STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
AS AMENDED MARCH 24, 2000
INVESTORS EQUITY FUND
EQUITY INDEX FUND
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, LLC 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, and are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
GLOSSARY....................................................................3
1. INVESTMENT POLICIES AND RISKS..........................................4
2. INVESTMENT LIMITATIONS................................................13
3. PERFORMANCE DATA AND ADVERTISING......................................17
4. MANAGEMENT............................................................21
5. PORTFOLIO TRANSACTIONS................................................27
6. PURCHASE AND REDEMPTION INFORMATION...................................29
7. TAXATION..............................................................32
8. OTHER MATTERS.........................................................36
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS..............................1
APPENDIX B - MISCELLANEOUS TABLES...........................................1
APPENDIX C - PERFORMANCE DATA...............................................1
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS...............................1
2
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means each of Payson, Peoples and Norwest.
"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).
"FAcS" means Forum Accounting Services, LLC, each Fund's fund accountant.
"FAdS" means Forum Administrative Services, LLC, each Fund's administrator.
"FFS" means Forum Fund Services, LLC, each Fund's distributor.
"FSS" means Forum Shareholder Services, LLC, each Fund's transfer agent.
"FFSI" means Forum Financial Services, Inc., each Fund's distributor prior to
March 1, 1999.
"Fund" means Equity Index Fund and Investors Equity Fund.
"Fund Business Day" has the meaning ascribed thereto in the Funds' current
Prospectus.
"IRS" means Internal Revenue Service.
"Moody's" means Moody's Investor Service.
"NRSRO" means a nationally recognized statistical rating organization.
"Norwest" means Norwest Investment Management, Inc.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"Payson" means H. M. Payson & Co.
"Peoples" means Peoples Heritage Bank.
"Portfolio" means Index Portfolio.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, a Division of the McGraw Hill Companies.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means a debt security issued or guaranteed by the
United States, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
INVESTMENT POLICIES AND RISKS
Each Fund is a diversified series of the Trust. This section discusses in
greater detail than the Funds' Prospectus certain investments that each Fund may
make.
A. SECURITY RATINGS INFORMATION
A Fund's investments in convertible securities or other fixed income securities
are subject to the credit risk relating to the financial condition of the
issuers of the securities that the Fund holds. To limit credit risk, the Fund
generally invests in: (1) convertible or other debt securities that are rated
"Baa" or higher by Moody's or "BBB" or higher by S&P at the time of purchase;
and (2) preferred stock rated "baa" or higher by Moody's or "BBB" or higher by
S&P at the time of purchase. A Fund may purchase unrated convertible securities
if, at the time of purchase, the Adviser believes that they are of comparable
quality to rated securities that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. 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
market value. Also, rating agencies may fail to make timely changes in credit
ratings. An issuer's current financial condition may be better or worse than a
rating indicates.
B. EQUITY SECURITIES
1. COMMON AND PREFERRED STOCK
GENERAL Each Fund may invest in common and preferred stock. Common stock
represents an equity (ownership) interest in a company, and usually possesses
voting rights and earns dividends. Dividends on common stock 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.
4
<PAGE>
2. CONVERTIBLE SECURITIES
GENERAL Each Fund may invest in convertible securities. Convertible securities
include debt securities, preferred stock or other securities that may be
converted into or exchanged for a given amount of common stock of the same or a
different issuer during a specified period and at a specified price in the
future. A convertible security entitles the holder to receive interest on debt
or the dividend on preferred stock until the convertible security matures or is
redeemed, converted or exchanged.
Convertible securities rank senior to common stock in a company's capital
structure but are usually subordinated to comparable non-convertible 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. Smaller capitalized companies whose
stock price may be volatile, however, typically issue convertible securities. In
addition, the price of a convertible security may reflect variations in the
price of the underlying in a way that non-convertible debt does not. The extent
to which such risk is reduced, however, depends in large upon the degree to
which convertible security sells above its value as a fixed income security.
3. WARRANTS
GENERAL Each Fund may invest in warrants. Warrants are securities, typically
issued with preferred stock or bonds that give the holder the right to purchase
a given number of shares of common stock at a specified price 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 (at the time of investment) to not more than 5% of the value of its net
assets (other than those that have been acquired in units or attached to other
securities). 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 Each Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") and other similar
securities of foreign issuers 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 a 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. Investors Equity Fund expects to limit foreign investments to less than
10% of its total assets.
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.
5
<PAGE>
C. FIXED INCOME INVESTMENTS
Equity Index Fund may invest in the following:
1. 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.
2. 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 Funds' rights to transfer a
beneficial interest in the deposits to third parties.
6
<PAGE>
3. COMMERCIAL PAPER
The Fund may invest in commercial paper. Companies issue commercial paper to
finance their current obligations. Commercial paper is short-term unsecured
promissory notes and usually has a maturity of less than 9 months.
