FORUM
FUNDS PROSPECTUS
AUGUST 1, 2000
Investors High Grade Bond Fund and INVESTORS HIGH
Investors Bond Fund seek high current GRADE BOND FUND
income consistent with capital
preservation and prudent investment INVESTORS BOND FUND
risk.
TAXSAVER BOND FUND
TaxSaver Bond Fund seeks high
current income exempt from Federal income
tax.
The Funds do not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR
DISSAPPROVED ANY FUND'S SHARES
OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 4
FEE TABLES 7
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS 8
MANAGEMENT 12
YOUR ACCOUNT 14
How to Contact the Funds 14
General Information 14
Buying Shares 15
Selling Shares 17
Sales Charges 19
Exchange Privileges 20
Retirement Accounts 21
OTHER INFORMATION 22
FINANCIAL HIGHLIGHTS 24
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RISK/RETURN SUMMARY
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CONCEPTS TO UNDERSTAND
DEBT SECURITY means a security such INVESTORS HIGH GRADE BOND FUND
as a bond or note that obligates the
issuer to pay the security owner a INVESTMENT OBJECTIVE Investors High Grade Bond Fund (a "Fund") seeks a high
specified sum of money (interest) at level of current income consistent with capital preservation and prudent
set intervals as well as to repay the investment risk.
principal amount of the security at
its maturity PRINCIPAL INVESTMENT STRATEGY The Fund invests primarily in U.S. Government
securities and debt securities rated in one of the three highest rating
MATURITY means the date on which categories by an NRSRO. Generally, the weighted average maturity of the
a debt security is (or may be) Fund's portfolio securities is 7 years or less.
due and payable
INVESTORS BOND FUND
BOND means a debt security with
a long-term maturity of usually 5 INVESTMENT OBJECTIVE Investors Bond Fund (a "Fund") seeks a high level of
years or longer current income consistent with capital preservation and prudent investment
risk.
NOTE means a debt security with a
short-term maturity, usually less PRINCIPAL INVESTMENT STRATEGY The Fund invests primarily in investment grade
than 5 years (less than 1 year for debt securities. Generally, the weighted average maturity of the Fund's
municipal securities) portfolio securities is between 5 and 20 years.
NRSRO means a "nationally recognized TAXSAVER BOND FUND
statistical rating organization"
such as Standard & Poor's that INVESTMENT OBJECTIVE TaxSaver Bond Fund (a "Fund") seeks high current income
rates debt securities by relative exempt from Federal income tax.
credit risk
PRINCIPAL INVESTMENT STRATEGY The Fund invests primarily in investment grade
INVESTMENT GRADE SECURITY means a municipal securities. Generally, the weighted average maturity of the Fund's
debt security rated in one of the portfolio securities is between 5 and 15 years.
four highest long-term or two
highest short-term ratings
categories by an NRSRO or unrated
and determined to be of comparable
quality by the Fund's Adviser
MUNICIPAL SECURITY means a debt
security issued by or on behalf
of the states, their local
governments and public financing
authorities and U.S. territories
and possessions, the interest on
which is exempt from Federal
income tax
U.S. GOVERNMENT SECURITIES means
debt securities issued or
guaranteed by the U.S. Government,
its agencies or instrumentalities
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PRINCIPAL RISKS OF INVESTING IN THE FUNDS
An investment in a Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money on your investment in a Fund or the Fund could
underperform other investments. The principal risks of an investment in a Fund
include:
o A Fund's share price, yield and total return will fluctuate in
response to price movements in the debt securities markets
o The value of most debt securities falls when interest rates rise; the
longer a debt security's maturity and the lower its credit quality,
the more its value typically falls in response to an increase in
interest rates
o A Fund cannot collect interest and principal payments on a debt
security if the issuer defaults
o The Fund's investment adviser (the "Adviser") may make poor investment
decisions
o Prepayment risks
o Investors Bond Fund and TaxSaver Bond Fund are each non-diversified.
WHO MAY WANT TO INVEST IN THE FUNDS
Investors High Grade Bond Fund and Investors Bond Fund may be appropriate for
you if you:
o Seek income and more price stability than stocks offer
o Seek capital preservation
o Are pursuing a long-term goal
TaxSaver Bond Fund may be appropriate for you if you:
o Are an income-oriented investor in a high tax bracket and desire
tax-exempt income
o Seek income and more price stability than stocks offer o Seek capital
preservation
o Are pursuing a long-term goal
Investors High Grade Bond Fund and Investors Bond Fund may not be appropriate
for you if you:
o Are pursuing a short-term goal or are investing emergency reserves
TaxSaver Bond Fund may not be appropriate for you if you:
o Are pursuing a short-term goal or are investing emergency reserves
o Are investing funds in a tax-deferred or tax-exempt account (such as
an IRA)
o Do not desire tax-exempt income
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PERFORMANCE
The following charts illustrate the variability of a Fund's returns. The charts
and the tables provide some indication of the risks of investing in each Fund by
showing changes in the Fund's performance from year to year and how the Fund's
returns compare to a broad measure of market performance. Performance
information represents only past performance and does not necessarily indicate
future results.
INVESTORS HIGH GRADE BOND FUND
The following chart shows the annual total return for the only full calendar
year that the Fund has operated. The chart does not reflect sales charges and,
if reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1999 -2.43%
The calendar year-to-date total return as of June 30, 2000 was 3.77%.
During the period shown in the chart, the highest quarterly return was 0.69%
(for the quarter ended September 30, 1999) and the lowest quarterly return was
-1.47% (for the quarter ended June 30, 1999).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Lehman Brothers Intermediate Government/Credit Index.
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INVESTORS LEHMAN BROTHERS INTERMEDIATE
HIGH GRADE GOVERNMENT/CREDIT INDEX
YEAR(S) BOND FUND
1 Year -6.08% 0.39%
Since Inception (3/16/98) 0.18% 4.04%(1)
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(1) For the period 3/31/98 - 12/31/99
The Lehman Brothers Intermediate Government/Credit Index is a market index of
fixed-rate government and investment grade securities with maturities of up to
10 years. The index is unmanaged and reflects the reinvestment of interest and
principal payments. Unlike the performance figures of the Fund, the index's
performance does not reflect the effect of expenses.
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INVESTORS BOND FUND
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1990 9.54%
1991 16.12%
1992 7.46%
1993 12.53%
1994 -2.23%
1995 13.73%
1996 6.87%
1997 10.79%
1998 6.13%
1999 -1.67%
The calendar year-to-date total return as of June 30, 2000 was 0.18%.
During the periods shown in the chart, the highest quarterly return was 6.09%
(for the quarter ended September 30, 1991) and the lowest quarterly return was
-2.32% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Lehman Brothers Intermediate Government/Credit Index.
INVESTORS LEHMAN BROTHERS INTERMEDIATE
BOND GOVERNMENT/CREDIT INDEX
YEAR(S) FUND
1 Year -5.36% 0.39%
5 Years 6.23% 7.10%
10 Years 7.36% 7.26%
Since Inception (10/2/89) 7.45% 7.42%(1)
(1) For the period 9/30/89 - 12/31/99
The Lehman Brothers Intermediate Government/Credit Index is a market index of
fixed-rate government and investment grade securities with maturities of up to
10 years. The index is unmanaged and reflects the reinvestment of interest and
principal payments. Unlike the performance figures of the Fund, the index's
performance does not reflect the effect of expenses.
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TAXSAVER BOND FUND
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1990 7.07%
1991 10.55%
1992 8.89%
1993 10.53%
1994 -0.85%
1995 13.29%
1996 4.29%
1997 7.39%
1998 5.09%
1999 -2.06%
The calendar year-to-date total return as of June 30, 2000 was 3.26%.
During the periods shown in the chart, the highest quarterly return was 4.93%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
-2.02% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Lehman Brothers 10-Year Municipal Bond Index.
TAXSAVER LEHMAN BROTHERS 10-YEAR
YEAR(S) BOND FUND MUNICIPAL BOND INDEX
1 Year -5.74% -1.25%
5 Years 4.68% 7.12%
10 Years 5.91% 7.10%
Since Inception (10/2/89) 5.96% 7.32%(1)
(1) For the period 9/30/89 - 12/31/99.
The Lehman Brothers 10-Year Municipal Bond Index is a market index of investment
grade fixed-rate municipal securities with an average maturity of 10 years. The
index is unmanaged and reflects the reinvestment of interest and principal
payments. Unlike the performance figures of the Fund, the index's performance
does not reflect the effect of expenses.
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FEE TABLE
The following tables describe the various fees and expenses that you will pay if
you invest in a Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a 3.75%
percentage of the offering price)
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) 1.00%(1)
Redemption Fee None
Exchange Fee None
(1) Applicable only on purchases of $1 million or more.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) INVESTORS HIGH GRADE BOND FUND
Management Fees 0.40%
Distribution (12b-1) Fees None
Other Expenses 0.74%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.14%
Fee Waiver and Expense Reimbursement(2) 0.19%
Net Expenses 0.95%
INVESTORS BOND FUND
Management Fees 0.40%
Distribution (12b-1) Fees None
Other Expenses 0.65%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.05%
Fee Waiver and Expense Reimbursement(2) 0.10%
Net Expenses 0.95%
TAXSAVER BOND FUND
Management Fees 0.40%
Distribution (12b-1) Fees None
Other Expenses 0.76%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.16%
Fee Waiver and Expense Reimbursement(2) 0.19%
Net Expenses 0.95%
(1) Based on amounts incurred during each Fund's fiscal year ended March
31, 2000 stated as a percentage of assets.
(2) Based on certain contractual fee waivers and expense reimbursements
that may change after July 31, 2001.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in a Fund to the cost of investing in other mutual funds. This example
assumes that you invest $10,000 in a Fund for the time periods indicated, you
pay the maximum sales charge and then redeem all of your shares at the end of
each period. The example also assumes that your investment has a 5% annual
return, that the Fund's operating expenses remain as stated in the above table
and that distributions are reinvested. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
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INVESTORS HIGH GRADE BOND INVESTORS TAXSAVER
FUND BOND FUND BOND FUND
1 Year $468 $468 $468
3 Years $724 $697 $730
5 Years $979 $933 $989
10 Years $1,709 $1,609 $1,731
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INVESTMENT OBJECTIVES, PRINCIPLE INVESTMENT
STRATEGIES AND PRINCIPAL RISKS
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CONCEPT TO UNDERSTAND INVESTMENT OBJECTIVES
YIELD CURVE means a graph INVESTORS HIGH GRADE BOND FUND seeks to provide as high a level of current income
that plots the yield of consistent with capital preservation and prudent investment risk.
all bonds of similar quality
against the bonds' maturities INVESTORS BOND FUND seeks to provide as high a level of current income
consistent with bonds' maturities capital preservation and prudent investment risk.
MORTGAGE-BACKED SECURITIES
means debt securities whose TAXSAVER BOND FUND seeks to provide a high level of current income exempt
principal and interest from Federal income tax.
payments come from a pool
of mortgages created by INVESTMENT STRATEGIES
various lenders
THE ADVISER'S PROCESS The Adviser continuously monitors economic factors
ASSET-BACKED SECURITIES such as interest rate outlooks and technical factors such as the shape of
means debt securities whose the yield curve in combination with the stated objective of a Fund to
principal and interest determine an appropriate maturity profile for the Fund's investment
payments come from a pool portfolio. The Adviser then principally searches for securities that
of assets such as car satisfy the maturity profile of a Fund and that provide the greatest
leases of real and potential return relative to the risk of the security. The Adviser may sell
personal property and a debt security if:
credit card loans created
by various lenders o Revised economic forecasts or interest rate outlook requires a
repositioning of the portfolio
PRIVATE ACTIVITY BOND o The security subsequently fails to meet the Adviser's investment
means a debt security that criteria
is issued by or on behalf o A more attractive security is found or funds are needed for
of public authorities another purpose
finance privately operated o The Adviser believes that the security has reached its
facilities. Private appreciation potential
Activity Bonds
primarily revenue INVESTMENT POLICIES
securities
INVESTORS HIGH GRADE BOND FUND The Fund invests primarily in U.S. Government
GENERAL OBLIGATION SECURITY securities or debt securities that are rated in one of the three highest rating
means a security whose categories by an NRSRO. The Fund normally invests at least 70% of its total assets in
principal and interest
payments are secured by a
municipality's full faith
and credit and taxing power
REVENUE SECURITY means a
security whose principal and
interest is payable from
revenues of a particular
facility, class of facilities
or from the proceeds of a
special excise or other tax
years or less.
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U.S. Government securities and at least 40% of those assets in obligations of
the U. S. Treasury, such as Treasury bonds, bills and notes. The Fund may invest
up to 30% of its total assets in mortgage-backed and asset-backed securities.
The Fund only invests in mortgage-backed securities that are U.S. Government
securities or are rated in the two highest rating categories of an NRSRO. The
Fund may invest up to 10% of its total assets in adjustable rate mortgage-backed
securities and up to 10% of its total assets in asset-backed securities. These
securities must be rated in the highest rating category by an NRSRO. The Fund
invests in securities with loans, varying maturities from overnight to more than
30 years, but will not invest more than 25% of its total assets in securities
with maturities greater than 10 years. Generally, the average weighted maturity
of the Fund's portfolio securities is 7 years or less.
INVESTORS BOND FUND The Fund invests primarily in investment grade debt
securities, U.S. Government securities and mortgage-backed and asset-backed
securities rated in to the two highest rating categories by an NRSRO. The Fund
may invest up to 50% of its total assets in mortgage-backed securities and up to
15% of its total assets in asset-backed securities. The Fund invests in
securities with varying maturities are ranging from overnight to 30 years.
Generally, the average weighted maturity of the Fund's portfolio securities is
between 5 and 20 years.
TAXSAVER BOND FUND The Fund invests primarily in investment grade municipal
securities. The Fund may, however, invest up to 20% of its total assets in
securities whose interest income is subject to Federal income tax. Municipal
securities include municipal bonds, notes and leases. Municipal leases are
securities that permit government issuers to acquire property and equipment
without the security being subject to the constitutional and statutory
requirements for the issuance of long-term debt. The Fund invests in general
obligation securities and revenue securities, including private activity bonds.
The Fund may invest over 25% of its total assets in private activity bonds.
Generally, the average weighted maturity of the Fund's portfolio securities is
between 5 and 15 years.
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PORTFOLIO TURNOVER The frequency of portfolio transactions of each Fund (the
portfolio turnover rate) will vary from year to year depending on market
conditions. From time to time, a Fund may engage in active short-term trading to
benefit from yield disparities among different issues of debt securities, to
seek short-term profits during periods of fluctuating interest rates, or for
other reasons. This type of trading will increase a Fund's portfolio turnover
rate and transaction costs and may negatively impact the Fund's performance.
This trading may also increase a Fund's capital gain which, if distributed, may
have adverse tax consequences to you. The Adviser weighs the anticipated
benefits of short-term investments against these consequences. Each Fund's
turnover rate is reported under "Financial Highlights."
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic or
other conditions, a Fund may assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and money market instruments. As a result, a Fund may be unable to achieve
its investment objective.
INVESTMENT RISKS
GENERAL A Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market values of
securities in which the Funds invest are based upon the market's perception of
value and is not necessarily an objective measure of a security's value. There
is no assurance that any Fund will achieve its investment objective. An
investment in a Fund is not by itself a complete or balanced investment program.
The value of your investment in a Fund may change in response to changes in
interest rates. An increase in interest rates typically causes a fall in the
value of the debt securities in which the Funds invest. Your investment in a
Fund is also subject to the risk that the financial condition of an issuer of a
security held by the Fund may cause it to default or become unable to pay
interest or principal due on the security. This risk generally increases as
security credit ratings decrease.
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Your investment in a Fund is also subject to the risk that the Adviser may make
poor investment decisions.
An additional risk is that issuers may prepay fixed rate securities when
interest rates fall, forcing a Fund to invest in securities with lower interest
rates. Investors Bond Fund and Investors High Grade Bond Fund invest in
mortgage-backed and asset-backed securities. A decline in interest rates may
cause holders of the underlying assets backing these securities to prepay their
debts. This could result in potential losses on these securities and a reduction
in their yields. Alternatively, a rise in interest rates may reduce the amount
of prepayments. This may cause a Fund's average maturity to rise as fewer
holders of the underlying assets backing the securities may prepay their debt.
Investors Bond Fund and TaxSaver Bond Fund are non-diversified. Each Fund may
focus its investments in the securities of a comparatively small number of
issuers. Concentration of a Fund in securities of a limited number of issuers
exposes it to greater market risk and potential monetary losses than if its
assets were diversified among the securities of a greater number of issuers.
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MANAGEMENT
Each Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and of each Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of each Fund and meets periodically to review
the Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
THE ADVISER
Each Fund's Adviser is Forum Investment Advisors, LLC, Two Portland Square,
Portland, Maine 04101. The Adviser is a privately owned company headquartered in
Portland, Maine and controlled by John Y. Keffer, who is Chairman of the Board
of the Trust.
Subject to the general control of the Board, the Adviser makes investment
decisions for each Fund. The Adviser receives an advisory fee at an annual rate
of 0.40% of the average daily net assets of each Fund. For the fiscal year ended
March 31, 2000, the Adviser waived a portion of its fee and only received an
advisory fee of 0.27% of the average net assets of Investors High Grade Bond
Fund, 0.37% of the average net assets of Investors Bond Fund and 0.23% of the
average net assets of TaxSaver Bond Fund.
As of June 30, 2000, the Adviser had approximately $3.3 billion of assets under
management.
PORTFOLIO MANAGER
LES C. BERTHY, Senior Portfolio Manager of the Adviser, has been primarily
responsible for the day-to-day management of each Fund since their inception.
Mr. Berthy has over 28 years of experience in the investment industry. Prior to
his association with the Adviser in January 1991, Mr. Berthy was Managing
Director and Co-Chief Executive Officer of Irwin Union Capital Corp., an
affiliate of Irwin Union Bank & Trust Co.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to each Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of each Fund's shares. The distributor acts as the representative
of the Trust in connection
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with the offering of each Fund's shares. The distributor may enter into
arrangements with banks, broker-dealers or other financial institutions through
which investors may purchase or redeem shares and may, at its own expense,
compensate persons who provide services in connection with the sale or expected
sale of each Fund's shares.
Forum Administrative Services, LLC provides administrative services to each
Fund, Forum Accounting Services, LLC is each Fund's fund accountant, Forum
Shareholder Services, LLC ("Transfer Agent") is each Fund's transfer agent and
Forum Trust, LLC is each Fund's custodian.
FUND EXPENSES
Each Fund pays for all of its expenses. Each Fund's expenses are comprised of
its own expenses as well as Trust expenses that are allocated among the Fund and
the other funds of the Trust. The Adviser or other service providers may waive
all or any portion of their fees and/or reimburse certain expenses of a Fund.
Any fee waiver or expense reimbursement increases a Fund's performance for the
period during which the waiver or reimbursement is in effect and may not be
recouped at a later date.
Certain service providers have undertaken to waive a portion of their fees
and/or reimburse certain expenses in order to limit each Fund's expenses
(excluding taxes, interest, portfolio transaction expenses and extraordinary
expenses) to 0.95% or less of each of their average daily net assets until July
31, 2000
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YOUR ACCOUNT
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HOW TO CONTACT GENERAL INFORMATION
THE FUNDS
You may purchase or sell (redeem) shares at the net asset value of a share (NAV) plus
WRITE TO US AT: any applicable sales charge (or minus any applicable sales charge in the case of
Forum Funds redemptions) next calculated after the Transfer Agent receives your request in proper
P.O. Box 446 form. For instance, if the Transfer Agent receives your purchase request in proper
Portland, Maine 04112 form after 4:00 p.m., Eastern time, your transaction will be priced at the next
business day's NAV plus the applicable sales charge. A Fund cannot accept orders that
OVERNIGHT ADDRESS: request a particular day or price for the transaction or any other special conditions.
Forum Funds
Two Portland Square The Funds do not issue share certificates.
Portland, Maine 04101
If you purchase shares directly from a Fund, you will receive monthly statements and a
TELEPHONE US AT: confirmation of each transaction. You should verify the accuracy of all transactions
(800) 94FORUM or in your account as soon as you receive your confirmations.
(800) 943-6786(Toll Free)
(207) 879-0001 Each Fund reserves the right to waive minimum investment amounts and may temporarily
suspend (during unusual market conditions) or discontinue any service or privilege.
WIRE INVESTMENTS WHEN AND HOW NAV IS DETERMINED Each Fund calculates its NAV as of the close of the
(OR ACH PAYMENTS) TO US AT: New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday except days
Bankers Trust Company when the New York Stock Exchange is closed. The time at which NAV is calculated may
New York, New York change in case of an emergency.
ABA #021001033
FOR CREDIT TO:
Forum Shareholder
Services, LLC
Account # 01-465-547
Re: (Name of Your Fund)
(Your Name)
(Your Account Number)
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A Fund's NAV is determined by taking the market value of all securities owned by
the Fund (plus all other assets such as cash), subtracting liabilities and then
dividing the result (net assets) by the number of shares outstanding. A Fund
values securities for which market quotations are readily available at current
market value. If market quotations are not readily available, a Fund values
securities at fair value pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of a Fund. Financial
institutions may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. These institutions may
also provide you with certain shareholder services such as periodic account
statements and trade confirmations summarizing your investment activity. Consult
a representative of your financial institution for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint, Uniform Gift to
Minors Act ("UGMA") or Uniform Transfers to Minors Act ("UTMA")
accounts, the check must be made payable to "Forum Funds" or to one or
more owners of the account and endorsed to "Forum Funds." For all other
accounts, the check must be made payable on its face to "Forum Funds."
No other method of check payment is acceptable (for instance, you may
not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you
to purchase shares through an electronic transfer of money from a
checking or savings account. When you make a payment by telephone, the
Transfer Agent will automatically debit your pre-designated bank
account for the desired amount. Your financial institution may charge
you a fee for this service. You may call (800) 94FORUM or (800)
943-6786 to request an ACH transaction.
WIRES Instruct your financial institution to make a Federal Funds wire
payment to us. Your financial institution may charge you a fee for this
service.
MINIMUM INVESTMENTS Each Fund accepts investments in the following minimum
amounts:
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MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT
Standard Accounts $2,000 $250
Traditional and Roth IRA Accounts $1,000 $250
Accounts With Systematic Investment Plans $250 $250
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You cannot invest in TaxSaver Bond Fund through an IRA account.
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ACCOUNT REQUIREMENTS
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TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to custodial account under the UGMA or the UTMA
a child and obtain tax benefits. o The custodian must sign instructions
in a manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution
form or similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document, that identify the
trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a
Corporate Organization/Resolution form if applicable) confirmation or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) and o Mail us the slip (or your letter) and the check
a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and resolution
form)
o Make an ACH payment
</TABLE>
16
<PAGE>
SYSTEMATIC INVESTMENTS You may invest a specified amount of money in a Fund once
or twice a month on specified dates. These payments are taken from your bank
account by ACH payment. Systematic investments must be for at least $250.
LIMITATIONS ON PURCHASES Each Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in a Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of a Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS Each Fund accepts checks and ACH transfers at full
value subject to collection. If a Fund does not receive your payment for shares
or you pay with a check or ACH transfer that does not clear, your purchase will
be canceled. You will be responsible for any losses or expenses incurred by a
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account that you maintain with the
Transfer Agent) as reimbursement. Each Fund and its agents have the right to
reject or cancel any purchase or exchange due to nonpayment.
SELLING SHARES
Each Fund processes redemption orders promptly. Generally, a Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If a
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
18
<PAGE>
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us your completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and each Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
Specific requirements are listed in the SAI or may be obtained by calling the
Transfer Agent.
18
<PAGE>
SMALL ACCOUNTS If the value of your account falls below $1,000 ($500 for IRAs),
a Fund may ask you to increase your balance. If the account value is still below
$1,000 ($500 for IRAs) after 60 days, a Fund may close your account and send you
the proceeds. A Fund will not close your account if it falls below these amounts
solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND Each Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect a Fund's operations
(for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of a Fund's shares as follows:
<TABLE>
<S> <C> <C> <C>
SALES CHARGE (LOAD)
AS % OF:
AMOUNT PUBLIC NET ASSET
OF PURCHASE OFFERING PRICE VALUE* REALLOWANCE %
$0 to $49,999 3.75 3.90 3.25
$50,000 to $99,999 3.25 3.36 2.75
$100,000 to $249,999 2.75 2.83 2.25
$250,000 to $499,999 2.25 2.30 1.85
$500,000 to $999,999 1.75 1.78 1.45
$1,000,000 and up 0.00 0.00 1.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The offering price for each Fund's shares includes the relevant sales charge.
The commission paid to the distributor is the sales charge less the reallowance
paid to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include the provision of travel arrangements and lodging,
tickets for entertainment events and merchandise.
19
<PAGE>
REDEMPTIONS A contingent deferred sales charge ("CDSC") is assessed on
redemptions of shares that were part of a purchase of $1 million or more. The
CDSC is assessed as follows:
REDEEMED WITHIN SALES CHARGE
First year of purchase 1.00%
Second year of purchase 0.50%
The CDSC is paid on the lower of the NAV of shares redeemed or the cost of the
shares. To satisfy a redemption request, a Fund will first liquidate shares that
are not subject to a CDSC such as shares acquired with reinvested dividends and
capital gains. A Fund will then liquidate shares in the order that they were
first purchased until your redemption request is satisfied.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. Certain persons
may also be eligible to purchase or redeem Fund shares without a sales charge.
Please see the SAI for further information.
EXCHANGE PRIVILEGES
You may exchange your Fund shares for shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that has a higher sales
charge than a Fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge at the time of exchange. If you
exchange into a fund that has no sales charge or a lower sales charge than a
Fund, you will not have to pay a sales charge at the time of exchange. Because
exchanges are a sale and purchase of shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but each Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
20
<PAGE>
RETIREMENT ACCOUNTS
Investors High Grade Bond Fund and Investors Bond Fund offer IRA accounts,
including traditional and Roth IRAs. Investors High Grade Bond Fund and
Investors Bond Fund may also be appropriate for other retirement plans. Before
investing in any IRA or other retirement plan, you should consult your tax
adviser. Whenever making an investment in an IRA, be sure to indicate the year
for which the contribution is made.
21
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
Each Fund distributes its net investment income monthly and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
Each Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
INVESTORS BOND FUND AND INVESTORS HIGH GRADE BOND FUND A Fund's distribution of
net income (including short-term capital gain) is taxable to you as ordinary
income. A Fund's distribution of long-term capital gain is taxable to you as
long-term capital gain regardless of how long you have held your Fund shares.
Distributions also may be subject to certain state and local taxes.
TAXSAVER BOND FUND Generally, you are not subject to Federal income tax,
including Federal alternative minimum tax ("AMT"), on the Fund's distribution of
tax-exempt interest income. The Fund's distribution of other investment income
and short-term capital gain is taxable to you as ordinary income. It is
anticipated that substantially all of the Fund's net income will be exempt from
Federal income tax. Distributions, including distributions that are exempt from
Federal income tax, may be subject to certain state and local taxes. The Fund's
distribution of long-term capital gain is taxable to you as long-term capital
gain regardless of how long you have held your Fund shares.
If you are a "substantial user" or a "related person" of a substantial user of
facilities financed by private activity bonds held by the Fund, you may have to
pay Federal income tax on your pro rata share of the net income generated from
these securities. Distributions of interest income on certain private activity
bonds is an item of tax preference for purposes of individual and corporate
Federal AMT. Distributions of net income from tax-exempt obligations are
included in the "adjusted current earnings" of corporations for Federal AMT
purposes.
GENERAL If you buy shares shortly before a Fund makes a distribution, you may
pay the full price for the shares and then receive a portion of the price back
as a distribution that may be taxable to you.
22
<PAGE>
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
Your Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in a Fund, including
state and local tax matters, please see the SAI and consult your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust. No Fund expects to hold shareholders'
meetings unless required by Federal or Delaware law. Shareholders of each series
of the Trust are entitled to vote at shareholders' meetings unless a matter
relates only to specific series (such as approval of an advisory agreement for a
Fund). From time to time, large shareholders may control a Fund or the Trust.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables are intended to help you understand each Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in a Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
Each Fund's financial statements and the auditor's report are included in the
Annual Report dated March 31, 2000, which is available upon request, without
charge.
INVESTORS HIGH GRADE BOND FUND
<TABLE>
<S> <C> <C> <C>
YEAR ENDED MARCH 31,
2000 1999 1998(a)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $9.92 $9.96 $10.00
Income From Investment Operations:
Net investment income 0.55 0.57 0.02
Net realized and unrealized gain (loss) on investments (0.43) 0.03 (0.04)
Total From Investment Operations 0.12 0.60 (0.02)
Less Distributions:
From net investment income (0.55) (0.57) (0.02)
From net realized capital gain (0.03) (0.07) ---
Total Distributions (0.58) (0.64) (0.02)
Ending Net Asset Value Per Share $9.46 $9.92 $9.96
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 0.70% 0.70% 0.70%(d)
Gross expenses(b) 1.14% 1.12% 3.00%(d)
Net investment income 5.74% 5.68% 5.56%(d)
Total Return(c) 1.35% 6.12% (0.16%)
Portfolio Turnover Rate 13% 173% 0%
Net Assets at End of Period (in thousands) $28,234 $35,754 $34,037
===================================================================================================================
</TABLE>
(a) The Fund commenced operations on March 16, 1998.
(b) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(c) Does not include sales charges.
(d) Annualized.
24
<PAGE>
INVESTORS BOND FUND
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
2000 1999 1998 1997 1996
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $10.32 $10.57 $10.19 $10.21 $10.00
Income From Investment Operations:
Net investment income 0.68 0.67 0.71 0.71 0.74
Net realized and unrealized gain (loss)
on investments (0.58) (0.21) 0.38 - 0.21
Total From Investment Operations 0.10 0.46 1.09 0.71 0.95
Less Distributions:
From net investment income (0.68) (0.67) (0.71) (0.71) (0.74)
From net realized capital gains - (0.04) - (0.02) -
Total Distributions (0.68) (0.71) (0.71) (0.73) (0.74)
Ending Net Asset Value Per Share $9.74 $10.32 $10.57 $10.19 $10.21
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 0.70% 0.70% 0.70% 0.70% 0.43%
Gross expenses (a) 1.05% 1.02% 1.22% 1.45% 1.36%
Net investment income 6.90% 6.33% 6.52% 6.94% 7.29%
Total Return(b) 1.13% 4.45% 10.98% 7.18% 9.84%
Portfolio Turnover Rate 34% 98% 117% 79% 43%
Net Assets at End of Period (in thousands) $50,432 $70,446 $85,598 $22,190 $25,676
TAXSAVER BOND FUND
YEAR ENDED MARCH 31,
2000 1999 1998 1997 1996
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $10.61 $10.75 $10.49 $10.57 $10.39
Income From Investment Operations:
Net investment income 0.48 0.48 0.53 0.56 0.57
Net realized and unrealized gain (loss)
on investments (0.56) 0.04 0.27 (0.03) 0.18
Total From Investment Operations (0.08) 0.52 0.80 0.53 0.75
Less Distributions:
From net investment income (0.48) (0.48) (0.53) (0.56) (0.57)
From net realized capital gains - (0.18) (0.01) (0.05) -
Total Distributions (0.48) (0.66) (0.54) (0.61) (0.57)
Ending Net Asset Value Per Share $10.05 $10.61 $10.75 $10.49 $10.57
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 0.60% 0.60% 0.60% 0.60% 0.60%
Gross expenses(a) 1.16% 1.11% 1.36% 1.53% 1.48%
Net investment income 4.68% 4.48% 4.95% 5.28% 5.35%
Total Return(b) (0.74%) 4.95% 7.75% 5.15% 7.36%
Portfolio Turnover Rate 25% 62% 93% 34% 62%
Net Assets at End of Period $29,180 $37,447 $39,203 $17,757 $17,915
(in thousands)
================================================================================================================
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
25
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION FORUM
FUNDS
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about each Fund's investments is available in the INVESTORS HIGH GRADE BOND FUND
Fund's annual and semi-annual reports to shareholders. In each Fund's
annual report, you will find a discussion of the market conditions and INVESTORS BOND FUND
investment strategies that significantly affected the Fund's performance
during its last fiscal year. TAXSAVER BOND FUND
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about each Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUNDS
You can get a free copy of both reports and the SAI, request other
information and discuss your questions about each Fund by contacting the
Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 943-6786
(800) 94FORUM
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review each Fund's reports and SAI at the Public Reference
Room of the Securities and Exchange Commission ("SEC"). The scheduled hours
of operation of the Public Reference Room may be obtained by calling the
SEC at (202) 942-8090. You can get copies of this information, for a fee,
by e-mail or writing to:
[LOGO]
Public Reference Room Forum Funds
Securities and Exchange Commission P.O. Box 446
Washington, D.C. 20549-0102 Portland, Maine 04112
E-mail address: [email protected] (800) 94FORUM
(800) 943-6786
(207) 879-0001
Free copies of the reports and SAI are available from the SEC's Internet
Web Site (207) 879-0001 at http://www.sec.gov.
Investment Company Act File No. 811-3023.
</TABLE>
<PAGE>
FORUM PROSPECTUS
FUNDS
AUGUST 1, 2000
Maine TaxSaver Bond Fund seeks a high MAINE
level of current income exempt from both TAXSAVER BOND
Federal and Maine State income taxes by FUND
without assuming undue risk investing
primarily in municipal securities.
The Fund does not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE FUND'S
SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
[PICTURE OF PORTLAND HEADLIGHT]
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 4
FEE TABLE 5
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS 6
MANAGEMENT 9
YOUR ACCOUNT 11
How to Contact the Fund 11
General Information 11
Buying Shares 12
Selling Shares 14
Sales Charges 16
Exchange Privileges 17
OTHER INFORMATION 18
FINANCIAL HIGHLIGHTS 20
<PAGE>
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
DEBT SECURITY means a security Maine TaxSaver Bond Fund (the "Fund") seeks high current income exempt from
such as a bond or note that both Federal and Maine State income tax (other than the alternative minimum tax
obligates the issuer to pay the ("AMT")).
security owner a specified sum of
money (interest) at set intervals PRINCIPAL INVESTMENT STRATEGIES
as well as to repay the principal
amount of the security at its The Fund invests primarily in investment grade municipal securities.
maturity. Generally, the weighted average maturity of the Fund's portfolio securities is
between 5 and 15 years.
MATURITY means the date on which a
debt security is (or may be) due PRINCIPAL RISKS OF INVESTING IN THE FUND
and payable.
An investment in the Fund is not a deposit of a bank and is not insured or
BOND means a debt security with a guaranteed by the Federal Deposit Insurance Corporation or any other government
long-term maturity, usually 5 agency. You could lose money on your investment in the Fund or the Fund could
years or longer. underperform other investments. The principal risks of an investment in the
Fund include:
NOTE means a debt security with a
short-term maturity, usually less o The Fund's share price, yield and total return will fluctuate in
than 1 year. response to price movements in the debt securities markets
o The value of most debt securities fall when interest rates rise; the
NRSRO means a "nationally longer a debt security's maturity and the lower its credit quality, the
recognized statistical rating more its value typically falls in response to an increase in interest
organization," such as Standard & rates
Poor's that rates debt securities o The Fund cannot collect interest and principal payments on a debt
by relative credit risk. security if the issuer defaults
INVESTMENT GRADE SECURITY means a
debt security rated in one of the
four highest long-term or two
highest short-term ratings
categories by an NRSRO or unrated
and determined to be of comparable
quality by the Fund's Adviser.
MUNICIPAL SECURITY means a debt
security issued by or on behalf of
the State of Maine, its local
governments and public financing
authorities and U.S. territories
and possessions, the interest on
which is exempt from Federal and
Maine State income tax (other than
AMT).
</TABLE>
2
<PAGE>
o Issuers may prepay fixed rate securities when interest rates fall,
forcing the Fund to invest in securities with lower interest rates
o The Fund is non-diversified. The Fund may focus its investments in the
securities of a comparatively small number of issuers. Concentration of
the Fund in securities of a limited number of issuers exposes it to
greater market risk and potential monetary losses than if its assets
were diversified among the securities of a greater number of issuers
o Economic and political changes in Maine may have a greater effect on
the Fund than if the Fund invested in municipal securities of various
states
o The Fund's investment adviser (the "Adviser") may make poor investment
decisions
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Are an income-oriented investor in a high tax bracket and desire
tax-exempt income
o Seek income and more price stability than stocks offer
o Seek capital preservation
o Are pursuing a long-term goal
The Fund may not be appropriate for you if you:
o Are pursuing a short-term goal or are investing emergency reserves
o Are investing funds in a tax-deferred or tax-exempt account (such as
an IRA)
o Do not desire tax-exempt income
3
<PAGE>
PERFORMANCE
The following chart illustrates the variability of the Fund's returns. The chart
and the table provide some indication of the risks of investing in the Fund by
showing changes in the Fund's performance from year to year and how the Fund's
returns compare to a broad measure of market performance. Performance
information represents only past performance and does not necessarily indicate
future results.
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges, and if
reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1992 8.20%
1993 11.12%
1994 -4.19%
1995 15.26%
1996 3.65%
1997 7.26%
1998 5.63%
1999 -1.13%
The calendar year-to-date total return as of June 30, 2000 was 3.51%.
