POLARIS GLOBAL VALUE FUND LOGO
ANNUAL REPORT
May 31, 2000
[POLARIS LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
A Message to Our Shareholders............................... 1
Performance Chart and Analysis.............................. 3
Schedule of Investments..................................... 4
Statement of Assets and Liabilities......................... 5
Statement of Operations..................................... 6
Statement of Changes in Net Assets.......................... 7
Financial Highlights........................................ 8
Notes to Financial Statements............................... 9
Independent Auditors' Report................................ 13
</TABLE>
<PAGE>
POLARIS GLOBAL VALUE FUND
A MESSAGE TO OUR SHAREHOLDERS
MAY 31, 2000
--------------------------------------------------------------------------------
Dear Fellow Shareholder:
As you will see in this annual report for the Polaris Global Value Fund for the
fiscal year June 1, 1999 through May 31, 2000, the Fund's performance for the
most recent three months of the fiscal year has improved and exceeded its
benchmark. The fiscal year performance also included two quarters during which
the Fund exceeded benchmark returns and two quarters during which the Fund
under-performed benchmark returns. The following table summarizes these
results.*
<TABLE>
<CAPTION>
FISCAL YEAR 2000
---------------------------------------------
QUARTER ENDING POLARIS GLOBAL VALUE FUND MSCI WORLD INDEX
-------------- ------------------------- ----------------
<S> <C> <C>
August 31, 1999...................................... 8.94% 4.12%
November 30, 1999.................................... -2.88% 7.07%
February 29, 2000.................................... -4.19% 2.14%
May 31, 2000......................................... 2.96% -0.24%
Fiscal year ending May 31, 2000...................... 4.37% 13.60%
</TABLE>
The last twelve months have been challenging for the Fund, with performance
affected by several crosscurrents. On the positive side, the Fund achieved
strong gains in U.S., Japanese, and Dutch telecommunication and technology
investments. In addition, other investments in Japan, a Spanish utility, a
Finnish elevator maker, a luxury goods company, and our Hong Kong and South
African holdings performed well. Performance, however, was held back as a result
of our strategy to steadfastly adhere to investments considered very
undervalued, such as U.S. financial institutions and medium sized European
companies. These investments were flat or down and held back performance as
investors pulled money from these stocks to invest in aggressive growth
companies worldwide, especially in the U.S. It would not have been consistent
with the Fund's strong commitment to its global value investment strategy to
abandon these good investments and follow the trend into highly speculative
investments, many of which have since fallen precipitously.
During the middle two quarters of the fiscal year financial markets were
dominated by these market conditions, which also influenced our benchmark index.
Consequently, it is not surprising that the Polaris value strategy lagged during
these quarters. During the last quarter of the fiscal year however, markets
returned to more rational analysis of stock valuations based on fundamental
earnings and cash flow. Absolute and relative performance responded positively
to these changes despite recent market declines. In recent months portfolio
strategy shifted modestly from small to large companies and from cyclical
industrial businesses toward technology related companies.
The Fund's fiscal year ending May 31 was chosen to make first year reporting
consistent with the Fund's inception date, June 1, 1998. But because investment
returns are normally evaluated over calendar periods, the Fund has issued
calendar period reports in addition to required fiscal period reports. In order
to keep the administrative costs of the Fund to a minimum, we are evaluating a
change to make the fiscal year of the Fund a calendar year and eliminate some
duplicate reporting. We will provide more details on this subject in future
reports.
1
<PAGE>
POLARIS GLOBAL VALUE FUND
A MESSAGE TO OUR SHAREHOLDERS
MAY 31, 2000 (continued)
--------------------------------------------------------------------------------
The forthcoming calendar quarter report as of June 30, 2000 includes additional
analyses on the Fund's performance. You may also visit the Fund's Website, which
includes quarterly reports, the current prospectus and application forms, IRA
documents, analyses of the Fund, current comments and other information. You may
also use the home page to contact the Fund's distributor or portfolio manager
via electronic mail. The site is located at http://www.polarisfund.com or you
may connect from the Polaris Capital home page at http://www.polariscapital.com.
