrative problems
o Some foreign brokerage commissions and custody fees are higher than
those in the U.S.
o Imposition or tightening of exchange controls or other limitations on
repatriation of foreign capital and nationalization could affect the
value of foreign securities
RISKS OF INVESTMENT IN EMERGING MARKETS Because investing in emerging markets
can have more risk than investing in developed foreign markets, an investment in
the Fund may have the following additional risks:
o Information about the companies in these countries is not always
readily available
o There may be fewer potential buyers for the stocks of companies in
these countries and the prices of stocks may be more volatile than the
prices of the stocks in more established markets
o Greater political and economic uncertainties exist in emerging markets
than in developed foreign markets o The securities markets and legal
systems in emerging markets may not be well developed and may not
provide the protections and advantages of the markets and systems
available in more developed countries
For these and other reasons, the prices of securities in emerging markets can
fluctuate more significantly than the securities of companies in developed
countries. The less developed the country, the greater effect these risks may
have on your investment in the Fund. As a result, an investment in the Fund may
exhibit a higher degree of volatility than either the general domestic
securities market or the securities markets of developed foreign markets.
YEAR 2000 RISK 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. Investments in foreign companies are
particularly vulnerable to Year 2000 risk because these companies may not have
the financial resources, technology, or personnel needed to address Year 2000
readiness concerns. This potential problem, if not corrected, could adversely
affect the services provided to the Fund or the companies in which the Fund
invests and could, therefore, lower the value of your Fund shares.
5
<PAGE>
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), which is an open-end,
management investment company. The business of the Trust and 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 about the Board, as well as
the Trust's executive officers, may be found in the Fund's Statement of
Additional Information ("SAI").
THE ADVISER
The Fund's Adviser is Polaris Capital Management, Inc., 125 Summer Street,
Boston, Massachusetts 02110. The Adviser has advised the Fund since June 1998.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. For its services, the Fund paid the Adviser an advisory
fee of 1.00% of the Fund's average daily net assets for the fiscal year ended
May 31, 1999. As of May 31, 1999 the Adviser had approximately $___ million of
assets under management.
PORTFOLIO MANAGER
BERNARD R. HORN, JR. President and Chief Portfolio Manager of the Adviser since
1995. Mr. Horn has been responsible for the day-to-day management of the Fund
since its inception in 1998. Prior to his establishment of the Adviser, Mr. Horn
was a portfolio manager and investment officer at MDT Advisers, Inc.
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provide certain services to the
Fund. As of May 31, 1999, Forum provided administration and distribution
services to investment companies and collective investment funds with assets of
approximately $__ billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the 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 Funds' shares.
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's accountant and Forum Shareholder
Services, LLC (the "Transfer Agent") is the Fund's transfer agent.
FUND EXPENSES
The Fund pays for all of its own expenses. The Fund's expenses include its own
expenses as well as Trust expenses that are allocated among the various series.
The Adviser and other service providers may voluntarily waive all or any portion
of their fees and reimburse certain expenses of the Fund. Any waiver or expense
reimbursement increases the Fund's performance for the period during which the
waiver is in effect.
Certain service providers have undertaken to waive fees and assume certain
expenses of the Fund in order to limit the Fund's expenses (excluding taxes,
interest, portfolio transaction expenses and extraordinary expenses) to 1.75% 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.
6
<PAGE>
YOUR ACCOUNT
[Margin call out: HOW TO CONTACT THE FUND
Write to us at:
Forum Shareholder Services, LLC
Attn: Polaris Global Value Fund
P.O. Box 446
Portland, Maine 04112
Telephone us at:
(888) 263-5594 (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: Polaris Global Value Fund
(Your Name)
(Your Account Number)]
GENERAL INFORMATION
You may purchase or sell (redeem) Fund shares at the net asset value per share
("NAV") next calculated after the Transfer Agent receives your request in proper
form. 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 next 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 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
except days when the New York Stock Exchange is closed. The time at which NAV is
calculated may be changed in case of an emergency. 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 all liabilities and then dividing the result
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, then the Fund values securities at fair value under
procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through your broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of the Fund. Financial
7
<PAGE>
institutions may charge transaction fees and may set different minimum
investment amounts or limitations on buying or selling shares. These
institutions also may 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 for more information.
BUYING SHARES
How to Make Payments All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual or Uniform Gift/Transfer to Minors Act ("UGMA" or
"UTMA") 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 the Fund. These payments typically
take two days. Your financial institution may charge you a fee for this
service.
WIRES Instruct your financial institution to make a Federal Funds wire
payment to the Fund. 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 INVESTMENT MINIMUM ADDITIONAL INVESTMENT
Standard Account $2,500 $250
Traditional and Roth IRA Accounts $2,000 $250
Accounts With Automatic Investment Plans $250 $250
</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, 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 account under the Uniform Gift to Minors
These custodial accounts provide a way to give money to a Act or the Uniform Transfers to Minors Act
child and obtain tax benefits. An
individual can give up to $10,000 a
year per child without paying Federal gift tax o The trustee must signindicating trustee capacity
instructions in a manner
BUSINESS ENTITIES o For entities with officers, provide an
original or certified copy of a resolution that
identifies the authorized signers for the account
o For entities with partners or other interested
parties, provide a certified partnership agreement or
organizational document, or certified pages from the
partnership agreement or organizational document,
that identify the partners or interested parties
8
<PAGE>
Trusts o The trust must be established before an
account can be opened
o Provide a certification for the 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 write us a letter
o Mail us your application and a check for the o Write your account number on your check
minimum initial investment amount o Mail us the slip (or your letter) and the check
BY WIRE BY WIRE
o Call or write us for an account application o Call to notify us of your incoming wire
o Complete the application o Instruct your bank to wire your money to us
o Call us and you will be assigned an account number
o Mail us your application
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application o Complete the systematic investment section of
o Complete the application the application
o Call us and you will be assigned an account number o Attach a voided check to your application
o Mail us your application o Mail us the completed application
o Make an ACH payment
</TABLE>
SYSTEMATIC 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. After the minimum initial investment amount is
received, subsequent systematic 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 requests from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (which is
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 the Fund does not receive your payment for
shares, 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 of the
Trust) 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 are processed promptly. Generally, the Fund
will send redemption proceeds to you within a week of receiving your request in
proper form. Delays may occur in cases of very large redemptions, excessive
trading or during unusual market conditions. The Fund may delay sending
redemption proceeds until it has collected payment for the shares you are
selling, which may take up to 15 calendar days.
9
<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 your redemption is for $10,000
or more and you did not decline wire redemption privileges on your
account application
o Call us with your request (unless you declined telephone redemption
privileges - See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges -
See "By Wire")
SYSTEMATICALLY
o Call or write us for an "Systematic Withdrawal" form
o Attach a voided check to your completed form
o Mail us your form
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. 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 redeem your shares by wire unless you
declined wire redemption privileges on your account application. 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.
SYSTEMATIC WITHDRAWALS 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. Systematic withdrawals 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." A signature
guarantee verifies the authenticity of your signature. You can obtain a
signature guarantee from most banking institutions or securities brokers, but
not from a notary public. 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
10
<PAGE>
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 systematic investment or withdrawals, distribution,
telephone redemption or exchange option or any other election in
connection with your account
SMALL ACCOUNTS If the value of your account falls below $2,500 ($2,000 for
IRAs), the Fund may ask you to increase your balance. If the account value
continues to remain below these amounts 60 days after the Fund has notified you
that you need to increase your account value, the Fund may close your account
and send you the proceeds. The Fund will not close your account if the value of
your account 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 pay redemption proceeds in
portfolio securities rather than in cash. These redemptions in kind usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if the redemption represents more than 1% of the Fund's
assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may exchange your Fund shares for 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. If you exchange into a fund that has a higher sales
charge than the Fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge. If you exchange into a fund that has
no sales charge or a lower sales charge than the Fund, you will not have to pay
a sales charge at the time of exchange. 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. You may exchange
your shares by mail or by telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account numbers
o The names of the funds from which you are selling 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 Obtain a signature guarantee if required
o Mail Forum Funds your request and documentation
BY TELEPHONE
o Call Forum Funds with your request (unless you declined telephone
redemption privileges on your account application)
o Provide the following information:
o Your account numbers
o Exact name(s) in which the accounts are registered
o Additional form of identification
11
<PAGE>
RETIREMENT ACCOUNTS
The Fund offers both traditional and Roth IRA accounts. 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 in which the
contribution is being made.
12
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income and net capital gain at least
annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
became entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. The Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain.
Distributions of capital gain reduce the net asset value of the fund's shares by
the amount of the distribution. If you buy shares just before your Fund makes a
distribution, 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 income tax
purposes.
Your Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state and local tax matters, please see the SAI and consult your tax
adviser.
ORGANIZATION
The Trust is a Delaware business trust. Neither Fund expects to hold
shareholders' meetings unless 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
the Fund). From time to time, large shareholders may control the Fund or the
Trust.
13
<PAGE>
FINANCIAL HIGHLIGHTS [to be inserted]
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 _________________. The
Fund's financial statements and the auditor's report are included in the Fund's
Annual Report dated ____________, 1999, which is available upon request, without
charge.
14
<PAGE>
POLARIS GLOBAL VALUE FUND
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
Annual/Semi-Annual Reports
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual
Report 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 Funds and is
incorporated by reference into this Prospectus.
You can get a free copy of the SAI and the Fund's reports, request other
information and discuss your questions about the Funds by contacting the
Funds at:
Forum Funds
P.O. Box 446
Portland, Maine 04112
888 263-5594
207-879-0001
You can also review the Fund's reports and 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
Washington, D.C. 20549-6009
Telephone: 800-SEC-0330
Free copies are available from the SEC's Internet website
at http://www.sec.gov.
Forum Funds
P.O. Box 446
Investment Company Act File No. 811-3023 Portland, Maine 04112
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
INVESTORS EQUITY FUND
EQUITY INDEX FUND
FUND INFORMATION:
Forum Funds
Two Portland Square
Portland, Maine 04101
INVESTMENT ADVISERS:
H.M. Payson & Co.