During the periods shown in the chart, the highest quarterly return was 6.36%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
-4.15% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Lehman Brothers 10-Year Municipal Bond Index.
MAINE LEHMAN BROTHERS
TAXSAVER 10-YEAR MUNICIPAL
YEAR(S) BOND FUND BOND INDEX
1 Year -4.09% -1.25%
5 Years 5.36% 7.12%
Since Inception (12/5/91) 5.37% 6.67%(1)
(1) For the period 11/30/91 - 12/31/99.
The Lehman Brothers 10-Year Municipal Bond Index is a market index of investment
grade, fixed-rate municipal securities with an average maturity of 10 years. The
index is unmanaged and reflects the reinvestment of interest and principal
payments. Unlike the performance figures of the Fund, the index's performance
does not reflect the effect of expenses.
4
<PAGE>
FEE TABLE
The following table describes the various fees and expenses that you will pay if
you invest in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of the offering price) 3.00%
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) 1.00%(1)
Redemption Fee None
Exchange Fee None
(1) Applicable only to purchases of $1 million or more.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.40%
Distribution (12b-1) Fees None
Other Expenses 0.91%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.31%
Fee Waiver and Expense Reimbursement(2) 0.36%
Net Expenses 0.95%
(1) Based on amounts incurred during the Fund's fiscal year ended
March 31, 2000 stated as a percentage of assets.
(2) Based on certain contractual fee waivers and expense
reimbursements that may change after July 31, 2001.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Fund for the time periods
indicated, you pay the maximum sales charge and then redeem all of your shares
at the end of each period. The example also assumes that your investment has a
5% annual return, that the Fund's operating expenses remain as stated in the
above table and that distributions are reinvested. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$394 $703 $997 $1,832
5
<PAGE>
INVESTMENT OBJECTIVE,
PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
YIELD CURVE means a graph The Fund seeks to provide a high level of current income exempt from both Federal and
that plots the yield of all Maine State income tax (other than the AMT) without assuming undue risk.
bonds of similar quality
against the bonds'
maturities. INVESTMENT STRATEGIES
THE ADVISER'S PROCESS The Adviser continuously monitors economic factors such as
PRIVATE ACTIVITY BOND means interest rate outlooks and technical factors such as the shape of the yield curve in
a bond that is issued by or combination with the stated objective of the Fund to determine an appropriate maturity
on behalf of public profile for the Fund's investment portfolio. The Adviser then principally searches for
authorities to finance securities that satisfy the maturity profile of the Fund and that provide the greatest
privately operated potential return relative to the risk of the security. The Adviser may sell a debt
facilities. Private security if:
Activity Bonds are
primarily revenue o Revised economic forecasts or interest rate outlook requires a repositioning
securities. of the portfolio
o The security subsequently fails to meet the Adviser's investment criteria
GENERAL OBLIGATION SECURITY o A more attractive security is found or funds are needed for another purpose
means a security whose o The Adviser believes that the security has reached its appreciation potential
principal and interest
payments are secured by a
municipality's full
faith and credit and
taxing power.
REVENUE SECURITY means a
security whose principal
and interest generally is
payable from revenues of a
particular facility, class
of facilities or from the
proceeds of a special
excise or other tax.
</TABLE>
6
<PAGE>
INVESTMENT POLICIES The Fund invests primarily in investment grade municipal
securities. The Fund may, however, invest up to 20% of its total assets in
securities the interest income on which is subject to Federal income tax.
Municipal Securities include municipal bonds, notes and leases. Municipal leases
are securities that permit government issuers to acquire property and equipment
without the security being subject to constitutional and statutory requirements
for the issuance of long-term debt securities. The Fund invests in general
obligation securities and revenue securities, including private activity bonds.
Generally, the average weighted maturity of the Fund's portfolio securities is
between 5 and 15 years.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and money market instruments. As a result, the Fund may be unable to
achieve its investment objective.
INVESTMENT RISKS
GENERAL The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market value of securities
in which the Fund invests is based upon the market's perception of value and is
not necessarily an objective measure of the securities' value. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program.
The value of your investment in the Fund may change in response to changes in
interest rates. An increase in interest rates typically causes a fall in the
value of the securities in which the Fund invests. An additional risk is that
issuers may prepay fixed rate securities when interest rates fall, forcing the
Fund to invest in securities with lower interest rates.
Your investment in the Fund is also subject to the risk that the financial
condition of an issuer of a security held by the Fund may cause it to default or
become unable to pay interest or principal due on the security. This risk
generally increases as security credit ratings fall.
Your investment in the Fund is subject to the risk that the Adviser may make
poor investment decisions.
7
<PAGE>
The Fund is non-diversified. The Fund may focus a larger percentage of its
assets in the securities of fewer issuers. Concentration of the Fund in
securities of a limited number of issuers exposes it to greater market risk and
potential monetary losses than if its assets were diversified among the
securities of a greater number of issuers.
SPECIFIC RISKS INVOLVING MAINE MUNICIPAL SECURITIES Economic or political
factors in Maine may adversely affect issuers of Maine municipal securities.
Adverse economic or political factors will affect the Fund's net asset value
more than if the Fund invested in more geographically diverse investments. As a
result, the value of the Fund's assets may fluctuate more widely than the value
of shares of a fund investing in securities relating to a number of different
states.
The following is a summary of the NRSRO ratings for Maine municipal securities.
In 1991, citing declines in key financial indicators and continued softness in
the Maine economy, Standard & Poor's lowered its credit rating for Maine general
obligations from AAA to AA+, and at the same time, lowered its credit rating on
bonds issued by the Maine Municipal Bond Bank, the Maine Court Facilities
Authority and State of Maine Certificates of Participation for highway
equipment, from AA to A+. In August 1993, citing the "effects of protracted
economic slowdown and the expectation that Maine's economy will not soon return
to the pattern of robust growth evident in the mid-1980s," Moody's Investor
Services ("Moody's") lowered its credit rating for Maine general obligations
from Aa1 to Aa. At the same time, Moody's lowered from Aa1 to Aa the ratings
assigned to state-guaranteed bonds of the Maine School Building Authority and
the Finance Authority of Maine, and confirmed at A1 the ratings assigned to the
bonds of the Maine Court Facilities Authority and State of Maine Certificates of
Participation. On May 13, 1997, Moody's "confirmed and refined from Aa to Aa3"
Maine's general obligation bond rating in accord with a new national rating
system published by Moody's in January 1997. On June 5, 1998, Moody's raised its
credit rating on Maine general obligations bonds from Aa3 to Aa2. Since 1996,
Fitch IBCA, Inc. ("Fitch") has assigned a rating of AA to Maine general
obligation bonds. On June 1, 2000, however, Fitch upgraded its rating on Maine
general obligation bonds from AA to AA+, saying the "rating change takes into
account the low burden of debt on resources and the unusually rapid rate of
amortization as well as strengthening economic trends, very successful financial
operations and the institutionalization of financial reforms." There can be no
assurance that Maine general obligations or the securities of any Maine
political subdivision, authority or corporation owned by the Fund will be rated
in any category or will not be downgraded by an NRSRO. Further information
concerning the State of Maine is contained in the Statement of Additional
Information ("SAI").
8
<PAGE>
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the SAI.
THE ADVISER
The Fund's Adviser is Forum Investment Advisors, LLC, Two Portland Square,
Portland, Maine 04101. The Adviser is a privately owned company headquartered in
Portland, Maine and controlled by John Y. Keffer, who is Chairman of the Board
of the Trust.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. The Advisor receives an advisory fee at an annual rate
of 0.40% of the average daily net assets of the Fund. For the fiscal year ended
March 31, 2000, the Adviser waived a portion of its fee and only received an
advisory fee of 0.26% of the Fund's average daily net assets.
As of June 30, 2000, the Adviser had approximately $3.3 billion of assets under
management.
PORTFOLIO MANAGER
LES C. BERTHY Senior Portfolio Manager of the Adviser, has been primarily
responsible for the day-to-day management of the Fund since its inception on
December 5, 1991. Mr. Berthy has over 28 years of experience in the investment
industry. Prior to his association with the Adviser in January 1991, Mr. Berthy
was Managing Director and Co-Chief Executive Officer of Irwin Union Capital
Corp., an affiliate of Irwin Union Bank & Trust Co.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to the Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor
9
<PAGE>
acts as the representative of the Trust in connection with the offering of the
Fund's shares. The distributor may enter into arrangements with banks,
broker-dealers or other financial institutions through which investors may
purchase or redeem shares and may, at its own expense, compensate persons who
provide services in connection with the sale or expected sale of the Fund's
shares.
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's fund accountant, Forum Shareholder
Services, LLC ("Transfer Agent") is the Fund's transfer agent and Forum Trust,
LLC is the Fund's custodian.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of its
own expenses as well as Trust expenses that are allocated among the Fund and the
other funds of the Trust. The Adviser or other service providers may waive all
or any portion of their fees and/or reimburse certain expenses of the Fund. Any
waiver or expense reimbursement increases the Fund's performance for the period
during which the waiver or reimbursement is in effect and may not be recouped at
a later date.
Certain service providers have undertaken to waive a portion of their fees
and/or to reimburse certain expenses in order to limit the Fund's expenses
(excluding taxes, interest, portfolio transaction expenses and extraordinary
expenses) to 0.95% or less of the average daily net assets of the Fund until
July 31, 2001.
10
<PAGE>
YOUR ACCOUNT
HOW TO CONTACT THE FUND GENERAL INFORMATION
<TABLE>
<S> <C>
WRITE TO US AT: You may purchase or sell (redeem) shares at the net asset value of a share (NAV)
Forum Funds plus any applicable sales charge (or minus any applicable sales charge in the
P.O. Box 446 case of redemptions) next calculated after the Transfer Agent receives your
Portland, Maine 04112 request in proper form. For instance, if the Transfer Agent receives your
purchase request in proper form after 4:00 p.m., Eastern time, your transaction
OVERNIGHT ADDRESS: will be priced at the next business day's NAV plus the applicable sales charge.
Forum Funds The Fund cannot accept orders that request a particular day or price for the
Two Portland Square transaction or any other special conditions.
Portland, Maine 04101
The Fund does not issue share certificates.
TELEPHONE US AT:
(800) 94FORUM or If you purchase shares directly from the Fund, you will receive monthly
(800) 943-6786 (Toll Free) statements and a confirmation of each transaction. You should verify the
(207) 879-0001 accuracy of all transactions in your account as soon as you receive your
confirmations.
WIRE INVESTMENTS
(OR ACH PAYMENTS) The Fund reserves the right to waive minimum investment amounts and may
TO US AT: temporarily suspend (during unusual market conditions) or discontinue any
Bankers Trust Company service or privilege.
New York, New York
ABA #021001033 WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
FOR CREDIT TO: the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
Forum Shareholder except days when the New York Stock Exchange is closed. The time at which NAV is
Services, LLC calculated may change in case of an emergency.
Account #01-465-547
Maine TaxSaver Bond Fund
(Your Name)
(Your Account Number)
11
<PAGE>
</TABLE>
The Fund's NAV is determined by taking the market value of all securities owned
by the Fund (plus all other assets such as cash), subtracting liabilities and
then dividing the result (net assets) by the number of shares outstanding. The
Fund values securities for which market quotations are readily available at
current market value. If market quotations are not readily available, the Fund
values securities at fair value pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of the Fund. Financial
institutions may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. These institutions may
also provide you with certain shareholder services such as periodic account
statements and trade confirmations summarizing your investment activity. Consult
a representative of your financial institution for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint, Uniform Gift to Minors Act
("UGMA") or Uniform Transfers to Minors Act ("UTMA") accounts, the check must be
made payable to "Forum Funds" or to one or more owners of the account and
endorsed to "Forum Funds." For all other accounts, the check must be made
payable on its face to "Forum Funds." No other method of check payment is
acceptable (for instance, you may not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you to
purchase shares through an electronic transfer of money from a checking or
savings account. When you make a payment by telephone, the Transfer Agent will
automatically debit your pre-designated bank account for the desired amount.
Your financial institution may charge you a fee for this service. You may call
(800) 94FORUM or (800) 943-6786 to request an ACH transaction.
WIRES Instruct your financial institution to make a Federal Funds wire payment
to us. Your financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS The Fund accepts investments in the following minimum
amounts:
<TABLE>
<S> <C> <C>
MINIMUM INITIAL MINIMUM ADDITIONAL INVESTMENT
INVESTMENT
Standard Accounts $2,000 $250
Accounts With Systematic Investment Plans $250 $250
</TABLE>
12
<PAGE>
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or the UTMA
child and obtain tax benefits. o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution form or
similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document, that identify the
trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a
Corporate/Organization Resolution form if applicable) confirmation or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) o Mail us the slip (or your letter) and the check
and a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and resolution
form)
o Make an ACH payment
</TABLE>
13
<PAGE>
SYSTEMATIC INVESTMENTS You may invest a specified amount of money in the Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Systematic investments must be for at least $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or another identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase or exchange due to nonpayment.
SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds up to 15 calendar days.
14
<PAGE>
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption priviledges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us the completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
Specific requirements are listed in the SAI or may be obtained by calling the
Transfer Agent.
15
<PAGE>
SMALL ACCOUNTS If the value of your account falls below $1,000, the Fund may ask
you to increase your balance. If the account value is still below $1,000 after
60 days, the Fund may close your account and send you the proceeds. The Fund
will not close your account if it falls below this amount solely as a result of
a reduction in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of the Fund's shares as
follows:
<TABLE>
<S> <C> <C> <C>
SALES CHARGE (LOAD)
AS % OF:
PUBLIC NET ASSET
AMOUNT OF PURCHASE OFFERING PRICE VALUE* REALLOWANCE%
$0 to $99,999 3.00 3.09 2.50
$100,000 to $249,999 2.50 2.56 2.00
$250,000 to $499,999 2.00 2.04 1.60
$500,000 to $999,999 1.50 1.52 1.20
$1,000,000 and up 0.00 0.00 1.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The offering price for the Fund's shares includes the relevant sales charge. The
commission paid to the distributor is the sales charge less the reallowance paid
to certain financial institutions purchasing shares. Normally, reallowances are
paid as indicated in the above table. From time to time, however, the
distributor may elect to reallow the entire sales charge for all sales during a
particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include the provision of travel arrangements and lodging,
tickets for entertainment events and merchandise.
16
<PAGE>
REDEMPTIONS A contingent deferred sales charge ("CSDC") is assessed on
redemptions of shares that were part of a purchase of $1 million or more. The
CSDC is assessed as follows:
REDEEMED WITHIN SALES CHARGE
First year of purchase 1.00%
Second year of purchase 0.50%
The CDSC is paid on the lower of the NAV of shares redeemed or the cost of the
shares. To satisfy a redemption request, the Fund will first liquidate shares
that are not subject to a CDSC such as shares acquired with reinvested dividends
and capital gains. The Fund will then liquidate shares in the order that they
were first purchased until your redemption request is satisfied.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. Certain persons
may also be eligible to purchase or redeem Fund shares without a sales charge.
Please see the SAI for further information.
EXCHANGE PRIVILEGES
You may exchange your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that has a higher sales
charge than the Fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge at the time of exchange. If you
exchange into a fund that has no sales charge or a lower sales charge than the
Fund, you will not have to pay a sales charge at the time of exchange. Because
exchanges are a sale and purchase of shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
17
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income monthly and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
Generally, you are not subject to Federal or Maine State income tax on the
Fund's distribution of tax-exempt interest income. The Fund's distribution of
taxable interest, other investment income and short-term capital gain are
taxable to you as ordinary income. The Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares. It is anticipated that substantially all of the Fund's
net income will be exempt from Federal and Maine State income tax (other than
AMT).
If you are a "substantial user" or a "related person" of a substantial user of
facilities financed by private activity bonds held by the Fund, you may have to
pay Federal income tax on your pro rata share of the net income generated from
these securities. Distributions of interest income on certain private activity
bonds are an item of tax preference for purposes of individual and corporate
Federal AMT. Distributions of net income from tax-exempt obligations are
included in "adjusted current earnings" of corporations for Federal AMT
purposes. The Maine AMT is based, in part, on the Federal AMT.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Fund will send you information about the income tax status of the Fund's
distributions paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state and local tax matters, please see the SAI and consult your tax
adviser.
18
<PAGE>
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal or Delaware law. Shareholders
of each series of the Trust are entitled to vote at shareholders' meetings
unless a matter relates only to specific series (such as approval of an advisory
agreement for the Fund). From time to time, large shareholders may control the
Fund or the Trust.
19
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
The Fund's financial statements and the auditor's report are included in the
Annual Report dated March 31, 2000, which is available upon request, without
charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
2000 1999 1998 1997 1996
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $11.07 $11.05 $10.73 $10.72 $10.47
Income From Investment Operations:
Net investment income 0.48 0.49 0.51 0.51 0.51
Net realized and unrealized gain (loss) on
investments (0.44) 0.07 0.33 0.01 0.25
Total From Investment Operations 0.04 0.56 0.84 0.52 0.76
Less Distributions:
From net investment income (0.48) (0.49) (0.51) (0.51) (0.51)
From net realized capital gain (0.01) (0.05) (0.01) - -
Total Distributions (0.49) (0.54) (0.52) (0.51) (0.51)
Ending Net Asset Value Per Share $10.62 $11.07 $11.05 $10.73 $10.72
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 0.60% 0.60% 0.60% 0.60% 0.60%
Gross expenses(a) 1.31% 1.32% 1.48% 1.56% 1.48%
Net investment income 4.50% 4.42% 4.65% 4.77% 4.73%
Total Return(b) 0.43% 5.19% 7.94% 4.98% 7.34%
Portfolio Turnover Rate 23% 29% 16% 21% 34%
Net Assets at End of Period (in thousands) $31,938 $32,659 $28,196 $25,827 $26,044
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
20
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION FORUM
FUNDS
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS MAINE TAXSAVER BOND FUND
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about the Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of both reports and the SAI, request other information
and discuss your questions about the Fund by contacting the Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 943-6786
(800) 94FORUM
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review the Fund's reports and SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC
at (202) 942-8090. You can get copies of this information, for a fee, by
e-mail or by writing to:
Public Reference Room
Securities and Exchange Commission [LOGO]
Washington, D.C. 20549-1020
E-mail address: [email protected] Forum Funds
P.O. Box 446
Free copies of the reports and SAI are available from the SEC's Internet Web Portland, Maine 04112
Site at http://www.sec.gov. (800) 943-6786
(800) 94FORUM
Investment Company Act File No. 811-3023 (207) 879-0001
</TABLE>
<PAGE>
FORUM PROSPECTUS
FUNDS
AUGUST 1, 2000
New Hampshire TaxSaver
Bond Fund seeks a high level NEW HAMPSHIRE
of current income exempt from TAXSAVER BOND FUND
both Federal income tax and
New Hampshire interest and
dividends tax by investing
primarily in municipal securities.
The fund does not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE FUND'S
SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 4
FEE TABLE 5
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS 6
MANAGEMENT 9
YOUR ACCOUNT 11
How to Contact the Fund 11
General Information 11
Buying Shares 12
Selling Shares 14
Sales Charges 16
Exchange Privileges 17
OTHER INFORMATION 18
FINANCIAL HIGHLIGHTS 20
<PAGE>
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
DEBT SECURITY means a security New Hampshire TaxSaver Bond Fund (the "Fund") seeks high current income exempt from
such as a bond or note that Federal income tax and New Hampshire interest and dividend tax (other than the
obligates the issuer to pay the alternative minimum tax ("AMT")).
security owner a specified sum of
money (interest) at set intervals PRINCIPAL INVESTMENT STRATEGIES
as well as to repay the principal
amount of the security at its The Fund invests primarily in investment grade municipal securities. Generally,
maturity. the weighted average maturity of the Fund's portfolio securities is between 5 and
15 years.
MATURITY means the date on which a
debt security is (or may be) due PRINCIPAL RISKS OF INVESTING IN THE FUND
and payable.
An investment in the Fund is not a deposit of a bank and is not insured or
BOND means a debt security with a guaranteed by the Federal Deposit Insurance Corporation or any other government
long-term maturity, usually 5 agency. You could lose money on your investment in the Fund or the Fund could
years or longer. underperform other investments. The principal risks of an investment in the Fund
include:
NOTE means a debt security with a
short-term maturity, usually less o The Fund's share price, yield and total return will fluctuate in
than 1 year. response to price movements in the debt securities markets
o The value of most debt securities fall when interest rates rise; the
NRSRO means a "nationally longer a debt security's maturity and the lower its credit quality, the
recognized statistical rating more its value typically falls in response to an increase in interest
organization," such as Standard rates
and Poor's that rates debt o The Fund cannot collect interest and principal payments on a debt
securities and relative credit security if the issuer defaults
risk.
INVESTMENT GRADE SECURITY
means a debt security rated in one
of the four highest long-term or
two highest short-term ratings
categories by an NRSRO or unrated
and determined to be of comparable
quality by the Fund's Adviser.
MUNICIPAL SECURITY means a debt
security issued by or on behalf of
the State of New Hampshire, its
local governments and public
finance authorities and U.S.
territories and possessions, the
interest on which is exempt from
Federal income tax and New
Hampshire interest and dividend
tax (other than AMT).
</TABLE>
2
<PAGE>
o Issuers may prepay fixed rate securities when interest rates fall, forcing
the Fund to invest in securities with lower interest rates
o The Fund is non-diversified. The Fund may focus its investments in the
securities of a comparatively small number of issuers. Concentration of the
Fund in securities of a limited number of issuers exposes it to greater
market risk and potential monetary losses than if its assets were
diversified among the securities of a greater number of issuers
o Economic and political changes in New Hampshire may have a greater effect
on the Fund than if the Fund invested in municipal securities of various
states
o The Fund's investment adviser (the "Adviser") may make poor investment
decisions
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Are an income-oriented investor in a high tax bracket and desire
tax-exempt income
o Seek income and more price stability than stocks offer
o Seek capital preservation
o Are pursuing a long-term goal
The Fund may not be appropriate for you if you:
o Are pursuing a short-term goal or are investing emergency reserves
o Are investing funds in a tax deferred or tax-exempt account (such as
an IRA)
o Do not desire tax-exempt income
3
<PAGE>
PERFORMANCE
The following chart illustrates the variability of the Fund's returns. The chart
and the table provide some indication of the risks of investing in the Fund by
showing changes in the Fund's performance from year to year and how the Fund's
returns compare to a broad measure of market performance. Performance
information represents only past performance and does not necessarily indicate
future results.
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1993 11.86%
1994 -4.59%
1995 14.76%
1996 3.59%
1997 7.63%
1998 6.13%
1999 -1.29%
The calendar year-to-date total return as of June 30, 2000 was 3.19%.
During the periods shown in the chart, the highest quarterly return was 5.76%
(for the quarter ended March 31, 1995) and the lowest quarterly return was
-5.10% (for the quarter ended March 31, 1994).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Lehman Brothers 10-Year Municipal Bond Index.
NEW HAMPSHIRE LEHMAN BROTHERS
YEAR(S) TAXSAVER BOND 10-YEAR MUNICIPAL
FUND BOND INDEX
1 Year -4.25% -1.25%
5 Years 5.39% 7.12%
Since Inception (12/31/92) 4.79% 6.11%(1)
(1) For the period 12/31/92 - 12/31/99.
The Lehman Brothers 10-Year Municipal Bond Index is a market index of investment
grade, fixed-rate municipal securities with an average maturity of 10 years. The
index is unmanaged and reflects the reinvestment of interest and principal
payments. Unlike the performance figures of the Fund, the index's performance
does not reflect the effect of expenses.
4
<PAGE>
FEE TABLE
The following table describes the various fees and expenses that you will pay if
you invest in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a 3.00%
percentage of the offering price)
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) 1.00%(1)
Redemption Fee None
Exchange Fee None
(1) Applicable only on purchases of $1 million or more
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.40%
Distribution (12b-1) Fees None
Other Expenses 1.19%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.59%
Fee Waiver and Expense Reimbursement(2) 0.64%
Net Expenses 0.95%
(1) Based on amounts incurred during the Fund's fiscal year ended March 31,
2000 stated as a percentage of assets.
(2) Based on certain contractual fee waivers and expense reimbursements
that may change after July 31, 2001.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Fund for the time periods
indicated, you pay the maximum sales charge and then redeem all of your shares
at the end of each period. The example also assumes that your investment has a
5% annual return, that the Fund's operating expenses remain as stated in the
above table and that distributions are reinvested. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$394 $787 $1,140 $2,133
5
<PAGE>
INVESTMENT OBJECTIVE,
PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
YIELD CURVE means a graph The Fund seeks a high level of current income exempt from both Federal income tax
that plots the yield of all (other than the AMT) and New Hampshire interest and dividends tax.
bonds of similar quality
against the bonds' INVESTMENT STRATEGIES
maturities.
THE ADVISER'S PROCESS The Adviser continuously monitors economic factors such as
PRIVATE ACTIVITY BOND means interest rate outlooks and technical factors such as the shape of the yield curve in
a bond that is issued by or combination with the stated objective of the Fund to determine an appropriate
on behalf of public maturity profile for the Fund's investment portfolio. The Adviser then principally
authorities to finance searches for securities that satisfy the maturity profile of the Fund and that
privately operated provide the greatest potential return relative to the risk of the security. The
facilities. Private Adviser may sell a debt security if:
Activity Bonds are primarily
revenue securities. o Revised economic forecasts or interest rate outlook requires a repositioning
of the portfolio
U.S. GOVERNMENT SECURITIES o The security subsequently fails to meet the Adviser's investment criteria
means debt securities issued o A more attractive security is found or funds are needed for another purpose
or guaranteed by the U.S. o The Adviser believes that the security has reached its appreciation potential
Government, its agencies or
instrumentalities.
GENERAL OBLIGATION SECURITY
means a security whose
principal and interest
payments are secured by a
municipality's full faith
and credit and taxing power.
REVENUE SECURITY means a
security whose principal and
interest generally are
payable from revenues of a
particular facility, class
of facilities or from the
proceeds of a special excise
or other tax.
</TABLE>
6
<PAGE>
INVESTMENT POLICIES The Fund invests primarily in investment grade municipal and
other U.S. Government securities exempt from New Hampshire interest and
dividends taxes. Municipal securities include municipal bonds, notes and leases.
Municipal leases are securities that permit government issuers to acquire
property and equipment without the security being subject to constitutional and
statutory requirements for the issuance of long-term debt securities. The Fund
invests in general obligation securities and revenue securities, including
private activity bonds. Generally, the weighted average maturity of the Fund's
portfolio securities is between 5 and 15 years.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and short-term U.S. Government securities. As a result,
the Fund may be unable to achieve its investment objective.
INVESTMENT RISKS
GENERAL The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market value of securities
in which the Fund invests is based upon the market's perception of value and is
not necessarily an objective measure of the securities' value. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program.
The value of your investment in the Fund may change in response to changes in
interest rates. An increase in interest rates typically causes a fall in the
value of the securities in which the Fund invests. An additional risk is that
issuers may prepay fixed rate securities when interest rates fall, forcing the
Fund to invest in securities with lower interest rates.
Your investment in the Fund is also subject to the risk that the financial
condition of an issuer of a security held by the Fund may cause it to default or
become unable to pay interest or principal due on the security. This risk
generally increases as security credit ratings fall.
Your investment in the Fund is subject to the risk that the Adviser may make
poor investment decisions.
7
<PAGE>
The Fund is non-diversified. The Fund may focus a larger percentage of its
assets in the securities of fewer issuers. Concentration of the Fund in
securities of a limited number of issuers exposes it to greater market risk and
monetary losses than if its assets were diversified among the securities of a
greater number of issuers.
SPECIFIC RISKS OF NEW HAMPSHIRE MUNICIPAL SECURITIES Economic or political
factors in New Hampshire may adversely affect issuers of New Hampshire municipal
securities. Adverse economic or political factors will affect the Fund's net
asset value more than if the Fund invested in more geographically diverse
investments. As a result, the value of the Fund's assets may fluctuate more
widely than the value of shares of a fund investing in securities relating to a
number of different states.
The following is a summary of recent NRSRO ratings of New Hampshire municipal
securities. The major NRSROs have rated recent New Hampshire general obligation
or state-guaranteed bond issues as follows: Moody's Investor Services
("Moody's") - Aa2 (negative outlook) (reaffirmed June 2000) (; Standard & Poor's
("S&P") - AA+ ; Fitch IBCA Inc. - AA+ (negative outlook). A recent bond issued
by the New Hampshire Municipal Bond Bank without State guarantee has been
separately rated Aa3 by Moody's (stable) and A+ by S&P (stable). Bond ratings of
individual municipalities in New Hampshire vary in accordance with rating
agencies' estimates of the issuer's relative financial strength and ability to
support debt service. There can be no assurance that New Hampshire general
obligations or any New Hampshire municipal securities owned by the Fund will be
rated in any category or will not be downgraded by an NRSRO. Further information
concerning the State of New Hampshire is contained in the Statement of
Additional Information ("SAI").
8
<PAGE>
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the SAI.
THE ADVISER
The Fund's Adviser is Forum Investment Advisors, LLC, Two Portland Square,
Portland, Maine 04101. The Adviser is a privately owned company headquartered in
Portland, Maine and controlled by John Y. Keffer, who is Chairman of the Board
of the Trust.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. The Adviser receives an advisory fee at an annual rate
of 0.40% of the average daily net assets of the Fund. For the fiscal year ended
March 31, 2000, the Adviser waived a portion of its fee and only received an
advisory fee of 0.13% of the Fund's average daily net assets.
As of June 30, 2000, the Adviser had approximately $3.3 billion of assets under
management.
PORTFOLIO MANAGER
LES C. BERTHY Senior Portfolio Manager of the Adviser, has been primarily
responsible for the day-to-day management of the Fund since its inception on
December 31, 1992. Mr. Berthy has over 28 years of experience in the investment
industry. Prior to his association with the Adviser in January 1991, Mr. Berthy
was Managing Director and Co-Chief Executive Officer of Irwin Union Capital
Corp., an affiliate of Irwin Union Bank & Trust Co.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to the Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor
9
<PAGE>
acts as the representative of the Trust in connection with the offering of the
Fund's shares. The distributor may enter into arrangements with banks,
broker-dealers or other financial institutions through which investors may
purchase or redeem shares and may, at its own expense, compensate persons who
provide services in connection with the sale or expected sale of the Fund's
shares.
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's fund accountant, Forum Shareholder
Services, LLC ("Transfer Agent") is the Fund's transfer agent and Forum Trust,
LLC is the Fund's custodian.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of its
own expenses as well as Trust expenses that are allocated among the Fund and the
other funds of the Trust. The Adviser or other service providers may waive all
or any portion of their fees and/or reimburse certain expenses of the Fund. Any
waiver or expense reimbursement increases the Fund's performance for the period
during which the waiver or reimbursement is in effect and may not be recouped at
a later date.
Certain service providers have undertaken to waive a portion of their fees
and/or to reimburse certain expenses in order to limit the Fund's expenses
(excluding taxes, interest, portfolio transaction expenses and extraordinary
expenses) to 0.95% or less of the average daily net assets of the Fund until
July 31, 2001.
10
<PAGE>
YOUR ACCOUNT
<TABLE>
<S> <C>
HOW TO CONTACT THE FUND GENERAL INFORMATION
WRITE TO US AT: You may purchase or sell (redeem) shares at the net asset value of a share (NAV)
Forum Funds plus any applicable sales charge (or minus any applicable sales charge in the
P.O. Box 446 case of redemptions) next calculated after the Transfer Agent receives your
Portland, Maine 04112 request in proper form. For instance, if the Transfer Agent receives your
purchase request in proper form after 4:00 p.m., Eastern time, your transaction
OVERNIGHT ADDRESS: will be priced at the next business day's NAV plus the applicable sales charge.
Forum Funds The Fund cannot accept orders that request a particular day or price for the
Two Portland Square transaction or any other special conditions.
Portland, Maine 04101
The Fund does not issue share certificates.
TELEPHONE US AT:
(800)94FORUM or If you purchase shares directly from the Fund, you will receive monthly
(800)943-6786 (Toll Free) statements and a confirmation of each transaction. You should verify the
(207)879-0001 accuracy of all transactions in your account as soon as you receive your
confirmations.
WIRE INVESTMENTS
(OR ACH PAYMENTS) The Fund reserves the right to waive minimum investment amounts and may
TO US AT: temporarily suspend (during unusual market conditions) or discontinue any
Bankers Trust Company service or privilege.
New York, New York
ABA #021001033 WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close
of the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each
FOR CREDIT TO: weekday except days when the New York Stock Exchange is closed. The time at
Forum Shareholder which NAV is calculated may change in case of an emergency.
Services, LLC
Account # 01-465-547
New Hampshire
TaxSaver Bond Fund
(Your Name)
(Your Account Number)
11
<PAGE>
</TABLE>
The Fund's NAV is determined by taking the market value of all securities owned
by the Fund (plus all other assets such as cash), subtracting liabilities and
then dividing the result (net assets) by the number of shares outstanding. The
Fund values securities for which market quotations are readily available at
current market value. If market quotations are not readily available, the Fund
values securities at fair value pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of the Fund. Financial
institutions may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. These institutions may
also provide you with certain shareholder services such as periodic account
statements and trade confirmations summarizing your investment activity. Consult
a representative of your financial institution for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint, Uniform Gift to Minors Act
("UGMA") or Uniform Transfers to Minors Act ("UTMA") accounts, the check must be
made payable to "Forum Funds" or to one or more owners of the account and
endorsed to "Forum Funds." For all other accounts, the check must be made
payable on its face to "Forum Funds." No other method of check payment is
acceptable (for instance, you may not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you to
purchase shares through an electronic transfer of money from a checking or
savings account. When you make a payment by telephone, the Transfer Agent will
automatically debit your pre-designated bank account for the desired amount.
Your financial institution may charge you a fee for this service. You may call
(800) 94FORUM or (800) 943-6786 to request an ACH transaction.
WIRES Instruct your financial institution to make a Federal Funds wire payment
to us. Your financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS The Fund accepts investments in the following minimum
amounts:
<TABLE>
<S> <C> <C>
MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT
Standard Accounts $2,000 $250
Accounts With Systematic Investment Plans $250 $250
12
<PAGE>
ACCOUNT REQUIREMENTS
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to custodial account under the UGMA or the UTMA
a child and obtain tax benefits o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution form or
similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document, that identify the
trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a
Corporate/Organization Resolution form if applicable) confirmation or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) o Mail us the slip (or your letter) and the check
and a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and resolution
form)
o Make an ACH payment
</TABLE>
13
<PAGE>
SYSTEMATIC INVESTMENTS You may invest a specified amount of money in the Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Systematic investments must be for at least $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or other identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase or exchange due to nonpayment.
SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, it may delay
ending redemption proceeds for up to 15 calendar days.
14
<PAGE>
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us the completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
Specific requirements are listed in the SAI or may be obtained by calling the
Transfer Agent.
15
<PAGE>
SMALL ACCOUNTS If the value of your account falls below $1,000, the Fund may ask
you to increase your balance. If the account value is still below $1,000 after
60 days, the Fund may close your account and send you the proceeds. The Fund
will not close your account if it falls below these amounts solely as a result
of a reduction in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of the Fund's shares as
follows:
<TABLE>
<S> <C> <C> <C>
SALES CHARGE (LOAD) AS % OF:
PUBLIC NET
AMOUNT OF PURCHASE OFFERING PRICE ASSET VALUE* REALLOWANCE %
$0 to $99,999 3.00 3.09 2.50
$100,000 to $249,999 2.50 2.56 2.00
$250,000 to $499,999 2.00 2.04 1.60
$500,000 to $999,999 1.50 1.52 1.20
$1,000,000 and up 0.00 0.00 1.00
</TABLE>
*Rounded to the nearest one-hundredth percent.
The offering price for the Fund's shares includes the relevant sales charge. The
commission paid to the distributor is the sales charge less the reallowance paid
to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include the provision of travel arrangements and lodging,
tickets for entertainment events and merchandise.
16
<PAGE>
REDEMPTIONS A contingent deferred sales charge ("CDSC") is assessed on
redemptions of shares that were part of a purchase of $1 million or more. The
CDSC is assessed as follows:
REDEEMED WITHIN SALES CHARGE
First year of purchase 1.00%
Second year of purchase 0.50%
The CDSC is paid on the lower of the NAV of shares redeemed or the cost of the
shares. To satisfy a redemption request, the Fund will first liquidate shares
that are not subject to a CDSC such as shares acquired with reinvested dividends
and capital gains. The Fund will then liquidate shares in the order that they
were first purchased until your redemption request is satisfied.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. Certain persons
may also be eligible to purchase or redeem Fund shares without a sales charge.
Please see the SAI for further information.
EXCHANGE PRIVILEGES
You may exchange your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that has a higher sales
charge than the Fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge at the time of exchange. If you
exchange into a fund that has no sales charge or a lower sales charge than the
Fund, you will not have to pay a sales charge at the time of exchange. Because
exchanges are a sale and purchase of shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
17
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income monthly and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
Generally, you are not subject to Federal income tax and New Hampshire State
interest and dividends tax on the Fund's distribution of tax-exempt interest
income. The Fund's distribution of other investment income and short-term
capital gain are taxable to you as ordinary income. The Fund's distribution of
long-term capital gain is taxable to you as long-term capital gain regardless of
how long you have held your Fund shares. It is anticipated that substantially
all of the Fund's net income will be exempt from Federal income tax and New
Hampshire State interest and dividends tax (other than AMT).