If you have any questions or need additional information, please feel free to
call Forum Fund Services, LLC, the Fund's distributor, at (888) 263-5594.
Sincerely,
/s/ Bernard R. Horn, Jr.
Bernard R. Horn, Jr.
Portfolio Manager
*RESULTS REPRESENT PAST PERFORMANCE AND DO NOT GUARANTEE FUTURE RESULTS. During
the period, certain fees and expenses were waived by the service providers.
Without these waivers total returns would have been lower. Additional
performance figures for the Fund can be found in the Performance Chart &
Analysis section of this report. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than original
cost. Total returns include reinvestment of dividends and capital gain
distributions.
The MSCI World Index ("MSCI") measures the performance of a diverse range of
global stock markets in the United States, Canada, Europe, Australia, New
Zealand and the Far East. The MSCI is unmanaged and does include the
reinvestment of dividends, net of withholding taxes. It is not possible to
invest in any index.
The Fund invests in securities of foreign issuers, including issuers located in
countries with emerging capital markets. Investments in such securities entail
certain risks not associated with investments in domestic securities, such as
volatility of currency exchange rates, and in some cases, political and economic
instability and relatively illiquid markets.
The views in this report were those of the fund manager as of May 31, 2000, and
may not reflect the views of the manager on the date this report is first
published or any time thereafter. These views are intended to assist
shareholders of the Fund in understanding their investment in the Fund and do
not constitute investment advice.
2
<PAGE>
POLARIS GLOBAL VALUE FUND
PERFORMANCE CHART & ANALYSIS
MAY 31, 2000
--------------------------------------------------------------------------------
The following chart compares changes in the value of a $10,000 investment in
Polaris Global Value Fund (the "Fund"), including reinvested dividends and
distributions, to the performance of the Morgan Stanley Capital International
World Index ("MSCI"). The MSCI measures the performance of a diverse range of
global stock markets in the United States, Canada, Europe, Australia, New
Zealand and the Far East. The MSCI is unmanaged and its performance reflects the
reinvestment of dividends. It is important to keep in mind that the MSCI
excludes the effect of any expenses which have been deducted from the Fund's
return. It is not possible to invest directly in any index. Performance
information presented here represents only past performance and does not
necessarily indicate future results.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
Five
Average Annual Total Return as of 5/31/00 One Year Year Ten Year
----------------------------------------- -------- --------- --------
<S> <C> <C> <C> <C>
Polaris Global Value Fund 4.37% 14.18% 11.75%
MSCI 13.60% 16.29% 11.55%
Investment Value on 5/31/00
Polaris Global Value Fund $ 30,379
MSCI $ 29,823
</TABLE>
[EDGAR Representation of Bar Chart]
POLARIS GLOBAL VALUE FUND MSCI
------------------------- ----
5/31/90 10000 10000
6/30/90 10252 9926
7/31/90 10158 10013
8/31/90 9492 9073
9/30/90 8760 8113
10/31/90 9113 8868
11/30/90 9111 8719
12/31/90 8886 8898
1/31/91 9250 9221
2/28/91 9567 10071
3/31/91 9466 9771
4/30/91 9704 9844