One Portland Square
P.O. Box 31
Portland, Maine 04112
Norwest Investment Management, Inc.
Norwest Center, Sixth Street and Marquette
Minneapolis, Minnesota 55749
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 943-6786
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated October 1, 1999, as may be amended from time to time, offering shares of
Investors Equity Fund and Equity Index 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.
Financial Statements for the Funds for the year ended May 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 OF CONTENTS
Glossary .............................................................1
1. Investment Policies and Risks.........................................3
A. Equity Securities............................................3
B. Securities Ratings Information...............................4
C. Temporary Defensive Position.................................5
D. Options and Futures..........................................5
E. Illiquid and Restricted Securities...........................6
F. Foreign Securities...........................................6
G. Repurchase Agreements........................................7
H. Leverage Transactions........................................7
..........I. Core and Gateway(R)..........................................9
J. Other Investments............................................9
2. Investment Limitations................................................9
A. Fundamental Limitations......................................9
B. Nonfundamental Limitations..................................11
3. Performance Data and Advertising.....................................14
A. Performance Data............................................14
B. Performance Calculations....................................14
C. Other Matters...............................................14
4. Management...........................................................17
A. Trustees and Officers.......................................17
B. Compensation of Trustees and Officers.......................19
C. Investment Adviser..........................................20
D. Distributor.................................................21
E. Other Fund Service Providers................................22
5. Portfolio Transactions...............................................24
A. How Securities are Purchased and Sold.......................24
B. Adviser Responsibility for Purchases and Sales..............25
C. Securities of Regular Broker-Dealers........................27
6. Additional Purchase and Redemption Information.......................27
A. General Information.........................................27
B. Additional Purchase Information.............................27
C. Additional Redemption Information...........................28
D. NAV Determination...........................................29
E. Distributions...............................................29
7. Taxation ............................................................29
A. Qualification as a Regulated Investment Company.............30
B. Fund Distributions..........................................31
C. Certain Tax Rules Applicable to the Funds Transactions......32
D. Federal Excise Tax .........................................33
E. Sale or Redemption of Shares................................33
F. Withholding Tax.............................................34
G. Foreign Shareholders........................................34
H. State and Local Taxes.......................................35
8. Other Matters........................................................35
A. The Trust and its Shareholders..............................35
B. Fund Ownership..............................................37
C. Limitations on Shareholders' and Trustees' Liability........37
D. Registration Statement......................................37
Appendix A - Description of Securities Ratings...............................A-1
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Board" means the Board of Trustees of Forum Funds.
"CFTC" means the Commodity Futures Trading Commission.
"Core Trust" means Core Trust (Delaware), a Delaware business trust.
"Core Trust Board" means the Board of Trustees of Core Trust (Delaware).
"Core Trust Portfolio" means Index Portfolio, Small Cap Index Portfolio, Small
Company Stock Portfolio, Small Company Value Portfolio and Small Cap Value
Portfolio, each, a series of Core Trust.
"FAdS" means Forum Administrative Services, LLC.
"FAcS" means Forum Accounting Services, LLC.
"FFS" means Forum Fund Services, LLC.
"FSS" means Forum Shareholder Services, LLC.
"FFSI" means Forum Financial Services, Inc.
"Forum Advisors" means Forum Investment Advisors, LLC.
"Fund" means Equity Index Fund, Investors Equity Fund, Small Company
Opportunities Fund, and International Equity Fund.
"Fund Business Day" has the meaning ascribed thereto in the Funds' current
Prospectus.
"IRS" means Internal Revenue Service.
"NRSRO" means a nationally recognized statistical rating organization.
"Norwest" means Norwest Investment Management, Inc.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"Peoples" means Peoples Heritage Bank
"Portfolio" means Index Portfolio, International Portfolio, Small Cap Index
Portfolio, Small Company Stock Portfolio, Small Company Value Portfolio or Small
Cap Value Portfolio.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means A security issued or guaranteed as to
principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the government of the United
States pursuant to the authority granted by the Congress of the United States;
or any certificate of deposit for any of the foregoing.
"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. 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 measures of a company's worth. If you invest in a Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
2. CONVERTIBLE SECURITIES
GENERAL. Convertible securities include debt securities, preferred stock or
other securities that may be converted into or exchanged for a given amount of
common stock of the same or a different issuer during a specified period and at
a specified price in the future. A convertible security entitles the holder to
receive interest on debt or the dividend on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. Convertible
securities have unique investment characteristics in that they generally: (1)
have higher yields than common stocks, but lower yields than comparable
nonconvertible 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, a Fund
will be required to permit the issuer to redeem the security, convert it into
the underlying common stock or sell it to a third party.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities, however, are
typically issued by smaller capitalized companies whose stock price may be
volatile. In addition, 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.
2
<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. Each Fund will limit its purchases of warrants to not more than 5% of
the value of its total assets. No more than 2% of a Fund's net assets (at the
time of investment) may be invested in warrants that are not listed on the New
York or American Stock Exchange.
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 a warrant is not exercised within the
specified time period, it becomes worthless.
4. DEPOSITARY RECEIPTS
GENERAL. Investors Equity Fund may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") in order
to obtain exposure to foreign securities markets. Depositary receipts are
receipts for shares of a foreign-based company and they evidence ownership of
the underlying securities issued by that foreign company. ADRs typically are
issued by an U.S. bank or trust company and are designed for use in U.S.
securities markets. EDRs are receipts issued by a European financial institution
and are designed for use in European 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 depositary receipt. The bank or trust company depositary of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
B. SECURITY RATINGS INFORMATION
Each Fund's investments in preferred and fixed income securities, are subject to
credit risk relating to the financial condition of the issuers of the securities
that each Fund holds. To limit credit risk, each Fund invests its assets in debt
securities that are considered investment grade. Investment grade means rated in
the top four long-term rating categories or top two short-term rating categories
by an NRSRO, or unrated and determined by the adviser to be of comparable
quality.
The lowest long-term ratings that are investment grade for convertible bonds are
"Baa" in the case of Moody's and "BBB" in the case of S&P and Fitch; for
preferred stock are "Baa" in the case of Moody's and "BBB" in the case of S&P
and Fitch; and for short-term debt, including commercial paper, are "Prime-2"
(P-2) in the case of Moody's, "A-2" in the case of S&P and "F-2" in the case of
Fitch.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, the 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. Each 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. To
the extent that the ratings given by an NRSRO may change as a result of changes
in such organizations or their rating systems, the adviser will attempt to
substitute comparable ratings. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations in
3
<PAGE>
market value. Also, rating agencies may fail to make timely changes in credit
ratings. An issuer's current financial condition may be better or worse than a
rating indicates.
C. FIXED INCOME INVESTMENTS
Equity Index Fund may invest in the following:
1. GENERAL
VARIABLE AND FLOATING RATE SECURITIES. The Fund may invest in 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 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, the Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Fund intends to purchase these securities only when its 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,
the 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 the Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. The Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The adviser monitors the liquidity of
the Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
FINANCIAL INSTITUTION OBLIGATIONS. The Fund may invest in obligations of
financial institutions, including certificates of deposit, bankers' acceptances,
time deposits, and other short-term debt obligations
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft that
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand by the Fund but may
be subject to early withdrawal penalties which could reduce the Fund's
performance. Although fixed time deposits do not in all cases have a secondary
market, there are no contractual restrictions on the Fund's right to transfer a
beneficial interest in the deposits to third parties.
4
<PAGE>
The Fund may invest in Eurodollar certificates of deposit, which are issued by
offices of foreign and domestic banks located outside the United States; Yankee
certificates of deposit, which are issued by a U.S. branch of a foreign bank and
held in the United States; Eurodollar time deposits, which are deposits in a
foreign branch of a U.S. bank or a foreign bank; and Canadian time deposits,
which are issued by Canadian offices of major Canadian banks. Each of these
instruments is U.S. dollar denominated.
2. RISKS
GENERAL. The market value of the interest-bearing debt securities held by the
Fund will be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. The longer the remaining
maturity (and duration) of a security, the more sensitive the security is to
changes in interest rates. All debt 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 debt securities in the Fund's investment
portfolio are paid in full at maturity. In addition, certain debt 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 debt securities, including municipal securities, are dependent on a
variety of factors, including the general conditions of the debt securities
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Debt 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 a Fund 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 debt 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 Fund's investments in debt 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, Investors High Grade Bond Fund generally
invests in debt securities rated in the three highest rating categories by an
NRSRO and each other generally buys 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 A. 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.
The 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.
The 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.
5
<PAGE>
D. TEMPORARY DEFENSIVE POSITION
A Fund may hold cash or cash equivalents such as prime quality money market
instruments, pending investment and to retain flexibility in meeting redemptions
and paying expenses. A Fund may also 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. The money
market instruments in which a Fund may invest include U.S. Government
Securities, time deposits, banker's acceptances and certificates of deposit
corporate notes and short-term bonds and money market mutual funds. The money
market instruments in which a Fund may invest may have variable and floating
rates of interest.
E. OPTIONS AND FUTURES
1. GENERAL
A Fund may purchase or sell (write) put and call options, futures, and options
on futures to: (1) enhance the Fund's performance; or (2) to hedge against a
decline in the value of securities owned by the Fund or an increase in the price
of securities that the Fund plans to purchase.
A Fund may purchase or write options on securities in which it may invest or on
market indices based in whole or in part on such securities. Options purchased
or written by a Fund must be traded on an exchange or over-the-counter.
A Fund may invest in futures contracts on market indices based in whole or in
part on securities in which the Fund may invest. A Fund may also purchase or
write put and call options on these futures contracts.
Options and futures contracts are considered to be derivatives. Use of these
instruments is subject to regulation by the SEC, the options and futures
exchanges on which futures and options are traded or by the CFTC. No assurance
can be given that any hedging or income strategy will achieve its intended
result.