If you are a New Hampshire (1) resident individual (2) a partnership, limited
liability company, association or trust whose beneficial interest is not
transferable or (3) a fiduciary deriving your appointment from a New Hampshire
court, you will generally not be subject to the New Hampshire interest and
dividends or business profits tax on net income paid by the Fund to the extent
that the Fund invests in New Hampshire tax-exempt municipal securities or U.S.
Government securities. Net income paid by the Fund from other forms of
investment will be subject to the interest and dividends tax. Special interest
and dividends tax rules apply to net income received by trusts, estates,
partnerships, limited liability companies and "S" corporations and their
beneficiaries or owners, if all or some of its beneficiaries or owners are not
New Hampshire residents.
If you are a partnership, limited liability company, association or trust having
a transferable beneficial interest, you are not subject to the New Hampshire
interest and dividends tax. However, if you are engaged in business activity in
New Hampshire, you must pay the New Hampshire business profits tax on all income
(except income earned on U.S. Government obligations) attributable to New
Hampshire, including net income paid by the Fund.
If you are a "substantial user" or a "related person" of a substantial user of
facilities financed by private
18
<PAGE>
activity bonds held by the Fund, you may have to pay Federal income tax on your
pro rata share of the net income generated from these securities. Distributions
of interest income on certain private activity bonds are an item of tax
preference for purposes of individual and corporate Federal AMT. Distributions
of net income from tax-exempt obligations are included in "adjusted current
earnings" of corporations for Federal AMT purposes.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Fund will send you information about the income tax status of the Fund's
distributions paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state and local tax matters, please see the SAI and consult your tax
adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal or Delaware law. Shareholders
of each series of the Trust are entitled to vote at shareholders' meetings
unless a matter relates only to specific series (such as approval of an advisory
agreement for the Fund). From time to time, large shareholders may control the
Fund or the Trust.
19
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
The Fund's financial statements and the auditor's report are included in the
Annual Report dated March 31, 2000, which is available upon request, without
charge.
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
2000 1999 1998 1997 1996
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $10.80 $10.73 $10.31 $10.33 $10.08
Income from Investment Operations:
Net investment income 0.47 0.46 0.47 0.48 0.48
Net realized and unrealized gain (loss) on
investments (0.47) 0.13 0.43 (0.02) 0.25
Total from investment operations 0.00 0.59 0.90 0.46 0.73
Less Distributions:
From net investment income (0.47) (0.46) (0.48) (0.48) (0.48)
From net realized capital gain _(c) (0.06) _ _ _
Total Distributions (0.47) (0.52) (0.48) (0.48) (0.48)
Ending Net Asset Value Per Share $10.33 $10.80 $10.73 $10.31 $10.33
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 0.60% 0.60% 0.60% 0.60% 0.60%
Gross expenses(a) 1.59% 1.53% 1.81% 2.22% 2.26%
Net investment income 4.46% 4.28% 4.45% 4.65% 4.65%
Total Return(b) 0.03% 5.61% 8.84% 4.56% 7.36%
Portfolio Turnover Rate 19% 42% 23% 53% 34%
Net Assets at End of Period (in thousands) $11,644 $15,227 $12,908 $8,691 $6,903
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and
expense reimbursements.
(b) Does not include sales charges.
(c) Less than $0.01 per share.
20
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION FORUM
FUNDS
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS NEW HAMPSHIRE TAXSAVER
Additional information about the Fund's investments is available in the Fund's BOND FUND
annual and semi-annual reports to shareholders. In the Fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about the Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of both reports and the SAI, request other information
and discuss your questions about the Fund by contacting the Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 943-6786
(800) 94FORUM
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review the Fund's reports and SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC
at (202) 942-8090. You can get copies of this information, for a fee, by
e-mail or by writing to:
Public Reference Room [LOGO]
Securities and Exchange Commission
Washington, D.C. 20549-0102 Forum Funds
E-mail address: [email protected] P.O. Box 446
Portland, Maine 04112
Free copies of the reports and SAI are available from the SEC's Internet Web (800) 943-6786
Site at http://www.sec.gov. (800) 94FORUM
(207) 879-0001
Investment Company Act File No. 811-3023.
</TABLE>
<PAGE>
FORUM
FUNDS PROSPECTUS
AUGUST 1, 2000
Payson Value Fund seeks high total PAYSON VALUE FUND
return by investing primarily in
common stock. PAYSON BALANCED FUND
Payson Balanced Fund seeks high
current income and capital
appreciation by investing primarily in
common stock and investment grade
debt securities.
The Funds do not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED EITHER
FUND'S SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 4
FEE TABLES 6
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS 7
MANAGEMENT 10
YOUR ACCOUNT 12
How To Contact The Funds 12
General Information 12
Buying Shares 13
Selling Shares 15
Sales Charges 17
Exchange Privileges 18
Retirement Accounts 19
OTHER INFORMATION 20
FINANCIAL HIGHLIGHTS 21
<PAGE>
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND PAYSON VALUE FUND
COMMON STOCK means an equity or INVESTMENT OBJECTIVE Payson Value Fund (a "Fund") seeks high total return
ownership interest in a company. (capital appreciation and current income).
VALUE COMPANY means a company whose PRINCIPAL INVESTMENT STRATEGY The Fund invests primarily in common stock
market price is low relative to its and convertible securities of large and medium capitalization domestic
price history and/or the stock of value companies. Large domestic companies typically have market
comparable companies. capitalizations in excess of $12 billion while medium domestic companies
typically have market capitalizations in the range of $2 billion to $12
MARKET CAPITALIZATION means the value of billion.
a company's common stock in the stock
market. PAYSON BALANCED FUND
DEBT SECURITY INVESTMENT OBJECTIVE Payson Balanced Fund (a "Fund") seeks a combination
means a security such as a bond or note of high current income and capital appreciation.
that obligates the issuer to pay the
owner a specified sum of money PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in common
(interest) at set intervals as well as stock and convertible securities of large and medium capitalization
to repay the principal amount of the domestic value companies. The Fund also invests in investment grade debt
security at its maturity. securities including U.S. Government Securities and corporate bonds and
notes that have an average weighted maturity between 3 and 5 years. Large
BOND means a debt security with a domestic companies typically have market capitalizations in excess of $12
long-term maturity of usually 5 years billion while medium domestic companies typically have market security
or longer. capitalizations in the range of $2 billion to $12 billion. The Fund may
only purchase a security if, immediately after purchase, at least 25% of
NOTE means a debt security with a the Fund's net assets are invested in debt securities, including U.S.
short-term maturity, usually less than Government Securities.
5 years.
U.S. GOVERNMENT SECURITIES means debt
securities issued or guaranteed by the
U.S. Government, its agencies or
instrumentalities.
INVESTMENT GRADE SECURITY means a
security rated in one of the four
highest ratings categories by a
nationally recognized statistical
rating organization ("NRSRO") such as
Standard & Poor's or unrated and
determined to be of comparable quality
by the Fund's investment adviser.
</TABLE>
2
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
GENERAL RISKS An investment in each Fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation. You could
lose money on your investment in a Fund or a Fund could underperform other
investments. The principal risks of an investment in a Fund include:
o The stock or bond market goes down
o Value stocks fall out of favor with the stock market
o The stock market continues to undervalue the stocks in a Fund's
portfolio
o The prices of medium capitalization securities may fluctuate more than
the securities of larger companies
o The judgment of a Fund's investment adviser (the "Adviser") as to the
value of a stock proves to be wrong
RISKS OF DEBT SECURITIES Because Payson Balanced Fund invests in debt
securities, the Fund has the following additional risks:
o The Fund's share price, yield and total return will fluctuate in
response to price movements in the debt securities markets
o The value of most debt securities fall when interest rates rise; the
longer a debt security's maturity and the lower its credit quality,
the more its value typically falls in response to an increase in
interest rates
o The Fund will not collect interest and principal payments on a debt
security if the issuer defaults
o Issuers may prepay fixed rate securities when interest rates fall,
forcing the Fund to invest in securities with lower interest rates
WHO MAY WANT TO INVEST IN THE FUNDS
A Fund may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of your
investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk
An investment in Payson Balanced Fund also may be appropriate for you if you
seek income with a greater degree of price stability than that which is offered
through stock investments.
A Fund may not be appropriate for you if you:
o Want an investment that pursues market trends or focuses only on
particular sectors or industries
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
3
<PAGE>
PERFORMANCE
The following charts illustrate the variability of a Fund's returns. The charts
and the tables provide some indication of the risks of investing in each Fund by
showing changes in the Fund's performance from year to year and how the Fund's
returns compare to a broad measure of market performance. Performance
information represents only past performance and does not necessarily indicate
future results.
PAYSON VALUE FUND
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1993 19.38%
1994 -3.67%
1995 28.18%
1996 18.95%
1997 31.62%
1998 5.79%
1999 10.19%
The calendar year-to-date total return as of June 30, 2000 was 5.33%.
During the periods shown in the chart, the highest quarterly return was 16.87%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
-15.50% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the S&P 500 Index.
YEAR(S) PAYSON VALUE FUND S&P 500 INDEX
1 Year 5.78% 21.04%
5 Years 17.56% 28.54%
Since Inception (7/31/92) 14.69% 20.84%
The S&P 500 Index is a market index of common stock. The S&P 500 Index is
unmanaged and reflects reinvestment of dividends. Unlike the performance figures
of the Fund, the S&P 500 Index's performance does not reflect the effect of
expenses.
4
<PAGE>
PAYSON BALANCED FUND
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1992 7.29%
1993 15.96%
1994 -4.20%
1995 28.33%
1996 11.20%
1997 20.99%
1998 3.53%
1999 -2.96%
The calendar year-to-date total return as of June 30, 2000 was 4.75%.
During the periods shown in the chart, the highest quarterly return was 15.81%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
-12.26% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Standard & Poor's Composite 500 Index (the "S&P 500
Index").
YEAR(S) PAYSON BALANCED FUND S&P 500 INDEX
1 Year -6.85% 21.04%
5 Years 10.74% 28.54%
Since Inception (11/25/91) 9.58% 21.06%(1)
(1) For the period 11/30/91-12/31/99.
The S&P 500 Index is a market index of common stock. The S&P 500 Index is
unmanaged and reflects the reinvestment of dividends. Unlike the performance
figures of the Fund, the S&P 500 Index's performance does not reflect the effect
of expenses.
5
<PAGE>
FEE TABLES
The following tables describe the various fees and expenses that you will pay if
you invest in a Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage 4.00%
of the offering price)
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) 1.00%(1)
Redemption Fee None
Exchange Fee None
(1) Applicable only on purchases of $1 million or more.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
PAYSON VALUE FUND
Management Fees 0.80%
Distribution (12b-1) Fees None
Other Expenses 0.94%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.74%
Fee Waiver and Expense Reimbursement(2) 0.11%
Net Expenses 1.63%
PAYSON BALANCED FUND
Management Fees 0.60%
Distribution (12b-1) Fees None
Other Expenses 0.99%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.59%
Fee Waiver and Expense Reimbursement(2) 0.15%
Net Expenses 1.44%
(1) Based on amounts incurred during each Fund's fiscal year ended March
31, 2000 stated as a percentage of assets.
(2) Based on contractual fee waivers and expense reimbursements that may
increase after July 31, 2001.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in each Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in a Fund for the time periods
indicated, you pay the maximum sales charge and then redeem all of your shares
at the end of each period. The example also assumes that your investment has a
5% annual return, that a Fund's operating expenses remain as stated in the above
table and that distributions are reinvested. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
PAYSON VALUE FUND PAYSON BALANCED FUND
1 year $559 $541
3 years $926 $882
5 years $1,306 $1,231
10 years $2,370 $2,214
6
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES AND PRINCIPAL RISKS
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVES
FUNDAMENTAL ANALYSIS means PAYSON VALUE FUND seeks high total return (capital appreciation and current income)
the analysis of a company's by investing in a diversified portfolio of common stock and securities convertible
financialcondition to into common stock which appear undervalued in the market place.
forecast the probable future
value of its stock price. This PAYSON BALANCED FUND seeks a combination of high current income and capital
analysis includes review of a appreciation by investing in common stock and securities convertible into common
company's balance sheet and stock which appear to be undervalued and in investment-grade debt securities,
income statement, asset including U.S. Government, government agency and corporate obligations.
history, earnings history,
product or service INVESTMENT STRATEGIES
development and management
productivity. THE ADVISER'S PROCESS The Adviser maintains a long-term, equity-oriented
perspective, being much less concerned with investment performance on a quarterly or
PRICE/EARNINGS RATIO means shorter basis than with real, long-term growth of income. Investment time horizon is
the price of a divided by the paramount determinant of long-term investment strategy, and each Fund has a
the company's earnings per stock long-term time horizon.
share.
The Adviser uses both a quantitative and a fundamental approach to identify stocks
PRICE/SALES RATIO means the that are undervalued compared to the company's financial condition. The Adviser
price of a stock divided by first conducts a fundamental analysis of prospective companies to determine their
the company's annual sales near and long-term financial prospects and then uses quantitative measurements,
per share. including price/earnings ratios, price/book ratios, price/sales ratios, dividend
yields and profitability, to select those stocks that appear undervalued.
PRICE/BOOK RATIO means the
price of a stock divided by With respect to Payson Balanced Fund's investment in debt securities, the Adviser
the company's book value per continuously monitors interest rate outlooks, the shape of the yield curve and other
share. economic factors to determine an appropriate maturity profile for the Fund's
investment portfolio consistent with the Fund's objective. In particular, the
DIVIDEND YIELD means the Adviser watches the yield spreads between higher and lower quality debt securities,
percentage rate of return between different sectors of the economy and between different types of debt
return paid on common or
preferred stock in
dividends.
</TABLE>
9
<PAGE>
securities to identify those that provide the highest yield at the best price.
The Adviser continuously monitors the investments in a Fund's portfolio to
determine if there have been any fundamental changes in the companies or
issuers. The Adviser may sell a security if:
o The security subsequently fails to meet the Adviser's initial
investment criteria
o A more attractively priced security is found or if funds are needed
for other purposes
o The Adviser believes that the security has reached its appreciation
potential
o Revised economic forecast or interest rate outlook requires a
repositioning of debt securities held by Payson Balanced Fund
INVESTMENT POLICIES
PAYSON VALUE FUND The Fund invests primarily in common stock and of large and
medium size domestic companies with market capitalizations of $2 billion or
more. Large domestic companies typically have market capitalizations in excess
of $12 billion while medium domestic companies typically have market
capitalizations in the range of $2 billion to $12 billion.
PAYSON BALANCED FUND The Fund invests primarily in common stock and investment
grade debt securities of large and medium size domestic companies with market
capitalizations in excess of $2 billion and in investment grade debt securities.
Large domestic companies typically have market capitalizations in excess of $12
billion while medium domestic companies typically have market capitalizations in
the range of $2 billion to $12 billion. The Fund may also invest in investment
grade debt securities including U.S. Government Securities and corporate bonds
and notes. The Fund may only purchase a security if, immediately after purchase,
at least 25% of the Fund's net assets are invested in debt securities. Normally,
the Fund invests in securities with varying maturities ranging from short-term
(overnight) to 30 years. Generally, the average dollar-weighted maturity of the
Fund's debt investments will be between 3 and 5 years.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic or
other conditions, each Fund may assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and money market instruments. As a result, a Fund may be unable to achieve
its investment objective.
8
<PAGE>
INVESTMENT RISKS
GENERAL A Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market value of securities
in which a Fund invests is based upon the market's perception of value and is
not necessarily an objective measure of the securities' value. There is no
assurance that a Fund will achieve its investment objective. An investment in a
Fund is not by itself a complete or balanced investment program.
Because a Fund uses a value approach to select potential stock or debt
securities, there is the risk that the market will not recognize the intrinsic
value of a Fund's investments for an unexpectedly long time. Further, the
security prices of medium capitalization companies may fluctuate more
significantly than the securities of larger companies. Generally, this increased
volatility is due to the fact that securities of medium capitalization companies
are traded less frequently and are less liquid than securities of large
capitalization companies. Also, there is usually less information available on
medium capitalization companies than on larger capitalization companies.
Finally, there is also the risk that the Adviser's judgment as to the value of a
stock or bond may prove to be wrong.
RISKS OF DEBT SECURITIES An investment in Payson Balanced Fund is subject to
additional risks because it invests in debt securities. The value of your
investment in the Fund may change in response to changes in interest rates. An
increase in interest rates typically causes a fall in the value of the debt
securities in which the Fund invests. Issuers may pre-pay fixed rate securities
when interest rates fall, forcing the Fund to invest in securities with lower
interest rates. Your investment in the Fund is also subject to the risk that the
financial condition of an issuer of a security held by the Fund may cause it to
default or become unable to pay interest or principal due on the security.
9
<PAGE>
MANAGEMENT
Each Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and of each Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of each Fund and meets periodically to review
each Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Funds. Additional information regarding the Board,
as well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
THE ADVISER
Each Fund's adviser is H. M. Payson & Co., One Portland Square, P.O. Box 31,
Portland, Maine 04112. The Adviser was founded in 1854 and was incorporated in
Maine in 1987, making it one of the oldest investment firms in the United States
operating under its original name.
Subject to the general control of the Board, the Adviser makes investment
decisions for each Fund. The Adviser receives an advisory fee at an annual rate
of 0.60% of the average daily net assets and Payson Balanced Fund and 0.80% of
the average daily net assets of the Payson Value Fund. For the fiscal year ended
March 31, 2000, the Adviser waived a portion of its fee and only received an
advisory fee of 0.36% of the average daily net assets of Payson Balanced Fund
and 0.56% of the average daily net assets of Payson Value Fund.
As of June 30, 2000, the Adviser had approximately $1.27 billion of assets under
management.
PORTFOLIO MANAGERS
JOHN C. KNOX Managing Director and Senior Research Analyst of the Adviser, has
been primarily responsibility for the day-to-day management of Payson Value Fund
since July 10, 1995. Mr. Knox has over 24 years of experience in the investment
industry and has been associated with the Adviser since 1981. Mr. Knox is a
Chartered Financial Analyst.
PETER E. ROBBINS Managing Director and Director of Research of the Adviser, has
been primarily responsible for the day-to-day management of Payson Balanced Fund
since April 1, 1993. Mr. Robbins has over 19 years of experience in the
investment industry and has been associated with the Adviser since 1982, except
for the period from January 1988 to October 1990. During that period Mr. Robbins
was president of Mariner Capital Group, a real estate development and
non-financial asset management business. Mr. Robbins is a Chartered Financial
Analyst.
10
<PAGE>
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to each Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of each Fund's shares. The distributor acts as the representative
of the Trust in connection with the offering of each Fund's shares. The
distributor may enter into arrangements with banks, broker-dealers or other
financial institutions through which investors may purchase or redeem shares and
may, at its own expense, compensate persons who provide services in connection
with the sale or expected sale of each Fund's shares.
Forum Administrative Services, LLC provides administrative services to each
Fund, Forum Accounting Services, LLC is each Fund's fund accountant, Forum
Shareholder Services, LLC ("Transfer Agent") is each Fund's transfer agent and
Forum Trust, LLC is each Fund's custodian.
FUND EXPENSES
Each Fund pays for all of its expenses. Each Fund's expenses are comprised of
its own expenses as well as Trust expenses that are allocated among the Fund and
the other funds of the Trust. The Adviser or other service providers may waive
all or any portion of their fees and/or reimburse certain expenses of a Fund.
Any waiver or expense reimbursement increases a Fund's performance for the
period during which the waiver or reimbursement is in effect and may not be
recouped at a later date.
Certain service providers have undertaken to waive a portion of their fees
and/or to reimburse certain expenses in order to limit the Funds' expenses
(excluding taxes, interest, portfolio transaction expenses and extraordinary
expenses) to 1.63% or less of the average daily net assets of Payson Value Fund
and 1.44% or less of the average daily net assets of the Payson Balanced Fund
until July 31, 2001.
11
<PAGE>
YOUR ACCOUNT
<TABLE>
<S> <C>
HOW TO CONTACT THE FUNDS GENERAL INFORMATION
WRITE TO US AT: You may purchase or sell (redeem) shares at the net asset value of a share (NAV) plus
Forum Funds any applicable sales charge (or minus any applicable sales charge in the case of
P.O. Box 446 redemptions) next calculated after the Transfer Agent receives your request in proper
Portland, Maine 04112 form. For instance, if the Transfer Agent receives your purchase request in proper
form after 4:00 p.m., Eastern time, your transaction will be priced at the next
OVERNIGHT ADDRESS: business day's NAV plus the applicable sales charge. A Fund cannot accept orders
Forum Funds that request a particular day or price for the transaction or any other special
Two Portland Square conditions.
Portland, Maine 04101
The Funds do not issue share certificates.
TELEPHONE US AT:
(800) 805-8258 (Toll Free) If you purchase shares directly from a Fund, you will receive quarterly statements
(207) 879-0001 and a confirmation of each transaction. You should verify the accuracy of all
transactions in your account as soon as you receive your confirmations.
WIRE INVESTMENTS Each Fund reserves the right to waive minimum investment amounts and may temporarily
(OR ACH PAYMENTS) suspend (during unusual market conditions) or discontinue any service or privilege.
TO US AT:
Bankers Trust Company WHEN AND HOW NAV IS DETERMINED Each Fund calculates its NAV as of the close of the
New York, New York New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday except
ABA #021001033 days when the New York Stock Exchange is closed. The time at which NAV is calculated
FOR CREDIT TO: may change in case of an emergency.
Forum Shareholder
Services, LLC
Account # 01-465-547
(Name of Your Fund)
(Your Name)
(Your Account Number)
</TABLE>
12
<PAGE>
A Fund's NAV is determined by taking the market value of all securities owned by
the Fund (plus all other assets such as cash), subtracting liabilities and then
dividing the result (net assets) by the number of shares outstanding. A Fund
values securities for which market quotations are readily available at current
market value. If market quotations are not readily available, a Fund values
securities at fair value pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of a Fund. Financial
institutions may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. These institutions may
also provide you with certain shareholder services such as periodic account
statements and trade confirmations summarizing your investment activity. Consult
a representative of your financial institution for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint and Uniform Gift to Minors Act
("UGMA") or Uniform Transfers to Minors Act ("UTMA") accounts, the check must be
made payable to "Payson Funds" or to one or more owners of the account and
endorsed to "Payson Funds." For all other accounts, the check must be made
payable on its face to "Payson Funds." No other method of check payment is
acceptable (for instance, you may not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you to
purchase shares through an electronic transfer of money from a checking or
savings account. When you make an additional payment by telephone, the Transfer
Agent will automatically debit your pre-designated bank account for the desired
amount. Your financial institution may charge you a fee for this service. You
may call (800) 805-8258 to request an ACH transaction.
WIRES Instruct your financial institution to make a Federal Funds wire payment
to us. Your financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS Each Fund accepts investments in the following minimum
amounts:
<TABLE>
<S> <C> <C>
MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT
Standard Accounts $2,000 $250
Traditional and Roth IRA Accounts $1,000 $250
Accounts With Systematic Investment Plans $250 $250
</TABLE>
13
<PAGE>
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear
on proprietorship accounts. Joint accounts have two or more the account owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or the UTMA
child and obtain tax benefits o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution form or
similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document, that identify the
trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a
Corporate/Organization Resolution form if applicable) confirmation or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) o Mail us the slip (or your letter) and the check
and a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and resolution
form)
o Make an ACH payment
</TABLE>
14
<PAGE>
SYSTEMATIC INVESTMENTS You may invest a specified amount of money in a Fund once
or twice a month on specified dates. These payments are taken from your bank
account by ACH payment. Systematic investments must be for at least $250.
LIMITATIONS ON PURCHASES Each Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in a Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS Each Fund accepts checks and ACH transfers at full
value subject to collection. If a Fund does not receive your payment for shares
or you pay with a check or ACH transfer that does not clear, your purchase will
be canceled. You will be responsible for any losses or expenses incurred by a
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account that you maintain with the
Transfer Agent) as reimbursement. Each Fund and its agents have the right to
reject or cancel any purchase or exchange due to nonpayment.
SELLING SHARES
Each Fund processes redemption orders promptly. Generally, a Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If a
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
15
<PAGE>
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us your completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Funds against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
Specific requirements are listed in the SAI or may be obtained by calling the
Transfer Agent.
16
<PAGE>
SMALL ACCOUNTS If the value of your account falls below $1,000 ($500 for IRAs),
a Fund may ask you to increase your balance. If the account value is still below
$1,000 ($500 for IRAs) after 60 days, a Fund may close your account and send you
the proceeds. A Fund will not close your account if it falls below these amounts
solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND Each Fund reserves the right to pay redemption proceeds in
portfolio securities rather than cash. These redemptions "in kind" usually occur
if the amount to be redeemed is large enough to affect a Fund's operations (for
example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of a Fund's shares as follows:
<TABLE>
<S> <C> <C> <C>
SALES CHARGE (LOAD) AS % OF:
AMOUNT OF PURCHASE PUBLIC NET
OFFERING PRICE ASSET VALUE* REALLOWANCE %
$0-$49,999 4.00 4.17% 3.50
$50,000 to $99,999 3.50 3.63% 3.00
$100,000 to $249,999 3.00 3.09% 2.50
$250,000 to $499,999 2.50 2.56% 2.10
$500,000 to $999,999 2.00 2.04% 1.70
$1,000,000 and up 0.00 0.00% 1.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The offering price of a Fund's shares includes the relevant sales charge. The
commission paid to the distributor is the sales charge less the reallowance paid
to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include the provision of travel arrangements and lodging,
tickets for entertainment events and merchandise.
17
<PAGE>
REDEMPTIONS A contingent deferred sales charge ("CDSC") is assessed on
redemptions of shares that were part of a purchase of $1 million or more. The
CDSC is assessed as follows:
REDEEMED WITHIN SALES CHARGE
First year of purchase 1.00%
Second year of purchase 0.50%
The CDSC is paid on the lower of the NAV of shares redeemed or the cost of the
shares. To satisfy a redemption request, the Fund will first liquidate shares
that are not subject to a CDSC such as shares acquired with reinvested dividends
and capital gains. The Fund will then liquidate shares in the order that they
were purchased until your redemption request is satisfied.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. Certain persons
may also be eligible to purchase or redeem Fund shares without a sales charge.
Please see the SAI for further information.
EXCHANGE PRIVILEGES
You may exchange your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that has a higher sales
charge, you will have to pay the difference between that fund's sales charge and
a Fund's sales charge at the time of exchange. If you exchange into a fund that
has no sales charge or a lower sales charge than a Fund, you will not have to
pay a sales charge at the time of exchange. Because exchanges are a sale and
purchase of shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Funds reserve the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
RETIREMENT ACCOUNTS
Each Fund offers IRA accounts, including traditional and Roth IRAs. Before
investing in any IRA or other retirement plan, you should consult your tax
adviser. Whenever making an investment in an IRA, be sure to indicate the year
for which the contribution is made.
19
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
Each Fund distributes its net investment income quarterly and net capital gain
at least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
Each Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
A Fund's distribution of net income (including short-term capital gains) is
taxable to you as ordinary income. A Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares.
If you buy shares just before a Fund makes a distribution, you may pay the full
price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
Your Fund will send you information about the income tax status of the Fund's
distributions paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in a Fund, including
state and local tax matters, please see the SAI and consult your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust. No Fund expects to hold shareholders'
meetings unless required by Federal or Delaware law. Shareholders of each series
of the Trust are entitled to vote at shareholders' meetings unless a matter
relates only to specific series (such as approval of an advisory agreement for a
Fund). From time to time, large shareholders may control a Fund or the Trust.
20
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables are intended to help you understand each Fund's financial
performance. Total return in the tables represents the rate an investor would
have earned (or lost) on an investment in a Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
Each Fund's financial statements and the auditor's report are included in the
Annual Report dated March 31, 2000, which is available upon request, without
charge.
PAYSON VALUE FUND
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
2000 1999 1998 1997 1996
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $19.30 $21.67 $16.10 $15.99 $12.71
Income from Investment Operations:
Net investment income 0.06 0.07 0.12 0.21 0.21
Net realized and unrealized gain (loss) on
investments 3.19 (1.16) 6.93 1.80 3.29
Total From Investment Operations 3.25 (1.09) 7.05 2.01 3.50
Less Distributions:
From net investment income (0.06) (0.07) (0.12) (0.20) (0.21)
From net realized capital gain (0.63) (1.21) (1.36) (1.70) (0.01)
Total Distributions (0.69) (1.28) (1.48) (1.90) (0.22)
Ending Net Asset Value Per Share $21.86 $19.30 $21.67 $16.10 $15.99
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 1.45% 1.45% 1.45% 1.45% 1.45%
Gross expenses(a) 1.75% 1.75% 1.87% 2.07% 2.16%
Net investment income 0.22% 0.35% 0.62% 1.30% 1.47%
Total Return(b) 17.20% (4.57)% 45.28% 13.01% 27.77%
Portfolio Turnover Rate 20% 41% 39% 24% 53%
Net Assets at End of Period $19,987 $18,253 $19,918 $13,109 $10,319
(in thousands)
=================================================================================================================
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
21
<PAGE>
PAYSON BALANCED FUND
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
2000 1999 1998 1997 1996
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $12.48 $14.79 $13.20 $13.70 $11.90
Income from Investment Operations:
Net investment income 0.27 0.28 0.37 0.42 0.43
Net realized and unrealized gain (loss) on
investments 0.27 (1.51) 3.52 0.84 2.12
Total from Investment Operations 0.54 (1.23) 3.89 1.26 2.55
Less Distributions:
From net investment income (0.27) (0.28) (0.37) (0.42) (0.43)
From net realized capital gain (0.33) (0.80) (1.93) (1.34) (0.32)
Total Distributions (0.60) (1.08) (2.30) (1.76) (0.75)
Ending Net Asset Value Per Share $12.42 $12.48 $14.79 $13.20 $13.70
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 1.15% 1.15% 1.15% 1.15% 1.15%
Gross expenses(a) 1.52% 1.49% 1.57% 1.67% 1.70%
Net investment income 2.05% 2.07% 2.58% 3.07% 3.25%
Total Return(b) 4.53% (8.20)% 31.27% 9.42% 21.70%
Portfolio Turnover Rate 54% 100% 66% 53% 62%
Net Assets at End of Period $18,596 $23,189 $24,440 $18,163 $17,455
(in thousands)
================================================================================================================
</TABLE>
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Does not include sales charges.
22
<PAGE>
NOTES:
<PAGE>
NOTES:
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION LOGO
The following documents are available free upon request:
PAYSON
ANNUAL/SEMI-ANNUAL REPORTS VALUE FUND
Additional information about each Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In each Fund's annual PAYSON
report, you will find a discussion of the market conditions and investment BALANCED FUND
strategies that significantly affected the Fund's performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about each Fund and is incorporated
by reference into this Prospectus.
CONTACTING THE FUNDS
You can get a free copy of both reports and the SAI, request other information
and discuss your questions about each Fund by contacting the Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 805-8285
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review each Fund's reports and SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC at
(202) 942-8090. You can get copies of this information, for a fee, by e-mail
or by writing to:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
E-mail address: [email protected]
Forum Funds
Free copies of the reports and SAI are available from the SEC's Internet Web P.O. Box 446
Site at http://www.sec.gov. Portland, Maine 04112
(800) 805-8258
Investment Company Act File No. 811-3023 (207) 879-0001
</TABLE>
<PAGE>
FORUM PROSPECTUS
FUNDS
AUGUST 1, 2000
Investors Growth Fund seeks long-term INVESTORS
capital appreciation by investing GROWTH
primarily in the common stock of FUND
companies domiciled in
the United States.
The Fund does not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 3
FEE TABLE 4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS 5
MANAGEMENT 7
YOUR ACCOUNT 9
How to Contact the Fund 9
General Information 9
Buying Shares 10
Selling Shares 14
Sales Charges 17
Exchange Privileges 17
Retirement Accounts 17
OTHER INFORMATION 18
FINANCIAL HIGHLIGHTS 19
1
<PAGE>
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
COMMON STOCK means an Investors Growth Fund (the "Fund") seeks long-term capital appreciation.
equity or ownership
interest in a company. PRINCIPAL INVESTMENT STRATEGY
MARKET CAPITALIZATION The Fund invests primarily in the common stock of domestic companies with market
means the value of a capitalizations of $2 billion or more and that possess above average growth potential
company's common stock in or value not fully reflected in its stock price.
the stock market.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money on your investment in the Fund or the Fund could
underperform other investments. The principal risks of an investment in the Fund include:
o The stock market goes down
o The stock market continues to undervalue the stocks in the Fund's portfolio
o The smaller the market capitalization of a company, the greater for stock price
fluctuation
o The Fund's investment adviser (the "Adviser") makes poor investment decisions
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of your investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk
The Fund may not be appropriate for you if you:
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
</TABLE>
2
<PAGE>
PERFORMANCE
The following chart illustrates the variability of the Fund's returns. The chart
and the table provide some indication of the risks of investing in the Fund by
showing changes in the Fund's performance from year to year and how the Fund's
returns compare to a broad measure of market performance. Performance
information represents only past performance and does not necessarily indicate
future results.
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the annual total return would be less than shown.
[EDGAR Representation of Bar Chart]
1998 16.66%
1999 5.61%
The calendar year-to-date total return as of June 30, 2000 was 3.18%.
During the periods shown in the chart, the highest quarterly return was 16.96%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
-10.31% (for the quarter ended September 30, 1999).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Standard & Poor's 500 Composite Index (the "S&P 500
Index").
INVESTORS S&P 500
YEAR(S) GROWTH FUND INDEX
1 Year 1.38% 21.04%
Since Inception (12/12/97) 9.63% 24.65%(1)
(1) For the period 11/30/97-12/31/99.
The S&P 500 Index is a market capitalization weighted index of common stock. The
S&P 500 Index is unmanaged and reflects the reinvestment of all dividends paid
by stocks included in the index. Unlike the performance figures of the Fund, the
S&P 500 Index's performance does not reflect the effect of expenses.
3
<PAGE>
FEE TABLE
The following table describes the various fees and expenses that you will pay if
you invest in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of the offering price) 4.00%
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) 1.00%(1)
Redemption Fee None
Exchange Fee None
(1) Applicable only on purchases of $1 million or more.
ANNUAL FUND OPERATING EXPENSES (1) (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.65%
Distribution (12b-1) Fees None
Other Expenses 2.00%
TOTAL ANNUAL FUND OPERATING EXPENSES 2.65%
(1) Expense information has been restated to reflect current fees as Fund
assets have declined drastically since March 31, 2000, the Fund's last
fiscal year. In addition, fee waivers of certain service providers have
been eliminated.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Fund for the time periods
indicated, you pay the maximum sales charge and then redeem all of your shares
at the end of each period. The example also assumes that your investment has a
5% annual return, that the Fund's operating expenses remain as stated in the
above table and that distributions are reinvested. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$656 $1,188 $1,744 $3,255
4
<PAGE>
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS
<TABLE>
<S> <C>
CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
FUNDAMENTAL ANALYSIS The Fund seeks long-term capital appreciation.
means the analysis of a
company's financial INVESTMENT STRATEGIES
condition to forecast the
probable future value of THE ADVISER'S PROCESS The Adviser may invest in companies that have above average
its stock price. This growth potential or value not fully reflected in their stock price. The Adviser
analysis includes review of utilizes fundamental analysis, valuation measures such as price/earnings ratios and
a company's balance sheet price/cash flow ratios and technical analysis to determine those companies whose
and income statement, asset shares are attractive for purchase. In evaluating companies, the Adviser considers
history, earnings history, the company's:
product or service o Historical growth rate and return on capital
development and management o Expected future growth rate and return on capital
productivity. o Financial condition
o Industry and competitive position in the industry
PRICE/EARNINGS RATIO o Management quality
means the price of a stock
divided by the company's
earnings per share. The Adviser continuously monitors the companies in the Fund's portfolio to determine
if there have been any fundamental changes in the companies. The Adviser may sell a
PRICE/CASH FLOW means the stock if:
price of a stock divided by
free cash flow per share. o A more attractively priced stock is found or if funds are needed for other
purposes
TECHNICAL ANALYSIS o The underlying company experiences negative internal developments
means the analysis of stock o The underlying company experiences a decline in financial condition
prices and trading volume. o The underlying company experiences a significant erosion in profitability,
earnings or cash flow
o The security is overvalued compared to its fundamentals
o The Fund's holding of a stock is oversized compared to other holdings
</TABLE>
5
<PAGE>
INVESTMENT POLICIES
The Fund invests primarily in the common stock of domestic companies with market
capitalizations of $2 billion or more that possess above average growth
potential or that possess value not yet fully reflected in the stock's price.
Although common stock often gives the owner the right to vote on measures
affecting the company's organization and operations, the Fund does not intend to
exercise control over the management of the companies in which it invests.
Common stocks have a history of long-term growth in value, but their prices tend
to fluctuate over the short-term.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and money market instruments. As a result, the Fund may be unable to
achieve its investment objective.
INVESTMENT RISKS
GENERAL The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market value of securities
in which the Fund invests is based upon the market's perception of value and is
not necessarily an objective measure of the securities' value. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program. Finally,
there is the risk that the Adviser's judgement as to the growth potential or
value of a stock may prove to be wrong.