5/31/91 10049 10064
6/30/91 9672 9440
7/31/91 9950 9883
8/31/91 10073 9848
9/30/91 10342 10104
10/31/91 10307 10264
11/30/91 9900 9814
12/31/91 10413 10525
1/31/92 10828 10327
2/29/92 11282 10146
3/31/92 10793 9665
4/30/92 11330 9797
5/31/92 11587 10183
6/30/92 11273 9839
7/31/92 11026 9861
8/31/92 10826 10097
9/30/92 10763 10001
10/31/92 10606 9727
11/30/92 11071 9898
12/31/92 11431 9975
1/31/93 11425 10006
2/28/93 11343 10240
3/31/93 11953 10830
4/30/93 11968 11329
5/31/93 12342 11587
6/30/93 12161 11487
7/31/93 12467 11721
8/31/93 13060 12255
9/30/93 13067 12026
10/31/93 13758 12354
11/30/93 13397 11653
12/31/93 14369 12220
1/31/94 14960 13023
2/28/94 14656 12852
3/31/94 13953 12295
4/30/94 13873 12672
5/31/94 14033 12702
6/30/94 13913 12663
7/31/94 14419 12901
8/31/94 14828 13287
9/30/94 14309 12935
10/31/94 14473 13300
11/30/94 13925 12720
12/31/94 13970 12840
1/31/95 13795 12644
2/28/95 14289 12826
3/31/95 14723 13441
4/30/95 15383 13906
5/31/95 15652 14022
6/30/95 16422 14014
7/31/95 17227 14712
8/31/95 17428 14381
9/30/95 18151 14797
10/31/95 18044 14561
11/30/95 18371 15063
12/31/95 18415 15501
1/31/96 18292 15778
2/29/96 18612 15871
3/31/96 18822 16132
4/30/96 19763 16508
5/31/96 20313 16518
6/30/96 20101 16599
7/31/96 19297 16009
8/31/96 20092 16189
9/30/96 20860 16820
10/31/96 20966 16934
11/30/96 22390 17880
12/31/96 22712 17590
1/31/97 23784 17799
2/28/97 23820 18000
3/31/97 23660 17641
4/30/97 24399 18214
5/31/97 26431 19335
6/30/97 28500 20296
7/31/97 31086 21227
8/31/97 30535 19804
9/30/97 32682 20876
10/31/97 30669 19774
11/30/97 30246 20121
12/31/97 30560 20363
1/31/98 30539 20927
2/28/98 32151 22339
3/31/98 33222 23279
4/30/98 33989 23503
5/31/98 33058 23205
6/30/98 31669 23752
7/31/98 31273 23710
8/31/98 25157 20545
9/30/98 25322 20905
10/31/98 26810 22791
11/30/98 28198 24143
12/31/98 27855 25319
1/31/99 27078 25869
2/28/99 26571 25178
3/31/99 26773 26222
4/30/99 30357 27252
5/31/99 29106 26253
6/30/99 31236 27473
7/31/99 31844 27387
8/31/99 31709 27335
9/30/99 30458 27066
10/31/99 31033 28469
11/30/99 30796 29267
12/31/99 32452 31632
1/31/00 31179 29817
2/29/00 29505 29894
3/31/00 31033 31956
4/30/00 30560 30601
5/31/00 30379 29823
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. On June 1, 1998, the
limited partnership reorganized into the Fund. The performance for the Fund
includes the performance of the predecessor limited partnership. 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 neither registered under the Investment Company Act
of 1940, as amended ("1940 Act"), nor subject to certain investment limitations,
diversification requirements, and other restrictions imposed by the 1940 Act and
the Internal Revenue Code, which, if applicable, may have had an adverse affect
on its performance.
3
<PAGE>
POLARIS GLOBAL VALUE FUND
SCHEDULE OF INVESTMENTS
MAY 31, 2000
--------------------------------------------------------------------------------
COMMON STOCK (98.3%)
Shares Security Description Value
------- ----------------------------------- -----------
BUILDING AND CONSTRUCTION (7.7%)
57,000 Barratt Developments PLC $ 195,955
100,000 Beazer Group PLC 186,838
41,000 Bellway PLC 156,271
179,000 Countryside Properties PLC 307,684
118,000 Crest Nicholson PLC 218,705
23,854 Koninklijke Boskalis Westminster NV 408,157
-----------
1,473,610
-----------
BUSINESS SERVICES (1.3%)
10,543 Cendant Corp.+ 139,695