Currently, each Fund has no intention of investing in options or futures for
purposes other than hedging. If a Fund will be financially exposed to another
party due to its investments in options or futures, the Fund will maintain
either: (1) an offsetting ("covered") position in the underlying security or an
offsetting option or futures contract; or (2) cash, receivables and liquid
securities with a value sufficient at all times to cover its potential
obligations. A Fund will comply with SEC guidelines with respect to coverage of
these strategies and, if the guidelines require, will set aside cash, liquid
debt securities and other permissible assets ("Segregated Assets") in a
segregated account with the Custodian in the prescribed amount. Segregated
Assets cannot be sold or closed out while the hedging strategy is outstanding,
unless the Segregated Assets are replaced with similar assets. As a result,
there is a possibility that the use of cover or segregation involving a large
percentage of a Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
2. OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified 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 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.
6
<PAGE>
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional options on securities except that stock index
options are settled exclusively in cash and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
OPTIONS ON FUTURES. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying security or a currency, as called for in the
contract, at a specified date and at an agreed upon price. A bond or stock index
futures contract involves the delivery of an amount of cash equal to a specified
dollar amount times the difference between the bond or stock index value at the
close of trading of the contract and at the price designated by the futures
contract. 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. 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. The
potential loss to a Fund from investing in certain types of futures transactions
is unlimited.
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 or 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.
F. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
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) securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act,
except as otherwise determined by the adviser ("restricted securities").
7
<PAGE>
2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and a Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. A Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests. 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.
G. FOREIGN SECURITIES
Investors Equity 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.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by Investors Equity 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 Investors Equity 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.
8
<PAGE>
H. 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.
2. RISKS
Repurchase Agreements involve 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. Favorable insolvency laws that allow a Fund, among other things, to
liquidate the collateral held in the event of the bankruptcy of the counterparty
reduce counterparty insolvency risk with respect to repurchase agreements.
I. 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. Each Fund uses these investment techniques
only when the advisers believe that the leveraging and the returns available to
a Fund from investing the cash will provide investors a potentially higher
return.
1. BORROWING
Each Fund may borrow money from banks in an amount up to 33 1/3% of a Fund's
total assets. Each Fund may borrow money for other purposes so long as such
borrowings do not exceed 5% of a Fund's total assets. The purchase of securities
is prohibited if a Fund's borrowing exceeds 5% or more of a 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 share. A Fund will use the proceeds of reverse
repurchase agreements to fund redemptions or to make investments.
2. SECURITIES LENDING
Securities loans must be continuously collateralized and the collateral must
have market value at least equal to the value of a 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
9
<PAGE>
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.
3. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
A Funds may purchase securities offered on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" (including "dollar roll"
transactions) 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. 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.
J. CORE AND GATEWAY(R)
Equity Index Fund currently seeks to obtain its investment objective through the
Core and Gateway structure. Investors Equity Fund may at some point in the
future seek to achieve its investment objective by converting to a Core and
Gateway structure. A Fund operating under a Core and Gateway 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 structure if it would materially increase costs
to a Fund's shareholders.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of each Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which a Fund may rely; and (2) the term Code includes the rules thereunder, IRS
interpretations and any private letter ruling or similar authority upon which a
Fund may rely.
10
<PAGE>
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 a 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.
INVESTORS EQUITY FUND
1. DIVERSIFICATION
The Fund may not, with respect to 75% of its assets, purchase a security if as a
result: (1) more than 5% of its assets would be invested in the securities of
any single issuer or (2) the Fund would own more than 10% of the outstanding
voting securities of any single issuer. This restriction does not apply to
securities issued by the U.S. Government, its agencies or instrumentalities.
2. CONCENTRATION
The Fund may not purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of issuers conducting their
principal business activities in the same industry; provided, however, there is
no limit on investments in U.S. Government Securities, repurchase agreements
covering U.S. Government Securities, municipal securities and issuers domiciled
in a single country; that financial service companies are classified according
to the end users of their services (for example, automobile finance, bank
finance and diversified finance); and that utility companies are classified
according to their services (for example, gas, gas transmission, electric and
gas, electric and telephone. Notwithstanding anything to the contrary, to the
extent permitted by the 1940 Act, the Fund may invest in one or more investment
companies; provided that, except to the extent the Fund invests in other
investment companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund
treats the assets of the investment companies in which it invests as its own for
purposes of this policy.
3. ILLIQUID SECURITIES
The Fund will not invest more than 15% of its assets in "illiquid securities,"
which are securities that cannot be disposed of within seven days at their
current value. For purposes of this limitation, "illiquid securities" includes,
except in those circumstances described below: (1) "restricted securities,"
which are securities that cannot be resold to the public without registration
under the Federal Securities laws and (2) securities of issuers having a record
(together with all predecessors) of less than three years of continuous
operation.
4. BORROWING MONEY
The Fund may borrow money for temporary or emergency purposes, including the
meeting of redemption requests, but not in excess of 33 1/3% of the value of
each Fund's total assets (as computed immediately after the borrowing).
5. PURCHASES AND SALES OF REAL ESTATE
The Fund may not purchase or sell real estate, provided that the Fund may invest
in securities issued by companies that invest in real estate or interests
therein.
11
<PAGE>
6. MAKING LOANS
The Fund will not lend money except in connection with the acquisition of that
portion of publicly distributed debt securities which the Fund's investment
policies and restrictions permit it to purchase; the Fund may also make loans of
portfolio securities and enter into repurchase agreements.
7. PURCHASES AND SALES OF COMMODITIES
The Fund will not invest in commodities or commodity contracts (other than
hedging instruments, which it may use as permitted by any of its other
fundamental policies, whether or not any such hedging instrument is considered
to be a commodity or a commodity contract).
8. UNDERWRITING ACTIVITIES
The Fund will not underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio investments, it
may be deemed to be an underwriter under U.S. securities laws.
9. ISSUANCE OF SENIOR SECURITIES
The Fund may not issue senior securities except to the extent permitted by the
1940 Act.
EQUITY INDEX FUND
1. DIVERSIFICATION
The Fund may not, with respect to 75% of its assets, purchase a security (other
than a U.S. Government Security or a security of an investment company) if as a
result: (1) more than 5% of its assets would be invested in the securities of
any single issuer or (2) the Fund would own more than 10% of the outstanding
voting securities of any single issuer.
2. CONCENTRATION
The Fund may not purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of issuers conducting their
principal business activities in the same industry; provided, however, that
there is no limit on investments in U.S. Government Securities, repurchase
agreements covering U.S. Government Securities, foreign government securities,
mortgage-related or housing-related securities and issuers domiciled in a single
country; that financial service companies are classified according to the end
users of their services (for example, automobile finance, bank finance and
diversified finance); and that utility companies are classified according to
their services (for example, gas, gas transmission, electric and gas, electric
and telephone.
3. BORROWING MONEY
The Fund may borrow money from a bank for temporary or emergency purposes,
including the meeting of redemption requests, but not in excess of 33 1/3% of
the value of each Fund's total assets (as computed immediately after the
borrowing).
4. PURCHASES AND SALES OF REAL ESTATE
The Fund may not purchase or sell real estate, any interest therein or real
estate limited partnership interests, except that the Funds may invest in debt
obligations secured by real estate or interests therein or securities issued by
companies that invest in real estate or interests therein.
5. MAKING LOANS
The Fund may not make loans, except the Fund may enter into repurchase
agreements, purchase debt securities that are otherwise permitted investments
and lend portfolio securities.
12
<PAGE>
6. PURCHASE AND SALE OF COMMODITIES
The Fund may not purchase or sell physical commodities or contracts, options or
options on contracts to purchase or sell physical commodities provided that
currency and currency-related contracts and contracts on indices are not be
deemed to be physical commodities.
7. UNDERWRITING ACTIVITIES
The Fund may not underwrite securities of other issuers, except to the extent
that the Fund may be considered to be acting as an underwriter in connection
with the disposition of portfolio securities.
8. ISSUANCE OF SENIOR SECURITIES
The Fund may not issue senior securities except to the extent permitted by the
1940 Act.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund.
INVESTORS EQUITY FUND
1. BORROWING
The Fund may not borrow money or enter into leverage transactions if, as a
result, the total of borrowings and liabilities under leverage transactions
(other than for temporary or emergency purposes), would exceed an amount equal
to 5% of the Fund's total assets. The Fund may not purchase or otherwise acquire
any security if; the total of borrowings and liabilities under leverage
transactions would exceed an amount equal to 5% of the Fund's total assets.
2. EXERCISING CONTROL OF ISSUERS
The Fund may not make investments for the purpose of exercising control of an
issuer. Investments by the Fund in entities created under the laws of foreign
countries solely to facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of exercising control.
3. SHORT SALES AND PURCHASING ON MARGIN
The Fund may not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short. The
Fund may not purchase securities on margin, except that the Fund may use
short-term credit for the clearance of the Fund's transactions, and provided
that initial and variation margin payments in connection with futures contracts
and options on futures contracts shall not constitute purchasing securities on
margin.
4. SECURITIES OF INVESTMENT COMPANIES
The Fund may not invest in the securities of any investment company except to
the extent permitted by the 1940 Act.
5. OPTIONS AND FUTURES CONTRACTS
The Fund may invest in futures or options contracts regulated by the CFTC for
(i) bona fide hedging purposes within the meaning of the rules of the CFTC and
(ii) for other purposes if, as a result, no more than 5% of the Fund's net
assets would be invested in initial margin and premiums (excluding amounts
13
<PAGE>
"in-the-money") required to establish the contracts. The Fund (i) will not hedge
more than 50% of its total assets by selling futures contracts, buying put
options, and writing call options (so called "short positions"), (ii) will not
buy futures contracts or write put options whose underlying value exceeds 25% of
the Fund's total assets, and (iii) will not buy call options with a value
exceeding 5% of the Fund's total assets.
EQUITY INDEX FUND
1. BORROWING
Borrowing for other than temporary or emergency purposes of meeting redemptions
requests is limited to 5% of the value of the Fund's net assets. Where the Fund
establishes a segregated account to limit the amount of leveraging with respect
to certain investment techniques, the Fund does not treat those techniques as
involving borrowings for purposes of this limitation.