There is also the risk that the market will not recognize the intrinsic value of
the stocks held by the Fund for an unexpectedly long time. The smaller a
company's market capitalization, the greater the potential for stock price
fluctuations, increased volatility due to lower trading volume, less publicly
available information and less liquidity in the Fund. A decline in investor
demand for the stocks held by the Fund also may adversely affect the value of
these securities.
6
<PAGE>
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
THE ADVISER
The Fund's Adviser is Forum Investment Advisors, LLC, Two Portland Square,
Portland, Maine 04101. The Adviser is a privately owned company controlled by
John Y. Keffer, who is Chairman of the Board of the Trust.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. The Adviser receives an advisory fee of 0.65% of the
average daily net assets of the Fund. For the fiscal year ended March 31, 2000,
the Adviser waived a portion of its fee and only received an advisory fee of
0.47% of the Fund's average daily net assets.
As of June 30, 2000, the Adviser had approximately $3.3 billion of assets under
management.
PORTFOLIO MANAGER
DAWN MARIE ESTLOW STILLINGS Portfolio Manager of the Adviser, has been
responsible for the day-to-day management of the Fund's portfolio since July 1,
2000. Ms. Stillings has provided back-up portfolio management services for the
Fund since its inception on December 12, 1997. Ms. Stillings has more than
twelve years of experience in the investment industry. Prior to joining the
Adviser in July 1996, Ms. Stillings was a member of the research department at
H.M. Payson & Co., an investment advisory and trust services company.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to the Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor acts as the representative of
the Trust in connection with the offering of the Fund's shares. The distributor
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of the Fund's shares.
7
<PAGE>
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's fund accountant, Forum Shareholder
Services, LLC ("Transfer Agent") is the Fund's transfer agent and Forum Trust,
LLC is the Fund's custodian.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of its
own expenses as well as Trust expenses that are allocated among the Fund and the
other funds of the Trust. The Adviser or other service providers may waive all
or any portion of their fees and/or reimburse certain expenses of the Fund. Any
waiver or expense reimbursement increases the Fund's performance for the period
during which the waiver or reimbursement is in effect and may not be recouped at
a later date.
8
<PAGE>
YOUR ACCOUNT
<TABLE>
<S> <C>
HOW TO CONTACT THE FUND GENERAL INFORMATION
WRITE TO US AT: You may purchase or sell (redeem) shares at the net asset value of a share (NAV) plus
Forum Funds any applicable sales charge (or minus any applicable sales charge in the case of
P.O. Box 446 redemptions) next calculated after the Transfer Agent receives your request in proper
Portland, Maine 04112 form. For instance, if the Transfer Agent receives your purchase request in proper
form after 4:00 p.m., Eastern time, your transaction will be priced at the next
OVERNIGHT ADDRESS: business day's NAV plus the applicable sales charge. The Fund cannot accept orders
Forum Funds that request a particular day or price for the transaction or any other special
Two Portland Square conditions.
Portland, Maine 04101
The Fund does not issue share certificates.
TELEPHONE US AT:
(800) 94FORUM or If you purchase shares directly from the Fund, you will receive monthly statements
(800) 943-6786 and a confirmation of each transaction. You should verify the accuracy of all
(Toll Free) transactions in your account as soon as you receive your confirmations.
(207) 879-0001
The Fund reserves the right to waive minimum investment amounts and may temporarily
WIRE INVESTMENTS suspend (during unusual market conditions) or discontinue any service or privilege.
(OR ACH PAYMENTS)
TO US AT: WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of the
Bankers Trust Company New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday except
New York, New York days when the New York Stock Exchange is closed. The time at which NAV is
ABA #021001033 calculated may change in case of an emergency. The Fund's NAV is determined by
taking the market value of all securities owned by the Fund (plus all other assets
FOR CREDIT TO: such as cash), subtracting liabilities and then dividing the result (net assets) by
Forum Shareholder the number of shares outstanding. The Fund values securities for which market
Services, LLC quotations are readily available at current market value. If market quotations are
Account # 01-465-547 not readily available, the Fund values securities at fair value pursuant to
Investors Growth Fund procedures adopted by the Board.
(Your Name)
(Your Account Number) TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other financial
institution, the policies and fees (other than sales charges) charged by that
institution may be different than those of the Fund. Financial institutions may
charge transaction fees and may set different minimum investments or limitations on
buying or selling shares. These institutions may also provide you with certain
shareholder services such as periodic account statements and trade confirmations
summarizing your investment activity. Consult a representative of your financial
institution for more information.
</TABLE>
9
<PAGE>
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint and Uniform Gift to Minors Act
("UGMA") or Uniform Transfers to Minors Act ("UTMA") accounts, the check must be
made payable to "Forum Funds" or to one or more owners of the account and
endorsed to "Forum Funds." For all other accounts, the check must be made
payable on its face to "Forum Funds." No other method of check payment is
acceptable (for instance, you may not pay by travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you to
purchase shares through an electronic transfer of money from a checking or
savings account. When you make an additional payment by telephone, the Transfer
Agent will automatically debit your pre-designated bank account for the desired
amount. Your financial institution may charge a fee for this service. You may
call (800) 943-6786 to request an ACH transaction.
WIRES Instruct your financial institution to make a Federal Funds wire payment
to us. Your financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS The Fund accepts investments in the following minimum
amounts:
<TABLE>
<S> <C> <C>
MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT
Standard Accounts $2,000 $250
Traditional and Roth IRA Accounts $1,000 $250
Accounts With Systematic Investment Plans $250 $250
</TABLE>
10
<PAGE>
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or the UTMA
child and obtain tax benefits o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution form or
similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document, that identify the
trustees
11
<PAGE>
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a
Corporate/Organization Resolution form if applicable) confirmation or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) and o Mail us the slip (or your letter) and the check
a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and
resolution form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and
resolution form)
o Make an ACH payment
</TABLE>
12
<PAGE>
SYSTEMATIC INVESTMENTS You may invest a specified amount of money in the Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Systematic investments must be for at least $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or another identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase or exchange due to nonpayment.
13
<PAGE>
SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone authorization
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us your completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
14
<PAGE>
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
Specific requirements are listed in the SAI or may be obtained by calling the
Transfer Agent.
SMALL ACCOUNTS If the value of your account falls below $1,000 ($500 for IRAs),
the Fund may ask you to increase your balance. If the account value is still
below $1,000 ($500 for IRAs) after 60 days, the Fund may close your account and
send you the proceeds. The Fund will not close your account if it falls below
these amounts solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
15
<PAGE>
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of Fund shares as follows:
<TABLE>
<S> <C> <C> <C>
SALES CHARGE (LOAD) AS % OF:
AMOUNT OF PURCHASE PUBLIC NET
OFFERING PRICE ASSET VALUE* REALLOWANCE %
$0-$49,999 4.00 4.17 3.50
$50,000 to $99,999 3.50 3.63 3.00
$100,000 to $249,999 3.00 3.09 2.50
$250,000 to $499,999 2.50 2.56 2.10
$500,000 to $999,999 2.00 2.04 1.70
$1,000,000 and up 0.00 0.00 1.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
The offering price for the Fund's shares includes the relevant sales charge. The
commission paid to the distributor is the sales charge less the reallowance paid
to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include the provision of travel arrangements and lodging,
tickets for entertainment events and merchandise.
REDEMPTIONS A contingent deferred sales charge ("CDSC") is assessed on
redemptions of shares that were part of a purchase of $1 million or more. The
CDSC is assessed as follows:
REDEEMED WITHIN SALES CHARGE
First year of purchase 1.00%
Second year of purchase 0.50%
The CDSC is paid on the lower of the NAV of shares redeemed or the cost of the
shares. To satisfy a redemption request, the Fund will first liquidate shares
that are not subject to a CDSC such as shares acquired with reinvested dividends
and capital gains. The Fund will then liquidate shares in the order that they
were first purchased until your redemption request is satisfied.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. Certain persons
may also be eligible to purchase or redeem Fund shares without a sales charge.
Please see the SAI for further information.
16
<PAGE>
EXCHANGE PRIVILEGES
You may exchange your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that has a higher sales
charge than the Fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge at the time of exchange. If you
exchange into a fund that has no sales charge or a lower sales charge than the
Fund, you will not have to pay a sales charge at the time of exchange. Because
exchanges are a sale and purchase of shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
RETIREMENT ACCOUNTS
The Fund offers IRA accounts, including traditional and Roth IRAs. The Fund may
also be appropriate for other retirement plans. Before investing in any IRA or
other retirement plan, you should consult your tax adviser. Whenever making an
investment in an IRA, be sure to indicate the year for which the contribution is
made.
17
<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income quarterly and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. The Fund's distributions of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state and local tax matters, please see the SAI and consult your tax
adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal or Delaware law. Shareholders
of each series of the Trust are entitled to vote at shareholders' meetings
unless a matter relates only to specific series (such as approval of an advisory
agreement for the Fund). From time to time, large shareholders may control the
Fund or the Trust.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
The Fund's financial statements and the auditor's report are included in the
Annual Report dated March 31, 2000, which is available upon request, without
charge.
<TABLE>
<S> <C> <C> <C>
YEAR ENDED MARCH 31,
2000 1999 1998(A)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $11.60 $11.35 $10.00
Income from Investment Operations:
Net investment income 0.04 0.06 0.03
Net realized and unrealized gain
(loss) on investments 0.67 0.61 1.32
Total from Investment Operations 0.71 0.67 1.35
Less Distributions:
From net investment income (0.04) (0.09) -
From net realized capital gain (0.70) (0.33) -
Total Distributions (0.74) (0.42) -
Ending Net Asset Value Per Share $11.57 $11.60 $11.35
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 1.10% 1.10% 1.10% (b)
Gross expenses(c) 1.49% 1.44% 1.56% (b)
Net investment income 0.40% 0.51% 0.96% (b)
Total Return(d) 6.54% 6.25% 13.50%
Portfolio Turnover Rate 0% 27% 0%
Net Assets at End of Period (in thousands) $20,823 $29,107 $33,899
</TABLE>
(a) The Fund commenced operations on December 12, 1997.
(b) Annualized.
(c) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(d) Does not include sales charges.
19
<PAGE>
NOTES:
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION FORUM
FUNDS
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS INVESTORS GROWTH FUND
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about the Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of both reports and the SAI, request other
information and discuss your questions about the Fund by contacting the
Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 943-6786
(800) 94FORUM
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review the Fund's reports and SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC
at (202) 942-8090. You can get copies of this information, for a fee, by
e-mail or by writing to: [LOGO]
Public Reference Room Forum Funds
Securities and Exchange Commission P.O. Box 446
Washington, D.C. 20549-0102 Portland, Maine 04112
E-mail address: [email protected] (800) 943-6786
(800) 94FORUM
Free copies of the reports and SAI are available from the SEC's (207) 879-0001
Internet (207) 879-0001 Web Site at http://www.sec.gov.
Investment Company Act File No. 811-3023
</TABLE>
<PAGE>
PROSPECTUS
[PICTURE OF EARTH
FROM MOON] AUGUST 1, 2000
AUSTIN GLOBAL
EQUITY FUND
Austin Global Equity Fund
seeks capital appreciation by
investing primarily in common
stock and securities convertible
into common stock of companies
domiciled in the United States
and abroad.
The Fund does not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FORUM
FUNDS
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 4
FEE TABLE 5
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS 6
MANAGEMENT 9
YOUR ACCOUNT 11
How To Contact The Fund 11
General Information 11
Buying Shares 12
Selling Shares 14
Exchange Privileges 16
Retirement Accounts 17
OTHER INFORMATION 18
FINANCIAL HIGHLIGHTS 19
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RISK/RETURN SUMMARY
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CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
COMMON STOCK means an Austin Global Equity Fund (the "Fund") seeks capital appreciation.
equity or ownership
interest in a company. PRINCIPAL INVESTMENT STRATEGY
CONVERTIBLE SECURITY The Fund's adviser (the "Adviser") studies political and economic developments in various
means a security such countries to identify those which offer the best investment opportunities. Currently, the
as a preferred stock or Fund invests primarily in the common stock (including ADRs) and securities convertible into
bond that may be common stock of companies based in the United States, Europe, Japan and the Pacific Basin.
converted into a The Fund principally invests in the common stock of companies that have above average growth
specified number of potential. The Fund also invests in companies that are experiencing growth but whose growth
shares of common stock. has not been recognized by the market.
AMERICAN DEPOSITARY PRINCIPAL RISKS OF INVESTING IN THE FUND
RECEIPT ("ADR") means a
receipt for shares of a GENERAL RISKS You could lose money on your investment in the Fund or the Fund could
foreign based company underperform other investments. The principal risks of an investment in the Fund include:
held by a U.S. bank o The U.S. or foreign stock markets go down
that entitles the o The stock market does not recognize the growth potential of the stocks in the
holder to all dividends. Fund's portfolio
o The Adviser may make poor investment decisions
RISKS OF FOREIGN SECURITIES Because investing in the securities of foreign
companies can have more risk than investing in U.S. based companies, an
investment in the Fund may have the following additional risks:
o Foreign securities may be subject to greater fluctuations in price
than securities of U.S. companies denominated in U.S. dollars
o There may not be sufficient public information regarding foreign
issuers
o Political and economic instability abroad may adversely affect the
operations of foreign issuers and the value of their securities
o Changes in foreign tax laws, exchange controls and policies on
nationalization and expropriation may affect the operations of
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foreign issuers and the value of their securities
o Fluctuations in currency exchange rates may adversely affect the value
of foreign securities
These risks may be greater for securities of issuers located in emerging or
developing markets.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Are willing to tolerate global risk
o Are willing to tolerate significant changes in the value of your
investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk
The Fund may not be appropriate for you if you:
o Want an investment that pursues market trends or focuses only on
particular sectors or industries
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
3
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PERFORMANCE
The following chart illustrates the variability of the Fund's returns. The chart
and the table provide some indication of the risks of investing in the Fund by
showing changes in the Fund's performance from year to year and how the Fund's
returns compare to a broad measure of market performance. Performance
information represents only past performance and does not necessarily indicate
future results.
The following chart shows the annual total return for each full calendar year
that the Fund has operated.
[EDGAR Representation of Bar Chart]
1994 2.10%
1995 22.62%
1996 14.53%
1997 23.93%
1998 22.90%
1999 55.89%
The calendar year-to-date total return as of June 30, 2000 was -3.16%.
During the periods shown in the chart, the highest quarterly return was 45.98%
(for the quarter ended December 31, 1999) and the lowest quarterly return was
-13.62% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Morgan Stanley Capital International World Index ("MSCI
World Index").
YEAR(S) AUSTIN GLOBAL EQUITY FUND MSCI WORLD INDEX
1 Year 55.89% 24.93%
5 Years 27.24% 19.76%
Since Inception (12/3/93) 22.39% 17.84%(1)
(1) For the period 11/30/93 - 12/31/99.
The MSCI World Index is a market index of a diverse range of global stock
markets in the United States, Canada, Europe, Australia, New Zealand and the Far
East. The MSCI World Index is unmanaged and reflects the reinvestment of
dividends. Unlike the performance figures of the Fund, the MSCI World Index's
performance does not reflect the effect of expenses.
4
<PAGE>
FEE TABLE
The following tables describe the various fees and expenses that you will pay if
you invest in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales (Load) Imposed on Purchases None
Maximum Sales (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES(1)(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 1.50%
Distribution (12b-1) Fees None
Other Expenses 0.74%
TOTAL ANNUAL FUND OPERATING EXPENSES 2.24%
(1) Based on amounts incurred during the Fund's fiscal year ended March 31,
2000 stated as a percentage of assets.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of each period. The
example also assumes that your investment has a 5% annual return, that the
Fund's operating expenses remain as stated in the above table and that
distributions are reinvested. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$227 $700 $1,200 $2,575
5
<PAGE>
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS
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CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
FUNDAMENTAL ANALYSIS The Fund seeks capital appreciation by investing primarily in a portfolio of common stock
means the analysis of a and securities convertible into common stock.
company's financial
condition to forecast INVESTMENT STRATEGIES
the probable future
value of its stock THE ADVISER'S PROCESS First, the Adviser studies the political and economic developments
price. This analysis in various foreign countries in order to determine which country offers the best investment
includes review of a opportunity. The Adviser focuses on, among other things, gross domestic product, interest
company's balance sheet rate movements, employment costs, earnings trends, currency fluctuations, changes in
and income statement, governmental policy and leadership, and the laws and taxes relating to foreign investors.
asset history, earnings Currently, the Adviser invests primarily in the securities of companies located in the
history, product or United States, Europe, Japan and the Pacific Basin.
service development and
management productivity. The Adviser relies primarily on fundamental analyses of prospective companies to identify
those companies with above average growth and/or appreciation potential. The Adviser also
GROSS DOMESTIC PRODUCT uses fundamental analysis to identify companies that are experiencing growth but whose
means the value of a growth has not been recognized by the market.
country's goods and
services produced In order to avoid the risks of foreign investments due to the different accounting and
during a certain period disclosure requirements imposed on foreign companies, the Adviser routinely invests in
of time, usually one ADRs. Because ADRs are traded in the U.S. markets and more information is available about
year. the issuer, the Adviser can evaluate the fundamentals of the issuer more easily.
The Adviser continuously monitors the companies in the Fund's portfolio to determine if
there have been any fundamental changes in the companies. The Adviser may sell a security if:
o The underlying company experiences a decline in financial condition
o The underlying company experiences a significant erosion in profitability,
earnings or cash flow
o The stock is overvalued compared to its fundamentals
o The Fund's holding of a stock is oversized compared to other holdings
o There are negative trends in inflation, recession or interest rates
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INVESTMENT POLICIES Under normal circumstances, the Fund invests primarily in
common stock (including ADRs) and convertible securities of issuers located in
three or more countries. The Fund generally invests more of its assets in the
securities of U.S. issuers and ADRs than in the securities of foreign issuers.
Currently, the Fund limits its investments in any one country or in securities
denominated in any one currency to 25% of its total assets. This limitation does
not apply to the securities of U.S. issuers or securities denominated in the
U.S. dollar. The Fund intends to invest up to 25% of its total assets in
companies in the telecommunications industry.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and money market instruments. As a result, the Fund may be unable to
achieve its investment objective.
INVESTMENT RISKS
GENERAL The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market value of securities
in which the Fund invests is based upon the market's perception of value and is
not necessarily an objective measure of the securities' value. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program. Finally,
there is also the risk that the Adviser may make poor investment decisions.
RISKS OF FOREIGN SECURITIES Because the Fund invests in foreign securities, an
investment in the Fund may have the following additional risks:
o Foreign securities may be subject to greater fluctuations in price
than securities of U.S. companies denominated in U.S. dollars
o There may not be sufficient public information regarding foreign
issuers and foreign companies may not be subject to uniform
accounting, auditing and financial reporting standards as are U.S.
companies
o Political and economic instability abroad may adversely affect the
operations of foreign issuers and the value of their securities
o Changes in foreign tax laws, exchange controls and policies on
nationalization and expropriation also may affect the operations of
foreign issuers and the value of their securities
o Fluctuations in currency exchange rates may adversely affect the value
of foreign securities
o Foreign securities and their markets may be less liquid than U.S.
markets
7
<PAGE>
o Foreign securities and their issuers are not subject to the same
degree of regulation as U.S. issuers regarding information disclosure,
insider trading and market manipulation
o Foreign security registration, custody and settlement may be subject
to delays or other operational and administrative problems
o Foreign brokerage commissions and custody fees are generally higher
than those in the U.S.
These risks may be greater for investments in issuers located in emerging or
developing markets. These markets may be under capitalized, may have less
developed legal and financial systems or may have less stable currencies than
markets of developed countries.
8
<PAGE>
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
THE ADVISER
The Fund's Adviser is Austin Investment Management, Inc., 375 Park Avenue, New
York, New York 10152. The Adviser is a privately owned company, controlled by
Peter Vlachos.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. The Adviser receives an advisory fee at an annual rate
of 1.50% of the average daily net assets of the Fund. For the fiscal year ended
March 31, 2000, the Adviser received the full fee.
As of June 30, 2000, the Adviser had approximately $310 million in assets under
management.
PORTFOLIO MANAGER
PETER VLACHOS President and Chief Portfolio Manager of the Adviser, has been
primarily responsible for the day-to-day management of the Fund since its
inception on December 3, 1993. Mr. Vlachos has over 30 years of experience in
the investment industry and prior to his association with the Adviser in 1989,
he was a portfolio manager at Neuberger & Berman, Inc.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to the Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor acts as the representative of
the Trust in connection with the offering of the Fund's shares. The distributor
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of the Fund's shares.
9
<PAGE>
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's fund accountant, Forum Shareholder
Services, LLC ("Transfer Agent") is the Fund's transfer agent and Forum Trust,
LLC is the Fund's custodian.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of its
own expenses as well as Trust expenses that are allocated among the Fund and the
other funds of the Trust. The Adviser or other service providers may waive all
or any portion of their fees and/or reimburse certain expenses of the Fund. Any
fee waiver or expense reimbursement increases the Fund's performance for the
period during which the waiver or reimbursement is in effect and may not be
recouped at a later date.
10
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YOUR ACCOUNT
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HOW TO CONTACT GENERAL INFORMATION
THE FUND
You may purchase or sell (redeem) shares at the net asset value of a share
WRITE TO US AT: (NAV) next calculated after the Transfer Agent receives your request in proper
Forum Funds form. For instance, if the Transfer Agent receives your purchase request in
P.O. Box 446 proper form after 4:00 p.m., Eastern time, your transaction will be priced at
Portland, Maine 04112 the next business day's NAV. The Fund cannot accept orders that request a
particular day or price for the transaction or any other special conditions.
OVERNIGHT ADDRESS:
Forum Funds The Fund does not issue share certificates.
Two Portland Square
Portland,Maine 04101 If you purchase shares directly from the Fund, you will receive monthly
statements and a confirmation of each transaction. You should verify the
TELEPHONE US AT: accuracy of all transactions in your account as soon as you receive your
(800) 754-8759 (Toll Free) confirmations.
(207) 879-0001
The Fund reserves the right to waive minimum investment amounts and may
WIRE INVESTMENTS temporarily suspend (during unusual market conditions) or discontinue any
(OR ACH PAYMENTS) service or privilege.
TO US AT:
Bankers Trust Company WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
New York, New York the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
ABA #021001033 except days when the New York Stock Exchange is closed. The time at which NAV
is calculated may change in case of an emergency.
FOR CREDIT TO:
Forum Shareholder
Services, LLC
Account # 01-465-547
Austin Global Equity Fund
(Your Name)
(Your Account Number)
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11
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The Fund's NAV is determined by taking the market value of all securities owned
by the Fund (plus all other assets such as cash), subtracting liabilities and
then dividing the result (net) assets) by the number of shares outstanding. The
Fund values securities for which market quotations are readily available at
current market value. If market quotations are not readily available, the Fund
values securities at fair value pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees charged by that institution may be
different than those of the Fund. Financial institutions may charge transaction
fees and may set different minimum investments or limitations on buying or
selling shares. These institutions also may provide you with certain shareholder
services such as periodic account statements and trade confirmations summarizing
your investment activity. Consult a representative of your financial institution
for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint and Uniform Gift to Minors Act
("UGMA") or Uniform Transfers to Minors Act ("UTMA") accounts, the check must be
made payable to "Austin Global Equity Fund" or to one or more owners of the
account and endorsed to "Austin Global Equity Fund." For all other accounts, the
check must be made payable on its face to "Austin Global Equity Fund." No other
method of check payment is acceptable (for instance, you may not pay by
travelers check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you to
purchase shares through an electronic transfer of money from a checking or
savings account. When you make a payment by telephone, the Transfer Agent will
automatically debit your pre-designated bank account for the desired amount.
Your financial institution may charge you a fee for this service. You may call
(800) 754-8759 to request an ACH transaction
WIRES Instruct your financial institution to make a Federal Funds wire payment
to us. Your financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS The Fund accepts investments in the following minimum
amounts:
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MINIMUM INITIAL MINIMUM ADDITIONAL INVESTMENT
INVESTMENT
Standard Accounts $10,000 $2,500
Traditional and Roth IRA Accounts $2,000 $1,000
Accounts With Systematic Investment Plans $250 $250
</TABLE>
12
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ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or the UTMA
child and obtain tax benefits o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES Submit a Corporate/Organization Resolution form or
similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document, that identify the
trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a
Corporate/Organization Resolution form if applicable) confirmation or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) o Mail us the slip (or your letter) and the check
and a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and resolution
form)
o Make an ACH payment
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13
<PAGE>
SYSTEMATIC INVESTMENTS You may invest a specified amount of money in the Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Systematic investments must be for at least $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or another identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase due to nonpayment.
SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application:
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us the completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
Specific requirements are listed in the SAI or may be obtained by calling the
Transfer Agent.
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SMALL ACCOUNTS If the value of your account falls below $1,000 ($500 for IRAs),
the Fund may ask you to increase your balance. If the account value is still
below $1,000 ($500 for IRAs) after 60 days, the Fund may close your account and
send you the proceeds. The Fund will not close your account if it falls below
these amounts solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may exchange your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that imposes a sales
charge, you will have to pay that fund's sales charge at the time of exchange.
Because exchanges are a sale and purchase of shares, they may have tax
consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
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RETIREMENT ACCOUNTS
The Fund offers IRA accounts, including traditional and Roth IRAs. The Fund may
also be appropriate for other retirement plans. Before investing in any IRA or
other retirement plan, you should consult your tax adviser. Whenever making an
investment in an IRA, be sure to indicate the year for which the contribution is
made.
17
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OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income annually and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. The Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares.
The Fund's distribution of net income generated by investments in foreign
securities may be subject to foreign income or other taxes.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Fund will send you information about the income tax status of the Fund's
distributions paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state, local and foreign tax matters, please see the SAI and consult
your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal or Delaware law. Shareholders
of each series of the Trust are entitled to vote at shareholders' meetings
unless a matter relates only to specific series (such as approval of an advisory
agreement for the Fund). From time to time, large shareholders may control the
Fund or the Trust.
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FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
The Fund's financial statements and the auditor's report are included in the
Annual Report dated March 31, 2000, which is available upon request, without
charge.
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<S> <C> <C> <C> <C> <C>
YEAR/PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31 JUNE 30,
2000 1999 1998 1997 1996
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $16.58 $16.27 $12.84 $13.19 $11.60
Income from Investment Operations:
Net investment income (loss) (0.21) 0.15 (0.07) (0.11) (0.12)
Net realized and unrealized gain
(loss) on investments 11.59 1.32 4.95 0.86 1.98
Total from Investment Operations 11.38 1.47 4.88 0.75 1.86
Less Distributions:
From net investment income _ (0.14) _ _ _
From net realized capital gain _ (0.90) (1.45) (1.10) (0.27)
From return of capital _ (0.12) _ _ _
Total Distributions _ (1.16) (1.45) (1.10) (0.27)
Ending Net Asset Value Per Share $27.96 $16.58 $16.27 $12.84 $13.19
OTHER INFORMATION
Ratios to Average Net Assets:
Net expenses 2.24% 2.42% 2.50% 2.50%(b) 2.50%
Gross expenses(a) 2.24% 2.42% 2.69% 3.38%(b) 3.25%
Net investment income (loss) (1.06%) 0.92% (0.50%) (1.09%)(b) (0.98%)
Total Return 68.64% 9.51% 39.88% 5.38% 16.22%
Portfolio Turnover Rate 49% 51% 57% 45% 94%
Net Assets at End of Period $42,521 $22,014 $15,379 $10,289 $10,326
(in thousands)
(a) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
(b) Annualized.
</TABLE>
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<TABLE>
<S> <C>
FOR MORE INFORMATION
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is contained in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about the Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of both reports and the SAI, request other
information and discuss your questions about the Fund by contacting the Fund
at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 754-8759
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review the Fund's reports and SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC
at (202) 942-8090. You can get copies of this information, for a fee, by
e-mail or by writing to:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
E-mail address: [email protected]
Free copies of the reports and SAI are available from the SEC's Internet Web
Site at http://www.sec.gov.
Investment Company Act File No. 811-3023
</TABLE>
<PAGE>
[FORUM STATEMENT OF ADDITIONAL INFORMATION
LOGO] ----------------------------------------
August 1, 2000
INVESTORS HIGH GRADE BOND FUND
INVESTORS BOND FUND
TAXSAVER BOND FUND
MAINE TAXSAVER BOND FUND
NEW HAMPSHIRE TAXSAVER BOND FUND
INVESTMENT ADVISER:
Forum Investment Advisers, LLC
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND SHAREHOLDER
SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 94FORUM
(800) 943-6786
This Statement of Additional Information (the "SAI") supplements the
Prospectuses dated August 1, 2000, as may be amended from time to time, offering
shares of Investors High Grade Bond Fund, Investors Bond Fund, TaxSaver Bond
Fund, Maine TaxSaverl Bond Fund, and New Hampshire TaxSaver Bond Fund, five
separate series of Forum Funds, a registered, open-end management investment
company (the "Trust"). This SAI is not a prospectus and should only be read in
conjunction with the Prospectus applicable to each Fund. You may obtain any
Prospectus relating to a Fund without charge by contacting Forum Shareholder
Services, LLC at the address or telephone number listed above.
Financial Statements for each Fund for the year ended March 31, 2000, included
in the Annual Report to shareholders, are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GLOSSARY......................................................................1
1. INVESTMENT POLICIES AND RISKS.............................................2
2. CERTAIN INFORMATION CONCERNING THE STATES OF MAINE AND NEW HAMPSHIRE.....14
3. INVESTMENT LIMITATIONS...................................................21
4. PERFORMANCE DATA AND ADVERTISING.........................................31
5. MANAGEMENT...............................................................36
6. PORTFOLIO TRANSACTIONS...................................................41
7. PURCHASE AND REDEMPTION INFORMATION......................................43
8. TAXATION.................................................................47
9. OTHER MATTERS............................................................51
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS..............................A-1
APPENDIX B - MISCELLANEOUS TABLES...........................................B-1
APPENDIX C - PERFORMANCE DATA...............................................C-1
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS...............................D-1
<PAGE>
GLOSSARY
--------------------------------------------------------------------------------
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Forum Investment Advisers, LLC.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of each Fund's assets.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of each Fund.
"FAdS" means Forum Administrative Services, LLC, the administrator of each Fund.
"Fitch" means Fitch IBCA, Inc.
"FFS" means Forum Fund Services, LLC, the distributor of each Fund's shares.
"FFSI" means Forum Financial Services, Inc., the distributor of each Fund's
shares prior to August 1, 1999.
"FSS" means Forum Shareholder Services, LLC, the transfer agent of each fund.
"Fund" means each of Investors High Grade Bond Fund, Investors Bond Fund,
TaxSaver Bond Fund, Maine TaxSaver Bond Fund and New Hampshire TaxSaver Bond
Fund.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value per share.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, A Division of the McGraw Hill Companies.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
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1. Investment Policies and Risks
--------------------------------------------------------------------------------
Investors High Grade Bond Fund is a diversified series of the Trust, and each of
Investors Bond Fund, TaxSaver Bond Fund, Maine TaxSaver Bond Fund, and New
Hampshire TaxSaver Bond Fund is a non-diversified series of the Trust. This
section discusses in greater detail than each Fund's Prospectus certain
investments that the Fund may make. A Fund will make only those investments
described below that are in accordance with its investment objectives and
policies.
A. SECURITY RATINGS INFORMATION
A Fund's investments in debt securities are subject to credit risk relating to
the financial condition of the issuers of the securities that the Fund holds. To
limit credit risk, Investors High Grade Bond Fund may only invest in debt
securities rated in one of the three highest rating categories by an NRSRO. The
Fund may also invest in commercial paper, bankers acceptances, certificates of
deposits and other money market instruments rated in one of the two highest
rating categories by an NRSRO. The lowest rated corporate bond in which
Investors High Grade Bond may invest is "A" in the case of Moody's, S&P, and
Fitch and the lowest rated preferred stock in which the Fund may invest is "a"
in the case of Moody's and "A" in the case of S&P. Each other Fund primarily
invests in debt securities considered to be investment grade. Investment grade
securities are rated in the top four long-term rating categories or the two
highest short-term categories by an NRSRO or are unrated and determined by the
Adviser to be of comparable quality. The lowest ratings that are investment
grade for corporate bonds, including convertible bonds, are "Baa" in the case of
Moody's and "BBB" in the case of S&P and Fitch; for preferred stock are "Baa" in
the case of Moody's and "BBB" in the case of S&P.
Investors Bond Fund may invest up to 10% of its total assets, TaxSaver Bond Fund
may invest up to 25% of its total assets, and Maine TaxSaver Bond Fund and New
Hampshire TaxSaver Bond Fund may each invest up to 20% of their total assets in
securities rated below investment grade. Non-investment grade securities
(commonly known as "junk bonds") have significant speculative characteristics
and generally involve greater volatility of price than investment grade
securities. 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. A Fund may
use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by a NRSRO
may change as a result of changes in such organizations or their rating systems,
the Adviser will attempt to substitute comparable ratings. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates. Finally, if two or
more NRSROs rate a security differently, the Adviser may rely on the higher
rating.
B. DEBT SECURITIES
1. GENERAL
CORPORATE DEBT OBLIGATIONS. Investors High Grade Bond Fund, Investors Bond Fund
and TaxSaver Bond Fund may invest in corporate debt obligations. Corporate debt
obligations include corporate bonds, debentures, notes, commercial paper and
2
<PAGE>
other similar corporate debt instruments. These instruments are used by
companies to borrow money from investors. The issuer pays the investor a fixed
or variable rate of interest and must repay the amount borrowed at maturity.
Commercial paper (short-term unsecured promissory notes) is issued by companies
to finance their current obligations and normally has a maturity of less than 9
months. Each Fund may also invest in corporate debt securities registered and
sold in the United States by foreign issuers (Yankee bonds) and those sold
outside the United States by foreign or U.S. issuers (Eurobonds). Each Fund
restricts its purchases of these securities to issues denominated and payable in
United States dollars. All obligations of non-U.S. issuers purchased by a Fund
will be issued or guaranteed by a sovereign government, by a supranational
agency whose members are sovereign governments, or by a U.S. issuer in whose
debt securities the Fund can invest.
U.S. GOVERNMENT SECURITIES. Investors High Grade Bond Fund, Investors Bond Fund
and TaxSaver Bond Fund may invest in U.S. Government Securities. U.S. Government
Securities include securities issued by the U.S. Treasury and by U.S. Government
agencies and instrumentalities. U.S. Government Securities may be supported by
the full faith and credit of the United States (such as mortgage-related
securities and certificates of the Government National Mortgage Association and
securities of the Small Business Administration); by the right of the issuer to
borrow from the U.S. Treasury (for example, Federal Home Loan Bank securities);
by the discretionary authority of the U.S. Treasury to lend to the issuer (for
example, Fannie Mae (formerly the Federal National Mortgage Association)
securities); or solely by the creditworthiness of the issuer (for example,
Federal Home Loan Mortgage Corporation securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. No assurance can be given that the U.S. Government would provide
support if it were not obligated to do so by law. Neither the U.S. Government
nor any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MORTGAGE-RELATED SECURITIES. Investors High Grade Bond Fund and Investors Bond
Fund may invest in mortgage-related securities. Mortgage-related securities
represent interests in a pool of mortgage loans originated by lenders such as
commercial banks, savings associations and mortgage bankers and brokers.
Mortgage-related securities may be issued by governmental or government-related
entities or by non-governmental entities such as special purpose trusts created
by commercial lenders.
Pools of mortgages consist of whole mortgage loans or participations in mortgage
loans. The majority of these loans are made to purchasers of 1-4 family homes.
The terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of adjustable-rate mortgages,
growing equity mortgages, graduated payment mortgages and other types. Mortgage
poolers apply qualification standards to lending institutions which originate
mortgages for the pools as well as credit standards and underwriting criteria
for individual mortgages included in the pools. In addition, many mortgages
included in pools are insured through private mortgage insurance companies.
Mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. Most mortgage-related
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments to holders of these securities are caused by prepayments resulting
from the sale or foreclosure of the underlying property or refinancing of the
underlying loans. As prepayment rates of individual pools of mortgage loans vary
widely, it is not possible to predict accurately the average life of a
particular mortgage-related security. Although mortgage-related securities are
issued with stated maturities of up to forty years, unscheduled or early
payments of principal and interest on the mortgages may shorten considerably the
securities' effective maturities.
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<PAGE>
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The principal and interest on GNMA
pass-through securities are backed by the full faith and credit of the U.S.
Government.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. Mortgage-related
securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Investors Bond Fund may invest in
privately issued mortgage-related securities. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
interest and principal on the securities. The market for privately-issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers. Investors High
Grade Bond Fund may not invest in privately issued mortgage-related securities.
STRIPPED MORTGAGE-RELATED SECURITIES. Investors Bond Fund may invest in stripped
mortgage-related securities. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets. Investors High Grade Bond Fund may
not invest in stripped mortgage-related securities.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus, a
Fund could suffer some principal loss if the Fund sold the securities before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates. Some adjustable rate securities (or the underlying mortgages) are
subject to caps or floors, that limit the maximum change in interest rates
during a specified period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs as they are received, although certain
classes (often referred to as "tranches") of CMOs have priority over other
classes with respect to the receipt of mortgage prepayments.