4. 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, the Funds may only generally invests in (1)
convertible debt securities that are rated "Baa" or higher by Moody's or "BBB"
or higher by S&P at the time of purchase; and (2) preferred stock rated "baa" or
higher by Moody's or "BBB" or higher by S&P at the time of purchase 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.
7
<PAGE>
D. TEMPORARY DEFENSIVE POSITION
Each Fund may assume a temporary defensive position and may invest without limit
in money market instruments that are of prime quality. Prime quality instruments
are those instruments that are rated in one of the two highest short-term rating
categories by an NRSRO or, if not rated, determined by the Adviser to be of
comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which a Fund may invest include
U.S. Government Securities, commercial paper, time deposits, banker's
acceptances and certificates of deposit, repurchase agreements and money market
mutual funds. The money market instruments in which a Fund may invest have
variable and floating rates of interest. To the extent that Investors Equity
Fund may invest in foreign issuers, the Fund may also hold cash and bank
instruments denominated in any major foreign currency.
E. OPTIONS AND FUTURES
1. GENERAL
Equity Index Fund may purchase or write (sell) put and call options on
securities, stock indices and stock index futures. The Fund may employ these
investment strategies to enhance the Fund's performance or to hedge against a
decline in the value of securities owned by the Fund. The Fund may purchase put
and call options written by others and may write covered options which are
exchange-traded or over-the-counter options. An option is "covered" if the Fund
maintains with its custodian a diversified portfolio of securities comprising
the index or liquid assets equal to the contract value. A call option is also
covered if the Fund holds an offsetting call on the same instrument or index as
the call written. The Fund invests (purchase and sell) in futures and options
for hedging purposes.
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.
OPTIONS ON INDICES A stock index option is an option contract whose value is
based on the value of a stock index at some future point in time. Stock indexes
fluctuate with changes in the market values of the stocks included in the index.
The effectiveness of purchasing or writing stock index options will depend upon
the extent to which price movements in a Fund's investment portfolio correlate
with price movements of the stock index selected. Accordingly, successful use by
a Fund of options on stock indexes will be subject to the Adviser's ability to
correctly analyze movements in the direction of the stock market generally or of
particular industry or market segments. When a Fund writes an option on a stock
index, the Fund will place in a segregated account with the Fund's custodian
cash or liquid securities in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is open or
otherwise will cover the transaction.
INDEX FUTURES CONTRACTS The Fund may invest in stock index futures contracts. A
stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. 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.
OPTIONS AND FUTURES CONTRACTS The purchase of options on stock index futures
contracts are similar to other options contracts as described above, where a
Fund pays a premium for the option to purchase or sell a stock index futures
contract for a specified price at a specified date. With options on stock index
futures contracts, the Fund risks the loss of the premium paid for the option.
8
<PAGE>
An option on a futures contract gives the purchaser a right to assume a position
in a futures contract rather than to purchase or sell stock. 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 in the future.
3. RISKS OF OPTIONS AND FUTURES TRANSACTIONS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which a
Fund invest; and (4) lack of assurance that a liquid secondary market will exist
for any particular instrument at any particular time, which, among other things,
may hinder a Fund's ability to limit exposures by closing its positions.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices 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.
4. OPTIONS AND FUTURES LIMITATIONS
The Fund may enter into futures contracts if the aggregate of initial margin
deposits for all open futures positions does not exceed 5%. The Funds may not
purchase a call or put option of futures contracts if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased.
The Fund will not sell a put option if the exercise value of all put options
written by the Fund would exceed 50% of the Fund's total assets or sell a call
if the exercise value of all calls written would exceed the value of the Fund's
assets In addition, the current market value of all open futures positions held
by the Fund will not exceed 5% of its total assets. Finally, the Fund will not
buy an option if as a result, more than 5% of the value of the Fund's total
assets would be so invested.
F. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
Each Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 15% of a Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act, except as otherwise determined by
the Adviser ("restricted securities").
9
<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 redemptions. There can be no
assurance that a liquid market will exist for any security at any particular
time. Any security, including securities determined by the Adviser to be liquid,
can become illiquid.
3. DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
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 toward
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.
10
<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 Adviser believes 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 for temporary or emergency purposes 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.
Equity Index 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
11
<PAGE>
business days' notice or in time to vote on any important matter. Loans are
subject to termination at the option of a Fund or the borrower at any time, and
the borrowed securities must be returned when the loan is terminated. The Fund
will limit securities lending to not more than 33 1/3% of the value of its total
asset.
3. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities offered on a "when-issued" or
"delayed-delivery" 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. Equity
Index Fund will not purchase securities on a when-issued, delayed delivery or
forward commitment basis if, as a result, more than 15% of the value of the
Fund's total assets would be committed to such transactions.