2. ILLIQUID SECURITIES
The Fund may not acquire securities or invest in repurchase agreements with
respect to any securities if, as a result, more than 15% of the Fund's net
assets (taken at current value) would be invested in repurchase agreements not
entitling the holder to payment of principal within seven days and in securities
which are not readily marketable, including securities that are not readily
marketable by virtue of restrictions on the sale of such securities to the
public without registration under the 1933 Act, as amended ("restricted
securities").
3. SECURITIES OF INVESTMENT COMPANIES
The Fund may not invest in securities of another investment company, except to
the extent permitted by the 1940 Act.
4. SHORT SALES AND PURCHASING ON MARGIN
The Fund may not purchase securities on margin or make short sales of securities
(except short sales against the box) except for the use of short-term credit
necessary for the clearance of purchases and sales of portfolio securities. The
Fund may make margin deposits in connection with permitted transactions in
options, futures contracts and options on futures contracts. The Fund may not
enter into short sales if, as a result, more than 25% of the value of the Fund's
total assets would be so invested m or such a position would represent more than
2% of the outstanding voting securities of any single issuer or class of an
issuer.
5. UNSEASONED ISSUERS
The Fund may not invest in securities (other than fully-collateralized debt
obligations) issued by companies that have conducted continuous operations for
less than three years, including the operations of predecessors, unless
guaranteed as to principal and interest by an issuer in whose securities the
Fund could invest, if, as a result, more than 5% of the value of the Fund's
total assets would be so invested; provided, that the Fund may invest all or a
portion of its assets in another diversified, open-end management company with
substantially the same investment objective, policies and restrictions as the
Fund.
6. PLEDGING
The Fund may not pledge, mortgage, hypothecate or encumber any of its assets
except to secure permitted borrowings.
7. LENDING OF PORTFOLIO SECURITIES
The Fund may not lend portfolio securities if the total value of all loaned
securities would exceed 33 1/3% of the Fund's total assets.
14
<PAGE>
8. OPTIONS AND FUTURES CONTRACTs
The Fund may not purchase an option, if, as a result, more than 5% of the value
of the Fund's total assets would be so invested.
9. WARRANTS
The Fund may not invest in warrants if; (1) more than 5% of the value of the
Fund's net assets would be invested in warrants (valued at the lower of cost or
market)) or (2) more than 2% of the value of the Fund's net assets would be
invested in warrants which are not listed on the New York Stock Exchange or
American Stock Exchange; provided, that warrants acquired by the Fund attached
to securities are deemed to have no value.
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, Inc., IBC Financial Data, 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,
Australia, 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 Funds' 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 Funds 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 Funds' performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
A Funds' performance may be quoted in terms of yield or total return. Table 1 in
Appendix C includes performance information for each Fund.
15
<PAGE>
1. SEC YIELD
Standardized SEC yields for the Funds used in advertising are computed by
dividing a 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 that 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
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
16
<PAGE>
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 a 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 that 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 a Fund's portfolio managers and the
portfolio management staff of a 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 a Fund over a given
17
<PAGE>
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 a Fund as of one or more dates;
and (10) a comparison of a 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
18
<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 (*). The Board
supervises the Funds' 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
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
- -------------------------------------------- ----------------------------------------------------------------------
- -------------------------------------------- ----------------------------------------------------------------------
- -------------------------------------------- ----------------------------------------------------------------------
- -------------------------------------------- ----------------------------------------------------------------------
John Y. Keffer*, Chairman and President President, Forum Financial Group, LLC (a mutual fund services
Born: July 15, 1942 holding company)
Two Portland Square President, Forum Fund Services, LLC (Trust's underwriter)
Portland, Maine 04101 Chairman and 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, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner, Winthrop Stimson Putnam & Roberts (law firm) from 1989-1995
40 West 57th Street Trustee, Core Trust (Delaware)
New York, NY 10019
- -------------------------------------------- ----------------------------------------------------------------------
- -------------------------------------------- ----------------------------------------------------------------------
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
Born: May 14, 1964 Group, 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>
19
<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 who are interested persons 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 compensation to paid to each Trustee by the
Trust for the fiscal year ended May 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Total Compensation
Compensation from From the Funds and
Trustee Funds Benefits Retirement Fund Complex(1)
John Y. Keffer $0 $0 $0 $0
Costas Azariadis $834.57 $0 $0 $876.46
James C. Cheng $834.57 $0 $0 $876.46
J. Michael Parish $834.57 $0 $0 $876.46
</TABLE>
(1) The figures in this column include Equity Index Fund's portion of Index
Portfolio's fees to the Core Trust Trustees.
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
INVESTORS EQUITY FUND
H.M. Payson & Co. ("Payson") serves as investment adviser to Investors Equity
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.
Payson has entered into an investment subadvisory agreement with Peoples
Heritage Bank ("Peoples") under which Peoples exercises certain investment
discretion over the assets (or a portion of assets) of Investors Equity Fund.
Subject to the general supervision of the Board, Peoples is responsible for,
among other things, developing a continuing investment program for Investors
Equity Fund in accordance with its investment objective and reviewing the
investment strategies and policies of Investors Equity Fund.
EQUITY INDEX FUND
Norwest Investment Management, Inc. is the investment adviser to the Index
Portfolio, in which Equity Index Fund invests, and is required to furnish at its
expense all services, facilities and personnel necessary in connection with
managing the investments of, and effecting portfolio transactions for that
Portfolio.
2. OWNERSHIP OF ADVISER
Payson is a corporation and is controlled by ____________________.
Peoples is a subsidiary of Peoples Heritage Financial Group, which is a
multi-bank holding company.
NIM is a subsidiary of Norwest Bank Minnesota, N.A.
20
<PAGE>
3. FEES
The advisers' fees are calculated as a percentage of a Fund's average net
assets. The fee is accrued daily by each Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from a Fund, the advisers 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 each Fund
to its adviser, the amount of fees waived by the advisers, and the actual fees
received by the advisers. The data is for the past three fiscal years.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
Payson's agreement remains in effect for a period of two years from the date of
its effectiveness and then the Agreement must be approved annually.
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.
Payson'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, Payson is not liable for any action or inaction of the
adviser in the absence of bad faith, willful misconduct or gross negligence in
the performance of its duties.
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.
(FFSI) was the distributor of each Fund pursuant to similar terms and
compensation.
FFS, FAdS, FAcS and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC, which 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 effort 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 charge. 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 which they purchase shares, which may include
charges, investment minimums, cutoff times and other restrictions in addition
21
<PAGE>
to, or different from, those listed herein. Information concerning any charges
or services will be provided to customers by the financial institution.
Investors purchasing shares of a Fund in this manner should acquaint themselves
with their institution's procedures and should read this Prospectus in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of the Funds'
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 are 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
Funds 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 the Funds' 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 each Fund at an annual rate of 0.20%
of the average daily net assets of each Fund. The fee is accrued daily by each
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 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.
22
<PAGE>
Table 3 in Appendix B shows the dollar amount of the fees payable by each 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 each Fund. These services include calculating the NAV per
share of each Fund 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 plus $2,200 for the preparation of tax returns and certain surcharges
based upon the number and type of the Fund's portfolio transactions and
positions. The fee is accrued daily by the Funds and is paid monthly based on
the transactions and positions for the previous month.
FAcS's accounting agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. FAcS's agreement is terminable without penalty by the Trust or by FAcS
with respect to a Fund on 60 days' written notice.
Under the agreement, FAcS is not liable for any action or omission in the
performance of its duties to a Fund, except for willful misfeasance, bad faith,
gross negligence or by reason of reckless disregard of its obligations and
duties under the agreement. Under the agreement, FAcS and certain related
parties (such as FAcS's officers and persons who control FAcS) are indemnified
by the Trust against any and all claims and expenses related to FAcS's actions
or omissions that are consistent with FAcS's contractual standard of care.
Under the agreement, in calculating a Fund's NAV per share, FAcS is deemed not
to have committed an error if the NAV per share it calculates is within 1/10 of
1% of the actual NAV per share (after recalculation). The agreement also
provides that FAcS will not be liable to a shareholder for any loss incurred due
to an NAV difference if such difference is less than or equal 1/2 of 1% or less
than or equal to $10.00. In addition, FAcS is not liable for the errors of
others, including the companies that supply securities prices to FAcS and the
Funds.
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 are 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 and $18 per
shareholder account. The fee is accrued daily by each Fund and is paid monthly
based on the average net assets for the previous month.
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 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 the
Transfer Agent's actions or omissions that are consistent with the Transfer
Agent's contractual standard of care.
23
<PAGE>
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 are 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.
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
Seward & Kissel, LLP, 1200 G Street, N.W., Washington, D.C. 20005 passes upon
legal matters in connection with the issuance of shares of the Trust.
6. INDEPENDENT AUDITORS
Deloitte & Touche, 200 Berkeley Streey, Boston, Massachusetts 02116, independent
auditors have been selected as auditors for the Funds. 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.
The price of securities purchased from underwriters of the securities includes a
disclosed fixed commission or concession paid by the issuer to the underwriter.
The purchase price of securities purchased from dealers serving as market makers
reflects 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.
24
<PAGE>
B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions with respect to
the Funds. The data presented is 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 Funds.
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. Neither Fund has
any obligation to deal with a 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.
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 obtained for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the adviser may effect a transaction through a broker and pay a
slightly higher commission than another may 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 follows a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
25
<PAGE>
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. 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 its 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 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 a 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 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. 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.
26
<PAGE>
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at the Transfer Agent's offices located at Two Portland Square, Portland,
Maine 04101.
The Funds accept orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor. Set forth
below is an example of the method of computing the offering price of the Funds'
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
Funds on May 31, 1999.
<TABLE>
<S> <C> <C>
INVESTORS EQUITY FUND EQUITY INDEX FUND
Net Asset Value Per Share $12.96 $14.01
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
Sales Charge, 4.00% of offering price $0.54 $0.58
(4.17% of net asset value per share)
- --------------------------------------------- ----------------------------------- ----------------------------------
- --------------------------------------------- ----------------------------------- ----------------------------------
Offering to Public $13.50 $14.59
</TABLE>
Each Fund reserves 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 that 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.