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<PAGE>
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and that have multiple classes similar to those of CMOs.
Payments of principal of and interest on the underlying Mortgage Assets (and in
the case of CMOs, any reinvestment income thereon) provide funds to pay debt
service on the CMOs or to make scheduled distributions on the multi-class
mortgage pass-through securities. Parallel pay CMOs are structured to provide
payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. Planned amortization class mortgage-related
securities ("PAC Bonds") are a form of parallel pay CMO. PAC Bonds are designed
to provide relatively predictable payments of principal provided that, among
other things, the actual prepayment experience on the underlying mortgage loans
falls within a contemplated range. CMOs may have complicated structures and
generally involve more risks than simpler forms of mortgage-related securities.
ASSET-BACKED SECURITIES. Investors High Grade Bond Fund and Investors Bond Fund
may invest in asset-backed securities. Asset-backed securities, which have
structural characteristics similar to mortgage-related securities but have
underlying assets that are not mortgage loans or interests in mortgage loans.
Asset-backed securities represent fractional interests in, or are secured by and
payable from, pools of assets such as motor vehicle installment sales contracts,
installment loan contracts, leases of various types of real and personal
property and receivables from revolving credit (for example, credit card)
agreements. Assets are securitized through the use of trusts and special purpose
corporations that issue securities that are often backed by a pool of assets
representing the obligations of a number of different parties. Asset-backed
securities have structures and characteristics similar to those of
mortgage-related securities and, accordingly, are subject to many of the same
risks, although often, to a greater extent.
MUNICIPAL SECURITIES. TaxSaver Bond Fund, Maine TaxSaver Bond Fund and New
Hampshire TaxSaver Bond Fund may invest in municipal securities. Municipal
securities are issued by the states, territories and possessions of the United
States, their political subdivisions (such as cities, counties and towns) and
various authorities (such as public housing or redevelopment authorities),
instrumentalities, public corporations and special districts (such as water,
sewer or sanitary districts) of the states, territories and possessions of the
United States or their political subdivisions. In addition, municipal securities
include securities issued by or on behalf of public authorities to finance
various privately operated facilities, such as industrial development bonds,
that are backed only by the assets and revenues of the non-governmental user
(such as hospitals and airports). Normally, TaxSaver Bond Fund will not invest
greater than 25% of its total assets in issuers located in any one state,
territory or possession. New Hampshire TaxSaver Bond Fund and Maine TaxSaver
Bond Fund may invest up to 25% of their total assets in municipal securities of
issuers located in any one territory or possession of the United States.
Municipal securities are issued to obtain funds for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities are
classified as general obligation or revenue bonds or notes. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable from revenue derived from a particular facility, class of facilities or
the proceeds of a special excise tax or other specific revenue source but not
from the issuer's general taxing power. TaxSaver Bond Fund will not invest more
than 25% of its total assets in a single type of revenue bond. Private activity
bonds and industrial revenue bonds do not carry the pledge of the credit of the
issuing municipality, but generally are guaranteed by the corporate entity on
whose behalf they are issued.
Municipal leases are entered into by state and local governments and authorities
to acquire equipment and facilities such as fire and sanitation vehicles,
telecommunications equipment and other assets. Municipal leases (which normally
provide for title to the leased assets to pass eventually to the government
issuer) have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt-issuance limitations of many state constitutions and
statutes are deemed to be inapplicable because of the inclusion in many leases
or contracts of "non-appropriation" clauses that provide that the governmental
issuer has no obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative
body on a yearly or other periodic basis.
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VARIABLE AND FLOATING RATE SECURITIES. Each 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, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. A Fund intends to purchase these securities only when the Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Adviser may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that the Adviser
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. A Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Adviser monitors the liquidity of
each Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
STAND-BY COMMITMENTS. TaxSaver Bond Fund, Maine TaxSaver Bond Fund and New
Hampshire TaxSaver Bond Fund may purchase municipal securities on a stand-by
commitment basis. A stand-by commitment is the right to resell a security to the
seller at an agreed upon price or yield within a specified period prior to its
maturity date. Securities with a stand-by commitment are generally more
expensive if the same securities were without the commitment. Stand-by
commitments allow a Fund to invest in a security while preserving its liquidity
to meet unanticipated redemptions. A Fund will enter into stand-by commitments
only with banks or municipal security dealers that the Adviser believes have
minimal credit risk. The value of a stand-by commitment is dependent on the
ability of the writer to meet its repurchase obligation.
PARTICIPATION INTERESTS. TaxSaver Bond Fund, Maine TaxSaver Bond Fund and New
Hampshire TaxSaver Bond Fund may invest in participation interests.
Participation interests are interests in loans or securities in which a Fund may
invest directly that are owned by banks or other institutions. A participation
interest gives a Fund an undivided proportionate interest in a loan or security
determined by the Fund's investment. Participation interests may carry a demand
feature permitting the holder to tender the interests back to the bank or other
institution. Participation interests, however, do not provide the Fund with any
right to enforce compliance by the borrower, nor any rights of set-off against
the borrower and the Portfolio may not directly benefit from any collateral
supporting the loan in which it purchased a participation interest. As a result,
the Fund will assume the credit risk of both the borrower and the lender that is
selling the participation interest.
6
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2. RISKS
GENERAL. The market value of the interest-bearing debt securities held by a 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. Each Fund's investments in debt securities are subject to credit
risk relating to the financial condition of the issuers of the securities that
each Fund holds. To limit credit risk, Investors High Grade Bond Fund generally
invests in debt securities rated in the three highest rating categories by an
NRSRO and each other Fund generally buys debt securities that are rated in the
top four long-term rating categories by an NRSRO or in the top two short-term
rating categories by an NRSRO. Moody's, Standard & Poor's and other NRSROs are
private services that provide ratings of the credit quality of debt obligations,
including convertible securities. A description of the range of ratings assigned
to various types of securities by several NRSROs is included in Appendix B. The
Adviser may use these ratings to determine whether to purchase, sell or hold a
security. Ratings are not, however, absolute standards of quality. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Consequently, similar
securities with the same rating may have different market prices. In addition,
rating agencies may fail to make timely changes in credit ratings and the
issuer's current financial condition may be better or worse than a rating
indicates.
Each Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
Each Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of a Fund to successfully utilize mortgage-related
securities depends in part upon the ability of the Advisers to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
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Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting the Fund's yield. Because prepayments of
principal generally occur when interest rates are declining, it is likely that a
Fund, to the extent it retains the same percentage of debt securities, may have
to reinvest the proceeds of prepayments at lower interest rates than those of
their previous investments. If this occurs, a Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates (when prepayment of principal
is more likely) than other debt securities of comparable duration, although they
may have a comparable risk of decline in market value in periods of rising
interest rates. A decrease in the rate of prepayments may extend the effective
maturities of mortgage-related securities, reducing their sensitivity to changes
in market interest rates. To the extent that a Fund's purchase mortgage-related
securities at a premium, unscheduled prepayments, which are made at par, result
in a loss equal to any unamortized premium.
To lessen the effect of the failures by obligors on Mortgage Assets to make
payments, CMOs and other mortgage-related securities may contain elements of
credit enhancement, consisting of either (1) liquidity protection or (2)
protection against losses resulting after default by an obligor on the
underlying assets and allocation of all amounts recoverable directly from the
obligor and through liquidation of the collateral. This protection may be
provided through guarantees, insurance policies or letters of credit obtained by
the issuer or sponsor from third parties, through various means of structuring
the transaction or through a combination of these. A Fund will not pay any
additional fees for credit enhancements for mortgage-related securities,
although the credit enhancement may increase the costs of the mortgage-related
securities.
ASSET-BACKED SECURITIES. Like mortgages underlying mortgage-related securities,
the collateral underlying asset-backed securities are subject to prepayment,
which may reduce the overall return to holders of asset-backed securities.
Asset-backed securities present certain additional and unique risks. Primarily,
these securities do not always have the benefit of a security interest in
collateral comparable to the security interests associated with mortgage-related
securities. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set-off certain amounts owed
on the credit cards, thereby reducing the balance due. Automobile receivables
generally are secured by automobiles. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and the technical requirements under
state laws, the trustee for the holders of the automobile receivables may not
have a proper security interest in the underlying automobiles. As a result, the
risk that recovery on repossessed collateral might be unavailable or inadequate
to support payments on asset-backed securities is greater for asset-backed
securities than for mortgage-related securities. In addition, because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of an interest rate or economic cycle has not been tested.
NON-INVESTMENT GRADE SECURITIES. Each Fund except Investors High Grade Bond Fund
may invest in securities rated below the fourth highest rating category by an
NRSRO or which are unrated and judged by the Adviser to be comparable quality.
Such high risk securities (commonly referred to as "junk bonds") are not
considered to be investment grade and have speculative or predominantly
speculative characteristics. Non-investment grade, high risk securities provide
poor protection for payment of principal and interest but may have greater
potential for capital appreciation than do higher quality securities. These
lower rated securities involve greater risk of default or price changes due to
changes in the issuers' creditworthiness than do higher quality securities. The
market for these securities may be thinner and less active than that for higher
quality securities, which may affect the price at which the lower rated
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securities can be sold. In addition, the market prices of lower rated securities
may fluctuate more than the market prices of higher quality securities and may
decline significantly in periods of general economic difficulty or rising
interest rates.
C. OPTIONS AND FUTURES
1. GENERAL
Investors High Grade Bond Fund, Investors Bond Fund and TaxSaver Bond Fund do
not currently invest in options and futures contracts. In the future, each Fund
may seek to hedge against a decline in the value of securities it owns or an
increase in the price of securities that it plans to purchase by purchasing
options and writing (selling) covered options. Each Fund may purchase or write
options on securities in which it invests and on any securities index based in
whole or in part on securities in which it may invest.
A Fund may buy and sell interest rate futures contracts on Treasury bills,
Treasury bonds and on other financial instruments. TaxSaver Bond Fund may also
purchase and sell municipal bond index futures contracts. A Fund may write put
and call options and purchase options on permissible futures contracts. A Fund
may only invest in options traded on an exchange or in an over-the-counter
market.
2. OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
(or index) underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price. A put option gives
its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy, upon exercise of the
option, the underlying security (or a cash amount equal to the value of the
index) at the exercise price. The amount of a premium received or paid for an
option is based upon certain factors, including the market price of the
underlying security, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security, the option period,
and interest rates.
OPTIONS ON INDICES. An index assigns relative values to the securities in the
index, and the index fluctuates with changes in the market values of the
securities included in the index. Index options operate in the same way as the
more traditional options on securities except that index options are settled
exclusively in cash and do not involve delivery of securities. Thus, upon
exercise of index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the index.
OPTIONS ON FUTURES. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell security, at a specified exercise price
at any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
the contract, at a specified date and at an agreed upon price. A bond index
futures contract involves the delivery of an amount of cash equal to a specified
dollar amount multiplied by the difference between the bond index value at the
close of trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, these futures contracts are closed out prior to the
expiration date of the contracts.
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3. LIMITATIONS ON OPTIONS AND FUTURES
The Fund will not hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, the Fund
will not buy futures contracts or write put options whose underlying value
exceed 5% of a Fund's total assets. A Fund will also not purchase call options
if the underlying value of all such options would exceed 5% of the Fund's total
assets. A Fund will not enter into futures contracts and options, if immediately
thereafter, more than 5% of the Fund's total assets would be invested in these
options or committed to margin on futures contracts.
4. RISKS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which a
Fund invest; and (4) lack of assurance that a liquid secondary market will exist
for any particular instrument at any particular time, which, among other things,
may hinder a Fund's ability to limit exposures by closing its positions.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. A Fund may use various futures contracts that
are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market in those
contracts will develop or continue to exist. A Fund's activities in the futures
and options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield or return.
D. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
No Fund may acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act ("restricted securities").
2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and a Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. A Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty in 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.
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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.
E. 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
F. LEVERAGE TRANSACTIONS
1. GENERAL
Each Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to a Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into 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. A Fund uses these investment techniques only when the Adviser believes
that the leveraging and the returns available to the Fund from investing the
cash will provide investors a potentially higher return.
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BORROWING. Each Fund may borrow money from banks for temporary or emergency
purposes in an amount up to 33 1/3% of the Fund's total assets. Each Fund may
borrow money for any other purposes so long as such borrowings do not exceed 10%
of the Fund's total assets. The purchase of securities is prohibited if a Fund's
borrowing exceeds 10% or more of the Fund's total assets.
SECURITIES LENDING. As a fundamental policy, each Fund may lend portfolio
securities in an amount up to 10% of its total assets to brokers, dealers and
other financial institutions. Securities loans must be continuously
collateralized and the collateral must have market value at least equal to the
value of the Fund's loaned securities, plus accrued interest. In a portfolio
securities lending transaction, a Fund receives from the borrower an amount
equal to the interest paid or the dividends declared on the loaned securities
during the term of the loan as well as the interest on the collateral
securities, less any fees (such as finders or administrative fees) the Fund pays
in arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower. The terms of a Fund's loans permit the
Fund to reacquire loaned securities on five business days' notice or in time to
vote on any important matter. Loans are subject to termination at the option of
a Fund or the borrower at any time, and the borrowed securities must be returned
when the loan is terminated.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. A Fund may purchase securities
offered on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. When these transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the securities
purchased by the purchaser and thus, no interest accrues to the purchaser from
the transaction. At the time a Fund makes the commitment to purchase securities
on a when-issued or delayed delivery basis, the Fund will record the transaction
as a purchase and thereafter reflect the value each day of such securities in
determining its net asset value.
No Fund will enter into a when-issued or forward commitment if, as a result,
more than 15% of the Fund's total assets would be committed to such
transactions.
SWAPS, CAPS FLOORS AND COLLARS. Investors Bond Fund and TaxSaver Bond Fund may
enter into interest rate, currency and mortgage (or other asset) swaps, and may
purchase and sell interest rate "caps," "floors" and "collars." Interest rate
swaps involve the exchange by a Fund and a counterparty of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments). Mortgage swaps are similar to interest rate
swap agreements, except that the contractually-based principal amount (the
"notional principal amount") is tied to a reference pool of mortgages. Currency
swaps' notional principal amount is tied to one or more currencies, and the
exchange commitments can involve payments in the same or different currencies.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on the notional principal amount from the party selling the cap. The
purchase of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling such floor. A collar entitles
the purchaser to receive payments to the extent a specified interest rate falls
outside an agreed range.
A Fund will enter into these transactions primarily to preserve a return or a
spread on a particular investment or portion of its portfolio or to protect
against any interest rate fluctuations or increase in the price of securities it
anticipates purchasing at a later date. A Fund uses these transactions as a
hedge and not as a speculative investment, and will enter into the transactions
in order to shift the Fund's investment exposure from one type of investment to
another.
The use of interest rate protection transactions is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. If the Adviser
incorrectly forecasts market values, interest rates and other applicable
factors, there may be considerable impact on a Fund's performance. Even if the
Adviser is correct in their forecasts, there is a risk that the transaction may
correlate imperfectly with the price of the asset or liability being hedged.
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2. RISKS
Leverage creates the risk of magnified capital losses. Losses incurred by a Fund
may be magnified by borrowings and other liabilities that exceed the equity base
of the Fund. Leverage may involve the creation of a liability that requires a
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
a Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to a Fund's
commitments under these transactions.
G. CORE AND GATEWAY(R)
Each Fund may seek to achieve its investment objective by converting to a Core
and Gateway(R) structure. A Fund operating under a Core and Gateway(R) structure
holds, as its only investment, shares of another investment company having
substantially the same investment objective and policies. The Board will not
authorize conversion to a Core and Gateway(R) structure if it would materially
increase costs to a Fund's shareholders. The Board will not convert a Fund to a
Core and Gateway(R) structure without notice to the shareholders.
H. TEMPORARY DEFENSIVE POSITION
A Fund may hold cash or cash equivalents, such as high quality money market
instruments, pending investment and to provide flexibility in meeting
redemptions and paying expenses. Maine TaxSaver Bond Fund may invest up to 20%
of its net assets in cash or cash equivalents.
A Fund may also assume a temporary defensive position and may invest without
limit in commercial paper and other money market instruments that are of prime
quality. Prime quality instruments are those instruments that are rated in one
of the two highest short-term rating categories by an NRSRO or, if not rated,
determined by the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which a Fund may invest include
U.S. Government Securities, time deposits, bankers acceptances and certificates
of deposit corporate notes and short-term bonds and money market mutual funds.
The money market instruments in which a Fund may invest have variable and
floating rates of interest.
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2. CERTAIN INFORMATION CONCERNING THE STATES OF MAINE AND NEW HAMPSHIRE
--------------------------------------------------------------------------------
A. STATE OF MAINE
Material in this section has been compiled from numerous sources including "The
Maine Economy: Year-End Review and Outlook, 1999" prepared and published by the
Economics Division of the Maine State Planning Office; "State of
Maine Presentation to Standard & Poor's", May 18, 2000; "Presentation to Moody's
Investors Service," May 19, 2000 and "Presentation to Fitch, IBCA," May 19,
2000." In addition, certain information was obtained from the Final Official
Statement of the State of Maine dated June 7, 2000, and published in connection
with the issuance on June 20, 2000 of $66,290,000 State of Maine general
obligation bonds dated June 1, 2000. Other information concerning Maine
budgetary matters was obtained from official legislative documents, the Office
of the Commissioner of the Maine Department of Administrative and Financial
Services, the Office of the Treasurer of the State of Maine, the Bureau of the
Budget of the Maine Department of Administrative and Financial Services, the
Office of Fiscal and Program Review of the Maine Legislature, the Maine State
Planning Office, and the Maine State Retirement System. The most recent
information concerning credit ratings on debt issued by or on behalf of the
State of Maine and its subordinate agencies was obtained from credit reports for
the State of Maine published by S&P on June 2, 2000, by Moody's on May 31, 2000,
and by Fitch on June 1, 2000.
Although the information derived from the above sources is believed to be
accurate, none of the information obtained from these sources has been verified
independently. While the following summarizes the most current information
available from the above sources, it does not reflect economic conditions or
developments that may have occurred or trends which may have materialized since
the dates indicated.
The State of Maine, which includes nearly one-half of the total land area of the
six New England states, currently has a population of approximately 1,253,000.
The structure of the Maine economy is similar to that of the nation as a whole,
except that the Maine economy historically has had more activity in
manufacturing, defense-related activities, and tourism, and less activity in
finance and services. Recently, however, the manufacturing and defense-related
sectors of Maine's economy have decreased significantly, and the service
industry, retail, and financial services sectors of Maine's economy have
increased significantly.
During the 1980's, Maine's economy surpassed national averages in virtually all
significant measures of economic growth. During this ten-year period, Maine real
economic growth was 40% as measured by the Maine Economic Growth Index ("EGI"),
a broad-based measure of economic growth, which is corrected for inflation. This
economic growth compares to national real economic growth during the 1980's of
26% and 29%, measured by the United States Economic Growth Index and real Gross
National Product respectively. During this time period, resident employment in
Maine increased by 21%, while resident employment nationally increased by 19%.
Inflation-adjusted retail sales in Maine during this period increased by 72%, as
opposed to a 32% increase in such retail sales nationally. During the 1980's,
per capita personal income in Maine rose from 44th in the nation in 1979, to
26th in the nation in 1989, or from 81% to 92% of the national average of per
capita personal income.
Beginning in the fourth quarter of 1989, however, the Maine economy experienced
a substantial temporary decline. For example, the Maine economy sustained only
0.8% real growth in 1989, and experienced real growth of -1.1% in 1990 and -2.6%
in 1991. Data show that the Maine economy began a sustained decline during the
fourth quarter of 1989, and the second quarter of 1991 saw the seventh
consecutive quarterly decline in the Maine EGI. The third and fourth quarters of
1991 showed barely positive economic growth of 0.9% and 0.2% respectively.
Economic recovery in Maine was also hindered by significant losses in
defense-related jobs, with the State losing since 1990 approximately 20% of its
defense-dependent employment, which peaked at 63,000 jobs in 1989. During the
1989-1991 period also, the State lost 6% of its entire job base.
Since 1991 the Maine economy has experienced a modest and sustained recovery,
and this recovery recently has become more pronounced. In the words of the
Economics Division of the Maine State Planning Office, "Maine economic
performance in 1999 was the best in a decade, with virtually all major
indicators describing improvement over a strong 1998. The Maine economic outlook
calls for continued steady growth, with coastal and southern I-95 corridor
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counties outperforming the balance of the State. The major dampers on Maine
economic performance continue to be slow population growth."
Specifically, despite consistent economic growth in recent years, Maine's
population grew by only 2% during the last decade. This has caused relatively
tight labor markets in certain parts of the State, and, in the opinion of the
State Planning Office, such labor shortages are inhibiting the ability of the
State's economy to grow at a faster rate. For example, during 1999, many Maine
coastal communities and Maine communities south of the I-95 corridor had
unemployment rates of less than 4%. In addition, during 1999, five of Maine's 16
counties had average unemployment rates in the 3% range, with Cumberland County
at 2.3%, Knox county at 2.9%, York County at 2.9%, Lincoln County at 3.0%, and
Sagadahoc County at 3.0%. These are very low unemployment rates, which are more
than a percentage point below the also relatively low 4.2% national unemployment
rate. In short, employers in these counties often actively compete for the same
workers. Overall, Maine's unemployment rate, during 1999, shrank from 4.3% to
3.8% or significantly below the 4.2% national average. Also, during 1999 the
number of Maine payroll jobs expanded by more than 16,600, more than in any year
since 1988. Virtually all of this net increase in Maine jobs, however, was in
non-manufacturing sectors such as service industries and retail sales. During
1999, Maine experienced a net loss of jobs in the manufacturing sector,
continuing a trend that has been evident for several years.
The 16,600 new jobs created in Maine in 1999 amounted to a 2.9% increase in jobs
in a State whose population has grown only 2.0% in the last decade and whose
most recent population growth statistics (1999-2000) show only annual population
growth of .71%. This has resulted in continuing tight labor markets in
particular areas of the State.
Despite the negative factors cited above, almost all other indicators of the
Maine economy during 1999 were positive. For example, Maine payroll employment
growth in 1999 was 2.9%, the best in a decade. Employment in the services sector
grew even faster (4.4%) that total Maine employment growth (2.9%),, and
accounted for over half of all new jobs during the year. The retail and
wholesale trades sector accounted for another quarter of all new jobs in Maine
during 1999. The Maine construction sector had the fastest job growth during
1999 at 12.1%, over four times the growth rate of total employment in Maine.
Regionally, job markets were strongest in the south-coast and mid-coast counties
of Maine, weaker in the central counties (Androscoggin, Kennebec, Penobscot),
and weakest in the "rim" counties comprised of the natural-resource based
counties which border upon Canada. This is a pattern which has persisted in
Maine for many years.
Certain sectors of the Maine economy performed unusually well during the
previous year. Consumer retail sales grew by 9.0% during the 12-month period
ended March 2000, on top of an 8.9% rate of growth during 1998. Also, personal
income grew at an annual rate of 5.2% during 1999 on top of a 5.1% growth in
1998; the number of employed Maine residents grew 3.4% in 1999 as opposed to a
0.1% decline 1998; bank deposits in 1999 grew 4.9% on top of a 5.3% growth rate
for 1998; non-performing bank loans declined by 20.5%, bankruptcies declined by
7.6%, and AFDC (welfare) case loads declined by 10.5% in 1999 on top of a 12.6%
decline in 1998. Perhaps most significantly help-wanted advertising increased
15.5% in 1999, over an additional 20.2% increase in such advertising in 1998.
Personal employment data for Maine are particularly important for State of Maine
credit purposes. Since approximately 46% of Maine State Government General Fund
revenues are derived from a personal State income tax, the ability of the Maine
economy to create jobs for Maine residents is directly related to the ability of
Maine State government to fund necessary governmental expenditures and to repay
its debt. Concerning this, during 1999, Maine ranked 8th in the nation, and 1st
in New England, in payroll job growth. Maine's February 2000 unemployment rate
was 3.4%, the lowest seasonally adjusted unemployment rate for Maine ever.
Maine's per capita personal income has increased 19.7% since 1995, and Maine's
individual income tax revenues have been growing at an annual rate of 10%.
The latest available data which show a 9.0% annual increase in taxable consumer
sales (including, among other items, taxable retail sales related to the tourist
industry) are also important because approximately one-third of Maine State
Government General Fund revenues are derived from a 5% retail sales tax. On July
1, 2000, the Maine State sales tax was reduced to 5.0% from 5.5% of the value of
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broad range of retail purchases in Maine. On January 1, 2001, the Maine State
sales tax will be eliminated from the sale of certain "snack" foods. Combined,
these sales tax reductions will reverse two of the major tax increases imposed
by Maine State government during the recession and State budget crisis of the
early 1990's. Because of this, Maine sales tax revenues are expected to decline
by approximately $75 million per year, but this decline in revenues is expected
to be off-set by continuing strong growth in taxable retail sales.
A further positive factor in the growth of Maine's economy is that Maine
employers recently have experienced a substantial decrease in workers'
compensation costs. For many years, Maine possessed the highest workers'
compensation insurance rates in the country. The issue was so divisive that it
caused a shutdown of State government in 1992. Since that time, however, the
Maine Legislature has created the Maine Employers' Mutual Insurance Co. and has
passed numerous reforms in Maine's workers' compensation laws. As a result,
workers' compensation loss ratios declined 63.6% during the 1999-2000 period,
and workers' compensation insurance rates in Maine declined 41% during the
1994-1998 period. Another positive step concerning workers' compensation
insurance rates in Maine has been that the Maine Legislature, at the request of
the Governor, has refused, thus far, to accede to efforts by organized labor to
repeal many of the reforms in Maine's workers' compensation laws enacted since
1992.
The fiscal policies of the State of Maine are very conservative, and the State
is required by its Constitution to operate on a balanced budget. The Maine
Constitution does this by prohibiting the Legislature, by itself, from issuing
any debt by or on behalf of the State which exceeds $2,000,000 "except to
suppress insurrection, to repel invasion, or for purposes of war, and except for
temporary loans to be paid out of money raised by taxation during the fiscal
year in which they are made." The Maine Constitution also provides for the
prohibition of debt issued by or on behalf of the State to fund "current
expenditures." The Maine Constitution allows the issuance of long-term debt when
two-thirds of both houses of the Legislature pass a law authorizing the issuance
of such debt, and when the voters of the State ratify and enact such a law at a
general or special statewide election. Amendments to the Maine Constitution also
have been adopted to permit the Legislature to authorize the issuance of bonds
to insure payment of up to: (1) $6,000,000 of revenue bonds of the Maine School
Building Authority; (2) $4,000,000 of loans to Maine students attending
institutions of higher education; (3) $1,000,000 of mortgage loans for Indian
housing; (4) $4,000,000 of mortgage loans to resident Maine veterans including
businesses owned by resident Maine veterans; and (5) $90,000,000 of mortgage
loans for industrial, manufacturing, fishing, agricultural and recreational
enterprises. The statutory authorization to insure Maine School Building
Authority bonds, however, has been repealed. The Maine Constitution also
provides that if the Legislature fails to appropriate sufficient funds to pay
principal and interest on general obligation bonds of the State, the State
Treasurer is required to set aside sufficient funds from the first General Fund
revenues received thereafter by the State to make such payments.
In recent years, Maine State government has avoided the Maine constitutional
balanced budget requirement by annually issuing significant amounts of tax
anticipation notes ("TANs") at or about the July 1 beginning of each new fiscal
year and leaving such TANs outstanding until almost the beginning of the next
fiscal year. For example, on June 26, 1996 the State issued $150,000,000 in TANs
due June 27, 1997. Both the size of these issues and fiscal legitimacy for them,
however, has recently been criticized, and the State is becoming more
conservative with regard to the issuance of TANS . This has been made possible
largely by the continued imposition of tightly conservative State fiscal
policies that allowed the State to end the last four fiscal years with
significant revenue surpluses. No TANs were issued in the 1998, 1999, or 2000
fiscal years, and no TANs currently are planned for issuance in fiscal year
2001.
As of April 30, 2000, there were outstanding general obligation bonds of the
State in the principal amount of $422190,000. On June 20,2000, the State issued
$66,290,000 of general obligation bonds dated June 1, 2000. As of June 7, 2000,
there were outstanding bond anticipation notes of the State in the principal
amount of $9,419,000 which matured on June 22, 2000 and were paid from the
proceeds of the State's June 20, 2000 $66,290,000 general obligation bond issue.
As of June 7, 2000, there were authorized by the voters of the State for certain
purposes but unissued, general obligation bonds of the State in the aggregate
principal amount of $200,867,347, including the $66,290,000 in general
obligation bonds issued on June 20, 2000. As of June 7, 2000, there were
authorized by the Constitution of the State and implementing legislation but
unissued, general obligation bonds of the State in the aggregate principal
amount of $99,000,000. Various other Maine governmental agencies and
quasi-governmental agencies including, but not limited to, the Maine Municipal
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Bond Bank, the Maine Court Facilities Authority, the Maine Health and Higher
Educational Facilities Authority, Maine Turnpike Authority, the Maine State
Housing Authority, the Maine Public Utility Financing Bank, and the Maine
Educational Loan Authority, issue debt for Maine governmental purposes, but this
debt does not pledge the credit of the State.
During the economic recession of 1989 through 1992, however, Maine State
government repeatedly reduced its expenditures in order to comply with the
requirement of the Maine Constitution that State government operate on a
balanced budget. Such cuts in General Fund expenditures, other fiscal cost
reductions, and a continuing policy by the current Governor not to allow the
creation of significant new State governmental programs or the taxes to fund
such programs, have allowed the Governor and Legislature most recently to enact
a series of balanced budgets funding State services for the last four years, and
to produce a series of surpluses of general fund revenues for those same years.
Laws authorizing budgeted expenditures for fiscal year 2001 have been enacted
and provide for General Fund expenditures of $2,634,583,575 and Highway Fund
expenditures of $293,802,480. These budget amounts are subject to change,
however, upon reconciliation of recently enacted budget legislation and
miscellaneous bills with fiscal impact passed by the Legislature and enacted
into law.
The State also maintains a "Rainy Day Fund" to be used for significant
unforeseen capital and operational expenditures. As of June 30, 2000, the
balance in the State's Rainy Day Fund was approximately $141.7 million, the
highest amount ever. There can be no assurance, however, that the budget acts
for fiscal year 2001, and the various other statutes passed by the Maine
Legislature which affect the State's fiscal position, will not be amended by the
Legislature from time to time.
The unfunded actuarial liability of the Maine State Retirement System, including
within it the retirement system for all Maine public school teachers, is a
significant and continuing problem for Maine State government. The State's
independent actuaries certified this unfunded liability to be approximately $2.4
billion as of June 30, 2000. Because of this, the State has adopted a
constitutional amendment (Me. Const. art. IX, ss.18-B) that required the Maine
Legislature, beginning in fiscal year 1998, annually to appropriate funds that
will retire in 31 years or less the System's unfunded liability. Effective July
1,1998, the amortization period to eliminate this unfunded liability was reduced
by statute to 24 years. Effective July 1, 2000, this amortization period ws
reduced further by statute to 19 years. The State also has adopted a separate
constitutional amendment (Me. Const. art. IX, ss.18-A) that requires the Maine
Legislature, beginning in fiscal year 1998, annually to appropriate monies to
fund the System on an actuarially sound basis. Under Article IX, ss.18-A of the
Maine Constitution, unfunded liabilities henceforth may not be created for the
System except those resulting from experience losses, and such unfunded
liabilities resulting from experience losses must be retired over a period not
exceeding 10 years.
During the next several years, Maine may be the recipient of certain additional
revenues. Pursuant a settlement agreement (the "Settlement Agreement"), the
State of Maine is one of forty-six states that recently settled litigation in
November, 1998 against certain manufacturers of cigarettes and other tobacco
products (the "Manufacturers"). The forty-six states (the "Settling States") had
sued to recover smoking related Medicaid costs (the "Claims"). Pursuant to the
Settlement Agreement, the Manufacturers have agreed to make certain payments to
the Settling States and the Settling States have agreed to relinquish the
Claims, subject to certain conditions set forth in the Settlement Agreement.
Commencing in December 1999, certain initial payments were made by the
Manufacturers for the benefit of the State of Maine in accordance with the
Settlement Agreement. The initial payments are expected to continue through
2003. Certain annual payments by the Manufacturers to the State of Maine
pursuant to the Settlement Agreement are expected to continue for as long as the
Manufacturers remain in business.
The monies expected to be received by the State of Maine pursuant to the
Settlement Agreement are subject to decreases, offsets, and reductions,
including a possible claim by the Federal government that up to sixty-six
percent (66%) of the settlement payments be paid to the Federal government as
compensation for extra costs paid by the Federal government for smoking related
Medicaid costs. Accordingly, there can be no assurance as to the amount of
monies that will be received by the State of Maine pursuant to the Settlement
Agreement or as to when, if ever, such monies will be received by the State of
Maine.
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Because of Maine's conservative debt policies and its constitutional requirement
that the State government operate under a balanced budget, Maine general
obligation bonds had been rated AAA by S&P and Aa1 by Moody's for many years.
On June 6, 1991, however, S&P lowered its credit rating for Maine general
obligation bonds from AAA to AA+, and at the same time lowered its credit rating
on bonds issued by the Maine Municipal Bond Bank and the Maine Court Facilities
Authority, and on State of Maine Certificates of Participation for highway
equipment, from AA to A+. In taking this action, S&P said, "The rating action is
a result of declines in key financial indicators, and continued softness in the
state economy. The new rating continues to reflect the low debt burden of the
state, an economic base that has gained greater income levels and diversity over
the 1980's, and a legislative history of dealing effectively with financial
difficulties." These ratings have remained unchanged since June 6, 1991. Because
of continuing improvements in the State of Maine economy, S&P currently views
the State's financial outlook as "stable," stating in its most recent June 2,
2000 credit report: "Maine's economic performance has been improving in recent
years. The state's job market has experienced strong growth since 1997, with job
growth of 2.1% in 1997 and 2.9% in 1998 and 1999 respectively. Maine's 3.8%
unemployment rate in 1999 was below the national average of 4.2% Figures for
2000 are expected to be similarly strong with February 2000 unemployment at
3.5%, compared to the nation's rate of 4.1%."
On August 24, 1993, citing the "effects of protracted economic slowdown and the
expectation that Maine's economy will not soon return to the pattern of robust
growth evident in the mid-1980's," Moody's lowered its State of Maine general
obligation bond rating from Aa1 to Aa. At the same time, Moody's lowered from
Aa1 to Aa the ratings assigned to state-guaranteed bonds of the Maine School
Building Authority and the Finance Authority of Maine, and confirmed at A1 the
ratings assigned to the bonds of the Maine Court Facilities Authority and State
of Maine Certificates of Participation. On May 13, 1997, Moody's "confirmed and
refined from Aa to Aa3" the State's general obligation bond rating. Moody's
refinement of the State's bond rating on May 13, 1997 was part of a general
redefinition by Moody's of its bond rating symbols published on January 13,
1997, and was not a substantive rating change. On June 5, 1998, however, citing
an "increased pace of economic recovery," Moody's raised the State's general
obligation bond rating to Aa2. In its most recent May 31, 2000 credit report,
Moody's reaffirmed its credit rating for Maine general obligation bonds at Aa2,
stating: "The rating reflects continued steady improvement in fund balances and
spending control, an economy that continues to diversify and expand at a healthy
pace, and a moderate debt level. The rating also acknowledges the ongoing fixed
costs associated with the state's large, but improving, unfunded pension
liability."
For the past several years, Maine general obligation bond issues also have been
rated by Fitch. In its most recent credit report dated June 1, 2000, Fitch
upgraded its rating on Maine general obligation bonds from AA to AA+, saying,
the "rating change takes into account the low burden of debt on resources and
the unusually rapid rate of amortization as well as strengthening economic
trends, very successful financial operations and the institutionalization of
financial reforms."
B. STATE OF NEW HAMPSHIRE
Material in this section has been abstracted from the State of New Hampshire
Information Statement dated November 17, 1999, supplemented June 1, 2000,
compiled by the Treasurer of the State of New Hampshire and provided to
prospective purchasers of debt securities offered by the State. While
information in the Information Statement is believed to be accurate, none of
that information has been independently verified. Also, it does not reflect
economic conditions or developments that may have occurred or trends that may
have materialized since the date of the Information Statement. Additionally,
economic and fiscal conditions in individual municipalities within the State may
vary from general economic and fiscal conditions.
New Hampshire is located in the New England Region and is bordered by the states
of Maine, Massachusetts, and Vermont and the Province of Quebec, Canada. New
Hampshire's geographic area is 9,304 square miles and its March 1, 1999
population was 1,185,000, representing a 1.1% increase from 1997 levels. New
Hampshire's population had increased by more than 28% in the 1980-1998 period.
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New Hampshire's per capita personal income increased by 109.4% between 1980 and
1990. In 1991 it continued to grow faster than the New England region as a whole
and in 1992 and 1993 it grew at a slightly lower rate than the region, resuming
faster growth relative to the region in 1994 and 1995. New Hampshire's per
capita personal income in 1998 was 110% of the national level, ranking 7th in
the United States.