4. DOLLAR ROLL TRANSACTIONS
Equity Index Fund may enter into dollar roll transactions. Dollar roll
transactions are transactions in which the Fund sells securities to a bank or
securities dealer, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the period
between the commitment and settlement, no payment is made for the securities
purchased and no interest or principal payments on the securities accrue to the
purchaser, but the Fund assumes the risk of ownership. The Fund is compensated
for entering into dollar roll transactions by a dealer for the difference
between the current sales price and the forward price for the future purchase,
as well as by the interest earned on the cash proceeds of the initial sale. The
Fund will engage in dollar roll transactions for the purpose of acquiring
securities for their investment portfolios. The Fund will limit its obligations
on dollar roll transactions to 35% of the Fund's net assets.
5. RISKS
Leverage creates the risk of magnified capital losses. Borrowings and other
liabilities that exceed the equity base of a Fund may magnify losses incurred by
a 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 a
Fund's securities. So long as a Fund is able to realize a net return on its
investment portfolio that is higher than the interest expense incurred, if any,
leverage will result in higher current net investment income for a 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, a 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.
12
<PAGE>
J. CORE AND GATEWAY(R)
Equity Index Fund currently seeks to obtain its investment objective through the
Core and Gateway(R) 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 the Fund's shareholders.
K. YEAR 2000
The date change transition to the Year 2000 prompted concern that certain
computer systems may not process date-related information properly on and after
January 1, 2000. The Adviser and each Fund's administrator have addressed and
continue to monitor this Year 2000 issue and its possible impact on their
systems. Each Fund's other service providers have informed the Fund that they
are taking similar measures. Services provided to each Fund or any companies in
which it invests could still be adversely affected by a computer's failure to
accurately process date related information and, therefore, may lower the value
of your shares. While no adverse consequences have yet arisen, or have been
reported to the Adviser or each Fund's administrator, there is still the
possibility that certain computer systems may not be able to process
date-related information at some point during the year.
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.
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. Each Fund may not:
INVESTORS EQUITY FUND
1. DIVERSIFICATION
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
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
13
<PAGE>
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
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
Borrow money for temporary or emergency purposes, including the meeting of
redemption requests, but not in excess of 33 1/3% of the value of the Fund's
total assets (as computed immediately after the borrowing).
5. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate, provided that the Fund may invest in securities
issued by companies that invest in real estate or interests therein.
6. MAKING LOANS
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
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
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
Issue senior securities except to the extent permitted by the 1940 Act.
10. INVESTING FOR CONTROL
Make investments for the purpose of exercising control over management.
14
<PAGE>
EQUITY INDEX FUND
1. DIVERSIFICATION
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
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
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 the
Fund's total assets (as computed immediately after the borrowing).
4. PURCHASES AND SALES OF REAL ESTATE
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
Make loans, except the Fund may enter into repurchase agreements, purchase debt
securities that are otherwise permitted investments and lend portfolio
securities.
6. PURCHASE AND SALE OF COMMODITIES
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
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
Issue senior securities except to the extent permitted by the 1940 Act.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Each Fund may:
15
<PAGE>
INVESTORS EQUITY FUND
1. BORROWING
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
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
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
Not invest in the securities of any investment company except to the extent
permitted by the 1940 Act.
5. OPTIONS AND FUTURES CONTRACTS
Invest in futures or options contracts regulated by the CFTC for: (1) bona fide
hedging purposes within the meaning of the rules of the CFTC and (2) for other
purposes if, as a result, no more than 5% of the Fund's net assets would be
invested in initial margin and premiums (excluding amounts "in-the-money")
required to establish the contracts. The Fund: (1) 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"); (2) will not buy futures
contracts or write put options whose underlying value exceeds 25% of the Fund's
total assets; and (3) will not buy call options with a value exceeding 5% of the
Fund's total assets.
EQUITY INDEX FUND
1. ILLIQUID SECURITIES
Not invest or hold more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.
2. SECURITIES OF INVESTMENT COMPANIES
Invest in shares of other investment companies to the extent permitted under the
1940 Act, including the rules, regulations and exemptions thereunder.
16
<PAGE>
3. SHORT SALES
Not sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short (short sales "against
the box"), and provided that transactions in futures contracts and options are
not deemed to constitute selling securities short.
4. PURCHASING ON MARGIN
Not purchase securities on margin (except for short-term credits necessary for
the clearance of transactions).
5. LENDING OF PORTFOLIO SECURITIES
Lend securities from its portfolio to approved brokers, dealers and financial
institutions, to the extent permitted under the 1940 Act, including the rules,
regulations and exemptions thereunder, which currently limit such activities to
one-third of the value of a Portfolio's total assets (including the value of the
collateral received). Any such loans of portfolio securities will be fully
collateralized based on values that are marked-to-market daily.
6. OPTIONS AND FUTURES CONTRACTS
May invest in futures or options contracts regulated by the CFTC for (i) bona
fide hedging purposes within the meaning of the rules of the CFTC and (ii) for
other purposes if, as a result, no more than 5% of the Fund's net assets would
be invested in initial margin and premiums (excluding amounts "in-the-money")
required to establish the contracts.
7. INVESTING FOR CONTROL
Not make investments for the purpose of exercising control or management,
provided that this restriction does not limit the Fund's investment in
securities of other investment companies or investments in entities created
under the laws of foreign countries to facilitate investment in securities of
that country.