27
<PAGE>
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Funds may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Funds through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to: (1) reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased; or (2) 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 is closed (other than customary weekend
and holiday closings) or during which the SEC 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,
you may incur brokerage costs 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 provided by independent pricing services. If no sales price is
reported, the mean 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 (unless you elect to receive distributions in cash) as of the last day of
the period with respect to which the distribution is paid. Distributions of
capital gain will be reinvested at a Fund's NAV per share 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.
28
<PAGE>
F. SALES CHARGES
1. REDUCED SALES CHARGES
You may qualify for a reduced sales charge on purchases of a Fund 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 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. If you do not purchase
the minimum investment referenced in the LOI, you must pay the Fund an amount
equal to the difference between the dollar value of the sales charges paid under
the LOI and the dollar value of the sales charges due on the aggregate purchases
of the Fund as if such purchases were executed in a single transaction.
2. ELIMINATION OF SALES CHARGES
No sales charge is assessed on the reinvestment of a Fund's distributions. No
sales charge is assessed on purchases made for investment purposes or on
redemptions 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 broker-dealer with whom the distributor has entered into a Fee-Based
Wrap Account Agreement or similar 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
o Employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
Each 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 that Fund.
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). The
information presented here is only a summary of certain key federal income tax
considerations affecting each Fund and its shareholders and is in addition to
the information provided 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.
29
<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 Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year-end of each Fund is May 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its net investment income (that is, taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (that is, 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 (that is, 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.)
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 an 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.
30
<PAGE>
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its net investment
income for each tax year. These distributions are taxable to you as 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 dividend-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 reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, 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 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 redeem 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 even 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) 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 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.
31
<PAGE>
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts that are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains or 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 that 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 if all of the
offsetting positions 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.
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. Each 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
might 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
32
<PAGE>
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
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 an 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 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.
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 from the U.S. federal income taxation rules described
above. These foreign rules are not discussed herein. Foreign shareholders are
urged to consult their own tax advisers as to the consequences of foreign tax
rules with respect to an investment in a Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from a Fund can differ from the U.S. federal
income taxation rules described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund.
33
<PAGE>
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:
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
Equity Index Fund TaxSaver Bond Fund
Investors Bond Fund
(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 its
expenses will affect each class' performance. For more information on any other
class of shares of a Fund, you 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 affects more than one series and
all affected series must vote. The Trustees may also determine that a matter
only affects certain classes of the Trust and thus only those such classes are
entitled to vote on the matter. Delaware law does not require the Trust to hold
annual meetings of shareholders, and it is anticipated that shareholder meetings
will be held only when specifically required by federal or state law. There are
no conversion or 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.
34
<PAGE>
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 of 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.
B. FUND OWNERSHIP
As of September 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 a Fund.
These shareholders and any shareholder known by the Funds to own beneficially 5%
or more of a 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 September 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
regulators of some states, however, have indicated that they and the courts in
their states 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
35
<PAGE>
liability was in effect, and a Fund 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., or on the SEC's website at http://www.sec.gov.
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.
E. FINANCIAL STATEMENTS
The financial statements of Investors Equity Fund and Equity Index Fund for the
year ended May 31, 1999 are incorporated herein by reference to the Funds'
Annual Report, dated May 31, 1999, which was filed electronically with the SEC
on ______________, 1999 (Accession Number: _______). These financial statements
only include the schedules of investments, statement of assets and liabilities,
statements of operations, statements of changes in net assets, financial
highlights, notes and independent auditors' reports.
36
<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.
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
<PAGE>
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+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
4. Fitch IBCA, Inc.
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD, D
Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
B. PREFERRED STOCK
1. Moody's Investors Service
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
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.
A-4
<PAGE>
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.
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.
A-5
<PAGE>
C. SHORT TERM RATINGS
1. Moody's Investors Service
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Not
Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
2. Standard and Poor's
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
A-6
<PAGE>
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 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 ADVISORY FEE RETAINED
INVESTORS EQUITY FUND WAIVED
Year Ended May 31, 1999 $201,585 $106,979 $94,606
Period Ended May 31, 1998 $44,695 $30,943 $13,752
ADVISORY FEE PAYABLE ADVISORY FEE ADVISORY FEE RETAINED
EQUITY INDEX FUND WAIVED
Year Ended May 31, 1999 $11,645 $0 $11,645
Period Ended May 31, 1998 $2,990 $0 $2,990
TABLE 2 - SALES CHARGES
AGGREGATE SALES CHARGE
INVESTORS EQUITY FUND AMOUNT RETAINED AMOUNT REALLOWED
Year Ended May 31, 1999
Period Ended May 31, 1998
AGGREGATE SALES CHARGE
EQUITY INDEX FUND AMOUNT RETAINED AMOUNT REALLOWED
Year Ended May 31, 1999
Period Ended May 31, 1998
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.
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
INVESTORS EQUITY FUND PAYABLE RETAINED
Year Ended May 31, 1999 $62,026 $0 $62,026
Period Ended May 31, 1998 $13,752 $13,752 $0
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
EQUITY INDEX FUND PAYABLE RETAINED
Year Ended May 31, 1999 $3,882 $3,860 $22
Period Ended May 31, 1998 $5,154 $5,147 $7
B-1
<PAGE>
TABLE 4 - ACCOUNTING FEES
The following Table shows the dollar amount of fees paid to FAcS with respect to
each Fund.
INVESTORS EQUITY FUND ACCOUNTING FEE
Year Ended May 31, 1999 $36,000
Period Ended May 31, 1998 $18,452
EQUITY INDEX FUND ACCOUNTING FEE
Year Ended May 31, 1999 $760
Period Ended May 31, 1998 $7,506
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.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
INVESTORS EQUITY FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $12,347 $0 $12,347
Period Ended May 31, 1998 $22,715 $17,123 $5,592
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
EQUITY INDEX FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $0 $0 $0
Period Ended May 31, 1998 $10,295 $4,998 $5,297
</TABLE>
Table 6 - Commissions
The following table shows the aggregate brokerage commissions with respect to a
Fund that incurred brokerage costs. The data are for the past three fiscal years
or shorter period if a Fund has been in operation for a shorter period.
INVESTORS EQUITY FUND AGGREGATE COMMISSION PAID
Year Ended May 31, 1999 $
Period Ended May 31, 1998 $
EQUITY INDEX FUND AGGREGATE COMMISSION PAID
YEAR ENDED MAY 31, 1999 $
Period Ended May 31, 1998 $
B-2
<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.
INVESTORS EQUITY INDEX
REGULAR BROKER OR DEALER EQUITY FUND FUND
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
$0 $0
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 the Fund, as of
September 1, 1999.
NAME AND ADDRESS % OF FUND
B-3
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGE)
The average annual total return of each Fund for the period ended May 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 EQUITY FUND MONTH MONTHS DATE YEARS YEARS YEARS INCEPTION
(2.34)% 1.09% 2.94% 24.21% N/A N/A N/A 27.30%
CALENDAR
ONE THREE YEAR TO ONE YEAR THREE FIVE TEN SINCE
EQUITY INDEX FUND MONTH MONTHS DATE YEARS YEARS YEARS INCEPTION
(2.37)% 5.42% 6.14% 20.98% N/A N/A N/A 27.36%
</TABLE>
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGE)
The average annual total return of each Fund for the period ended May 31, 1999,
was as follows.
ONE YEAR SINCE
INVESTORS EQUITY FUND INCEPTION
19.24% 23.77%
ONE YEAR SINCE
EQUITY INDEX FUND INCEPTION
16.14% 23.79%
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 represents 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 offshore 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.
D-1
<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
rewards -- 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
D-2
<PAGE>
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>
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 $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
D-4
<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw and Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisors and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance, expense
accounting, budgeting for all funds
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: [$ ] 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
D-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
D-6
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
POLARIS GLOBAL VALUE FUND
FUND INFORMATION:
Polaris Global Value Fund
Two Portland Square
Portland, Maine 04101
(888) 263-5594
INVESTMENT ADVISER:
Polaris Capital Management, Inc.
125 Summer Street
Boston, Massachusetts 02110
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(888) 263-5594
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated October 1, 1999, as may be amended from time to time, offering shares of
Polaris Global Value Fund (the "Fund"), a 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,
LLC at the address or telephone number listed above.
<PAGE>
TABLE OF CONTENTS
Glossary 1
1. Investment Policies and Risks 2
A. Equity Securities 2
B. Securities Ratings Information 3
C. Foreign Securities Forward Contracts 4
D. Options and Futures 4
E. Leverage Transactions 7
F. Illiquid and Restricted Securities 8
G. Foreign Securities 8
H. Temporary Defensive Position 9
I. Core and Gateway(R) 9
J. Other Investments 9
2. Investment Limitations 10
A. Fundamental Limitations 10
B. Nonfundamental Limitations 11
3. Performance Data and Advertising 12
A. Performance Data 12
B. Performance Calculations 13
C. Other Matters 14
4. Management 16
A. Trustees and Officers 16
B. Compensation of Trustees and Officers 17
C. Investment Adviser 17
D. Distributor 18
E. Other Fund Service Providers 19
5. Portfolio Transactions 21
A. How Securities are Purchased and Sold 21
B. Commissions Paid 22
C. Adviser Responsibility for Purchases and Sales 22
D. Securities of Regular Broker-Dealers 23
6. Additional Purchase and Redemption Information 24
A. General Information 24
B. Additional Purchase Information 24
C. Additional Redemption Information 25
D. NAV Determination 25
E. Distributions 26
7. Taxation 26
A. Qualification as a Regulated Investment Company 26
B. Fund Distributions 27
C. Certain Tax Rules Applicable to the Funds Transactions 28
D. Federal Excise Tax 28
E. Sale or Redemption of Shares 29
F. Backup Withholding 29
G. Foreign Shareholders 29
H. State and Local Taxes 30
8. Other Matters 30
A. The Trust and its Shareholders 30
B. Fund Ownership 31
C. Limitations on Shareholders' and Trustees' Liability 32
D. Registration Statement 32
Appendix A - Description of Securities Ratings A-1
Appendix B - Miscellaneous Tables B-1
Appendix C - Performance Data C-1
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Polaris Capital 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
the Fund.