4,046 Sabre Holdings Corp.+ 116,323
-----------
256,018
-----------
CHEMICALS AND ALLIED PRODUCTS (2.0%)
1,400 Methanex Corp.+ 3,937
135,600 Methanex Corp.+ 372,117
-----------
376,054
-----------
COMMUNICATIONS (6.4%)
6,500 BellSouth Corp. 303,469
4,400 GTE Corp. 278,300
7,100 SBC Communications, Inc. 310,181
122,000 Total Access Communication Public 328,180
Co. Ltd.+
-----------
1,220,130
-----------
CONSUMER GOODS (7.7%)
1,150 Christian Dior SA 261,297
76,369 Fedders Corp. A Shares 429,576
33,000 Kesko Oyj 327,773
140,218 VTech Holdings Ltd. 466,973
-----------
1,485,619
-----------
ELECTRONICS AND ELECTRICAL EQUIPMENT (14.0%)
15,400 Arisawa Manufacturing Co. Ltd. 400,464
13,584 Draka Holding NV 797,447
4,790 Intel Corp. 596,954
9,000 Samsung Display Devices Co. 342,630
1,400 Samsung Electronics Co. 381,762
114,850 WPI Group, Inc.+ 157,919
-----------
2,677,176
-----------
FINANCIAL INSTITUTIONS (24.4%)
25,900 Abington Bancorp, Inc. 239,575
16,400 ABN AMRO Holding NV 372,632
16,100 American Bank of Connecticut 315,963
56,000 Banca Popolare di Milano 362,505
28,200 Banco Bilbao Vizcaya Argentina, SA 392,293
20,812 Banknorth Group, Inc. 290,067
4,600 BNP Paribas 412,742
20,100 BostonFed Bancorp, Inc. 263,812
90,400 Charter Pacific Bank+ 226,000
20,500 Hawthorne Financial Corp.+ 169,125
34,000 Horizon Bank & Trust Co.+ 204,000
31,000 Ipswich Bancshares, Inc. 242,671
13,000 MECH Financial, Inc. 450,125
15,616 North Valley Bancorp 154,208
357,000 Sanlam Ltd. 385,959
24,900 Warren Bancorp, Inc. 188,306
-----------
4,669,983
-----------
FOOD AND BEVERAGES (0.2%)
179,750 Crean (James) PLC+ 46,676
-----------
<PAGE>
Shares Security Description Value
------- ----------------------------------- -----------
GENERAL MERCHANDISE STORES (2.6%)
13,700 Sears, Roebuck & Co. $ 506,044
-----------
INDUSTRIALS (6.2%)
9,000 Cohu, Inc. 316,125
8,100 Kone Oyj B Shares 488,354
18,900 Walter AG 376,852
-----------
1,181,331
-----------
METALS AND MINING (6.9%)
77,650 Palabora Mining Co. 339,474
6,700 Phelps Dodge Corp. 300,663
52,100 RTI International Metals+ 677,300
-----------
1,317,437
-----------
MISCELLANEOUS MANUFACTURING
INDUSTRIES (1.6%)
13,700 RHI AG 313,571
-----------
OTHER (0.0%)
37,500 Utopia+# --
-----------
PAPER AND FOREST PRODUCTS (2.9%)
74,700 Sappi Ltd 557,702
-----------
TEXTILES (1.8%)
8,800 Gamma Holding NV 339,505
-----------
TIRES (2.8%)
16,400 Continental AG 302,668
95,000 Pirelli SpA 242,285
-----------
544,953
-----------
TRANSPORTATION (2.7%)
5,600 AMR Corp.+ 159,600
61 East Japan Railway Co. 347,843
-----------
507,443
-----------
TRANSPORTATION EQUIPMENT (1.7%)
6,600 Ford Motor Co. 320,513
-----------
UTILITIES -- ELECTRIC, GAS AND SANITARY
SERVICES (5.4%)
6,600 Montana Power Co. 249,562
9,600 TXU Corporation 343,200
21,600 Union Electrica Fenosa SA 447,715
-----------
1,040,477
-----------
Total Common Stock (cost $18,762,574) $18,834,241
-----------
SHORT-TERM INVESTMENTS (1.7%)
Principal
Amount
--------- ---------------------------------- -----------
321,323 BT Trust Institutional Cash $ 321,323
Management Fund
1,116 Stoneham Savings Bank, 5.51%, 1,116
02/28/01
-----------
322,439
-----------
Total Short-Term Investments (cost $322,439) 322,439
-----------
Total Investments (100.0%) (cost $19,085,013) $19,156,680
===========
------------------------------------------
+ Non-income producing security.