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., iMoneyNet, 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 Midcap (TM) Index, the Russell 1000(R)
Value Index, the Russell 2500TM Index, the Morgan Stanley - Europe,
Australia, Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the 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.
17
<PAGE>
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 Fund's performance may be quoted in terms of yield or total return. Table 1 in
Appendix C includes performance information for each Fund.
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
18
<PAGE>
2. TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price and assuming that all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in a Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period; and (2) calculates the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in 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
19
<PAGE>
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 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 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 systematic 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 in a Fund for
a period of six months the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
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
In connection with its advertisements, a Fund may provide "shareholder's
letters" that serve to provide shareholders or investors with an introduction to
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices.
20
<PAGE>
4. MANAGEMENT
A. TRUSTEES AND OFFICERS
THE TRUST
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 Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 services holding company)
Two Portland Square Director, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Visiting Professor of Economics, Athens University of Economics and
Department of Economics Business 1998 - 1999
University of California Trustee of one other investment company for which Forum Financial
Los Angeles, CA 90024 Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
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 of one other investment company for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner, Winthrop, Stimson, Putnam & Roberts (law firm) 1989 - 1995
40 West 57th Street Trustee of one other investment company for which Forum Financial
New York, NY 10019 Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Stephen J. Barrett, Vice President Manager of Client Services and Senior Relationship Manager, Forum
Born: November 14, 1968 Financial Group, LLC since 1996
Two Portland Square Senior Product Manager, Fidelity Investments, 1994 - 1996
Portland, Maine 04101 Officer of four other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein, Vice President Counsel and General Counsel, Forum Financial Group LLC
Born: August 3, 1961 Officer of five other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
- -------------------------------------------- -----------------------------------------------------------------------
Ronald H. Hirsch, Treasurer Managing Director, Operations/Finance and Operations/Sales, Forum
Born: October 14, 1943 Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991 - 1998
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Assistant Counsel and Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993 -
Two Portland Square 1998
Portland, ME 04101 Officer of one other investment company for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
</TABLE>
21
<PAGE>
CORE TRUST
The names of the Trustees and officers of Core Trust, their positions with Core
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 Core Trust is indicated by an asterisk (*). The
Board supervises Index Portfolio's activities, monitors its contractual
arrangements with various service providers and decides upon matters of general
policy.
<TABLE>
<S> <C>
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
AGE AND ADDRESS PAST 5 YEARS
- --------------------------------------------------- ----------------------------------------------------------------
John Y. Keffer*,Chairman and President
- --------------------------------------------------- ----------------------------------------------------------------
Costas Azariadas, Trustee
- --------------------------------------------------- ----------------------------------------------------------------
James C. Cheng, Trustee
- --------------------------------------------------- ----------------------------------------------------------------
J. Michael Parish, Trustee
- --------------------------------------------------- ----------------------------------------------------------------
David I. Goldstein, Vice President
- --------------------------------------------------- ----------------------------------------------------------------
Ronald H. Hirsch, Treasurer
- --------------------------------------------------- ----------------------------------------------------------------
Don L. Evans, Secretary Assistant Counsel and Counsel, Forum Financial Group, since
Born: August 12, 1948 1995
Two Portland Square Associate, Weiner & Strother (law firm), 1994 - 1995
Portland, Maine 04101 Officer of two other investment companies for which Forum
Financial Group, LLC provides services
- --------------------------------------------------- ----------------------------------------------------------------
</TABLE>
B. COMPENSATION OF TRUSTEES AND OFFICERS
Effective February 7, 2000, each Trustee of the Trust will be paid a quarterly
retainer fee of $1,750 for his service to the Trust. In addition, each Trustee
will be paid a fee of $500 for each Board meeting attended (whether in person or
by electronic communication). Trustees are also reimbursed for travel and
related expenses incurred in attending Board meetings. Mr. Keffer receives no
compensation (other than reimbursement for travel and related expenses) for his
service as Trustee of the Trust. No officer of the Trust is compensated by the
Trust but officers are reimbursed for travel and related expenses incurred in
attending Board meetings held outside of Portland, Maine.
The following table sets forth the fees paid to each Trustee by the Trust and
the Fund Complex that includes all series of the Trust and Core Trust for the
fiscal year ended May 31, 1999.
COMPENSATION TOTAL COMPENSATION FROM
TRUSTEE FROM TRUST TRUST AND FUND COMPLEX
John Y. Keffer $0 $0
Costas Azariadis $13,300 $23,800
James C. Cheng $14,800 $25,300
J. Michael Parish $14,800 $25,300
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
INVESTORS EQUITY FUND
Payson serves as investment adviser to Investors Equity Fund pursuant to an
investment advisory agreement (the "Agreement") with the Trust. Under the
Agreement, the Adviser furnishes at its own expense all services, facilities and
personnel necessary to manage the Fund's investments and effect 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
22
<PAGE>
Equity Fund in accordance with its investment objective and reviewing the
investment strategies and policies of Investors Equity Fund.