"FFS" means Forum Fund Services, LLC, the distributor of the Fund's
shares.
"Fund" means Polaris Global Value Fund.
"IRS" means Internal Revenue Service.
"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.
<PAGE>
1. INVESTMENT POLICIES AND RISKS
The Fund is a diversified series of the Trust. The following discussion
supplements the disclosure in the Prospectus about 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.
2
<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.
RISKS. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations due to adverse market conditions or other factors and failure of
the price of the common stock to rise.
If the warrant is not exercised within the specified time period, it becomes
worthless.
4. DEPOSITARY RECEIPTS
GENERAL. The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs typically are issued by an 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.
B. SECURITY RATINGS INFORMATION
The Fund's investments in preferred and fixed income securities, are subject to
credit risk relating to the financial condition of the issuers of the securities
that the Fund holds. To limit credit risk, the Fund invests its assets in debt
securities that are considered investment grade. Investment grade means rated in
the top four long-term rating categories or top two short-term rating categories
by an NRSRO, or unrated and determined by the Adviser to be of comparable
quality.
The lowest long-term ratings that are investment grade for convertible bonds are
"Baa" in the case of Moody's and "BBB" in the case of S&P and Fitch; for
preferred stock are "Baa" in the case of Moody's and "BBB" in the case of S&P
and Fitch; and for short-term debt, including commercial paper, are "Prime-2"
(P-2) in the case of Moody's, "A-2" in the case of S&P and "F-2" in the case of
Fitch.
Unrated securities may not be as actively traded as rated securities. 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, the 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 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 an
NRSRO may change as a result of changes in such organizations or their rating
systems, the Adviser will attempt to substitute comparable
3
<PAGE>
ratings. Credit ratings attempt to evaluate the safety of principal and interest
payments and do not evaluate the risks of fluctuations in market value. Also,
rating agencies may fail to make timely changes in credit ratings. An issuer's
current financial condition may be better or worse than a rating indicates.
C. 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 committed 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 Fund'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.
2. RISKS
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities 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.
4
<PAGE>
D. OPTIONS AND FUTURES
1. GENERAL
The Fund may purchase or sell (write) put and call options to: (1) enhance the
Fund's performance; or (2) to hedge against a decline in the value of securities
owned by the Fund or an increase in the price of securities that the Fund plans
to purchase.
The Fund may purchase or write options on securities in which it may invest or
on market indices based in whole or in part on such securities. Options
purchased or written by the Fund must be traded on an exchange or
over-the-counter.
The Fund may invest in futures contracts on market indices based in whole or in
part on securities in which the Fund may invest. The Fund may also purchase or
write put and call options on these futures contracts.
Options and futures contracts are considered to be derivatives. Use of these
instruments is subject to regulation by the SEC, the options and futures
exchanges on which futures and options are traded or by the CFTC. No assurance
can be given that any hedging or income strategy will achieve its intended
result.
Currently, the Fund has no intention of investing in options or futures for
purposes other than hedging. If the Fund will be financially exposed to another
party due to its investments in options or futures, the Fund will maintain
either: (1) an offsetting ("covered") position in the underlying security or an
offsetting option or futures contract; or (2) cash, receivables and liquid debt
securities with a value sufficient at all times to cover its potential
obligations. The Fund will comply with SEC guidelines with respect to coverage
of these strategies and, if the guidelines require, will set aside cash, liquid
securities and other permissible assets ("Segregated Assets") in a segregated
account with the Custodian in the prescribed amount. Segregated Assets cannot be
sold or closed out while the hedging strategy is outstanding, unless the
Segregated Assets are replaced with similar assets. As a result, there is a
possibility that the use of cover or segregation involving a large percentage of
the Fund's assets could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.
2. OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
(or index) underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price. A put option gives
its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy, upon exercise of the
option, the underlying security (or a cash amount equal to the value of the
index) at the exercise price. The amount of a premium received or paid for an
option is based upon certain factors, including the market price of the
underlying security, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security, the option period,
and interest rates.
OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional options on securities except that stock index
options are settled exclusively in cash and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock 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.
5
<PAGE>
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. A bond or stock
index futures contract involves the delivery of an amount of cash equal to a
specified dollar amount times the difference between the bond or stock index
value at the close of trading of the contract and the price designated by the
futures contract. 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. 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 correlation 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 invests; 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. The potential loss to the Fund from investing in certain types of
futures transactions is unlimited.
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.
6
<PAGE>
E. 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
repurchase agreements, and purchasing securities on a when-issued, delayed
delivery or forward commitment basis. The Fund uses these investment techniques
only when the Adviser believes that the leveraging and the returns available to
the Fund from investing the cash will provide investors a potentially higher
return.
BORROWING. The Fund may borrow money from a bank in amounts up to 33 1/3% of the
Fund's total assets. 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.
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
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. No when-issued or forward
commitments will be made by the fund if, as a result, more than 10% of the
Fund's total assets would be committed to such transactions.
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
7
<PAGE>
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.
F. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
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) 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 redemption requests. 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.
G. FOREIGN SECURITIES
The Fund may invest in foreign securities. Although the Adviser currently
intends to invest the Fund's assets in issuers located in at least 5 countries,
there is no limit on the amount of the Fund's assets that may be invested in
8
<PAGE>
issuers located in any one country or region. To the extent that the Fund has
concentrated its investments in issuers located in any one country or region,
the Fund is more susceptible to factors adversely affecting the economy of that
country or region than if the Fund was invested in a more geographically diverse
portfolio. 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 the Fund's assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States, and therefore, less information may be
available about foreign companies than is available about issuers of comparable
U.S. companies. Foreign securities also may trade less frequently and with lower
volume and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by 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.
H. TEMPORARY DEFENSIVE POSITION
The Fund may hold cash or cash equivalents such as high quality money market
instruments, pending investment and to retail flexibility in meeting redemptions
and paying expenses. The Fund may also 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 corporate notes and short-term bonds and money market
mutual funds. The money market instruments in which the Fund may invest have
variable and floating rates of interest.
I. CORE AND GATEWAY(R)
The Fund may seek to achieve its investment objective by converting to a Core
and Gateway structure. The Fund operating under a Core and Gateway 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 structure if it would materially
increase costs to the Fund's shareholders.
9
<PAGE>
J. OTHER INVESTMENTS
Although the Fund currently plans to invest in securities other than those
referenced in the Prospectus and this SAI, it may invest in a variety of other
investments.
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 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.
1. BORROWING MONEY
The Fund may not borrow money if, as a result, outstanding borrowings would
exceed an amount equal to 33 1/3% of the Fund's total assets. The following are
not subject to this limitation to the extent they are fully collateralized: (a)
the delayed delivery of purchased securities; (such as the purchase of
when-issued securities); (b) reverse repurchase agreements; and (c) dollar-roll
transactions.
2. CONCENTRATION
The Fund may not purchase securities, other than U.S. Government Securities,
repurchase agreements covering U.S. Government Securities, or securities of
other regulated investment companies, if, immediately after each purchase, more
than 25% of the Fund's total assets taken at market value would be invested in
securities of issuers conducting their principal business activity in the same
industry.
3. DIVERSIFICATION
The Fund may not, with respect to 75% of its assets, purchase a security (other
than a U.S. Government Security or a security of an investment company) if, as a
result: (i) more than 5% of the Fund's total assets would be invested in the
securities of a single issuer, or (ii) the Fund would own more than l0% of the
outstanding voting securities of any single issuer.
4. UNDERWRITING ACTIVITIES
The Fund may not underwrite (as that term is defined in the 1933 Act) securities
issued by other persons except, to the extent that in connection with the
disposition of the Fund's assets, the Fund may be deemed to be an underwriter.
10
<PAGE>
5. MAKING LOANS
The Fund may not make loans to other parties. For purposes of this limitation,
entering into repurchase agreements, lending securities and acquiring any debt
security are not deemed to be the making of loans.
6. PURCHASES AND SALES OF REAL ESTATE
The Fund may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
7. PURCHASES AND SALES OF COMMODITIES
The Fund may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical
commodities).
8. ISSUANCE OF SENIOR SECURITIES
The Fund may not issue senior securities except to the extent permitted by the
1940 Act.
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund.
1. PLEDGES
The Fund may not pledge, mortgage or hypothecate its assets, except to secure
permitted indebtedness. The deposit in escrow of securities in connection with
the writing of put and call options, collateralized loans of securities and
collateral arrangements with respect to margin for futures contracts are not
deemed to be pledges or hypothecations for this purpose.
2. SECURITIES OF INVESTMENT COMPANIES
The Fund may not invest in securities of another registered investment company,
except to the extent permitted by the Investment Company Act.
3. SHORT SALES
The Fund may not enter into short sales if, as a result, more than 25% of the
Fund's total assets would be so invested or the Fund's short positions (other
than those positions "against the box") would represent more than 2% of the
outstanding voting securities of any single issuer or of any class of securities
of any single issuer.
4. ILLIQUID SECURITIES
The Fund may not invest more than 15% of its net assets in illiquid assets such
as: (i) securities that cannot be disposed of within seven days at their
then-current value, (ii) repurchase agreements not entitling the holder to
payment of principal within seven days and (iii) securities subject to
11
<PAGE>
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.
Except as required by the Investment Company Act, whenever an amended or
restated investment policy or limitation states a maximum percentage of the
Fund's assets that may be invested, such percentage limitation will be
determined immediately after and as a result of the acquisition of such security
or other asset. Any subsequent change in values, assets or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies or limitations.
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
Prior to June 1, 1998, Polaris Capital Management, Inc. managed a limited
partnership with an investment objective and investment policies that were, in
all material respects, equivalent to those of the Fund. The performance for the
Fund includes the performance of the predecessor-limited partnership for the
period before the predecessor became the Fund on June 1, 1998. For periods prior
to June 1, 1998, the performance figures include the expenses for the limited
partnership. For all periods except "since inception," had the Fund's first year
estimated expenses been used, the performance would have been lower. The limited
partnership was not registered under the 1940 Act nor subject to certain
investment limitations, diversification requirements, and other restrictions
imposed by the Act and the Internal Revenue Code, which, if applicable, may have
adversely affected its performance.