# Security valued at fair market value as determined by the Board of Trustees.
See Notes to Financial Statements. 4
<PAGE>
POLARIS GLOBAL VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2000
--------------------------------------------------------------------------------
ASSETS
Investments (Note 2):
Investments, at cost.................................... $ 19,085,013
Net unrealized appreciation............................. 71,667
--------------
Total investments, at value............................... 19,156,680
Foreign currency.......................................... 49,727
Interest, dividends and other receivables................. 95,884
Organization costs, net of amortization (Note 2).......... 25,333
--------------
Total Assets................................................ 19,327,624
--------------
LIABILITIES
Payable to adviser (Note 3)............................... 15,284
Payable to other related parties (Note 3)................. 3,333
Accrued expenses and other liabilities.................... 41,928
--------------
Total Liabilities........................................... 60,545
--------------
NET ASSETS.................................................. $ 19,267,079
==============
COMPONENTS OF NET ASSETS
Paid-in capital........................................... $ 18,219,297
Undistributed net investment income....................... 50,924
Net realized gain on investments and foreign currency
transactions............................................ 928,513
Unrealized appreciation of investments and foreign
currency transactions................................... 68,345
--------------
NET ASSETS.................................................. $ 19,267,079
==============
SHARES OF BENEFICIAL INTEREST............................... 2,307,373
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PRICE PER SHARE........................................... $ 8.35
See Notes to Financial Statements. 5
<PAGE>
POLARIS GLOBAL VALUE FUND
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income........................................... $ 462,090
Interest income........................................... 37,052
--------------
Total Investment Income..................................... 499,142
--------------
EXPENSES
Investment advisory (Note 3).............................. 203,601
Administration (Note 3)................................... 40,000
Transfer agent (Note 3)................................... 28,658
Custody (Note 3).......................................... 20,965
Accounting (Note 3)....................................... 45,200
Audit..................................................... 25,400
Legal..................................................... 13,759
Trustees.................................................. 1,149
Compliance................................................ 13,122
Pricing................................................... 10,286
Reporting................................................. 18,484
Amortization of organization costs (Note 2)............... 8,000
Miscellaneous............................................. 3,604
--------------
Total Expenses.............................................. 432,228
Fees waived (Note 5).................................... (75,023)
--------------
Net Expenses................................................ 357,205
--------------
NET INVESTMENT INCOME....................................... 141,937
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investments.......................... 1,865,349
Net realized loss on foreign currency transactions........ (2,507)
--------------
Net Realized Gain on Investments and Foreign Currency
Transactions.............................................. 1,862,842
--------------
Net change in unrealized depreciation of investments...... (1,196,649)
Net change in unrealized depreciation of foreign currency
transactions............................................ (1,283)
--------------
Net Unrealized Depreciation of Investments and Foreign
Currency Transactions..................................... (1,197,932)
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS..................................... 664,910
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 806,847
==============
See Notes to Financial Statements. 6
<PAGE>
POLARIS GLOBAL VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED MAY 31, 1999 AND 2000
--------------------------------------------------------------------------------
NET ASSETS, Beginning of Period............ $19,387,580 $ --
----------- -----------
OPERATIONS
Net investment income.................... 141,937 127,999
Net realized gain on investments and
foreign currency transactions.......... 1,862,842 725,289
Net change in unrealized depreciation on
investments and foreign currency
transactions........................... (1,197,932) (3,707,306)
----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations................ 806,847 (2,854,018)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income.................... (718,254) (90,111)
Net realized gain on investments......... (732,166) (338,099)
----------- -----------
Total Distributions to Shareholders........ (1,450,420) (428,210)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Sale of shares........................... 2,013,491 3,797,127
Transactions due to acquisition