EQUITY INDEX FUND
Norwest is the investment adviser to Index Portfolio, in which Equity Index Fund
invests, and is required to furnish at its expense all services, facilities and
personnel necessary to manage the investments of, and effect portfolio
transactions for that Portfolio.
2. OWNERSHIP OF ADVISERS
Payson is a privately owned company incorporated in 1987 under the laws of the
State of Maine.
Peoples is a subsidiary of Peoples Heritage Financial Group, a multi-bank
holding company.
Norwest is a subsidiary of Norwest Bank. Norwest Bank is a subsidiary of Wells
Fargo & Company, a national bank holding company.
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 are for the past three fiscal years.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's Agreement remains in effect for a period of two years from the
date of its effectiveness. Subsequently, the 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 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 the Agreement, Payson is not liable for any action or inaction in the
absence of bad faith, willful misconduct or gross negligence in the performance
of its duties.
23
<PAGE>
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Prior to March 1, 1999, Forum Financial Services, Inc.
(FFSI) was the distributor of each Fund pursuant to similar terms and
compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under a distribution agreement (the "Distribution 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 sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the 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
to, or different from, those listed herein. Information concerning any charges
or services will be provided to customers by the financial institution.
Investors purchasing shares of a Fund in this manner should acquaint themselves
with their institution's procedures and should read the Prospectus in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
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
The 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.
The Distribution Agreement is terminable without penalty by the Trust with
respect to a Fund on 60 days' written notice when authorized either by vote of
the Fund's shareholders or by a majority vote of the Board, or by FFS on 60
days' written notice to the Trust.
Under the Distribution 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.
24
<PAGE>
Under the Distribution 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 (the "Administration
Agreement"), 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.
The 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. The Administration Agreement is terminable without penalty by the Trust
or by FAdS with respect to a Fund on 60 days' written notice.
Under the Administration 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
Administration Agreement, FAdS and certain related parties (such as FAdS's
officers and persons who control FAdS) are indemnified by the Trust against any
and all claims and expenses related to FAdS's actions or omissions that are
consistent with FAdS's contractual standard of care.
Table 3 in Appendix B shows the dollar amount of the fees payable by each Fund
to FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data are for the past fiscal year (or shorter period depending on a
Fund's commencement of operations).
2. FUND ACCOUNTANT
As fund accountant, pursuant to an accounting agreement with the Trust (the
"Accounting Agreement"), 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, Faces 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.
The 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. The Accounting Agreement is terminable without penalty by the Trust or by
FAcS with respect to a Fund on 60 days' written notice.
Under the Accounting 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 Accounting 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.
25
<PAGE>
Under the Accounting 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
Accounting 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 (or shorter period depending
on a Fund's commencement of operations).
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agency
agreement with the Trust (the "Transfer Agency Agreement"), FSS 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. FSS is located at Two Portland Square, Portland, Maine
04101 and is registered as a transfer agent with the SEC.
For its services, FSS 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 Agency 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 Agency Agreement is terminable without penalty by the Trust
or by FSS with respect to the Fund on 60 days' written notice.
Under the Transfer Agency Agreement, FSS 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 Transfer Agency Agreement, FSS and certain related parties (such as FSS's
officers and persons who control FSS) are indemnified by the Trust against any
and all claims and expenses related to FSS's actions or omissions that are
consistent with FSS's contractual standard of care.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Funds
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data are for the past three fiscal years (or shorter period depending
on a Fund's commencement of operations).
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.
26
<PAGE>
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, Fourteenth Floor, 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.
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, serves as independent
auditors for Index Portfolio, in which Equity Index Fund invests.
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected: (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions paid by
Investors Equity Fund as well as the aggregate brokerage commissions paid by the
Fund to an affiliate of the Fund or its Adviser. Equity Index Fund does not pay
brokerage commissions directly as it invests substantially all of its assets in
the Portfolio. The data presented are for the past three fiscal years (or
shorter period depending on when a Fund commenced operations). The table also
indicates the reason, if any, for any material change in the amount of brokerage
commissions paid by the Investors Equity Fund in the last three years (or
shorter depending on when the Fund commenced operations).
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.
27
<PAGE>
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 the Adviser in connection with the
Funds may use not all research services. 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 utilizes a broker and pays a slightly higher
commission than another broker may charge. The higher commission is paid because
of the Adviser's need for specific research, for specific expertise a firm may
have in a particular type of transaction (due to factors such as size or
difficulty), or for speed/efficiency in execution. Since most of the Adviser's
brokerage commissions for research are for economic research on specific
companies or industries, and since the Adviser is involved with a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
There are occasions in which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to 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.