In 1998, New Hampshire's largest employment sector was the service sector (29.4%
of employment), followed by retail and wholesale trade (26% of employment).
Manufacturing was the third largest sector (18.4% of employment).
Non-agricultural employment levels have remained fairly stable. The unemployment
rate declined to 2.9% in 1998, less than the national average of 4.5%.
After a significant growth in residential building activity in the period
1980-86 (data based on residential building permits), New Hampshire's
residential building activity declined beginning in 1987, and declined below
1980 levels in 1990, 1991 and 1992. In 1993, residential building activity
surpassed 1980 levels and in each of the subsequent years through 1998,
surpassed 1993.
New Hampshire finances the operations of state government through specialized
taxes, user charges and revenues received from the State liquor sales and
distribution system. There is no general tax on sales or earned income. The two
highest revenue-producing taxes are the Meals and Rooms Tax and the Business
Profits Tax. In 1996, State and local taxes amounted to $89 per $1,000 of
personal income, which was the THIRD lowest in the United States. However,
because local property taxes are the principal source of funding for municipal
operations and primary and secondary education, New Hampshire was highest among
all states in local property tax collections per $1,000 of personal income. See
the concluding paragraph of this section for a description of litigation
challenging the constitutionality of the State's statutory system of financing
operation of elementary and secondary public schools primarily through local
taxes.
New Hampshire State government's budget is enacted to cover a biennial period
through a series of legislative bills that establish appropriations and
estimated revenues for each sub-unit of State government, along with
supplemental and special legislation. By statute, the budget process is
initiated by the Governor, who is required to submit operating and capital
budget proposals to the Legislature by February 15 in each odd-numbered year.
While the Governor is required to state the means through which all expenditures
will be financed, there is no constitutional or statutory requirement that the
Governor propose or the Legislature adopt a budget without resorting to
borrowing. There is no line item veto.
State government funds include the General Fund, four special purpose funds and
three enterprise funds, as well as certain "fiduciary" funds. All obligations of
the State are paid from the State Treasury, and must be authorized by a warrant
signed by the Governor and approved by the Executive Council, except for
payments of debt obligations, which are paid by the State Treasurer under
statutory authority.
By statute, at the close of each fiscal biennium, 50% of any General Fund
surplus must be deposited in a Revenue Stabilization Reserve Account ("Rainy Day
Fund") which may contain up to 5% of General Fund unrestricted revenue for the
fiscal year just ended. With approval of the Legislative Fiscal Committee, the
Governor and the Executive Council, the Rainy Day Fund is available to defray
operating deficits in ensuing years if there is a shortfall in forecast revenue,
in an amount equal to the lesser of the deficit or revenue shortfall. By
statute, the Rainy Day Fund may not be used for any other purpose except by
special appropriation approved by two-thirds of each Legislative chamber and the
Governor. As of June 30, 1999 there was a designated balance of $20 million in
the Rainy Day Fund.
The Department of Administrative Services is responsible for maintenance of
State government's accounting system, annual reports and general budget
oversight. Expenditures are controlled against appropriations through an
integrated accounting system, which compares the amount of an appropriation to
expenditures, and encumbrances previously charged against that appropriation
before creating an expenditure. By law, with certain exceptions unexpended and
unencumbered balances of appropriations lapse to surplus in the applicable fund
at the end of each fiscal year, along with unappropriated revenues in excess of
legislative estimates. Legislative financial controls involve the Office of
Legislative Budget Assistant ("LBA") which acts under supervision of the
Legislative Fiscal Committee and Joint Legislative Capital Budget Overview
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Committee. LBA conducts overall post-audit and review of the budgetary process.
State government financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") and are independently audited annually.
On June 30, 1997, the General Fund undesignated fund balance was a deficit of
$1.2 million. Strong revenue growth and stringent budgetary controls resulted in
a fiscal 1998 year-end undesignated surplus fund balance of $41.4 million. At
fiscal year-end 1999 there was a surplus balance of $88.7 million and a
cumulative General Fund balance of $130.1 million (unaudited). This surplus was
transferred to the Health Care Fund and the Education Fund Trust Fund. Through
March 31, 2000, State revenues, particularly the business profits tax and
business enterprise tax, significantly lagged the State's financial plan. As of
June 1, 2000, the Department of Administrative Services was forecasting a
combined deficit at the end of the biennium (June 30, 2001) in the General and
Education Fund of $66.5 million. In anticipation of a deficit at the end of the
biennium, the Governor ordered a hiring freeze for all State General Fund
positions, except for those involved in direct or custodial care and law
enforcement. In accordance with statutory directive, the Governor presented to
the Joint Legislative Fiscal Committee reductions in the General Fund Operating
Budget.
There is no constitutional limit on the State's power to issue obligations or
incur indebtedness, and no constitutional requirement for referendum to
authorize incurrence of indebtedness by the State. Authorization and issuance of
debt is governed entirely by statute. New Hampshire pursues a debt management
program designed to minimize use of short-term debt for operating purposes and
to coordinate issuance of tax-exempt securities by the State and its agencies.
State-guaranteed bonded indebtedness is authorized not only for general purposes
of State government, but also for the New Hampshire Turnpike System, University
System of New Hampshire, water supply and pollution control, water resources
acquisition and construction, School Building Authority, Pease Development
Authority, Business Finance Authority, Municipal Bond Bank and cleanup of
municipal Super Fund sites and landfills. In addition, the Housing Finance
Authority and Higher Education and Health Facilities Authority are authorized to
issue bonds that do not constitute debts or obligations of the State.
Procedure for incurrence of bonded indebtedness by individual municipalities is
governed by State statutes, which prescribe actions that must be pursued by
municipalities in incurring bonded indebtedness and limitations on the amount of
such indebtedness. In general, incurrence of bonded indebtedness by a
municipality must be for a statutorily authorized purpose and requires a
two-thirds majority vote of the municipality's legislative body.
On December 17, 1997, the New Hampshire Supreme Court ruled that the State's
system of financing public elementary and secondary schools primarily through
local property taxes violated the New Hampshire Constitution, because (1)
providing an adequate public education is a duty of State government; (2) local
school property taxes are levied to fulfill a State purpose; and (3) local
school property taxes, levied at different rates in different localities, are
not proportional and reasonable throughout the State. The court also indicated
that a State-funded, constitutionally adequate elementary and secondary
education is a fundamental constitutional right. However, the court stayed all
further proceedings in the case "until the end of the [1998] legislative session
and further order of this court to permit the legislature to address the issues
involved in this case." The court allowed the present funding mechanism to
remain in effect "during the 1998 tax year" i.e. through March 31, 1999. On June
23, 1998, responding to a request for an advisory opinion from the New Hampshire
Senate, the court advised that certain legislation passed by the New Hampshire
House of Representatives to address the court's December 1997 decision would
violate State constitutional requirements by failing to provide funding of
adequate public elementary and secondary education at a uniform tax rate
throughout the State. On November 25, 1998, the court denied the State's motion
to extend the effective date of the court's decision of the previous December
and confirmed that pursuant to that decision, in the absence of legislative
action, the State's Commissioner of Revenue Administration did not have legal
authority to approve local property tax rates for school purposes. On March 11,
1999, the court ruled that the Legislature could not constitutionally submit the
choice of replacement tax plans to a binding referendum vote of the people. On
April 29, 1999, the State enacted Chapter 17 of the Laws of 1999 "establishing a
uniform education property tax and a utility property tax, increasing the
business profit and real estate transfer taxes and including other sources of
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revenue to provide funding for an adequate public education and making an
appropriation therefore." This statute established formulae for determining
distribution of funds to local school districts in support of adequate public
education, from an "Education Trust Fund". The immediate effect of these
statutes was to restore the authority of New Hampshire municipalities to collect
property taxes for school purposes. On October 15, 1999, the court held that
Chapter 17's provision for "phase-in" of the new state property tax was
unconstitutional and therefore, the tax itself was unconstitutional. On November
3, 1999, the State enacted Chapter 338, which re-enacted the state property tax
without the "phase-in" provisions and further provided for expiration of the tax
and the distribution formula as of January 2, 2003. However, neither Chapter 17
nor Chapter 38 provided revenue sources sufficient to defray the full amount of
the authorized distributions. Whether and when such additional revenue sources
will be enacted remains unresolved. The State currently estimates the aggregate
shortfall in the Education Trust Fund for the biennium ending June 30, 2001 to
be approximately $35.1 million. Other reliable analysts project a somewhat
higher net deficit for the same period, with additional accumulated deficits of
more than $100 million projected in each year of the biennium ending June 30,
2003, due to non-recurring funding sources. Under the statute's formulae, some
New Hampshire municipalities have sustained increased property taxes. In
December 1999 and January 2000, separate lawsuits were initiated, challenging
the constitutionality of the state property tax and the school funding system
enacted in Chapters 17 and 338. The two lawsuits have been consolidated for
trial, which is scheduled to begin in October 2000. The outcome of such
proceedings and their impact on the State's finances cannot be predicted.
3. INVESTMENT LIMITATIONS
--------------------------------------------------------------------------------
For purposes of all investment policies of a Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy of a Fund and the Fund's investment objective, cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. The Board without
shareholder approval may change a nonfundamental policy of a Fund.
A. INVESTORS HIGH GRADE BOND FUND
1. FUNDAMENTAL LIMITATIONS
The Fund may not:
BORROWING
Borrow money, except for temporary or emergency purposes (including the meeting
of redemption requests) and except for entering into reverse repurchase
agreements, and provided that borrowings do not exceed 33 1/3% of the Fund's
total assets (computed immediately after the borrowing).
UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter for purposes of the 1933 Act.
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MAKING LOANS
Make loans to other persons except for loans of portfolio securities and except
through the use of repurchase agreements and through the purchase of commercial
paper or debt securities which are otherwise permissible investments.
PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the Fund may
invest in securities issued or guaranteed by corporate or governmental entities
secured by real estate or interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that invest in real
estate or interests therein.
PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts will not be
deemed to be physical commodities.
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act and except
that the Fund may borrow money subject to investment limitations specified in
the Fund's Prospectus.
OIL, GAS AND MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral exploration or
development programs.
DIVERSIFICATION
With respect to 75% of its assets, purchase securities, other than U.S.
Government Securities, of any one issuer, if: (1) more than 5% of the Fund's
total assets taken at market value would at the time of purchase be invested in
the securities of that issuer; or (2) such purchase would at the time of
purchase cause the Fund to hold more than 10% of the outstanding voting
securities of that issuer.
CONCENTRATION
Purchase securities, other than U.S. Government Securities, if, immediately
after each purchase, more than 25% of the Fund's total assets taken at market
value would be invested in securities of issuers conducting their principal
business activity in the same industry.
2. NON-FUNDAMENTAL LIMITATIONS
The Fund may not:
PLEDGING
Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the writing
of put and call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
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INVESTMENT IN OTHER INVESTMENT COMPANIES
Invest in securities of another registered investment company, except in
connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest in money market funds and privately-issued
mortgage related securities to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES
Purchase securities on margin, or make short sales of securities, except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities, except that the Fund may make margin deposits in
connection with permitted transactions in options, futures contracts and options
on futures contracts.
BORROWING
Purchase securities for investment while any borrowing equaling 10% or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding 10% of the value of the Fund's total assets.
ILLIQUID SECURITIES
Acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than: (1) 15% of the Fund's net assets (taken
at current value) would be invested in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities which are not
readily marketable, including securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without registration
under the 1933 Act ("Restricted Securities"): or (2) 10% of the Fund's total
assets would be invested in Restricted Securities.
INVESTMENTS IN REAL PROPERTY LEASES
Purchase or sell real property leases (including limited partnership interests,
but excluding readily marketable interests in real estate investment trusts or
readily marketable securities of companies that invest in real estate.)
SECURITIES WITH VOTING RIGHTS
Purchase securities having voting rights except securities of other investment
companies.
B. INVESTORS BOND FUND
1. FUNDAMENTAL LIMITATIONS
The Fund may not:
BORROWING
Borrow money, except for temporary or emergency purposes (including the meeting
of redemption requests) and except for entering into reverse repurchase
agreements, and provided that borrowings do not exceed 33 1/3% of the Fund's
total assets (computed immediately after the borrowing).
UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter for purposes of the 1933 Act.
23
<PAGE>
MAKING LOANS
Make loans to other persons except for loans of portfolio securities and except
through the use of repurchase agreements and through the purchase of commercial
paper or debt securities which are otherwise permissible investments.
PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the Fund may
invest in securities issued or guaranteed by corporate or governmental entities
secured by real estate or interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that invest in real
estate or interests therein.
PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts will not be
deemed to be physical commodities.
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act and except
that the Fund may borrow money subject to investment limitations specified in
the Fund's Prospectus.
OIL, GAS AND MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral exploration or
development programs.
NON-DIVERSIFICATION
Purchase securities, other than U.S. Government Securities, of any one issuer,
if: (1) more than 5% of the Fund's total assets taken at market value would at
the time of purchase be invested in the securities of that issuer; or (2) such
purchase would at the time of purchase cause the Fund to hold more than 10% of
the outstanding voting securities of that issuer. Up to 50% of the Fund's total
assets may be invested without regard to this limitation. These limitations do
not apply to securities of an issuer payable solely from the proceeds of
escrowed U.S. Government Securities.
CONCENTRATION
Purchase securities, other than U.S. Government Securities, if, immediately
after each purchase, more than 25% of the Fund's total assets taken at market
value would be invested in securities of issuers conducting their principal
business activity in the same industry.
2. NON-FUNDAMENTAL LIMITATIONS
The Fund may not:
PLEDGING
Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the writing
of put and call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
24
<PAGE>
INVESTMENT IN OTHER INVESTMENT COMPANIES
Invest in securities of another registered investment company, except in
connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest in money market funds and privately-issued
mortgage related securities to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES
Purchase securities on margin, or make short sales of securities, except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities, except that the Fund may make margin deposits in
connection with permitted transactions in options, futures contracts and options
on futures contracts.
BORROWING
Purchase securities for investment while any borrowing equaling 10% or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding 10% of the value of the Fund's total assets.
ILLIQUID SECURITIES
Acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than: (1) 15% of the Fund's net assets (taken
at current value) would be invested in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities which are not
readily marketable, including securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without registration
under the 1933 Act ("Restricted Securities"); or (2) 10% of the Fund's total
assets would be invested in Restricted Securities.
INVESTMENTS IN REAL PROPERTY LEASES
Purchase or sell real property leases (including limited partnership interests,
but excluding readily marketable interests in real estate investment trusts or
readily marketable securities of companies that invest in real estate.)
SECURITIES WITH VOTING RIGHTS
Purchase securities having voting rights except securities of other investment
companies.
C. TAXSAVER BOND FUND
1. FUNDAMENTAL LIMITATIONS
The Fund may not:
BORROWING
Borrow money, except for temporary or emergency purposes (including the meeting
of redemption requests) and except for entering into reverse repurchase
agreements, and provided that borrowings do not exceed 33 1/3% of the Fund's
total assets (computed immediately after the borrowing).
UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter for purposes of the 1933 Act.
25
<PAGE>
MAKING LOANS
Make loans to other persons except for loans of portfolio securities and except
through the use of repurchase agreements and through the purchase of commercial
paper or debt securities which are otherwise permissible investments.
PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the Fund may
invest in securities issued or guaranteed by corporate or governmental entities
secured by real estate or interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that invest in real
estate or interests therein.
PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts will not be
deemed to be physical commodities.
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act and except
that the Fund may borrow money subject to investment limitations specified in
the Fund's Prospectus.
OIL, GAS AND MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral exploration or
development programs.
NON-DIVERSIFICATION
Purchase securities, other than U.S. Government Securities, of any one issuer,
if: (1) more than 5% of the Fund's total assets taken at market value would at
the time of purchase be invested in the securities of that issuer; or (2) such
purchase would at the time of purchase cause the Fund to hold more than 10% of
the outstanding voting securities of that issuer. Up to 50% of the Fund's total
assets may be invested without regard to this limitation. These limitations do
not apply to securities of an issuer payable solely from the proceeds of
escrowed U.S. Government Securities.
CONCENTRATION
Purchase securities, other than U.S. Government Securities, if, immediately
after each purchase, more than 25% of the Fund's total assets taken at market
value would be invested in securities of issuers conducting their principal
business activity in the same industry.
For purposes of the Fund's diversification policy, the District of Columbia,
each state, each political subdivision, agency, instrumentality and authority
thereof, and each multi-state agency of which a state is a member is deemed to
be a separate "issuer." When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from the government
creating the subdivision and the security is backed only by the assets and
revenues of the subdivision, such subdivision would be deemed to be the sole
issuer. Similarly, in the case of private activity bonds, if only the assets and
revenues of the nongovernmental user back the bond, then such nongovernmental
user would be deemed to be the sole issuer. However, if in either case, the
creating government or some other agency guarantees a security, that guarantee
would be considered a separate security and would be treated as an issue of such
government or other agency.
26
<PAGE>
2. NON-FUNDAMENTAL LIMITATIONS
The Fund may not:
PLEDGING
Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the writing
of put and call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
INVESTMENT IN OTHER INVESTMENT COMPANIES
Invest in securities of another registered investment company, except in
connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest in money market funds and privately-issued
mortgage related securities to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES
Purchase securities on margin, or make short sales of securities, except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities, except that the Fund may make margin deposits in
connection with permitted transactions in options, futures contracts and options
on futures contracts.
BORROWING
Purchase securities for investment while any borrowing equaling 10% or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding 10% of the value of the Fund's total assets.
ILLIQUID SECURITIES
Acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than: (1) 15% of the Fund's net assets (taken
at current value) would be invested in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities which are not
readily marketable, including securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without registration
under the 1933 Act ("Restricted Securities"); or (2) 10% of the Fund's total
assets would be invested in Restricted Securities.
INVESTMENTS IN REAL PROPERTY LEASES
Purchase or sell real property leases (including limited partnership interests,
but excluding readily marketable interests in real estate investment trusts or
readily marketable securities of companies that invest in real estate.)
SECURITIES WITH VOTING RIGHTS
Purchase securities having voting rights except securities of other investment
companies.
27
<PAGE>
D. MAINE TAXSAVER BOND FUND
1. FUNDAMENTAL LIMITATIONS
The Fund may not:
BORROWING
Borrow money, except for temporary or emergency purposes (including the meeting
of redemption requests) and except for entering into reverse repurchase
agreements, and provided that borrowings do not exceed 33 1/3% of the Fund's
total assets (computed immediately after the borrowing).
UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter for purposes of the 1933 Act.
MAKING LOANS
Make loans to other persons except for loans of portfolio securities and except
through the use of repurchase agreements and through the purchase of commercial
paper or debt securities which are otherwise permissible investments.
PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the Fund may
invest in securities issued or guaranteed by corporate or governmental entities
secured by real estate or interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that invest in real
estate or interests therein.
PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts will not be
deemed to be physical commodities.
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act and except
that the Fund may borrow money subject to investment limitations specified in
the Fund's Prospectus.
OIL, GAS AND MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral exploration or
development programs.
CONCENTRATION
Purchase securities, other than U.S. Government Securities, if, immediately
after each purchase, more than 25% of the Fund's total assets taken at market
value would be invested in securities of issuers conducting their principal
business activity in the same industry. For this purpose, consumer finance
companies, industrial finance companies, and gas, electric, water and telephone
utility companies are each considered to be separate industries.
VOTING RIGHTS
Purchase securities having voting rights except securities of other investment
companies.
28
<PAGE>
2. NON-FUNDAMENTAL LIMITATIONS
The Fund may not:
PLEDGING
Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the writing
of put and call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
INVESTMENT IN OTHER INVESTMENT COMPANIES
Invest in securities of another registered investment company, except in
connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest in money market funds and privately-issued
mortgage related securities to the extent permitted by the 1940 Act.
MARGIN AND SHORT SALES
Purchase securities on margin, or make short sales of securities, except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities, except that the Fund may make margin deposits in
connection with permitted transactions in options, futures contracts and options
on futures contracts.
BORROWING
Purchase securities for investment while any borrowing equaling 10% or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding 10% of the value of the Fund's total assets.
ILLIQUID SECURITIES
Acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than: (1) 15% of the Fund's net assets (taken
at current value) would be invested in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities which are not
readily marketable, including securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without registration
under the 1933 Act ("Restricted Securities"); or (2) 10% of the Fund's total
assets would be invested in Restricted Securities.
INVESTMENTS IN REAL PROPERTY LEASES
Purchase or sell real property leases (including limited partnership interests,
but excluding readily marketable interests in real estate investment trusts or
readily marketable securities of companies that invest in real estate).
E. NEW HAMPSHIRE TAXSAVER BOND FUND
1. FUNDAMENTAL LIMITATIONS
The Fund may not:
BORROWING
Borrow money, except for temporary or emergency purposes (including the meeting
of redemption requests) and except for entering into reverse repurchase
agreements, provided that borrowings do not exceed 33 1/3% of the Fund's net
assets.
29
<PAGE>
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.
MAKING LOANS
Make loans except for loans of portfolio securities, through the use of
repurchase agreements, and through the purchase of debt securities that are
otherwise permitted investments.
PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the Fund may
invest in debt obligations secured by real estate or interests therein or issued
by companies that invest in real estate or interests therein.
PURCHASES AND SALES OF COMMODITIES
Invest in commodities or in commodity contracts, except that, to the extent the
Fund is otherwise permitted, the Fund may enter into financial futures contracts
and options on those futures contracts and may invest in currencies and
currency-related contracts.
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except as appropriate to evidence indebtedness that the
Fund is permitted to incur, and provided that the Fund may issue shares of
additional series or classes that the Board may establish.
NON-DIVERSIFICATION
With respect to 50% of its assets, purchase a security other than a U.S.
Government Security of any one issuer if, as a result, more than 5% of the
Fund's total assets would be invested in the securities of that issuer or the
Fund would own more than 10% of the outstanding voting securities of that
issuer.
CONCENTRATION
Purchase securities if, immediately after the purchase, more than 25% of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry, provided there
is no limit on investments in U.S. Government Securities, municipal securities
or in the securities of domestic financial institutions (not including their
foreign branches). For this purpose, consumer finance companies, industrial
finance companies, and gas, electric, water and telephone utility companies are
each considered to be separate industries.
2. NON-FUNDAMENTAL LIMITATIONS
BORROWING
Purchase securities for investment while any borrowing equaling 10% or more of
the Fund's total assets is outstanding; and if at any time the Fund's borrowings
exceed the Fund's investment limitations due to a decline in net assets, such
borrowings will be promptly (within three days) reduced to the extent necessary
to comply with the limitations.
30
<PAGE>
SECURITIES WITH VOTING RIGHTS
Purchase securities that have voting rights, except the Fund may invest in
securities of other investment companies to the extent permitted by the 1940
Act.
MARGIN AND SHORT SALES
Purchase securities on margin, or make short sales of securities, except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities.
ILLIQUID SECURITIES
Acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than: (1) 15% of the Fund's net assets (taken
at current value) would be invested in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities which are not
readily marketable; or (2) 10% of the Fund's total assets would be invested in
securities that are illiquid by virtue of restrictions on the sale of such
securities to the public without registration under the 1933 Act.
INVESTMENTS IN REAL PROPERTY
Purchase or sell real property (including limited partnership interests, but
excluding readily marketable interests in real estate investment trusts or
readily marketable securities of companies that invest in real estate.)
CONCENTRATION
No more than 25% of a Fund's total assets may be invested in the securities of
one issuer. This limitation, however, does not apply to securities of an issuer
payable solely from the proceeds of U.S. Government Securities.
4. 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 MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley - Europe,
Australia and Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Shearson Lehman Bond Index, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index
as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
31
<PAGE>
Indices are not used in the management of a Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
A Fund may refer to: (1) general market performances over past time periods such
as those published by Ibbotson Associates (for instance, its "Stocks, Bonds,
Bills and Inflation Yearbook"); (2) mutual fund performance rankings and other
data published by Fund Tracking Companies; and (3) material and comparative
mutual fund data and ratings reported in independent periodicals, such as
newspapers and financial magazines.
A Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for each Fund.
1. SEC YIELD
Standardized SEC yields for a Fund used in advertising are computed by dividing
the Fund's interest income (in accordance with specific standardized rules) for
a given 30 day or one month period, net of expenses, by the average number of
shares entitled to receive income distributions during the period, dividing this
figure by the Fund's net asset value per share at the end of the period and
annualizing the result (assuming compounding of income in accordance with
specific standardized rules) in order to arrive at an annual percentage rate.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in a Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
Maine TaxSaver Bond Fund, New Hampshire TaxSaver Bond Fund and TaxSaver Bond
Fund may also quote tax equivalent yields, which show the taxable yields a
shareholder would have to earn to equal a fund's tax-free yield after taxes. A
tax equivalent yield is calculated by dividing the fund's tax-free yield by one
minus a stated Federal, state or combined Federal and state tax rate.
The yields of a Fund are not fixed or guaranteed, and an investment in a Fund is
not insured or guaranteed. Accordingly, yield information should not be used to
compare shares of a Fund with investment alternatives, which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives, which are insured or guaranteed.
Yield quotations are based on amounts invested in a Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
32
<PAGE>
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in a Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period; and (2) calculates the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
A Fund may quote unaveraged or cumulative total returns 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.
33
<PAGE>
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
C. OTHER MATTERS
A Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's investment adviser, summaries of
the views of the portfolio managers with respect to the financial markets, or
descriptions of the nature of the Adviser's and its staff's management
techniques; (7) the results of a hypothetical investment in the Fund over a
given number of years, including the amount that the investment would be at the
end of the period; (8) the effects of investing in a tax-deferred account, such
as an individual retirement account or Section 401(k) pension plan; (9) the net
asset value, net assets or number of shareholders of the Fund as of one or more
dates; and (10) a comparison of the Fund's operations to the operations of other
funds or similar investment products, such as a comparison of the nature and
scope of regulation of the products and the products' weighted average maturity,
liquidity, investment policies, and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,188 at the end
of the second year (an increase of $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of a Fund's performance.
A Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
34
<PAGE>
<TABLE>
<S> <C> <C> <C>
PERIOD SYSTEMATIC INVESTMENT SHARE PRICE SHARES 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 Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements, a Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service provider's policies
or business practices.
35
<PAGE>
5. MANAGEMENT
--------------------------------------------------------------------------------
A. TRUSTEES AND OFFICERS
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C> <C>
NAME, DATE OF POSITION PRINCIPAL OCCUPATION(S)
BIRTH AND ADDRESS WITH THE TRUST DURING PAST 5 YEARS
John Y. Keffer* Chairman and President Member and Director, Forum Financial Group, LLC (a mutual
Born: July 15, 1942 fund 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
Born: February 15, 1943 Angeles
Department of Economics Visiting Professor of Economics, Athens University of
University of California Economics and Business 1998 - 1999
Los Angeles, CA 90024 Trustee of one other investment company for which Forum
Financial 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
27 Temple Street New 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 Trustee of one other investment company for which Forum
40 West 57th Street Financial Group, LLC provides services
New York, NY 10019
............................. .......................... .............................................................
............................. .......................... .............................................................
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
Two Portland Square Financial Group, LLC provides services
Portland, ME 04101
............................. .......................... .............................................................
Ronald H. Hirsch Treasurer Managing Director, Operations/Finance and Operations/Sales,
Born: October 14, 1943 Forum 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
Born: August 24, 1964 since 1998
Two Portland Square Associate General Counsel, Smith Barney Inc. (brokerage
Portland, ME 04101 firm) 1993 - 1998
Officer of one other investment company 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
36
<PAGE>
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 another investment
company for which Forum Financial Group, LLC provides services for the fiscal
year ended March 31, 2000.
<TABLE>
<S> <C> <C> <C> <C>
TOTAL COMPENSATION
FROM TRUST AND FUND
COMPENSATION FROM THE COMPLEX
TRUSTEE FUNDS BENEFITS RETIREMENT
John Y. Keffer $0 $0 $0 $0
...................... ....................... ...................... ...................... .......................
Costas Azariadis $15,500 $0 $0 $24,500
...................... ....................... ...................... ...................... .......................
James C. Cheng $15,500 $0 $0 $24,900
...................... ....................... ...................... ...................... .......................
J. Michael Parish $15,500 $0 $0 $24,900
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to each 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 in connection with managing a Fund's investments and effecting
portfolio transactions for a Fund.
2. OWNERSHIP OF ADVISER
The Adviser is 99% owned by Forum Trust LLC and 1% owned by Forum Holdings Corp.
I. Forum Investment Advisors, LLC is registered as an investment adviser with
the SEC under the Investment Adviers Act of 1940, as amended.
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by each Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from each Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in a Fund. If you have a separately managed account with
the Adviser with assets invested in a Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
Table 1 in Appendix B shows the dollar amount of the fees payable by each Fund
to the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data are for the past three fiscal years (or
shorter period depending on a Fund's commencement of operations).
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The 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 a Fund on 30
days' written notice when authorized either by vote of the Fund's shareholders
or by a majority vote of the Board, or by the Adviser on 90 days' written notice
to the Trust. The Agreement terminates immediately upon assignment.
37
<PAGE>
Under the Agreement, the Adviser is not liable for any mistake of judgment or in
any event whatsoever except for breach of fiduciary duty, willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Prior to August 1, 1999, Forum Financial Services, Inc.
("FFSI") was the distributor of each Fund pursuant to similar terms and
compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under a distribution agreement with the Trust (the "Distribution Agreement"),
FFS acts as the agent of the Trust in connection with the offering of shares of
each Fund. FFS continually distributes shares of each Fund on a best efforts
basis. FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of each Fund.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of each Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of each Fund are sold with a sales charge. These
financial institutions may otherwise act as processing agents, and will be
responsible for promptly transmitting purchase, redemption and other requests to
each Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of 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 each Fund's
shares.
Table 2 in Appendix B shows the aggregate sales charges paid to FFSI, the amount
of sales charge reallowed by FFSI, and the amount of sales charge retained by
FFSI. The data 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.
38
<PAGE>
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.
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 a Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an administration 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 a 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 three fiscal years.
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 class)
and preparing each Fund's financial statements and tax returns.
For its services, FAcS receives a fee from each Fund at an annual rate of
$36,000 and certain surcharges based upon the number and type of a Fund's
portfolio transactions and positions. The fee is accrued daily by each Fund 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.
39
<PAGE>
Under the Accounting Agreement, FAcS is not liable for any action or inaction in
the performance of its duties to a Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the 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.
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 each Fund.
Table 4 in Appendix B shows the dollar amount of the fees payable by each Fund
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data are for the past three fiscal years.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agent
agreement with the Trust (the "Transfer Agent 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 plus $18 per shareholder
account.
The Transfer Agent Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Transfer Agent Agreement is terminable without penalty by the Trust
or by FSS with respect to a Fund on 60 days' written notice.
Under the Transfer Agent Agreement, FSS is not liable for any act or inaction in
the performance of its duties to a Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties under the agreement.
Under the Transfer Agent 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 FAdS's actions or omissions that are
consistent with FAdS's contractual standard of care.
Table 5 in Appendix B shows the dollar amount of the fees payable by each Fund
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data are for the past three fiscal years.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls each Fund's cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of a Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
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 each
Fund and are paid monthly based on average net assets and transactions for the
previous month.
40
<PAGE>
5. LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005 passes upon
legal matters in connection with the issuance of shares of the Trust.
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, 14th Floor, Boston, Massachusetts,
02116-5022, independent auditors, have been selected as auditors for each Fund.
The auditors audit the annual financial statements of each Fund and provide the
Funds with an audit opinion. The auditors also review certain regulatory filings
of each Fund and each Funds tax returns.
6. PORTFOLIO TRANSACTIONS
--------------------------------------------------------------------------------
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are debt 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 debt and equity securities traded in the over-the-counter markets,
there is generally no stated commission, but the price usually includes an
undisclosed commission or markup.
B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions with respect to
each Fund. The data presented are for the past three fiscal years. The table
also indicates the reason for any material change in the last two years in the
amount of brokerage commissions paid by a Fund, if any.
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with brokers
and dealers selected by and in the discretion of the Adviser. No Fund has any
obligation to deal with any specific broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers and
the frequency of transactions are determined by the Adviser in its best judgment
and in a manner deemed to be in the best interest of each Fund rather than by
any formula.
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for a Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
41
<PAGE>
1. CHOOSING BROKER-DEALERS
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commissions (including certain dealer spreads) paid in
connection with securities transactions, the Adviser takes into account factors
such as size of the order, difficulty of execution, efficiency of the executing
broker's facilities (including the research services described below) and any
risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of a Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) take into
account payments made by brokers effecting transactions for 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 a Fund, and not all research services may be used
by the Adviser in connection with the Fund. The Adviser's fees are not reduced
by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser may execute a transaction with a broker and pay 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 on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to each Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
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<PAGE>
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect brokerage transactions through affiliates of the Adviser
(or affiliates of those persons) pursuant to procedures adopted by the Trust.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for each 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. In addition, when purchases or sales of the same
security for a Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in a Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to a Fund and a possible increase in
short-term capital gains or losses.
For the fiscal year ended March 31, 1999, Investors High Grade Bond Fund's
portfolio turnover was 172.60%. The turnover was due to the Fund's recent
inception (March 16, 1998) and the maturity of shorter term instruments like
commercial paper. The Fund invests a portion of its portfolio in short-term
instruments in order to keep the portfolio maturity at seven years or less.
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 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 each Fund's holdings of those
securities as of the Fund's most recent fiscal year.
7. PURCHASE AND REDEMPTION INFORMATION
--------------------------------------------------------------------------------
A. GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at FSS's offices located at Two Portland Square, Portland, Maine 04101.
43
<PAGE>
Each Fund accepts 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 at net
asset value ("NAV") per share plus the applicable sales charge.
Set forth below is an example of the method of computing the offering price of a
Fund's shares. The example assumes a purchase of shares of beneficial interest
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of the
Fund on March 31, 2000.
<TABLE>
<S> <C> <C> <C>
INVESTORS HIGH GRADE INVESTORS TAXSAVER
BOND FUND BOND FUND BOND FUND
Net Asset Value per Share $9.92 $10.32 $10.61
.............................................. ....................... ....................... .......................
Shares Charge, 3.75% of offering price $0.39 $0.40 $0.41
(3.90% of net asset value per share)
.............................................. ....................... ....................... .......................
Offering to Public $10.31 $10.72 $11.02
MAINE TAXSAVER BOND FUND NEW HAMPSHIRE TAXSAVER BOND FUND
Net Asset Value per Share $11.07 $10.80
.............................................. ................................... ...................................
Shares Charge, 3.00% of offering price $0.34 $0.33
(3.09% of net asset value per share)
.............................................. ................................... ...................................
Offering to Public $11.41 $11.13
</TABLE>
Each Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, a Fund may accept portfolio securities that meet the investment
objective and policies of a Fund as payment for Fund shares. A Fund will only
accept securities that: (1) are not restricted as to transfer by law and are not
illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the contribution is received.
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<PAGE>
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 a Fund.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in a Fund directly. When you purchase a Fund's shares
through a financial institution, you may or may not be the shareholder of record
and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, a Fund may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. A Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of a Fund through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to a
Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted; (2) an emergency (as
determined by the SEC) exists as a result of which disposal by a Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of a Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisable by the Adviser, a Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which a
Fund may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
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D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at a Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of a
Fund on the payment date for the distribution. Cash payments may be made more
than seven days following the date on which distributions would otherwise be
reinvested.
F. SALES CHARGES
1. REDUCED SALES CHARGES
You may qualify for a reduced sales charge on Fund purchases under rights of
accumulation or a letter of intent. If you qualify for rights of accumulation
("ROA"), the sales charge you pay is based on the total of your current purchase
and the net asset value (at the end of the previous fund business day) of shares
that you already hold. To qualify for ROA on a purchase, you must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount. You may also enter into a written Letter of Intent
("LOI"), which expresses your intent to invest $100,000 or more in a Fund within
a period of 13 months. Each purchase under a LOI will be made at the public
offering price applicable at the time of the purchase to a single transaction of
the dollar amount indicated in the LOI. If you do not purchase the minimum
investment referenced in the LOI, you must pay the Fund an amount equal to the
difference between the dollar value of the sales charges paid under the LOI and
the dollar value of the sales charges due on the aggregate purchases of the Fund
as if such purchases were executed in a single transaction.
2. ELIMINATION OF SALES CHARGES
No sales charge is assessed on the reinvestment of Fund distributions. No sales
charge is assessed on purchases made for investment purposes or on redemptions
by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any broker-dealer with whom the distributor has entered into a Fee-Based
Wrap Account Agreement or similar agreement and which is acting on behalf
of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or similar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the
benefit of any such person or relative; or the estate of any such person or
relative
o any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment
o persons who exchange into a Fund from a mutual fund other than a Fund of
the Trust that participates in the Trust's exchange program
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o employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
G. SIGNATURE GUARANTEE REQUIREMENTS
For requests made in writing, a signature guarantee is required for any of the
following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name or address
o Redemptions from an account for which the address or account
registration has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different
registration (name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution,
telephone redemption or exchange option or any other election in
connection with your account
8. 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 a Fund or the implications to shareholders. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to a Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year end of each Fund is March 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its investment company taxable income (that is, taxable
interest, dividends net short-term capital gains, and other taxable ordinary
income, net of expenses) and net capital gain (that is, the excess of net
long-term capital gains over net short-term capital losses) that it distributes
to shareholders. In order to qualify to be taxed as a regulated investment
company a Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income for the tax year and at least 90% of its net tax-exempt
interest income for the tax year. (Certain distributions made by a
Fund after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
47
<PAGE>
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
Each Fund generally intends to operate in a manner such that it will not be
liable for federal income tax.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits. A
portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you as
ordinary income. It is expected that only a small portion, if any, of a Fund's
distributions will qualify for the 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 a Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions do not qualify for the dividends-received deduction.