(Note 6)................................ -- 21,861,590
Reinvestment of distributions............ 1,443,663 427,279
Redemption of shares..................... (2,934,082) (3,416,188)
----------- -----------
Net Increase from Capital Transactions..... 523,072 22,669,808
----------- -----------
Net Increase (Decrease) in Net Assets...... (120,501) 19,387,580
----------- -----------
NET ASSETS, End of Period (A).............. $19,267,079 $19,387,580
=========== ===========
SHARE TRANSACTIONS
Sale of shares........................... 223,775 429,321
Transactions due to acquisition
(Note 6)................................ -- 2,186,159
Reinvestment of distributions............ 164,837 53,323
Redemption of shares..................... (333,041) (417,001)
----------- -----------
Net Increase in Shares..................... 55,571 2,251,802
=========== ===========
(A) Undistributed net investment income.... $ 50,933 $ 28,625
=========== ===========
See Notes to Financial Statements. 7
<PAGE>
POLARIS GLOBAL VALUE FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
These financial highlights reflect selected per share data and ratios for a
share outstanding throughout each period:
Year Ended Year Ended
May 31, 2000 May 31, 1999
(Note 1)
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 8.61 $ 10.00
------- -------
INVESTMENT OPERATIONS
Net investment income....................... 0.07 0.06
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions.............................. 0.32 (1.27)
------- -------
Total from Investment Operations.............. 0.39 (1.21)
------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income....................... (0.31) (0.04)
Net realized gain on investments and foreign
currency transactions..................... (0.34) (0.14)
------- -------
Total distributions to shareholders........... (0.65) (0.18)
------- -------
NET ASSET VALUE, END OF PERIOD................ $ 8.35 $ 8.61
======= =======
TOTAL RETURN.................................. 4.37% (11.95)%
RATIO/SUPPLEMENTARY DATA
Net assets at end of period (000's omitted)... $19,267 $19,388
Ratios to average net assets
Expenses.................................... 1.75% 1.75%
Expenses, excluding waiver of fees.......... 2.12% 2.06%
Net investment income....................... 0.70% 0.63%
PORTFOLIO TURNOVER RATE....................... 38% 51%
See Notes to Financial Statements. 8
<PAGE>
POLARIS GLOBAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
This report relates to Polaris Global Value Fund (the "Fund"), a diversified
series of Forum Funds (the "Trust"). The Trust is a Delaware business trust that
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "Act"). The Fund commenced operations on
June 1, 1998 after it acquired the net assets of Global Limited Partnership (the
"Partnership"), in exchange for Fund shares. The Partnership commenced
operations on July 31, 1989 and ceased operations on May 31, 1998. Under its
Trust Instrument, the Trust is authorized to issue an unlimited number of the
Fund's shares of beneficial interest without par value.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates. The following summarizes the significant accounting policies of the
Fund:
SECURITY VALUATION -- On each Fund business day, the Trust determines the net
asset value per share of the Fund as of the close of the regular trading day on
the New York Stock Exchange. Securities, other than short-term securities, held
by the Fund, and for which market quotations are readily available, are valued
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. In
the absence of readily available market quotations, securities are valued at
fair value as determined by the Trust's Board of Trustees. Securities that
mature in sixty days or less are valued at amortized cost, which approximates
market value. Foreign short-term investments are valued at the current market
price, then marked-to-market to recognize any gain or loss on the transaction.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are
accounted for on trade date. Generally, dividend income is recorded on the
ex-dividend date. Certain dividends from foreign securities where the
ex-dividend date may have passed are recorded as soon as the Fund is informed of
the ex-dividend date. Dividend income is recorded net of unrecoverable
withholding tax. Interest income is recorded as earned. Identified cost of
investments sold is used to determine gain and loss for both financial statement
and federal income tax purposes. Foreign dividend and interest income amounts
and realized capital gain or loss are converted to U.S. dollar equivalents using
foreign exchange rates in effect at the date of the transactions.
Foreign currency amounts are translated into U.S. dollars at the mean of the bid
and asked prices of such currencies against U.S. dollars as follows: (i) assets
and liabilities at the rate of exchange at the end of the respective period; and
(ii) purchases and sales of securities and income and expenses at the rate of
exchange prevailing on the dates of such transactions. The portion of the
results of operations arising from changes in the exchange rates and the portion
due to fluctuations arising from changes in the market prices of securities are
not isolated. Such fluctuations are included with the net realized and
unrealized gain or loss on investments.