28
<PAGE>
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. In addition, two or more clients may
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. When purchases or sales of the same security for a
Fund and other client accounts managed by the Adviser occurs contemporaneously,
the purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in the Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to a Fund and a possible increase in
short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time a Fund may acquire and hold securities issued by its "regular
brokers and dealers" or the parents of those brokers and dealers. For this
purpose, regular brokers and dealers are the 10 brokers or dealers that: (1)
received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the Fund's last fiscal year.
Table 7 in Appendix B lists the regular broker and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
6. PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
You may purchase or redeem shares or request any shareholder privilege in person
at the offices of Forum Shareholder Services, LLC 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.
Not all classes or funds of the Trust may be available for sale in the sate in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor.
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
29
<PAGE>
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 systematic investments are treated as IRA
contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in a Fund directly. When you purchase a Fund's shares
through a financial institution, you may or may not be the shareholder of record
and, subject to your institution's procedures; you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Funds may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Funds through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to a
Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange 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.
30
<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 a
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
shareholders may incur brokerage costs by converting the securities to cash. The
Trust has filed an election with the SEC pursuant to which a Fund may only
effect a redemption in portfolio securities if the particular shareholder is
redeeming more than $250,000 or 1% of the Fund's total net assets, whichever is
less, during any 90-day period.
D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sales price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at a Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of a
Fund on the payment date for the distribution. Cash payments may be made more
than seven days following the date on which distributions would otherwise be
reinvested.
F. SALES CHARGES
1. REDUCED SALES CHARGES
You may qualify for a reduced sales charge on purchases of a Fund under rights
of accumulation ("ROA") or a letter of intent ("LOI"). If you qualify under the
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 FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount. You may also enter into a 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 if its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Adviser, 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
31
<PAGE>
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). Such
information is only a summary of certain key federal income tax considerations
affecting each Fund and its shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect. ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISER 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
32
<PAGE>
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits. A
portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its net investment
income for each tax year. These distributions are taxable to you 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.
33
<PAGE>
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 FUNDS' TRANSACTIONS
For federal income tax purposes, when put and call options purchased by a Fund
expire unexercised, the premiums paid by a Fund give rise to short- or long-term
capital losses at the time of expiration (depending on the length of the
respective exercise periods for the options). When put and call options written
by a Fund expire unexercised, the premiums received by a Fund give rise to
short-term capital gains at the time of expiration. When a Fund exercise a call,
the purchase price of the underlying security is increased by the amount of the
premium paid by a Fund. When a Fund exercise a put, the proceeds from the sale
of the underlying security are decreased by the premium paid. When a put or call
written by a Fund is exercised, the purchase price (selling price in the case of
a call) of the underlying security is decreased (increased in the case of a
call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally 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 each Fund's income must be distributed during the next calendar year.
Each Fund will be treated as having distributed any amount on which it is
subject to income tax for any tax year.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or 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.
34
<PAGE>
E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases (for example, by reinvesting dividends) other shares of the Fund
within 30 days before or after the sale or redemption (a so called "wash sale").
In general, any gain or loss arising from the sale or redemption of shares of a
Fund will be considered capital gain or loss and will be long-term capital gain
or loss if the shares were held for longer than one year. Any capital loss
arising from the sale or redemption of shares held for six months or less,
however, is treated as a long-term capital loss to the extent of the amount of
capital gain distributions received on such shares. In determining the holding
period of such shares for this purpose, any period during which a shareholder's
risk of loss is offset by means of options, short sales or similar transactions
is not counted. Capital losses in any year are deductible only to the extent of
capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary
income.
F. BACKUP WITHHOLDING
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide a 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 a U.S. trade or business carried on by the foreign shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the distribution.
The foreign shareholder generally would be exempt from U.S. federal income tax
on gain realized on the sale of shares of a Fund, capital gain distributions
from a Fund, and amounts retained by a Fund that are designated as undistributed
capital gain.
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, distributions from each Fund and the applicability of state and local
taxes and related matters.
35
<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.
Each of the Trust, the investment adviser and subadviser for Investors Equity
Fund and Index Portfolio, and the principal underwriter have adopted codes of
ethics under Rule 17j-1, as amended, of the 1940 Act. These codes permit
personnel subject to the codes to invest in securities, including securities
that may be purchased or held by a Fund. The Board will consider approving
amendments to the code of ethics for the Trust, the investment adviser and
subadviser for Investrs Equity Fund and Index Portfolio, and the principal
underwriter at its next regularly scheduled meeting.
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, investors may contact FSS.
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 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.
36
<PAGE>
Shareholders representing 10% or more of the Trust's (or a series) shares may,
as set forth in the Trust Instrument, call meetings of the Trust (or series) for
any purpose related to the Trust (or series), including, in the case of a
meeting of the Trust, the purpose of voting on removal of one or more Trustees.
4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust or certain series 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 or of record 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
INVESTORS EQUITY FUND
SHAREHOLDER PERCENTAGE OF
SHARES OWNED
Babb & Co. (incorporated in New Hampshire) 91.37%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
EQUITY INDEX FUND
SHAREHOLDER PERCENTAGE OF
SHARES OWNED
Allagash & Co. (incorporated in Maine) 55.38%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
Allagash & Co. (incorporated in Maine) 41.83%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
Bank of New Hampshire is the parent company of Babb & Co. Peoples Heritage Bank
is the parent company of Allagash & Co.