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 a Fund's financial statements. Any
such losses may not be carried back.
TaxSaver Bond Fund, Maine TaxSaver Bond Fund and New Hampshire TaxSaver Bond
Fund each anticipates distributing substantially all of its net tax-exempt
interest income for each tax year. These distributions generally are not taxable
to you. If you are a "substantial user" or a "related person" of a substantial
user of facilities financed by private activity bonds held by a Fund, you may
have to pay federal income tax on your pro rata share of the net income
generated from these securities. Distributions of interest income on certain
private activity bonds is an item of tax preference for purposes of the federal
alternative minimum tax imposed on individuals and corporations. Distributions
of net income from tax-exempt obligations are included in the "adjusted current
earnings" of corporations for alternative minimum tax purposes.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital. Return of capital distributions reduce your tax basis in the shares
and are treated as gain from the sale of the shares to the extent your basis
would be reduced below zero.
All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares the net asset value of which 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
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<PAGE>
amounts are taxable to you in the manner described above, although the
distribution economically constitutes a return of capital to you.
If you purchase shares of a Fund just prior to the ex-dividend date of a
distribution, you will be taxed on the entire amount of the distribution
received, even though the net asset value per share on the date of the purchase
reflected the amount of the distribution.
Ordinarily, you are required to take distributions by a Fund into account in the
year in which they are made. A distribution declared in October, November or
December of any year and payable to shareholders of record on a specified date
in those months, however, is deemed to be received by you (and made by the Fund)
on December 31 of that calendar year if the distribution is actually paid in
January of the following year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) to you during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUNDS TRANSACTIONS
For federal income tax purposes, when equity or over-the-counter put and call
options purchased by a Fund expire unexercised, the premiums paid by the Fund
give rise to short- or long-term capital losses at the time of expiration
(depending on the length of the respective exercise periods for the options).
When such put and call options written by a Fund expire unexercised, the
premiums received by the Fund give rise to short-term capital gains at the time
of expiration. When a Fund exercises a call, the purchase price of the
underlying security is increased by the amount of the premium paid by the Fund.
When a Fund exercises a put, the proceeds from the sale of the underlying
security are decreased by the premium paid. When a put or call written by a Fund
is exercised, the purchase price (selling price in the case of a call) of the
underlying security is decreased (increased in the case of a call) for tax
purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts, which are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, of the positions are Section 1256 contracts, may constitute a
"mixed straddle". In general, straddles are subject to certain rules that may
affect the character and timing of a Fund's gains and losses with respect to
straddle positions by requiring, among other things, that: (1) the loss realized
on disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to a Fund, which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held by a Fund all
of the offsetting positions of which consist of Section 1256 contracts.
Under current federal tax law, if a Fund invests in bonds issued with "original
issue discount", the Fund generally will be required to include in income as
interest each year, in addition to stated interest received on such bonds, a
portion of the excess of the face amount of the bonds over their issue price,
even though the Fund does not receive payment with respect to such discount
during the year. With respect to "market discount bonds" (i.e., bonds purchased
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<PAGE>
by a Fund at a price less than their issue price plus the portion of "original
issue discount" previously accrued thereon), the Fund may likewise elect to
accrue and include in income each year a portion of the market discount with
respect to such bonds. As a result, in order to make the distributions necessary
for a Fund not to be subject to federal income or excise taxes, the Fund may be
required to pay out as an income distribution each year an amount greater than
the total amount of cash which the Fund has actually received as interest during
the year.
If a Fund invests in the securities of foreign issuers, the Fund's income may be
subject to foreign withholding taxes.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. The
balance of the Fund's income must be distributed during the next calendar year.
A Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year ending in the calendar year.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or December 31 if it has made the
election described above) in determining the amount of ordinary taxable income
for the current calendar year. The Fund will include foreign currency gains and
losses incurred after October 31 in determining ordinary taxable income for the
succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. Investors should note, however, that a Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases (for example, by reinvesting dividends) other shares of the Fund
within 30 days before or after the sale or redemption (a so-called "wash sale").
If disallowed, the loss will be reflected in an upward adjustment to the basis
of the shares purchased. In general, any gain or loss arising from the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Any capital loss arising from the sale or redemption of shares held for
six months or less, however, is treated as a long-term capital loss to the
extent of the amount of distributions of net capital gain received on such
shares and is disallowed to the extent of the amount of distributions of
tax-exempt interest income 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 non-corporate 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 taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to a Fund that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient." Backup withholding is
not an additional tax; any amounts so withheld may be credited against a
shareholder's federal income tax liability or refunded.
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G. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(and short-term capital gains) paid to a foreign shareholder will be subject to
U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) upon
the gross amount of the distribution. The foreign shareholder generally would be
exempt from U.S. federal income tax on gain realized on the sale of shares of a
Fund, and capital gain distributions of net capital gain from a Fund.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income distributions, capital
gain distributions, and any gain realized upon the sale of shares of a Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or U.S. corporations.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
The tax rules of other countries with respect to distributions from a Fund can
differ from the U.S. federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in a Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and local jurisdictions with
respect to distributions from a Fund can differ from the U.S. federal income
taxation rules described above. These state and local rules are not discussed
herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund.
9. 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 TaxSaver Bond Fund
Daily Assets Government Fund(1) Mastrapasqua Growth Value Fund
Daily Assets Government Obligations Fund(1) New Hampshire TaxSaver Bond Fund
Daily Asset Municipal Fund(1) Payson Balanced Fund
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Daily Assets Treasury Obligations Fund(1) Payson Value Fund
Equity Index Fund Polaris Global Value Fund
Investors Bond Fund TaxSaver Bond Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust, the Adviser 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 the Fund. The Board will consider approving
amendments to the code of ethics for Trust, the Adviser and the principal
underwriter at its next regularly scheduled meeting.
The Fund reserves the right to invest in one or more other investment companies
in a Core and Gateway(R) structure.
The Trust and each Fund will continue indefinitely until terminated.
2. SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and its
expenses will affect each class' performance. For more information on any other
class of shares of a Fund, you 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. 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.
A shareholder or shareholders representing 33 1/3% or more the outstanding
shares entitled to vote may, as set forth in the Trust Instrument, call meetings
of the Trust (or series) for any purpose related to the Trust (or series),
including, in the case of a meeting of the Trust, the purpose of voting on
removal of one or more Trustees.
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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 July 1, 2000, the percentage of shares owned by all officers and trustees
of the Trust as a group was as follows. To the extent officers and trustees own
less than 1% of the shares of each class of shares of a Fund (or of the Trust),
the table reflects "N/A" for not applicable.
FUND (OR TRUST) PERCENTAGE OF SHARES OWNED
The Trust N/A
...................................... .......................................
Investors High Grade Bond Fund N/A
...................................... .......................................
Investors Bond Fund N/A
...................................... .......................................
TaxSaver Bond Fund N/A
...................................... .......................................
Maine TaxSaver Bond Fund N/A
...................................... .......................................
New Hampshire TaxSaver Bond Fund N/A
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of a Fund. Shareholders known by a Fund to own beneficially 5% or more
of a class of shares of the Fund are listed in Table 8 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As of July 1, 2000, the following
persons beneficially owned 25% or more of the shares of a Fund (or of the Trust)
and may be deemed to control the Fund (or the Trust). For each person listed
that is a company, the jurisdiction under the laws of which the company is
organized (if applicable) and the company's parents are listed.
CONTROLLING PERSON INFORMATION
<TABLE>
<S> <C> <C>
PERCENTAGE OF
FUND (OR TRUST) SHAREHOLDER SHARES OWNED
Investors High Grade Bond Fund Stratevest & Company 98.82%
P.O. Box 2499
Brattleboro, VT 05303-2499
........................................ ..................................... ....................................
Investors Bond Fund FirsTrust (incorporated in Indiana) 46.23%
National City Bank Trust Dept.
227 Main Street
Evansville, IN 47708
........................................ ..................................... .....................................
TaxSaver Bond Fund FirsTrust (incorporated in Indiana) 30.85%
National City Bank Trust Dept.
227 Main Street
Evansville, IN 47708
........................................ ..................................... .....................................
New Hampshire TaxSaver Bond Fund Independence Trust (organized in 33.04%
New Hampshire)
The Atrium Building
1001 Elm Street Suite 205
Manchester, NH 03101
</TABLE>
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Bank of New Hampshire is the parent company of Babb & Co. National City Bank of
Evansville is the parent company of FirsTrust.
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the securities regulators of some states,
however, have indicated that they and the courts in their state may decline to
apply Delaware law on this point. The Forum Funds' Trust Instrument (the
document that governs the operations of the Trust) contains an express
disclaimer of shareholder liability for the debts, liabilities, obligations and
expenses of the Trust and requires that a disclaimer be given in each bond, note
or contract, or other undertaking entered into or executed by the Trust or the
Trustees. 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 if held to be personally liable solely by reason of
being or having been a shareholder of a series. The Trust Instrument also
provides that each series shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the series and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability was in
effect, and the portfolio is unable to meet its obligations. FAdS believes that,
in view of the above, there is no risk of personal liability to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, the copy of such contract or other documents filed as exhibits
to the registration statement.
E. FINANCIAL STATEMENTS
The financial statements of each of Investors High Grade Bond Fund, Investors
Bond Fund, TaxSaver Fund, Maine TaxSaver Bond Fund, and New Hampshire TaxSaver
Bond Fund for the year ended March 31, 2000, which are included in the Annual
Report to Shareholders of each Fund, are incorporated herein by reference. These
financial statements include the schedules of investments, statements of assets
and liabilities, statements of operations, statements of changes in net assets,
financial highlights, notes and independent auditors' reports.
54
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
<PAGE>
2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
A-2
<PAGE>
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD, D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
B. PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
BAA An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
BA An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
B An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
A-4
<PAGE>
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
CA An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
C This is the lowest rated class of preferred or preference stock. Issues
so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
A-5
<PAGE>
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
2. STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
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.
A-6
<PAGE>
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for timely
repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. This rating is
automatically assigned to all obligations issued or guaranteed by the
sovereign state. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative
degree of risk is slightly higher than for issues classified as `A1'
and capacity for timely repayment may be susceptible to adverse changes
in 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.
<TABLE>
<S> <C> <C> <C>
INVESTORS HIGH GRADE BOND FUND ADVISORY FEE ADVISORY FEE ADVISORY FEE
WAIVED RETAINED
Year Ended March 31, 2000 $132,059 $44,542 $87,517
Year Ended March 31, 1999 $140,442 $0 $140,442
Year Ended March 31, 1998 $5,970 $0 $5,970
INVESTORS BOND FUND ADVISORY FEE ADVISORY FEE ADVISORY FEE
WAIVED RETAINED
Year Ended March 31, 2000 $244,646 $18,811 $225,835
Year Ended March 31, 1999 $328,113 $0 $328,113
Year Ended March 31, 1998 $171,777 $0 $171,777
TAXSAVER BOND FUND ADVISORY FEE ADVISORY FEE ADVISORY FEE
WAIVED RETAINED
Year Ended March 31, 2000 $130,990 $55,793 $75,197
Year Ended March 31, 1999 $157,824 $0 $157,824
Year Ended March 31, 1998 $102,003 $0 $102,003
MAINE TAXSAVER BOND FUND ADVISORY FEE ADVISORY FEE ADVISORY FEE
WAIVED RETAINED
Year Ended March 31, 2000 $129,914 $46,346 $83,568
Year Ended March 31, 1999 $119,844 $0 $119,844
Year Ended March 31, 1998 $107,471 $0 $107,471
NEW HAMPSHIRE TAXSAVER BOND FUND ADVISORY FEE ADVISORY FEE ADVISORY FEE
WAIVED RETAINED
Year Ended March 31, 2000 $58,328 $39,223 $19,105
Year Ended March 31, 1999 $57,031 $0 $57,031
Year Ended March 31, 1998 $43,782 $0 $43,782
</TABLE>
B-1
<PAGE>
TABLE 2 - SALES CHARGES
<TABLE>
<S> <C> <C> <C>
INVESTORS HIGH GRADE BOND FUND
FISCAL YEAR ENDED MARCH 31 AGGREGATE SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
2000 $0 $0 $0
1999 $150 $150 $0
1998 $0 $0 $0
INVESTORS BOND FUND
FISCAL YEAR ENDED MARCH 31
AGGREGATE SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
2000 $0 $0 $0
1999 $119 $119 $0
1998 $0 $0 $0
TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31
AGGREGATE SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
2000 $1,108 $145 $963
1999 $8 $8 $0
1998 $162 $162 $0
MAINE TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31
AGGREGATE SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
2000 $166,058 $18,335 $147,723
1999 $19,170 $146 $19,024
1998 $16,890 $376 $16,514
NEW HAMPSHIRE TAXSAVER BOND FUND
FISCAL YEAR ENDED MARCH 31
AGGREGATE SALES CHARGE AMOUNT RETAINED AMOUNT REALLOWED
2000 $44,217 $9,085 $35,132
1999 $771 $141 $630
1998 $4,041 $0 $4,041
</TABLE>
B-2
<PAGE>
TABLE 3 - ADMINISTRATION FEES
The following table shows the dollar amount of fees payable to FAdS with respect
to each Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
<TABLE>
<S> <C> <C> <C>
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
INVESTORS HIGH GRADE BOND FUND PAYABLE RETAINED
Year Ended March 31, 2000 $66,029 $50,981 $15,048
Year Ended March 31, 1999 $70,221 $70,221 $0
Year Ended March 31, 1998 $2,985 $2,985 $0
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
INVESTORS BOND FUND PAYABLE RETAINED
Year Ended March 31, 2000 $122,323 $92,121 $30,202
Year Ended March 31, 1999 $164,056 $164,056 $0
Year Ended March 31, 1998 $108,198 $180,198 $0
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
TAXSAVER BOND FUND PAYABLE RETAINED
Year Ended March 31, 2000 $65,495 $52,812 $12,683
Year Ended March 31, 1999 $78,912 $78,912 $0
Year Ended March 31, 1998 $66,898 $66,898 $0
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
MAINE TAXSAVER BOND FUND PAYABLE RETAINED
Year Ended March 31, 2000 $64,957 $48,336 $16,621
Year Ended March 31, 1999 $59,922 $59,922 $0
Year Ended March 31, 1998 $73,724 $73,164 $0
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
NEW HAMPSHIRE TAXSAVER BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $29,164 $29,164 $0
Year Ended March 31, 1999 $28,516 $28,516 $0
Year Ended March 31, 1998 $29,727 $29,727 $0
B-3
<PAGE>
TABLE 4 - ACCOUNTING FEES
The following able shows the dollar amount of fees payable to FAcS with respect
to each Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
INVESTORS HIGH GRADE BOND FUND RETAINED
Year Ended March 31, 2000 $38,200 $0 $38,200
Year Ended March 31, 1999 $40,000 $0 $40,000
Year Ended March 31, 1998 $3,548 $3,548 $0
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
INVESTORS BOND FUND RETAINED
Year Ended March 31, 2000 $38,200 $0 38,200
Year Ended March 31, 1999 $40,000 $0 $40,000
Year Ended March 31, 1998 $41,000 $0 $41,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
TAXSAVER BOND FUND RETAINED
Year Ended March 31, 2000 $38,200 $0 $38,200
Year Ended March 31, 1999 $38,000 $0 $38,000
Year Ended March 31, 1998 $41,000 $0 $41,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
MAINE TAXSAVER BOND FUND RETAINED
Year Ended March 31, 2000 $50,200 $36,000 $14,200
Year Ended March 31, 1999 $48,000 $48,000 $0
Year Ended March 31, 1998 $48,000 $0 $48,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE PAYABLE
NEW HAMPSHIRE TAXSAVER BOND FUND
Year Ended March 31, 2000 $38,200 $27,000 $11,200
Year Ended March 31, 1999 $37,000 $37,000 $0
Year Ended March 31, 1998 $36,000 $0 $36,00
B-4
<PAGE>
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees payable
to FSS with respect to Shares of each Fund.
INVESTORS HIGH GRADE BOND FUND TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $94,997 $49,385 $45,612
Year Ended March 31, 1999 $99,845 $76,092 $23,753
Year Ended March 31, 1998 $4,248 $3,731 $517
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
INVESTORS BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $166,468 $101,651 $64,817
Year Ended March 31, 1999 $218,175 $96,856 $121,319
Year Ended March 31, 1998 $120,533 $102,298 $18,235
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
TAXSAVER BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $94,872 $65,100 $29,772
Year Ended March 31, 1999 $111,354 $97,734 $13,620
Year Ended March 31, 1998 $76,553 $59,098 $17,455
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
MAINE TAXSAVER BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $107,465 $99,977 $7,488
Year Ended March 31, 1999 $96,618 $74,804 $21,814
Year Ended March 31, 1998 $86,179 $43,753 $42,426
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
NEW HAMPSHIRE TAXSAVER BOND FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $52,613 $48,271 $4,342
Year Ended March 31, 1999 $50,028 $36,422 $13,606
Year Ended March 31, 1998 $40,793 $11,618 $29,175
</TABLE>
B-5
<PAGE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data are for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C> <C> <C> <C> <C>
INVESTORS HIGH MAINE TAXSAVER NEW HAMPSHIRE
GRADE BOND FUND INVESTORS BOND FUND TAXSAVER BOND BOND FUND TAXSAVER
YEAR ENDED FUND BOND FUND
March 31, 2000 $0 $0 $0 $0 $0
March 31, 1999 $0 $0 $0 $0 $0
March 31, 1998 $0 $0 $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 a Fund's holdings of those
securities as of the Fund's most recent fiscal year.
<TABLE>
<S> <C> <C> <C> <C> <C>
INVESTORS MAINE NEW HAMPSHIRE
HIGH GRADE INVESTORS BOND TAXSAVER TAXSAVER BOND TAXSAEVR
REGULAR BROKER OR DEALER BOND FUND FUND BOND FUND FUND BOND FUND
BankAmerica Corp. $528,000 $0 $0 $0 $0
Dean Witter Discover $504,000 $0 $0 $0 $0
Dreyfus Cash Management $815,000 $257,000 $0 $0 $0
Lehman Brothers Holdings, Inc. $2,145,000 $2,529,000 $0 $0 $0
Paine Webber, Inc. $0 $536,000 $0 $0 $0
JP Morgan & Co. $0 $1,530,000 $0 $0 $0
Chase Manhattan Bank, N.A. $0 $548,000 $0 $0 $0
Merrill Lynch & Co. $0 $1,220,000 $0 $0 $0
Morgan Stanley Group, Inc. $0 $515,000 $0 $0 $0
Bear Stearns Cos., Inc. $0 $508,000 $0 $0 $0
</TABLE>
B-6
<PAGE>
TABLE 8 - 5% SHAREHOLDERS
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund and (2) any person known by a
Fund to own beneficially 5% or more of a class of shares of a Fund, as of July
1, 2000.
<TABLE>
<S> <C> <C> <C>
% OF FUND
FUND/CLASS OF SHARES NAME AND ADDRESS SHARES
Investors Bond Fund Firstrust Company 2,192,963.122 46.23%
227 Main Street
Evansville, IN 47708
Firstrust Company 1,046,762.113 22.07%
227 Main Street
P.O. Box 868
Evansville, IN 47705-0868
SEI Trust Company 542,520.523 11.44%
C/O Irwin Union Bank & Trust
One Freedom Valley Drive
Oaks, PA 19456
SEI Trust Company 408,478.858 8.61%
C/O Irwin Union Bank & Trust
One Freedom Valley Drive
Oaks, PA 19456
TaxSaver Bond Fund Firstrust Company 871,325.193 30.85%
227 Main Street
Evansville, IN 47708
SEI Trust Company 625,021.673 22.13%
C/O Irwin Union Bank & Trust
One Freedom Valley Drive
Oaks, PA 19456
Leonore Zusman Living Trust 204,169.046 7.23%
6439 Woodacre Ct
Englewood, OH 45322
Mitchell Singer 198,976.098 7.05%
5045 North Main Street
Suite 250
Dayton, OH 45415
Lawrence L Zusman Living Trust 146,751.825 5.20%
6439 Woodacre Ct
Englewood, OH 45322
SEI Trust Company 143,168.076 5.07%
C/O Irwin Union Bank & Trust
One Freedom Valley Drive
Oaks, PA 19456
B-7
<PAGE>
High Grade Bond Fund Stratevest & Company 2,709,165.359 98.82%
P.O. Box 2499
Brattleboro, VT 05303-2499
New Hampshire TaxSaver Independence Trust 365,594.953 33.04%
Bond Fund The Atrium Building
1001 Elm Street Suite 205
Manchester, NH 03101
</TABLE>
B-8
<PAGE>
APPENDIX C - PERFORMANCE DATA
--------------------------------------------------------------------------------
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGES)
The average annual total return without sales charges of each Fund for the
period ended March 31, 2000, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR YEAR
ONE MONTH THREE MONTHS TO DATE ONE YEAR THREE FIVE YEARS TEN YEARS SINCE INCEPTION
YEARS (ANNUALIZED)
INVESTORS HIGH
GRADE BOND FUND
2.22% 3.02% 3.02% 1.35% N/A N/A N/A 3.55%
INVESTORS BOND FUND
1.82% 2.56% 2.56% 1.13% 5.44% 6.65% N/A 7.92%
TAXSAVER BOND FUND
1.32% 1.81% 1.81% (0.74)% 3.93% 4.85% 6.40% 6.39%
MAINE TAXSAVER
BOND FUND
1.63% 2.12% 2.12% 0.43% 4.47% 5.14% N/A 5.86%
NEW HAMPSHIRE TAXSAVER
BOND FUND 1.36% 1.84% 1.84% 0.03% 4.76% 5.24% N/A 5.33%
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGES)
The average annual total return with sales charges of each Fund for the period
ended March 31, 2000, was as follows.
ONE YEAR THREE FIVE TEN YEARS SINCE INCEPTION
YEARS YEARS (ANNUALIZED)
INVESTORS HIGH
GRADE
BOND FUND -2.45% N/A N/A N/A 1.63%
INVESTORS BOND FUND
-2.66% 4.11% 5.84% 7.62% 7.53%
TAXSAVER BOND FUND
-4.46% 2.61% 4.05% 5.99% 6.00%
MAINE TAXSAVER
BOND FUND
-2.58% 3.42% 4.50% N/A 5.47%
NEW HAMPSHIRE TAXSAVER
BOND FUND -2.97% 3.71% 4.60% N/A 4.89%
</TABLE>
C-1
<PAGE>
For the thirty day period ended March 31, 2000, the 30-day yields of each Fund
were as follows:
<TABLE>
<S> <C> <C>
30-DAY SEC YIELD 3-DAY SEC TAX EQUIVALENT YIELD
INVESTORS BOND FUND 8.79% N/A
TAXSAVER BOND FUND 5.05% 8.36%
MAINE TAXSAVER BOND FUND 4.48% 8.11%
NEW HAMPSHIRE TAXSAVER BOND FUND 4.60% 8.02%
INVESTORS HIGH GRADE BOND FUND 6.44% N/A
</TABLE>
C-2
<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.
D-1
<PAGE>
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
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.
Individual funds in the Forum Family of Funds invest in portfolios that have as
their investment adviser nationally recognized institutions, including Schroder
Capital Management International, Inc., a major figure in worldwide mutual funds
that, with its affiliates, managed over $175 billion as of September 30, 1997.
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.
D-2
<PAGE>
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-3
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine TaxSaver Bond Fund and New Hampshire TaxSaver 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.
D-4
<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance,
expense accounting, budgeting for all funds
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution
support, inquiries and processing of
trades
*Client Assets under Administration and Distribution: $70.4 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:David I. Goldstein, Director, Forum Investment Advisers, LLC,
(207) 879-1900 X 6109 Tony Santaniello, Director of Marketing, (207) 879-1900 X
6175
D-5
<PAGE>
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $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-6
<PAGE>
[LOGO] STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
August 1, 2000
INVESTMENT ADVISER: PAYSON VALUE FUND
H.M. Payson & Co. PAYSON BALANCED FUND
P.O. Box 31
One Portland Square
Portland, Maine 04112
ACCOUNT INFORMATION
AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 805-8258
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 1, 2000, as may be amended from time to time, offering shares of
Payson Value Fund and Payson Balanced Fund (the "Funds"), two separate series of
Forum Funds, a registered, open-end management investment company (the "Trust").
This SAI is not a prospectus and should only be read in conjunction with the
Prospectus. You may obtain the Prospectus without charge by contacting Forum
Shareholder Services at the address or telephone number listed above.
Financial Statements for each Fund for the year ended March 31, 2000, included
in the Annual Report to shareholders, are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GLOSSARY.......................................................................1
1. INVESTMENT POLICIES AND RISKS..............................................2
2. INVESTMENT LIMITATIONS....................................................13
3. PERFORMANCE DATA AND ADVERTISING..........................................15
4. MANAGEMENT................................................................20
5. PORTFOLIO TRANSACTIONS....................................................25
6. PURCHASE AND REDEMPTION INFORMATION.......................................28
7. TAXATION..................................................................31
8. OTHER MATTERS.............................................................35
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS...............................A-1
APPENDIX B - MISCELLANEOUS TABLES............................................B-1
APPENDIX C - PERFORMANCE DATA................................................C-1
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS................................D-1
<PAGE>
GLOSSARY
--------------------------------------------------------------------------------
As used in this SAI, the following terms have the meanings listed.
"Adviser" means H.M. Payson & Co.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of each Fund's assets.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of each Fund.
"FAdS" means Forum Administrative Services, LLC, the administrator of each Fund.
"Fitch" means Fitch IBCA, Inc.
"FFS" means Forum Fund Services, LLC, the distributor of each Fund's shares.
"FFSI" means Forum Financial Services, LLC, the distributor of each Fund's
shares prior to August 1, 1999.
"FSS" means Forum Shareholder Services, LLC, the transfer agent of each Fund.
"Fund" means each of Payson Value Fund or the Payson Balanced Fund.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value per share.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, A Division of the McGraw Hill Companies.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
1
<PAGE>
1. Investment Policies and Risks
--------------------------------------------------------------------------------
Each Fund is a diversified series of the Trust. This section discusses in
greater detail than the Funds' Prospectus certain investments that the Funds may
make. A Fund will make only those investments described below that are in
accordance with its investment objectives and policies.
A. SECURITY RATINGS INFORMATION
Payson Balanced Fund's investments in debt securities is subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund may only invest in debt securities
that are considered to be investment grade. Investment grade means rated in the
top four long-term rating categories by an NRSRO, or unrated and determined by
the Adviser to be of comparable quality.
The lowest ratings that are investment grade for corporate bonds, including
convertible bonds, are "Baa" in the case of Moody's and "BBB" in the case of S&P
and Fitch; for preferred stock the lowest ratings are "Baa" in the case of
Moody's and "BBB" in the case of S&P. Unrated securities may not be as actively
traded as rated securities. A Fund may retain securities whose rating has been
lowered below the lowest permissible rating category (or that are unrated and
determined by the Adviser to be of comparable quality to securities whose rating
has been lowered below the lowest permissible rating category) if the Adviser
determines that retaining such security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Funds
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by a NRSRO
may change as a result of changes in such organizations or their rating systems,
the Adviser will attempt to substitute comparable ratings. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
B. EQUITY SECURITIES
1. GENERAL
COMMON AND PREFERRED STOCK. 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.
CONVERTIBLE SECURITIES. 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
2
<PAGE>
receive interest on debt or the dividend on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. Convertible
securities have unique investment characteristics in that they generally: (1)
have higher yields than common stocks, but lower yields than comparable
non-convertible securities; (2) are less subject to fluctuation in value than
the underlying stocks since they have fixed income characteristics; and (3)
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
WARRANTS. 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.
DEPOSITARY RECEIPTS. Each Fund may invest in depository receipts. A depositary
receipt is a receipt for shares of a foreign-based company that entitles the
holder to distributions on the underlying security. Depositary receipts include
sponsored and unsponsored American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and other similar global instruments. The Funds may
invest up to 20% of their assets in ADRs and EDRs. ADRs typically are issued by
a U.S. bank or trust company, evidence ownership of underlying securities issued
by a foreign company, and are designed for use in U.S. securities markets. EDRs
(sometimes called Continental Depositary Receipts) are receipts issued by a
European financial institution evidencing an arrangement similar to that of
ADRs, and are designed for use in European securities markets. Each Fund invests
in depositary receipts in order to obtain exposure to foreign securities
markets.
2. RISKS
COMMON AND PREFERRED STOCK. The fundamental risk of investing in common and
preferred stock is the risk that the value of the stock might decrease. Stock
values fluctuate in response to the activities of an individual company or in
response to general market and/or economic conditions. Historically, common
stocks have provided greater long-term returns and have entailed greater
short-term risks than preferred stocks, fixed-income and money market
investments. The market value of all securities, including common and preferred
stocks, is based upon the market's perception of value and not necessarily the
book value of an issuer or other objective measure of a company's worth. If you
invest in 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.
CONVERTIBLE SECURITIES. Investment in convertible securities generally entails
less risk than an investment in the issuer's common stock. Convertible
securities are typically issued by smaller capitalized companies whose stock
price may be volatile. Therefore, the price of a convertible security may
reflect variations in the price of the underlying common stock in a way that
nonconvertible debt does not. The extent to which such risk is reduced, however,
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security.
WARRANTS. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations due to adverse market conditions or other factors and failure of
the price of the common stock to rise. If the warrant is not exercised within
the specified time period, it becomes worthless.
3
<PAGE>
DEPOSITARY RECEIPTS. Unsponsored depositary receipts may be created without the
participation of the foreign issuer. Holders of these receipts generally bear
all the costs of the depositary receipt facility, whereas foreign issuers
typically bear certain costs in a sponsored 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.
C. DEBT SECURITIES
1. GENERAL
Payson Balanced Fund may invest in debt securities including corporate debt
obligations, U.S. Government Securities, mortgage-related securities and
variable and floating rate securities.
CORPORATE DEBT OBLIGATIONS. Corporate debt obligations include corporate bonds,
debentures, notes, commercial paper and other similar corporate debt
instruments. Companies use these instruments to borrow money from investors. The
issuer pays the investor a fixed or variable rate of interest and must repay the
amount borrowed at maturity. Commercial paper (short-term unsecured promissory
notes) is issued by companies to finance their current obligations and normally
has a maturity of less than 9 months. In addition, Payson Balanced Fund may
invest in corporate debt securities registered and sold in the United States by
foreign issuers (Yankee bonds) and those sold outside the United States by
foreign or U.S. issuers (Eurobonds). The Fund intends to restrict its purchases
of these securities to issues denominated and payable in United States dollars.
Payson Balanced Fund may only invest in commercial paper that is rated in one of
the two highest short-term rating categories by an NRSRO or, if unrated, is
judged by the adviser to be of comparable quality.
FINANCIAL INSTITUTION OBLIGATIONS. Obligations of financial institutions
include, among other things, negotiable certificates of deposit and bankers'
acceptances. The Fund may invest in negotiable certificates of deposit and
bankers' acceptances issued by commercial banks doing business in the United
States that have, at the time of investment, total assets in excess of one
billion dollars and are insured by the Federal Deposit Insurance Corporation.
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 which
has been drawn by a customer and are usually backed by goods in international
trade. Certificates of deposit 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.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities include securities issued
by the U.S. Treasury and by U.S. Government agencies and instrumentalities. U.S.
Government Securities may be supported by the full faith and credit of the
United States (such as mortgage-related securities and certificates of the
Government National Mortgage Association and securities of the Small Business
Administration); by the right of the issuer to borrow from the U.S. Treasury
(such as Federal Home Loan Bank securities); by the discretionary authority of
the U.S. Treasury to lend to the issuer (such as Fannie Mae (formerly the
Federal National Mortgage Association) securities); or solely by the
creditworthiness of the issuer (such as Federal Home Loan Mortgage Corporation
securities).
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. No assurance can be given that the U.S. Government would provide
support if it were not obligated to do so by law. Neither the U.S. Government
nor any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
MORTGAGE-RELATED SECURITIES. Payson Balanced Fund may invest in mortgage-related
securities that are U.S. Government Securities or are rated in one of the two
highest rating categories by an NRSRO or, if unrated, are judged by the Adviser
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to be of comparable quality. Mortgage-related securities represent interests in
a pool of mortgage loans originated by lenders such as commercial banks, savings
associations and mortgage bankers and brokers. Mortgage-related securities may
be issued by governmental or government-related entities or by non-governmental
entities such as special purpose trusts created by commercial lenders.
Pools of mortgages consist of whole mortgage loans or participations in mortgage
loans. The majority of these loans are made to purchasers of 1-4 family homes.
The terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, the Funds may purchase pools of adjustable-rate mortgages,
growing equity mortgages, graduated payment mortgages and other types. Mortgage
poolers apply qualification standards to lending institutions which originate
mortgages for the pools as well as credit standards and underwriting criteria
for individual mortgages included in the pools. In addition, many mortgages
included in pools are insured through private mortgage insurance companies.
Mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or on specified call dates. Most mortgage-related
securities, however, are pass-through securities, which means that investors
receive payments consisting of a pro-rata share of both principal and interest
(less servicing and other fees), as well as unscheduled prepayments, as loans in
the underlying mortgage pool are paid off by the borrowers. Additional
prepayments to holders of these securities are caused by prepayments resulting
from the sale or foreclosure of the underlying property or refinancing of the
underlying loans. As prepayment rates of individual pools of mortgage loans vary
widely, it is not possible to predict accurately the average life of a
particular mortgage-related security. Although mortgage-related securities are
issued with stated maturities of up to forty years, unscheduled or early
payments of principal and interest on the mortgages may shorten considerably the
securities' effective maturities.
GOVERNMENT AND AGENCY MORTGAGE-RELATED SECURITIES. The principal issuers or
guarantors of mortgage-related securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). GNMA, a wholly-owned U.S. Government corporation within
the Department of Housing and Urban Development ("HUD"), creates pass-through
securities from pools of government guaranteed (Federal Housing Authority or
Veterans Administration) mortgages. The full faith and credit of the U.S.
Government back the principal and interest on GNMA pass-through securities.
FNMA, which is a U.S. Government-sponsored corporation owned entirely by private
stockholders that is subject to regulation by the Secretary of HUD, and FHLMC, a
corporate instrumentality of the U.S. Government, issue pass-through securities
from pools of conventional and federally insured and/or guaranteed residential
mortgages. FNMA guarantees full and timely payment of all interest and
principal, and FHMLC guarantees timely payment of interest and ultimate
collection of principal of its pass-through securities. The full faith and
credit of the U.S. Government do not back mortgage-related securities from FNMA
and FHLMC.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
conventional residential mortgage loans; mortgage-backed bonds, which are
considered to be debt obligations of the institution issuing the bonds and are
collateralized by mortgage loans; and bonds and collateralized mortgage
obligations that are collateralized by mortgage-related securities issued by
GNMA, FNMA or FHLMC or by pools of conventional mortgages of multi-family or of
commercial mortgage loans.
Privately-issued mortgage-related securities generally offer a higher rate of
interest (but greater credit and interest rate risk) than securities issued by
U.S. Government issuers because there are no direct or indirect governmental
guarantees of payment. Many non-governmental issuers or servicers of
mortgage-related securities guarantee or provide insurance for timely payment of
interest and principal on the securities. The market for privately-issued
mortgage-related securities is smaller and less liquid than the market for
mortgage-related securities issued by U.S. government issuers.
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STRIPPED MORTGAGE-RELATED SECURITIES. Stripped mortgage-related securities are
multi-class mortgage-related securities that are created by separating the
securities into their principal and interest components and selling each piece
separately. Stripped mortgage-related securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions in a pool of mortgage assets.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMs") are pass-through securities representing interests in pools of mortgage
loans with adjustable interest rates that are reset at periodic intervals,
usually by reference to some interest rate index or market interest rate, and
that may be subject to certain limits. Although the rate adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
changes in the issuer's creditworthiness. Changes in the interest rates on ARMs
may lag behind changes in prevailing market interest rates. This may result in a
slightly lower net value until the interest rate resets to market rates. Thus, a
Fund could suffer some principal loss if the Fund sold the securities before the
interest rates on the underlying mortgages were adjusted to reflect current
market rates. Some adjustable rate securities (or the underlying mortgages) are
subject to caps or floors, that limit the maximum change in interest rates
during a specified period or over the life of the security.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are multiple-class debt obligations that are fully collateralized by
mortgage-related pass-through securities or by pools of mortgages ("Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets are passed
through to the holders of the CMOs as they are received, although certain
classes (often referred to as "tranches") of CMOs have priority over other
classes with respect to the receipt of mortgage prepayments.