The Fund may enter into transactions to purchase or sell foreign currencies to
protect the U.S. dollar value of its underlying portfolio of securities against
the effect of possible adverse movements in foreign exchange rates. Principal
risks associated with such transactions include the movement in value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to
9
<PAGE>
POLARIS GLOBAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
perform. Fluctuations in the value of such forward currency transactions are
recorded daily as unrealized gain or loss; realized gain or loss includes net
gain or loss on transactions that have terminated by settlement or by the Fund
entering into offsetting commitments.
REPURCHASE AGREEMENTS -- The Fund may invest in repurchase agreements. The Fund,
through its custodian, receives delivery of the underlying securities, whose
market value must always equal or exceed the repurchase price.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders of net investment
income and net capital gain, if any, are declared and paid at least annually.
Distributions are based on amounts calculated in accordance with federal
applicable income tax regulations, which may differ from generally accepted
accounting principles. These differences are due primarily to differing
treatments of income and gain on various investment securities held by the Fund,
timing differences and differing characterizations of distributions made by the
Fund.
ORGANIZATION COSTS -- Costs incurred by the Fund in connection with its
organization are amortized using the straight-line method over a five-year
period.
FEDERAL TAXES -- The Fund intends to qualify each year as a regulated investment
company and distribute all its taxable income. In addition, by distributing in
each calendar year substantially all its net investment income, capital gain and
certain other amounts, if any, the Fund will not be subject to a federal excise
tax. Therefore, no federal income or excise tax provision is required.
EXPENSE ALLOCATION -- The Trust is comprised of 19 active fund series, and it
accounts separately for the assets and liabilities and operations of each of its
funds. Expenses that are directly attributable to more than one fund are
allocated among the respective funds in proportion to each fund's average daily
net assets.
NOTE 3. ADVISORY FEES, SERVICING FEES AND OTHER TRANSACTIONS WITH RELATED
PARTIES
INVESTMENT ADVISER -- The investment adviser to the Fund is Polaris Capital
Management, Inc. (the "Adviser"). Pursuant to an Investment Advisory Agreement,
the Adviser receives an advisory fee from the Fund at an annual rate of 1.00% of
the average daily net assets of the Fund.
ADMINISTRATOR -- The administrator of the Fund is Forum Administrative Services,
LLC ("FAdS"). For its services, FAdS receives an administrative fee at an annual
rate of 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,
subject to a $40,000 minimum.
CUSTODY -- Forum Trust, LLC serves as the Trust's custodian and may employ
subcustodians to provide custody of a Fund's domestic and foreign assets. For
its services, the Custodian receives an annualized percentage of the average
daily net assets of a Fund. Each Fund also pays an annual global custody fee as
well as certain other transaction fees.
TRANSFER AGENT -- The transfer agent and dividend disbursing agent for the Fund
is Forum Shareholder Services, LLC ("FSS"). FSS receives an annual fee of
$24,000, plus certain shareholder account fees.
SHAREHOLDER SERVICE AGENT -- The Trust has adopted a shareholder servicing plan
(the "Plan") with respect to the Fund under which FAdS is authorized to enter
into shareholder service agreements with financial institutions and other
persons who provide services for and maintain shareholder accounts as set forth
in the Plan. Under the Plan, the Trust, through FAdS, pays the shareholder
servicing agent a fee of up to 0.25% of the average daily net assets of the
shares owned
10
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POLARIS GLOBAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
by investors for which the shareholder servicing agent maintained a servicing
relationship. There was no shareholder servicing fee as of May 31, 2000.
DISTRIBUTOR -- Forum Fund Services, LLC ("FFS"), a registered broker-dealer and
a member of the National Association of Securities Dealers, Inc., is the Fund's
distributor. FFS receives no compensation for its distribution services. Prior
to October 1, 1999, Forum Financial Services, Inc. provided distribution
services to the Fund for which it received no fee.
OTHER SERVICE PROVIDER -- Forum Accounting Services, LLC ("FAcS") provides fund
accounting services to the Fund. For its services, FAcS receives an annual fee
of $36,000, plus certain amounts based upon the asset level of the Fund as well
as the number and type of portfolio transactions made by the Fund.