37
<PAGE>
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 Forum Fund'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 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 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.
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, Equity Index Fund and Index
Portfolio of Core Trust for the year ended May 31, 1999 which are included in
the Funds' Annual Report to Shareholders dated May 31, 1999 are incorporated
herein by reference These financial statements 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.
F. REORGANIZATION OF INDEX PORTFOLIO
On April 21, 1999 the Core Trust Board approved an Agreement and Plan of
Reorganization whereby the Portfolio, among other series of Core Trust, will
reorganize into a separate series of Wells Fargo Core Trust, another open-end
management investment company, that has substantially similar investment
objectives and policies. The reorganization is part of a plan to consolidate the
mutual fund families of Wells Fargo & Company and Norwest Corporation following
last November's merger and to centralize their management as well as the
management of the portfolios of Core Trust under one Board of Directors.
Pursuant to the Trust's Trust Instrument, the reorganization does not require
the approval of the Portfolios' interestholders. The reorganization is expected
to occur as soon as reasonably possible. The reorganization is expected to be a
tax-free transaction.
The names of the Trustees and officers of Wells Fargo Core Trust, their
positions with Wells Fargo Core Trust, age and principal occupations during the
past five years are set forth below. The address of each, unless otherwise
indicated is 111 Center Street, Little Rock, Arkansas 72201. Each Trustee who is
an "interested person" (as defined by the 1940 Act) of Wells Fargo Core Trust is
indicated by an asterisk (*).
38
<PAGE>
<TABLE>
<S> <C>
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
Robert C. Brown*, Trustee, Secretary and Director, Federal Farm Credit Banks Funding Corporation and Farm
Treasurer Credit System Financial Assistance Corporation since 1993
Born: August 21, 1931
5038 Kestral Parkway South
Sarasota, FL 34231
Donald H. Burkhardt, Trustee Principal of the Burkhardt Law Firm
Born: June 4, 1926
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, Trustee Private Investor
Born: May 28, 1922 Trustee, Barclays Global Investors Funds
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, Trustee Benson-Pruitt Professorship and Associate Professor of Finance, Wake
Born: August 7, 1942 Forest University, Calloway School of Business and Accountancy
321 Beechcliff Court
Winston-Salem, NC 27104
Peter G. Gordon, Trustee Chairman and Co-Founder of Crystal Geyser Water Company and
Born: September 29, 1942 President of Crystal Geyser Roxane Water Company
Crystal Geyser Water Co.
55 Francisco Street, Suite 410
San Francisco, CA 94133
W. Rodney Hughes*, Trustee and President Private Investor
Born: September 24, 1926 President, Wells Fargo Funds since 1999
31 Dellwood Court Independent Director/Trustee, Master Works Funds, Inc. and Master
San Rafael, CA 94901 Investment Portfolio, since 1999
Richard M. Leach, Trustee President of Richard M. Leach Associates (a financial consulting
Born: July 16, 1933 firm)
25 Maple Lane
New London, NH 03257
J. Tucker Morse*, Trustee Private Investor/Real Estate Developer
Born: August 2, 1944 Chairman of Vault Holdings, LLC
10 Legare Street
Charleston, SC 29401
Timothy J. Penny, Trustee Senior Counselor, Himle-Horner (a public relations firm) since 1995
Born: November 19, 1951 Senior Fellow, Humphrey Institute (public policy organization) since
500 North State Street 1995
Waseca, MN 56093
Donald C. Willeke, Trustee Prinicpal, Willeke & Daniels (a law firm)
Born: June 22, 1940
210 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
39
<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.
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
A-3
<PAGE>
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.
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.
A-4
<PAGE>
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.
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.
A-5
<PAGE>
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.
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'
A-6
<PAGE>
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 WAIVED ADVISORY FEE RETAINED
INVESTORS EQUITY FUND
Year Ended May 31, 1999 $201,585 $106,979 $94,606
December 17, 1997 to May 31, 1998 $44,695 $30,943 $13,752
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
EQUITY INDEX FUND
Year Ended May 31, 1999 $11,645 $0 $11,645
December 17, 1997 to May 31, 1998 $2,990 $0 $2,990
TABLE 2 - SALES CHARGES
The following table shows the dollar amount of aggregate sales charge paid to
FFS or FFSI, the amount retained, and the amount reallowed to financial
institutions.