Including the limited partnership performance, the Fund's average annual total
return for the 1-year, 3-year, 5-year and since inception (July 31, 1989)
periods as of March 31, 1998 was 40.41%, 31.12%, 22.67% and 14.59%,
respectively. Total return includes reinvestment of dividends and capital gains.
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, Inc., IBC Financial Data, 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
12
<PAGE>
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.
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. Neither
Fund charges a sales charge.
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
13
<PAGE>
2. TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price, and assumes 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
does not charge a sales charge.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total return
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 total 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 total 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 total 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.
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
14
<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 $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of 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>
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>
15
<PAGE>
In connection with its advertisements, the Fund may provide "shareholder's
letters" which serves 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.
16
<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
Date of Birth and Address Past 5 Years
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*,Chairman and 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 and 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-Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner-Winthrop Stimson Putnam & Roberts (law firm) from 1989-1995
40 West 57th Street Trustee, Core Trust (Delaware)
New York, NY 10019
- ------------------------------------------- -----------------------------------------------------------------------
- ------------------------------------------- -----------------------------------------------------------------------
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>
17
<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 who are interested persons 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 compensation paid to each Trustee by the
Trust for the fiscal year ended May 31, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Compensation from Total Compensation
Trustee Fund Benefits Retirement from Trust
John Y. Keffer $0 $0 $0 $0
Costas Azariadis $427.48 $0 $0 $427.48
James C. Cheng $427.48 $0 $0 $427.48
J. Michael Parish $427.48 $0 $0 $427.48
</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 a privately owned company controlled by Bernard R. Horn, Jr.
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.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's agreement remains in effect for a period of two year from the date
of its effectiveness and then the agreement must be approved annually.
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.
18
<PAGE>
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, or in any event whatsoever except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of 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, FFSI was the distributor of
the Fund pursuant to similar terms and compensation.
FFS, FAdS, FAcS and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC, which 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 effort 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 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).
19
<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 0.10% of
the first $150 million of the Fund's average daily net assets and 0.05% of the
Fund's average daily net assets in excess of $150 million. 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 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.
20
<PAGE>
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, plus $2,200 for the preparation of tax returns 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.
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 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 a fee from the Fund at an annual
rate of $24,000 plus $25 per shareholder account. The fee is accrued daily by
the Fund and is paid monthly based on the average net assets for the previous
month.
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 the
Transfer Agent's actions or omissions that are consistent with the Transfer
Agent's contractual standard of care.
21
<PAGE>
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
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
Seward & Kissel, LLP, 1200 G Street, N.W., Washington, D.C. 20005, passes upon
legal matters in connection with the issuance of shares of the Trust.
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.
The price of securities purchased from underwriters of the securities includes a
disclosed fixed commission or concession paid by the issuer to the underwriter.
The purchase price of securities purchased from dealers serving as market makers
reflects 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.
22
<PAGE>
B. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions with respect to
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 has no
obligation to deal with a 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
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 obtained for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser may effect a transaction through 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 follows a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
23
<PAGE>
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. 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 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. Higher
portfolio turnover rates may result in increased brokerage costs to the Fund and
a possible increase in short-term capital gains or losses.
24
<PAGE>
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 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 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.
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.
Set forth below is an example of the method of computing the offering price of
the Fund's shares. The example assumes a purchase of shares of beneficial
interest aggregating less than $100,000 subject to the schedule of sales charges
set forth in the Prospectus at a price based on the net asset value per share of
the Fund on May 31, 1999.
- --------------------------------------------------- ----------------------------
Polaris Global Value Fund
- --------------------------------------------------- ---------------------------
- --------------------------------------------------- ----------------------------
Net Asset Value per Share $11.07
- --------------------------------------------------- ----------------------------
- --------------------------------------------------- ----------------------------
Shares Charge, 3.00% of offering price $0.34
(3.09% of net asset value per share)
- --------------------------------------------------- ----------------------------
- --------------------------------------------------- ----------------------------
Offering to Public $11.41
- --------------------------------------------------- ----------------------------
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 that is readily ascertainable (and not
established only by valuation procedures).
25
<PAGE>
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.
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: (1) reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased; or (2) 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 SEC 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.
26
<PAGE>
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,
you may incur brokerage costs 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 provided by independent pricing services. If no sales price is
reported, the mean 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 (unless you elect to receive distributions in cash) 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 Fund's NAV per share (unless you elect to
receive distributions in cash) 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). The
information presented here is only a summary of certain key federal income tax
considerations affecting the Fund and its shareholders and is in addition to the
information provided 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 May 31 (the same as the Fund's fiscal year end).
27
<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 (that is,
taxable interest, dividends, net short-term capital gains and other taxable
ordinary income, net of expenses) and net capital gain (that is, the excess of
net long-term capital gains over 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 an 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.
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 do not qualify for 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 reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
28
<PAGE>
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 shares, you will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
You may purchase shares whose net asset value at the time reflects undistributed
net investment income or recognized capital gain, or unrealized appreciation in
the value of the assets of 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 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 even 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) 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 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 that are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by 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 or 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
29
<PAGE>
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 if
all of the offsetting positions 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.
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, you 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 your adjusted tax basis in the shares. All or a portion
of any loss so recognized may be disallowed if you purchase (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 your risk of
loss is offset by means of options, short sales or similar transactions are 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
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
(including short-term capital gains) paid to a foreign shareholder will be
subject to
30
<PAGE>
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 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.
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 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 the
Fund.
I. FOREIGN INCOME TAX
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to a
reduced rate of such taxes or exemption from taxes on such income. It is
impossible to know the effective rate of foreign tax in advance since the amount
of the Fund's assets to be invested within various countries cannot be
determined.
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:
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
31
<PAGE>
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
Equity Index Fund TaxSaver Bond Fund
Investors Bond Fund
(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 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 its
expenses will affect each class' performance. For more information on any other
class of shares of the Fund, you 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.
A shareholder or shareholders representing 33 1/3% or more of 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 the Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
32
<PAGE>
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 September 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 %
- ----------------------------------------------------- ----------------------
- ----------------------------------------------------- ----------------------
Polaris Global Value 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 September 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
<TABLE>
<S> <C> <C>
- ----------------------------------------- ----------------------------------------- ------------------------
Percentage of
Shareholder Fund (or Trust) Shares Owned
- ----------------------------------------- ----------------------------------------- ------------------------
- ----------------------------------------- ----------------------------------------- ------------------------
- ----------------------------------------- ----------------------------------------- ------------------------
- ----------------------------------------- ----------------------------------------- ------------------------
Polaris Global Value 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 states 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 Fund 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.
33
<PAGE>
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., or on the SEC's website at http://www.sec.gov.
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 Polaris Global Value Fund for the year ended May 31,
1999 are incorporated herein by reference to the Fund's Annual Report, dated May
31, 1999, which was filed electronically with the SEC on ________, 1999
(Accession Number: _____________). These financial statements include the
schedules of investments, statements of assets and liabilities, statements of
operations, statement of changes in net assets, financial highlights, notes and
independent auditors' reports.
34
<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.
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
<PAGE>
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.
A-2
<PAGE>
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
3. Duff & Phelps Credit Rating Co.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+ A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
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-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 DD, D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
B. PREFERRED STOCK
1. Moody's Investors Service
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
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.
A-4
<PAGE>
ba An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c This is the lowest rated class of preferred or preference stock. Issues
so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Note Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
2. Standard & Poor's
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
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:
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-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 Waived Advisory Fee Retained
Polaris Global Value Fund
Year Ended May 31, 1999 $199,686 $62,378 $137,308
</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 Waived Administration Fee
Polaris Global Value Fund Payable Retained
Year Ended May 31, 1999 $40,000 $0 $40,000
</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
Polaris Global Value Fund Retained
Year Ended May 31, 1999 $39,000 $0 $39,000
</TABLE>
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
Polaris Global Value Fund Fee Payable Fee Waived Retained
Year Ended May 31, 1999 $28,356 $0 $28,356
</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.
Polaris Global Value Fund May 31, 1999
$
B-1
<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>
Polaris Global Value Fund % of Fund
Name and Address Shares
</TABLE>
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
Table 1 - Total Returns
The average annual total return without sales charges of the Fund for the period
ended May 31, 1999, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Calendar
Polaris Global Value One Month Three Months Year to Date One Year Three Five Years Since Inception
Fund Years (annualized)
(4.12)% 9.54% 4.49% (11.95)% 12.74% 15.71% 11.27%
</TABLE>
C-1
<PAGE>
Part C
Other Information
Item 23. Exhibits
(a) Trust Instrument of Registrant dated August 29, 1995as amended on June
25, 1999 (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 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 4).
(4) Investment Advisory Agreement between Registrant and Polaris
Capital Management, Inc. dated as of June 1, 1998 (see Note 5).
(5) Investment Advisory Agreement between Registrant and H.M. Payson
& Co. relating to Investors Equity Fund dated as of December 5,
1997 (see Note 6).
(6) 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 7).
(7) Investment Advisory Agreement between Registrant and Brown
Investment Advisory & Trust Company relating to BIA Small-Cap
Growth Fund and BIA Growth Equity Fund, as of dated June 29, 1999
(see Note 1).
(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 Polaris Global Value 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 Polaris Global Value Fund
undated (see Note 8).
(5) Distribution Agreement between Registrant and Forum Fund
Services, LLC relating to Austin Global Value Fund, BIA Growth
Equity Fund, BIA Small-Cap Growth Fund, Equity Index Fund,
Investors Bond Fund, Investors Equity Fund, Investors Growth
Fund, Investors High Grade Bond Fund, 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, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Payson Balanced Fund, Payson Value Fund, and
TaxSaver Bond Fund dated as of February 28, 1999 (see Note 1).
(6) Sub-Distribution Agreement between Forum Fund Services, LLC and
Forum Financial Services, Inc. dated March 1, 1999 (see Note 9)
(f) None.