NOTE 4. SECURITY TRANSACTIONS
The cost of purchases and the proceeds from sales of securities, other than
short-term investments, totaled $7,438,893 and $8,757,877 respectively, for the
year ended May 31, 2000.
For federal income tax purposes, the tax basis of investment securities owned as
of May 31, 2000, was $19,085,013, and the net unrealized appreciation of
investment securities was $71,667. The aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost
was $3,450,711, and the aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value was
$3,379,044.
NOTE 5. WAIVER OF FEES
The Adviser voluntarily waived fees of $75,023 for the year ended May 31, 2000.
NOTE 6. ACQUISITION OF FUNDS
As of June 1, 1998, Polaris Global Value Fund acquired all the net assets of the
Partnership. The Partnership's net assets and unrealized gain immediately prior
to acquisition were $21,861,590 and $4,973,583, respectively. The shares issued
as a result of the acquisition amounted to 2,186,159.
The net assets of Polaris Global Value Fund immediately after the acquisition
were $21,861,590.
NOTE 7. FEDERAL TAX STATUS OF DIVIDENDS DECLARED DURING THE FISCAL YEAR
(UNAUDITED)
SPECIAL 2000 TAX INFORMATION
The Fund intends to elect to pass through to it shareholders the credit for
taxes paid in foreign countries during its fiscal year ended May 31, 2000. In
accordance with the current tax laws, the foreign income and foreign tax per
share (for a share outstanding May 31, 2000) is as follows:
COUNTRY DIVIDENDS FOREIGN TAX
------- --------- -----------
Austria.............. $0.0105 $0.0016
Finland.............. $0.0241 $0.0036
France............... $0.0103 $0.0021
Germany.............. $0.0097 $0.0010
Holland.............. $0.0032 $0.0005
Hong Kong............ $0.0075 $0.0000
Ireland.............. $0.0004 $0.0000
COUNTRY DIVIDENDS FOREIGN TAX
------- --------- -----------
Italy................ $0.0077 $0.0012
Japan................ $0.0030 $0.0005
Netherlands.......... $0.0251 $0.0038
South Africa......... $0.0186 $0.0000
Spain................ $0.0096 $0.0014
United Kingdom....... $0.0251 $0.0025
------- -------
$0.1548 $0.0182
======= =======
11
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POLARIS GLOBAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS (concluded)
--------------------------------------------------------------------------------
The dividend pass through of foreign tax credit will affect only those
shareholders of the Fund who are holders on the dividend record date in December
2000. Accordingly, shareholders will receive more detailed information along
with their form 1099-DIV in January 2001.
INCOME DIVIDENDS -- All the income and any short-term capital gain dividends
paid by the Fund were ordinary income for federal income tax purposes.
CAPITAL GAIN DIVIDENDS -- The Fund declared long-term capital gain dividends of
$458,529 for the fiscal year ended May 31, 2000.
12
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POLARIS GLOBAL VALUE FUND
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
The Board of Trustees and Shareholders,
Polaris Global Value Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Polaris Global Value Fund, (the "Fund") (a
series of Forum Funds (the "Trust")) as of May 31, 2000, the related statement
of operations for the year then ended and the statement of changes in net assets
and the financial highlights for the years ended May 31, 2000 and 1999. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of May 31, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of May
31, 2000, and the results of its operations, the changes in net assets and its
financial highlights for the respective stated periods, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
July 7, 2000
13
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[WORLD MAP]
POLARIS GLOBAL VALUE FUND
INVESTMENT ADVISER
Polaris Capital Management, Inc.
125 Summer Street
Boston, MA 02110
DISTRIBUTOR
Forum Funds Services, LLC
Two Portland Square
Portland, Maine 04101
TRANSFER AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, Maine 04101
This report is for the information of the shareholders
of the Polaris Global Value Fund.
Its use in connection with any offering of the
Fund's shares is authorized only when preceded or
accompanied by the Fund's current prospectus.
ANNUAL REPORT
May 31, 2000
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