AGGREGATE SALES CHARGE AMOUNT AMOUNT
INVESTORS EQUITY FUND RETAINED REALLOWED
Year Ended May 31, 1999 $0 $0 $0
December 17, 1997 to May 31, 1998 $0 $0 $0
AGGREGATE SALES CHARGE AMOUNT AMOUNT
EQUITY INDEX FUND RETAINED REALLOWED
Year Ended May 31, 1999 $0 $0 $0
December 17, 1997 to May 31, 1998 $0 $0 $0
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 ADMINISTRATION FEE
INVESTORS EQUITY FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $62,026 $0 $62,026
December 17, 1997 to May 31, 1998 $13,752 $13,752 $0
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
EQUITY INDEX FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $19,476 $19,454 $22
December 17, 1997 to May 31, 1998 $5,154 $5,147 $7
TABLE 4 - ACCOUNTING FEES
The following table shows the dollar amount of fees paid to FAcS with respect to
each Fund, the amount of fee that was waived by FAcS, if any, and the actual fee
received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
INVESTORS EQUITY FUND
Year Ended May 31, 1999 $36,000 $0 $36,000
December 17, 1997 to May 31, 1998 $18,452 $0 $18,452
B-1
<PAGE>
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
EQUITY INDEX FUND
Year Ended May 31, 1999 $12,760 $12,000 $760
December 17, 1997 to May 31, 1998 $7,506 $0 $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 $89,880 $0 $89,880
December 17, 1997 to 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 $31,635 $31,434 $201
December 17, 1997 to May 31, 1998 $10,295 $4,998 $5,297
</TABLE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions of the Investors
Equity Fund. The data is for the past three fiscal years (or shorter period if a
Fund has been in operation for a shorter period).
<TABLE>
<S> <C> <C> <C> <C>
INVESTORS EQUITY FUND TOTAL BROKERAGE % OF BROKERAGE
COMMISSIONS ($) COMMISSIONS % OF
PAID TO AN PAID TO AN TRANSACTIONS
TOTAL BROKERAGE AFFILIATE OF AFFILIATE OF EXECUTED BY AN
COMMISSIONS ($) THE FUND OR THE FUND OR AFFILIATE OF THE
ADVISER ADVISER FUND OR ADVISER
Year Ended May 31, 1999 $13,077 0% 0% 0%
December 17, 1997 to May 31, 1998 $4,512 0% 0% 0%
</TABLE>
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
<TABLE>
<S> <C> <C>
INVESTORS EQUITY FUND EQUITY INDEX FUND
REGULAR BROKER OR DEALER
1. MERRILL LYNCH & CO., INC $504,000 $0
Wells Fargo & Co. $520,000 $0
</TABLE>
B-2
<PAGE>
TABLE 8 - 5% SHAREHOLDERS
The following table lists: (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund; and (2) any person known by a
Fund to own beneficially 5% or more of a class of shares of the Fund, as of
September 1, 1999.
INVESTORS EQUITY FUND
NAME AND ADDRESS % OF FUND
Babb & Co. #02-6004105 91.37%
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 6.43%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
EQUITY INDEX FUND
NAME AND ADDRESS % OF FUND
Allagash & Co. 55.38%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
Allagash & Co. 42.83%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
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 MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN SINCE
INVESTORS EQUITY FUND MONTHS DATE YEARS YEARS YEARS INCEPTION
(2.34)% 1.09% 2.94% 24.21% N/A N/A N/A 27.30%
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN SINCE
EQUITY INDEX FUND MONTHS DATE YEARS YEARS YEARS INCEPTION
(2.37)% 5.42% 6.14% 20.98% N/A N/A N/A 24.13%
</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 FIVE TEN YEARS SINCE
INVESTORS EQUITY FUND YEARS INCEPTION
19.24% N/A N/A 23.77%
ONE YEAR FIVE TEN YEARS SINCE
EQUITY INDEX FUND YEARS INCEPTION
16.14% N/A N/A 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 represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 181
mutual funds for 17 different fund managers, with more than $70 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 390 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.
Forum's full service commitment includes providing state-of-the-art accounting
support (Forum has 7 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
D-1
<PAGE>
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 wit decades of experience with some of the country's major financial
institutions.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1.25 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.95 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-2
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ: PHBK) announced today that it
has formed an alliance with a major mutual fund provider and an investment
advisory firm to expand its mutual fund offerings. The alliance with Forum
Financial Group and H.M. Payson & Company will result in 18 funds, including the
unique Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered
through the branches of Peoples' affiliate banks in Maine, New Hampshire and
northern Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, debt and equity funds.
Forum Financial, based in Portland, Maine since 1987, administers 124 funds with
more than $29 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.95 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1.25 billion in assets under management and $412 million in
non-managed custodial accounts. The Payson Value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson President and Managing Director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
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.
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance, expense
accounting, budgeting for all funds
D-3
<PAGE>
*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: $73 billion
*Client Assets Processed by Fund Accounting: $53 billion
*Client Funds under Administration and Distribution: 181 mutual funds with 89
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 -215, Poland - 180, Bermuda - 4
FORUM CONTACTS:
John Burns, Director, Forum Investment Advisors, LLC, (207) 879-1900 X 6132
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.25 Billion
*Non-managed Custody Assets: $412 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 11 shareholders; 10 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
D-4
<PAGE>