(g) (1) 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, Investors
1
<PAGE>
Bond Fund, Investors Equity Fund, Investors Growth Fund,
Investors High Grade Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Payson Balanced Fund, Payson Value Fund,
Polaris Global Value Fund 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 9).
(2) 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, Investors
Bond Fund, Investors Equity Fund, Investors Growth Fund,
Investors High Grade Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Payson Balanced Fund, Payson Value Fund,
Polaris Global Value Fund 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 9).
(h) (1) Administration Agreement between Registrant and Forum
Administrative Services, LLC relating to Austin Global Equity
Fund, BIA Growth Equity Fund, BIA Small-Cap Growth Fund, Equity
Index Fund, Investors Bond Fund, Investors Equity Fund, Investors
Growth Fund, Investors High Grade Bond Fund, Maine Municipal Bond
Fund, New Hampshire Bond Fund, Payson Balanced Fund, Payson Value
Fund, Polaris Global Value Fund 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 9).
(2) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC relating to Austin Global Equity Fund, BIA Growth
Equity Fund, BIA Small-Cap Growth Fund, Equity Index Fund,
Investors Bond Fund, Investors Equity Fund, Investors Growth
Fund, Investors High Grade Bond Fund, Maine Municipal Bond Fund,
New Hampshire Bond Fund, Payson Balanced Fund, Payson Value Fund,
Polaris Global Value Fund 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, as amended
December 5, 1997 (see Note 9).
(3) Transfer Agency and Services Agreement between Registrant and
Forum Shareholder Services, LLC relating to Austin Global Equity
Fund, BIA Growth Equity Fund, BIA Small-Cap Growth Fund,
Investors Bond Fund, Investors Equity Fund, Investors Growth
Fund, Investors High Grade Bond Fund, Maine Municipal Bond Fund,
New Hampshire Bond Fund, Payson Balanced Fund, Payson Value Fund,
Polaris Global Value Fund 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).
(4) 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 10).
(5) Shareholder Service Plan of Registrant dated March 18, 1998 and
Form of Shareholder Service Agreement relating to Polaris Global
Value Fund (see Note 6).
(i) (1) Opinion of Seward & Kissel LLP dated January 5, 1996 (see
Note 11).
(2) Ratification of Seward & Kissel LLP's January 5, 1996 opinion
dated July 30, 1999 (see Note 1).
(j) None.
(k) None.
2
<PAGE>
(l) Investment Representation letter of Reich & Tang, Inc. as original
purchaser of shares of Registrant (see Note 2).
(m) 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 12).
(n) Financial Data Schedules (to be filed by amendment).
(o) 18f-3 plan adopted by Registrant (see Note 4).
Other Exhibits:
Power of Attorney for James C. Cheng (see Note 13).
Power of Attorney for Costas Azariadis (see Note 13).
Power of Attorney for J. Michael Parish (see Note 13).
Power of Attorney for John Y. Keffer (see Note 6).
- ---------------
Note:
(1) Exhibit incorporated by reference as filed in post-effective amendment No.
73 via EDGAR on July 30, 1999, accession number 0001004402-99-000 .
(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.
56 via EDGAR on December 31, 1997, accession number 0001004402-97-000281.
(5) Exhibit incorporated by reference as filed in post-effective amendment No.
63 via EDGAR on June 8, 1998, accession number 0001004402-98-000339.
(6) Exhibit incorporated by reference as filed in post-effective amendment No.
65 via EDGAR on September 30, 1998, accession number 0001004402-98-000530.
(7) Exhibit incorporated by reference as filed in post-effective amendment No.
64 via EDGAR on July 31, 1998, accession number 0001004402-98-000421.
(8) Exhibit incorporated by reference as filed in post-effective amendment No.
68 via EDGAR on November 30, 1998, accession number 0001004402-98-000620.
(9) Exhibit incorporated by reference as filed in post-effective amendment No.
72 via EDGAR on June 16, 1999, accession number 0001004402-99-000308.
(10) Exhibit incorporated by reference as filed in post-effective amendment No.
50 via EDGAR on November 12, 1997, accession number 0001004402-97-000189.
(11) Exhibit incorporated by reference as filed in post-effective amendment No.
33 via EDGAR on January 5, 1996, accession number 0000912057-96-000216.
(12) Exhibit incorporated by reference as filed in post-effective amendment No.
69 via EDGAR on December 15, 1998, accession number 0001004402-98-000648.
(13) Exhibit incorporated by reference as filed in post-effective amendment No.
34 via EDGAR on May 9, 1996, accession number 0000912057-96-008780.
3
<PAGE>
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
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
4
<PAGE>
ultimately determined that he is not entitled to indemnification under
this Section 5.2; provided, however, that either (a) such Covered
Person shall have provided appropriate security for such undertaking,
(b) the Trust is insured against losses arising out of any such advance
payments or (c) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Section 5.2.
"(e) Conditional advancing of indemnification monies under this Section
5.2 for actions based upon the 1940 Act may be made only on the
following conditions: (i) the advances must be limited to amounts used,
or to be used, for the preparation or presentation of a defense to the
action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or
on behalf of, the recipient to repay that amount of the advance which
exceeds that amount which it is ultimately determined that he is
entitled to receive from the Trust by reason of indemnification; and
(iii) (a) such promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that any
repayments may be obtained by the Trust without delay or litigation,
which bond, insurance or other form of security must be provided by the
recipient of the advance, or (b) a majority of a quorum of the Trust's
disinterested, non-party Trustees, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be
found entitled to indemnification.
"(f) In case any Holder or former Holder of any Series shall be held to
be personally liable solely by reason of the Holder or former Holder
being or having been a Holder of that Series and not because of the
Holder or former Holder acts or omissions or for some other reason, the
Holder or former Holder (or the Holder or former Holder's heirs,
executors, administrators or other legal representatives, or, in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the
applicable Series to be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust, on behalf of
the affected Series, shall, upon request by the Holder, assume the
defense of any claim made against the Holder for any act or obligation
of the Series and satisfy any judgment thereon from the assets of the
Series."
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
5
<PAGE>
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
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
6
<PAGE>
therein not misleading, if such statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust in writing in connection with the preparation of the Registration
Statement or Prospectus by or on behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement ("Trust Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Trust Claim and may retain counsel of good standing chosen
by the Distributor and approved by the Trust, which approval shall not
be withheld unreasonably. The Distributor shall advise the Trust that
it will assume the defense of the suit and retain counsel within ten
(10) days of receipt of the notice of the claim. If the Distributor
assumes the defense of any such suit and retains counsel, the
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.
7
<PAGE>
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 filing and of post-effective
amendment #69 and 73 to the Trust's Registration Statement (accession
numbers 0001004402-98-000648 and 0001004402-99-000 respectively), is
incorporated by reference herein.
The following are the members of Forum Investment Advisors, LLC, Two
Portland Square, Portland, Maine 04101, including their business
connections, which are of a substantial nature.
Forum Holdings Corp. 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
----------------------------------- ------------------------------------- ----------------------------------
</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 post-effective amendment #73 to the Trust's
Registration Statement (accession number 0001004402-99-000 ) 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.
8
<PAGE>
<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.
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
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
post-effective amendment #73 to the Trust's Registration Statement
(accession number 0001004402-99-000 ), 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) Peoples Heritage Bank
The description of Peoples Heritage Bank ("Peoples") (investment
sub-adviser to Investors Equity Fund) contained in Parts A and B of
post-effective amendment #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
----------------------------------- ------------------------------------- ----------------------------------
9
<PAGE>
----------------------------------- ------------------------------------- ----------------------------------
Stephen L. Eddy Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Dana R. Mitiguy Chief Investment Officer Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Larry D. Pelletier Vice President Peoples
217 Main Street
Lewiston, Maine 04240
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Carolyn B. May Vice President Peoples
217 Main Street
Lewiston, Maine 04240
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Kevin K. Brown Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Donald W. Smith Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
John W. Gibbons Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Joseph M. Pratt Vice President Peoples
74 Hammond Street
Bangor, Maine 04401
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Lucy L. Tucker Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Nancy W. Bard Assistant Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Douglas P. Adams Trust Officer Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Melanie L. Bishop Trust Officer Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Jeffrey Oldfield Vice President Peoples
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Janet E. Milley Assistant Vice President Peoples
74 Hammond Street
Bangor, Maine 04401
----------------------------------- ------------------------------------- ----------------------------------
----------------------------------- ------------------------------------- ----------------------------------
Kathryn Dion Vice President Peoples
217 Main Street
Lewiston, Maine 04240
----------------------------------- ------------------------------------- ----------------------------------
</TABLE>
(e) 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 of post-effective
amendment No. 72 (accession number 0001004402-99-000308) is
incorporated by reference herein.
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.
10
<PAGE>
<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
------------------------------------ ------------------------------------ ----------------------------------
11
<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
------------------------------------ ------------------------------------ ----------------------------------
12
<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
------------------------------------ ------------------------------------ ----------------------------------
13
<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
------------------------------------ ------------------------------------ ----------------------------------
14
<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
Memorial Funds Norwest Select 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.
15
<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.
16
<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 certifies that it
meets all of the requirements for effectiveness of this registration statement
under rule 485(b) under the Securities Act of 1933, as amended, and has duly
caused this post-effective amendment number 73 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 July 30, 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 July
30, 1999.
(a) Principal Executive Officer
/s/ John Y. Keffer
John Y. Keffer
President and Chairman
(b) Principal Financial Officer
/s/ Stacey Hong
Stacey Hong
Treasurer
(c) A majority of the Trustees
/s/ John Y. Keffer
John Y. Keffer
Trustee
James C. Cheng, Trustee
J. Michael Parish, Trustee
Costas Azariadis, Trustee
By: /s/ John Y. Keffer
John Y. Keffer
Attorney in Fact*
* Pursuant to powers of attorney filed as Other Exhibits to this
Registration Statement.
17
<PAGE>
SIGNATURES
On behalf of Core Trust (Delaware), being duly authorized, I have duly caused
this amendment to the Registration Statement of Forum Funds to be signed in the
City of Portland, State of Maine on July 30, 1999.
Core Trust (Delaware)
By: /s/ John Y Keffer
John Y. Keffer, President
18
<PAGE>