Multi-class mortgage pass-through securities are interests in trusts that hold
Mortgage Assets and have multiple classes similar to those of CMOs. Payments of
principal of and interest on the underlying Mortgage Assets (and in the case of
CMOs, any reinvestment income thereon) provide funds to pay debt service on the
CMOs or to make scheduled distributions on the multi-class mortgage pass-through
securities. Parallel pay CMOs are structured to provide payments of principal on
each payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution date
of each class, which, as with other CMO structures, must be retired by its
stated maturity date or final distribution date but may be retired earlier.
Planned amortization class mortgage-related securities ("PAC Bonds") are a form
of parallel pay CMO. PAC Bonds are designed to provide relatively predictable
payments of principal provided that, among other things, the actual prepayment
experience on the underlying mortgage loans falls within a contemplated range.
CMOs may have complicated structures and generally involve more risks than
simpler forms of mortgage-related securities.
VARIABLE AND FLOATING RATE SECURITIES. Debt securities have variable or floating
rates of interest and, under certain limited circumstances, may have varying
principal amounts. These securities pay interest at rates that are adjusted
periodically according to a specified formula, usually with reference to one or
more interest rate indices or market interest rates (the "underlying index").
The interest paid on these securities is a function primarily of the underlying
index upon which the interest rate adjustments are based. These adjustments
minimize changes in the market value of the obligation. Similar to fixed rate
debt instruments, variable and floating rate instruments are subject to changes
in value based on changes in market interest rates or changes in the issuer's
creditworthiness. The rate of interest on securities may be tied to U.S.
Government Securities or 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.
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Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, a Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Funds intend to purchase these securities only when the Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Adviser may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that the Adviser
will be able to limit the effects of principal fluctuations and, accordingly, a
Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for a Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. A Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Adviser monitors the liquidity of
each Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
2. RISKS
GENERAL. The market value of the interest-bearing fixed income securities held
by the Funds will be affected by changes in interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. Changes in the ability of an issuer to make payments of interest and
principal and in the markets' perception of an issuer's creditworthiness will
also affect the market value of that issuer's debt securities. As a result, an
investment in a Fund is subject to risk even if all fixed income securities in
the Fund's investment portfolio are paid in full at maturity. In addition,
certain fixed income securities may be subject to extension risk, which refers
to the change in total return on a security resulting from an extension or
abbreviation of the security's maturity.
Yields on fixed income securities, including municipal securities, are dependent
on a variety of factors, including the general conditions of the fixed income
securities markets, the size of a particular offering, the maturity of the
obligation and the rating of the issue. Fixed income securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. A portion of the
municipal securities held by the Funds may be supported by credit and liquidity
enhancements, such as letters of credit (which are not covered by federal
deposit insurance) or puts or demand features of third party financial
institutions, generally domestic and foreign banks.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK. Each Fund's investments in fixed income securities are subject to
credit risk relating to the financial condition of the issuers of the securities
that each Fund holds. To limit credit risk, each Fund will generally buy debt
securities that are rated by an NRSRO in the top four long-term rating
categories or in the top two short-term rating categories. 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.
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Each Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
Each Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
MORTGAGE-RELATED SECURITIES. The value of mortgage-related securities may be
significantly affected by changes in interest rates, the markets' perception of
issuers, the structure of the securities and the creditworthiness of the parties
involved. The ability of the Funds to successfully utilize mortgage-related
securities depends in part upon the ability of the Adviser to forecast interest
rates and other economic factors correctly. Some mortgage-related securities
have structures that make their reaction to interest rate changes and other
factors difficult to predict.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related
securities. The occurrence of mortgage prepayments is affected by various
factors, including the level of interest rates, general economic conditions, the
location and age of the mortgages and other social and demographic conditions.
In periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of mortgage-related securities. In
periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool. The volume of prepayments of principal on
the mortgages underlying a particular mortgage-related security will influence
the yield of that security, affecting the Fund's yield. Because prepayments of
principal generally occur when interest rates are declining, it is likely that
the Funds, to the extent they retain the same percentage of debt securities, may
have to reinvest the proceeds of prepayments at lower interest rates then those
of their previous investments. If this occurs, a Fund's yield will
correspondingly decline. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates (when
prepayment of principal is more likely) than other fixed income securities of
comparable duration, although they may have a comparable risk of decline in
market value in periods of rising interest rates. A decrease in the rate of
prepayments may extend the effective maturities of mortgage-related securities,
reducing their sensitivity to changes in market interest rates. To the extent
that the Funds purchase mortgage-related securities at a premium, unscheduled
prepayments, which are made at par, result in a loss equal to any unamortized
premium.
To lessen the effect of the failures by obligors on Mortgage Assets to make
payments, CMOs and other mortgage-related securities may contain elements of
credit enhancement, consisting of either: (1) liquidity protection; or (2)
protection against losses resulting after default by an obligor on the
underlying assets and allocation of all amounts recoverable directly from the
obligor and through liquidation of the collateral. This protection may be
provided through guarantees, insurance policies or letters of credit obtained by
the issuer or sponsor from third parties, through various means of structuring
the transaction or through a combination of these. The Funds will not pay any
additional fees for credit enhancements for mortgage-related securities,
although the credit enhancement may increase the costs of the mortgage-related
securities.
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D. OPTIONS AND FUTURES
1. GENERAL
Each Fund may seek to hedge against either a decline in the value of securities
it owns or an increase in the price of securities which it plans to purchase by
purchasing and writing (selling) covered options on securities in which it
invests and on any securities index based in whole or in part on securities in
which the Fund may invest. The Funds may also buy and sell stock and bond index
futures as well as futures contracts on Treasury bills, Treasury bonds and other
financial instruments and may write covered call options and purchase and sell
out and call options on those futures contracts. The Funds may only invest in
options traded on an exchange or in an over-the-counter market.
2. OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
(or index) underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price. A put option gives
its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy, upon exercise of the
option, the underlying security (or a cash amount equal to the value of the
index) at the exercise price. The amount of a premium received or paid for an
option is based upon certain factors, including the market price of the
underlying security, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security, the option period
and interest rates.
OPTIONS ON INDICES. An index assigns relative values to the securities in the
index, and the index fluctuates with changes in the market values of the
securities included in the index. Index options operate in the same way as the
more traditional options on securities except that index options are settled
exclusively in cash and do not involve delivery of securities. Thus, upon
exercise of index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the index.
OPTIONS ON FUTURES. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell a security, at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by transfer to the holder of an accumulated balance representing the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
the contract, at a specified date and at an agreed upon price. An index futures
contract involves the delivery of an amount of cash equal to a specified dollar
amount times the difference between the index value at the close of trading of
the contract and the price at which the futures contract is originally struck.
No physical delivery of the securities comprising the index is made. Generally,
these futures contracts are closed out prior to the expiration date of the
contracts.
3. LIMITATIONS ON OPTIONS AND FUTURES TRANSACTIONS
A Fund will not hedge more than 30% of its total assets by selling futures
contracts, buying put options and writing call options. In addition, a Fund will
not buy futures contracts or write put options whose underlying value exceeds
10% of the Fund's total assets. A Fund will also not purchase call options if
the underlying value of all such options would exceed 5% of the Fund's total
assets. A Fund will not enter into futures contracts and options, if immediately
thereafter, more than 5% of the Fund's total assets would be invested in these
options or committed to margin on futures contracts.
Each Fund will only invest in futures and options contracts after providing
notice to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that the Funds are permitted to
purchase such futures or options contracts only: (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
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contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain other limitations.
4. RISKS OF OPTIONS AND FUTURES TRANSACTIONS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which a
Fund invests; and (4) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder a Fund's ability to limit exposures by closing its positions.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. A Fund may use various futures contracts that
are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market in those
contracts will develop or continue to exist. A Fund's activities in the futures
and options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield.
E. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
A Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act ("restricted securities").
2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and the Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. 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
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the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
F. LEVERAGE TRANSACTIONS
1. GENERAL
Each Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to a Fund through an investment technique is used to
make additional Fund investments. Lending portfolio securities and purchasing
securities on a when-issued, delayed delivery or forward commitment basis. The
Funds use these investment techniques only when the Adviser believes that the
leveraging and the returns available to the Funds from investing the cash will
provide investors a potentially higher return.
SECURITIES LENDING. As a fundamental policy, each Fund may lend portfolio
securities or participate in repurchase agreements in an amount up to 10% of its
total assets to brokers, dealers and other financial institutions. Repurchase
agreements are transactions in which a Fund purchases a security and
simultaneously agrees to resell that security to the seller at an agreed upon
price on an agreed upon future date, normally, one to seven days later. If a
Fund enters into a repurchase agreement, it will retain possession of the
purchased securities and any underlying collateral. Securities loans and
repurchase agreements must be continuously collateralized and the collateral
must have market value at least equal to the value of the Fund's loaned
securities, plus accrued interest or, in the case of repurchase agreements,
equal to the repurchase price of the securities, plus accrued interest. In a
portfolio securities lending transaction, a Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan as well as the interest on the collateral
securities, less any fees (such as finders or administrative fees) the Fund pays
in arranging the loan. The Fund may share the interest it receives on the
collateral securities with the borrower. The terms of a Fund's loans permit the
Fund to reacquire loaned securities on five business days' notice or in time to
vote on any important matter. Loans are subject to termination at the option of
a Fund or the borrower at any time, and the borrowed securities must be returned
when the loan is terminated.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Funds may purchase
securities offered on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. When these transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be negotiated. During
the period between a commitment and settlement, no payment is made for the
securities purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction. At the time a Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, the Fund will
record the transaction as a purchase and thereafter reflect the value each day
of such securities in determining its net asset value. A purchase of securities
on a "when-issued" or "forward commitment basis" will not be made if, as a
result, more than 15% of a Fund's total assets would be committed to such
transactions.
2. RISKS
Leverage creates the risk of magnified capital losses. Losses incurred by a Fund
may be magnified by borrowings and other liabilities that exceed the equity base
of the Fund. Leverage may involve the creation of a liability that requires a
11
<PAGE>
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
a Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to a Fund's
commitments under these transactions.
G. FOREIGN SECURITIES
Each Fund may invest up to 20% of their total assets in foreign securities.
Investments in the securities of foreign issuers may involve risks in addition
to those normally associated with investments in the securities of U.S. issuers.
All foreign investments are subject to risks of: (1) foreign political and
economic instability; (2) adverse movements in foreign exchange rates; (3) the
imposition or tightening of exchange controls or other limitations on
repatriation of foreign capital; and (4) changes in foreign governmental
attitudes towards private investment, including potential nationalization,
increased taxation or confiscation of your assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States, and therefore, less information may be
available about foreign companies than is available about issuers of comparable
U.S. companies. Foreign securities also may trade less frequently and with lower
volume and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by a Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and a Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar after a Fund's income has been earned and computed in
U.S. dollars may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time a Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
12
<PAGE>
H. CORE AND GATEWAY(R)
Each Fund may seek to achieve its investment objective by converting to a Core
and Gateway(R) structure. A Fund operating under a Core and Gateway(R) structure
holds, as its only investment, shares of another investment company having
substantially the same investment objective and policies. The Board will not
authorize conversion to a Core and Gateway(R) structure if it would materially
increase costs to a Fund's shareholders. The Board will not convert a Fund to a
Core and Gateway(R) structure without notice to the shareholders.
I. TEMPORARY DEFENSIVE POSITION
The Fund may assume a temporary defensive position and may invest without limit
in money market instruments that are of prime quality. Prime quality money
market instruments are those instruments that are rated in one of the two
short-term highest rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include short-term U.S. Government Securities, commercial paper, time deposits,
bankers' acceptances and certificates of deposit issued by domestic banks,
corporate notes and short-term bonds and money market mutual funds. The Fund may
only invest in money market mutual funds to the extent permitted by the 1940
Act.
The money market instruments in which the Fund may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. 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.
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7-day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
Under normal circumstances, Payson Balanced Fund may also invest in money market
instruments that are rated in one of the two highest rating categories by an
NRSRO or, if unrated, are judged by the adviser to be of comparable quality.
2. INVESTMENT LIMITATIONS
--------------------------------------------------------------------------------
For purposes of all investment policies of the Funds: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy of a Fund and the Fund's investment objective cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. A nonfundamental
policy of a Fund may be changed by the Board without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are
fundamental policies of the Fund. Neither Fund may:
13
<PAGE>
1. BORROWING
Borrow money, except for temporary or emergency purposes (including the meeting
of redemption requests) and except for entering into reverse repurchase
agreements, and provided that borrowings do not exceed 33 1/3% of the Fund's
total assets (computed immediately after the borrowing).
2. CONCENTRATION
Purchase securities, other than U.S. Government Securities, if, immediately
after each purchase, more than 25% of the Fund's total assets taken at market
value would be invested in securities of issuers conducting their principal
business activity in the same industry.
3. DIVERSIFICATION
With respect to 75% of its assets, purchase securities, other than U.S.
Government Securities, of any one issuer, if: (1) more than 5% of the Fund's
total assets taken at market value would at the time of purchase be invested in
the securities of that issuer; or (2) such purchase would at the time of
purchase cause the Fund to hold more than 10% of the outstanding voting
securities of that issuer.
4. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter for purposes of the Securities Act of 1933.
5. MAKING LOANS
Make loans to other persons except for loans of portfolio securities and except
through the use of repurchase agreements and through the purchase of commercial
paper or debt securities which are otherwise permissible investments.
6. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the Fund may
invest in securities issued or guaranteed by corporate or governmental entities
secured by real estate or interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that invest in real
estate or interests therein.
7. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities or contracts relating to physical
commodities, provided that currencies and currency-related contracts will not be
deemed to be physical commodities.
8. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the Investment Company
Act of 1940 ("1940 Act") and except that the Fund may borrow money subject to
investment limitations specified in the Fund's Prospectus.
9. OIL, GAS & MINERAL EXPLORATION
Invest in interests in oil or gas or interests in other mineral exploration or
development programs.
14
<PAGE>
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Neither Fund may:
1. PLEDGING
Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the writing
of put and call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
2. INVESTMENT IN OTHER INVESTMENT COMPANIES
Invest in securities of another registered investment company, except in
connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest up to 10% of its total assets in money market
funds and privately-issued mortgage related securities to the extent permitted
by the 1940 Act.
3. MARGIN AND SHORT SALES
Purchase securities on margin, or make short sales of securities, except for the
use of short-term credit necessary for the clearance of purchases and sales of
portfolio securities, but the Fund may make margin deposits in connection with
permitted transactions in options, futures contracts and options on futures
contracts.
4. BORROWING
Purchase securities for investment while any borrowing equaling 10% or more of
the Fund's total assets is outstanding or borrow for purposes other than meeting
redemptions in an amount exceeding 10% of the value of the Fund's total assets.
5. ILLIQUID SECURITIES
Acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than: (1) 15% of the Fund's net assets (taken
at current value) would be invested in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities which are not
readily marketable, including securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without registration
under the 1933 Act ("Restricted Securities"); or (2) 10% of the Fund's total
assets would be invested in Restricted Securities.
6. REAL PROPERTY
Purchase or sell real property (including limited partnership interests but
excluding readily marketable interests in real estate investment trusts or
readily marketable securities of companies which invest in real estate.)
7. WARRANTS
Invest in warrants if: (1) more than 5% of the value of the Fund's net assets
will be invested in warrants (valued at the lower of cost or market); or (2)
more than 2% of the value of the Fund's net assets would be invested in warrants
which are not listed on the New York Stock Exchange or the American Stock
Exchange. For purpose of this limitation, warrants acquired by the Fund in units
or attached to securities are deemed to have no value.
15
<PAGE>
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 MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley - Europe,
Australia and Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Shearson Lehman Bond Index, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index
as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of a Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
A Fund may refer to: (1) general market performances over past time periods such
as those published by Ibbotson Associates (for instance, its "Stocks, Bonds,
Bills and Inflation Yearbook"); (2) mutual fund performance rankings and other
data published by Fund Tracking Companies; and (3) material and comparative
mutual fund data and ratings reported in independent periodicals, such as
newspapers and financial magazines.
A Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
A Fund's performance may be quoted in terms of yield or total return. Table 1 in
Appendix C includes performance information for the Funds.
1. SEC YIELD
Standardized SEC yields for a Fund used in advertising are computed by dividing
the Fund's interest income (in accordance with specific standardized rules) for
a given 30 day or one month period, net of expenses, by the average number of
shares entitled to receive income distributions during the period. This figure
is then divided 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 are generally 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
16
<PAGE>
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 does take into account payment of sales charges. The
Funds charge no sales charges.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in a Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
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.
17
<PAGE>
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable
period, of a hypothetical $1,000 payment
made at the beginning of the applicable
period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
A Fund may quote unaveraged or cumulative total returns 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 dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
C. OTHER MATTERS
A Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principle of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's investment adviser, summaries of
the views of the portfolio managers with respect to the financial markets, or
descriptions of the nature of the Adviser's and its staff's management
techniques; (7) the results of a hypothetical investment in the Fund over a
given number of years, including the amount that the investment would be at the
end of the period; (8) the effects of investing in a tax-deferred account, such
as an individual retirement account or Section 401(k) pension plan; (9) the net
18
<PAGE>
asset value, net assets or number of shareholders of the Fund as of one or more
dates; and (10) a comparison of the Fund's operations to the operations of other
funds or similar investment products, such as a comparison of the nature and
scope of regulation of the products and the products' weighted average maturity,
liquidity, investment policies, and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,188 at the end
of the second year (an increase of $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of a Fund's performance.
A Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
PERIOD SYSTEMATIC INVESTMENT SHARE PRICE SHARES 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 Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements, a Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service provider's policies
or business practices
19
<PAGE>
4. MANAGEMENT
-------------------------------------------------------------------------------
A. TRUSTEES AND OFFICERS
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C> <C>
NAME, DATE OF POSITION PRINCIPAL OCCUPATION(S) DURING
BIRTH AND ADDRESS WITH THE TRUST PAST 5 YEARS
John Y. Keffer* Chairman and Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 President 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
Department of Economics and Business 1998 - 1999
University of California Trustee of one other investment company for which Forum
Los Angeles, CA 90024 Financial 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 Trustee of one other investment company for which Forum
40 West 57th Street Financial Group, LLC provides services
New York, NY 10019
.............................. .................... ..................................................................
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
Two Portland Square Financial Group, LLC provides services
Portland, ME 04101
.............................. .................... ..................................................................
Ronald H. Hirsch Treasurer Managing Director, Operations/Finance and Operations/Sales,
Born: October 14, 1943 Forum 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
Born: August 24, 1964 1998
Two Portland Square Associate General Counsel, Smith Barney Inc. (brokerage firm)
Portland, ME 04101 1993 - 1998
Officer of one other investment company for which Forum
Financial Group, LLC provides services
</TABLE>
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<PAGE>
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 another investment
company for which Forum Financial Group, LLC provides services for the fiscal
year ended March 31, 2000.
<TABLE>
<S> <C> <C> <C> <C>
TOTAL COMPENSATION
FROM TRUST AND FUND
COMPENSATION FROM COMPLEX
TRUSTEE FUND BENEFITS RETIREMENT
John Y. Keffer $0 $0 $0 $0
......................... ...................... ...................... ...................... ......................
Costas Azariadis $15,500 $0 $0 $24,900
......................... ...................... ...................... ...................... ......................
James C. Cheng $15,500 $0 $0 $24,900
......................... ...................... ...................... ...................... ......................
J. Michael Parish $15,500 $0 $0 $24,900
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to each 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 in connection with managing a Fund's investments and effecting
portfolio transactions for a Fund.
2. OWNERSHIP OF ADVISER
The Adviser is a privately-owned company incorporated under the laws of the
State of Maine in 1987.
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by the Funds and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from each Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in a Fund. If you have a separately managed account with
the Adviser with assets invested in a Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
Table 1 in Appendix B shows the dollar amount of the fees payable by each Fund
to the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data are for the past three fiscal years.
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<PAGE>
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The 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 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 the Adviser on not more
than 60 days' (but not less than 30 days') written notice to the Trust. The
Agreement terminates immediately upon assignment.
Under the Agreement, the Adviser is not liable for any mistake of judgment, or
in any event whatsoever, except for willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of its duties or by reason
of reckless disregard of its obligations and duties under the agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Prior to August 1, 1999, Forum Financial Services, Inc.
("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 with the Trust (the "Distribution Agreement"),
FFS acts as the agent of the Trust in connection with the offering of shares of
the Funds. FFS continually distributes shares of the Funds on a best efforts
basis. FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Funds.
FFS may enter into agreements with selected broker-dealers, banks or other
financial institutions for distribution of shares of the Funds. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Funds are sold with a sales charge. These
financial institutions may otherwise act as processing agents and will be
responsible for promptly transmitting purchase, redemption and other requests to
the Funds.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through which they purchase shares, which may include
charges, investment minimums, cutoff times and other restrictions in addition
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 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 each Fund's
shares. The aggregate sales charges payable to FFS with respect to each Fund are
outlined in table 2 in Appendix B.
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Table 5 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.
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 a Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an administration agreement with the Trust (the
"Admin 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 the Fund. The fee is accrued daily by the
Funds and is paid monthly based on average net assets for the previous month.
The Admin Agreement must be approved at least annually by the Board or majority
vote of the shareholders, and in either case by a majority of the Trustees who
are not parties to the agreement or interested persons of any such party. FAdS's
agreement is terminable without penalty by the Trust or by FAdS with respect to
a Fund on 60 days' written notice.
Under the Admin 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 Admin
Agreement, FAdS and certain related parties (such as FAdS's officers and persons
who control FAdS) are indemnified by the Trust against any and all claims and
expenses related to FAdS's actions or omissions that are consistent with FAdS's
contractual standard of care.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data are for the past three fiscal years.
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<PAGE>
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 class)
and preparing the Funds' financial statements and tax returns.
For its services, FAcS receives a fee from each Fund at an annual rate of
$36,000 and certain surcharges based upon the number and type of a Fund's
portfolio transactions and positions. The fee is accrued daily by the Funds and
is paid monthly based on the transactions and positions for the previous month.
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.
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
agreement also provides that FAcS will not be liable to a shareholder for any
loss incurred due to an NAV difference if such difference is less than or equal
1/2 of 1% or less than or equal to $10.00. In addition, FAcS is not liable for
the errors of others, including the companies that supply securities prices to
FAcS and the Funds.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data are for the past three fiscal years.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agent
agreement with the Trust (the "Transfer Agent 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 from each Fund 0.25% of the average daily net
assets of the Fund, an annual fee of $12,000 plus $18 per shareholder account.
The Transfer Agent Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Transfer Agent Agreement is terminable without penalty by the Trust
or by FSS with respect to a Fund on 60 days' written notice.
Under the Transfer Agent 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 Agent 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 FAdS's actions or omissions that are
consistent with FAdS's contractual standard of care.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Funds
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data are for the past three fiscal years.
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4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Funds' cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of a Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of a Fund. Each Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Funds and are paid monthly based on average net assets and transactions for the
previous month.
5. LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005 passes upon
legal matters in connection with the issuance of shares of the Trust.
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, 14th Floor, Boston, Massachusetts,
02116-5022, independent auditors, have been selected as auditors for each Fund.
The auditors audit the annual financial statements of the Funds and provide the
Funds with an audit opinion. The auditors also review certain regulatory filings
of the Funds and the Funds' tax returns.
5. PORTFOLIO TRANSACTIONS
--------------------------------------------------------------------------------
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected; (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions paid by the
Fund. The data presented are for the past three fiscal years or shorter period
if the Fund has been in operation for a shorter period.
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C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with brokers
and dealers selected by and in the discretion of the Adviser. No Fund has any
obligation to deal with any specific broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers and
the frequency of transactions are determined by the Adviser in its best judgment
and in a manner deemed to be in the best interest of each Fund rather than by
any formula.
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for a Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
1. CHOOSING BROKER-DEALERS
The Funds may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser takes into account
factors such as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the research services described below)
and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute portfolio transactions for a Fund; and (2) take into
account payments made by brokers effecting transactions for a Fund (these
payments may be made to the Fund or to other persons on behalf of the Fund for
services provided to the Fund for which those other persons would be obligated
to pay.)
2. OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause a Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Funds, and not all research services may be
used by the Adviser in connection with the Funds. The Adviser's fees are not
reduced by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser may utilize a broker and pay a slightly higher
commission than another broker might 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 on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
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will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to each Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect brokerage transactions through affiliates of the Adviser
(or affiliates of those persons) pursuant to procedures adopted by the Trust.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Funds are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular 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. In addition, when purchases or sales of the same
security for a Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in a Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to a Fund and a possible increase in
short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time a Fund may acquire and hold securities issued by its "regular
brokers and dealers" or the parents of those brokers and dealers. For this
purpose, regular brokers and dealers 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 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.
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<PAGE>
6. PURCHASE AND REDEMPTION INFORMATION
--------------------------------------------------------------------------------
A. GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at FSS's offices located at Two Portland Square, Portland, Maine 04101.
The Funds accept orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
Not all classes or funds of the Trust may be available for sale in the state 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 at net
asset value per share plus any applicable sales charge.
Set forth below is an example of the method of computing the offering price of a
Fund's shares. The example assumes a purchase of shares of beneficial interest
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of the
Fund on March 31, 2000.
<TABLE>
<S> <C> <C>
PAYSON VALUE FUND PAYSON BALANCED FUND
Net Asset Value Per Share $19.30 $12.48
................................................ ................................. .................................
Shares Charge, 4.00% of offering price
(4.17% of net asset value per share) $0.80 $0.52
................................................ ................................. .................................
Offering to Public $20.10 $13.00
</TABLE>
The Funds reserve the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, a Fund may accept portfolio securities that meet the investment
objective and policies of a Fund as payment for Fund shares. A Fund will only
accept securities that: (1) are not restricted as to transfer by law and are not
illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the contribution 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.
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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, Inc. is closed (other than customary
weekend and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted; (2) an emergency (as
determined by the SEC) exists as a result of which disposal by a Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of a Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisable by the Adviser, each Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which
each Fund may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of a Fund's total net assets,
whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
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<PAGE>
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. SIGNATURE GUARANTEE REQUIREMENTS
For requests made in writing, a signature guarantee is required for any of the
following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name or address
o Redemptions from an account for which the address or account
registration has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different
registration (name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution,
telephone redemption or exchange option or any other election in
connection with your account
G. SALES CHARGES
1. REDUCED SALES CHARGES
You may qualify for a reduced sales charge on Fund purchases under rights of
accumulation or a letter of intent. If you qualify for rights of accumulation
("ROA"), the sales charge you pay is based on the total of your current purchase
and the net asset value (at the end of the previous fund business day) of shares
that you already hold. To qualify for ROA on a purchase, you must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount. You may also enter into a written Letter of Intent
("LOI"), which expresses your intent to invest $100,000 or more in a Fund within
a period of 13 months. Each purchase under a LOI will be made at the public
offering price applicable at the time of the purchase to a single transaction of
the dollar amount indicated in the LOI. If you do not purchase the minimum
investment referenced in the LOI, you must pay the Fund an amount equal to the
difference between the dollar value of the sales charges paid under the LOI and
the dollar value of the sales charges due on the aggregrate 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 Fund distributions. No sales
charge is assessed on purchases made for investment purposes or on redemptions
by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any broker-dealer with whom the distributor has entered into a Fee-Based
Wrap Account Agreement or similar agreement and which is acting on behalf
of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or similar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
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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.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
7. TAXATION
--------------------------------------------------------------------------------
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that each Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting each Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the implications to shareholders. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year end of each Fund is March 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its investment company taxable income (that is, taxable
interest, dividends, net short-term capital gains and other taxable ordinary
income, net of expenses) and net capital gain (that is, the excess of net
long-term capital gains over net short-term capital losses) that it distributes
to shareholders. In order to qualify as a regulated investment company a Fund
must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income for the tax year. (Certain distributions made by a Fund
after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
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not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies) or in two or more issuers which the Fund controls and which
are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits. A
portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you as
ordinary income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
Each Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Funds may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions will not qualify for the dividends-received deduction.
Each Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Funds' financial statements. Any
such losses may not be carried back.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares the net asset value of which at the time reflects
undistributed net investment income or recognized capital gain, or unrealized
appreciation in the value of the assets of a Fund. Distributions of these
amounts are taxable to you in the manner described above, although the
distribution economically constitutes a return of capital to you.
If you purchase shares of a Fund just prior to the ex-dividend date of a
distribution, you will be taxed on the entire amount of the distribution
received, even though the net asset value per share on the date of the purchase
reflected the amount of the distribution.
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Ordinarily, you are required to take distributions by a Fund into account in the
year in which they are made. A distribution declared in October, November or
December of any year and payable to shareholders of record on a specified date
in those months, however, is deemed to be received by you (and made by the Fund)
on December 31 of that calendar year if the distribution is actually paid in
January of the following year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) to you during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUNDS' TRANSACTIONS
For federal income tax purposes, when put and call options purchased by a Fund
expire unexercised, the premiums paid by a Fund give rise to short- or long-term
capital losses at the time of expiration (depending on the length of the
respective exercise periods for the options). When put and call options written
by a Fund expire unexercised, the premiums received by the Fund give rise to
short-term capital gains at the time of expiration. When a Fund exercises a
call, the purchase price of the underlying security is increased by the amount
of the premium paid by a Fund. When a Fund exercises a put, the proceeds from
the sale of the underlying security are decreased by the premium paid. When a
put or call written by a Fund is exercised, the purchase price (selling price in
the case of a call) of the underlying security is decreased (increased in the
case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts that are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to a Fund, which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held by a Fund if
all of the offsetting positions consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. The
balance of the Fund's income must be distributed during the next calendar year.
A Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year ending in the calendar year.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year and (2) excludes foreign currency gains and
losses incurred after October 31 of any year in determining the amount of
ordinary taxable income for the current calendar year. The Fund will include
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foreign currency gains and losses incurred after October 31 in determining
ordinary taxable income for the succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. Investors should note, however, that a Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases (for example, by reinvesting dividends) other shares of the Fund
within 30 days before or after the sale or redemption (a so called "wash sale").
If disallowed, the loss will be reflected in an upward adjustment to the basis
of the shares purchased. In general, any gain or loss arising from the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Any capital loss arising from the sale or redemption of shares held for
six months or less, however, is treated as a long-term capital loss to the
extent of the amount of distributions of net capital gain received on such
shares In determining the holding period of such shares for this purpose, any
period during which a shareholder's risk of loss is offset by means of options,
short sales or similar transactions is not counted. Capital losses in any year
are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
F. WITHHOLDING TAX
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide 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, distribution of ordinary income
(and short-term capital gains) paid to a foreign shareholder will be subject to
U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) upon
the gross amount of the distribution. The foreign shareholder generally would be
exempt from U.S. federal income tax on gain realized on the sale of shares of a
Fund and distributions of net capital gain from a Fund
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income distributions, capital
gain distributions, and any gain realized upon the sale of shares of a Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or U.S. corporations.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
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The tax rules of other countries with respect to distributions from a Fund can
differ from the rules for U.S. federal income taxation described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in a Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from a Fund can differ from the rules for U.S.
federal income taxation described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund.
8. OTHER MATTERS
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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:
Investors Bond Fund Payson Balanced Fund
TaxSaver Bond Fund Payson Value Fund
Investors High Grade Bond Fund Austin Global Equity Fund
Maine TaxSaver Bond Fund Polaris Global Value Fund
New Hampshire TaxSaver Bond Fund Investors Equity Fund
Daily Assets Government Fund(1) Equity Index Fund
Daily Assets Treasury Obligations Fund(1) Investors Growth Fund
Daily Assets Cash Fund(1) BIA Small-Cap Growth Fund
Daily Assets Government Obligations Fund(1) BIA Growth Equity Fund
Daily Assets Municipal Fund(1) Mastrapasqua Growth Value Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust, the Adviser 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 the Fund. The Board will consider approving
amendments to the code of ethics for Trust, the Adviser 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 the Fund, investors may contact FSS.
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3. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency, shareholder service and administration expenses) are borne
solely by those shares. 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) 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.
Shareholders representing 10% or more of the Trust's (or a series') outstanding
shares may, as set forth in the Trust Instrument, call meetings of the Trust (or
series) for any purpose related to the Trust (or series), including, in the case
of a meeting of the Trust, the purpose of voting on removal of one or more
Trustees.
4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust to merge or consolidate into one or more
trusts, partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end, management
investment company that will succeed to or assume the Trust's registration
statement.
B. FUND OWNERSHIP
As of July 1, 2000, the percentage of shares owned by all officers and trustees
of the Trust as a group was as follows. To the extent officers and trustees own
less than 1% of the shares of each class of shares of a Fund (or of the Trust),
the table reflects "N/A" for not applicable.
FUND (OR TRUST) PERCENTAGE OF SHARES OWNED
The Trust N/A
................................................................................
Payson Value Fund N/A
................................................................................
Payson Balanced Fund N/A
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of a Fund. Shareholders known by a Fund to own beneficially 5% or more
of a class of shares of the Fund are listed in Table 8 in Appendix B.
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From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As of July 1, 2000, no person
beneficially owned 25% or more of the shares of a Fund (or of the Trust).
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some states, however, have indicated that they and the courts in
their state may decline to apply Delaware law on this point. The Forum Funds'
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 the portfolio is unable to meet its obligations.
FAdS believes that, in view of the above, there is no risk of personal liability
to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference to the copy of such contract or other documents
filed as exhibits to the registration statement.
E. FINANCIAL STATEMENTS
The financial statements of Payson Value Fund and of Payson Balanced Fund for
the year ended March 31, 2000, which are included in the Annual Report to
Shareholders of each Fund, are incorporated herein by reference. These financial
statements only include the schedules of investments, statements of assets and
liabilities, statements of operations, statements of changes in net assets,
financial highlights, notes and independent auditors' reports.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
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A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
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2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
A-2
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risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A,A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B,B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A-3
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A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD Default. Securities are not meeting current obligations and are
DD, D 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
A-4
<PAGE>
periods. Uncertainty of position characterizes preferred stocks in this
class.
B An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
CA An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
C This is the lowest rated class of preferred or preference stock. Issues
so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
A-5
<PAGE>
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
2. STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-6
<PAGE>
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for timely
repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. This rating is
automatically assigned to all obligations issued or guaranteed by the
sovereign state. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative
degree of risk is slightly higher than for issues classified as `A1'
and capacity for timely repayment may be susceptible to adverse changes
in 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
PAYSON VALUE FUND
Year Ended March 31, 2000 $156,197 $46,254 $109,943
Year Ended March 31, 1999 $148,850 $46,719 $102,131
Year Ended March 31, 1998 $131,769 $0 $131,769
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
PAYSON BALANCED FUND
Year Ended March 31, 2000 $130,187 $57,726 $72,461
Year Ended March 31, 1999 $140,477 $50,090 $90,387
Year Ended March 31, 1998 $131,512 $0 $131,512
TABLE 2 - SALES CHARGES
PAYSON VALUE FUND
AGGREGATE SALES CHARGE SALES CHARGE RETAINED SALES CHARGE REALLOWED
Year Ended March 31, 2000 $1,857 $220 $1,637
Year Ended March 31, 1999 $394 $394 $0
Year Ended March 31, 1998 $3,715 $462 $3,253
PAYSON BALANCED FUND
AGGREGATE SALES CHARGE SALES CHARGE RETAINED SALES CHARGE REALLOWED
Year Ended March 31, 2000 $10 $1 $9
Year Ended March 31, 1999 $0 $0 $0
Year Ended March 31, 1998 $186 $186 $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 WAIVED ADMINISTRATION FEE
PAYSON VALUE FUND PAYABLE RETAINED
Year Ended March 31, 2000 $39,049 $11,308 $27,741
Year Ended March 31, 1999 $37,213 $9,758 $27,455
Year Ended March 31, 1998 $32,942 $28,750 $4,192
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYSON BALANCED FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $43,396 $27,735 $15,661
Year Ended March 31, 1999 $46,826 $29,359 $17,467
Year Ended March 31, 1998 $43,837 $38,278 $5,559
B-1
<PAGE>
TABLE 4 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS with respect
to each Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
PAYSON VALUE FUND RETAINED
Year Ended March 31, 2000 $39,049 $0 $39,049
Year Ended March 31, 1999 $36,000 $0 $36,000
Year Ended March 31, 1998 $36,000 $0 $36,000
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
PAYSON BALANCED FUND RETAINED
Year Ended March 31, 2000 $39,200 $0 $39,200
Year Ended March 31, 1999 $38,000 $0 $38,000
Year Ended March 31, 1998 $37,000 $0 $37,000
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of shareholder service fees payable
to FSS with respect to shares of each Fund.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYSON VALUE FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $68,204 $0 $68,204
Year Ended March 31, 1999 $65,203 $0 $65,203
Year Ended March 31, 1998 $58,869 $39,896 $18,973
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYSON BALANCED FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $75,529 $0 $75,529
Year Ended March 31, 1999 $77,383 $0 $77,383
Year Ended March 31, 1998 $73,628 $53,159 $20,469
</TABLE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
each Fund that incurred brokerage costs. The data are for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
<TABLE>
<S> <C> <C>
PAYSON VALUE FUND PAYSON BALANCED FUND
Year Ended March 31, 2000 $21,241 $50,183
Year Ended March 31, 1999 $34,078 $60,534
Year Ended March 31, 1998 $29,682 $41,370
B-2
<PAGE>
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
VALUE HELD BY PAYSON VALUE FUND VALUE HELD BY PAYSON BALANCED
REGULAR BROKER OR DEALER FUND
Wells Fargo & Co. $467,000 $0
Dreyfus Cash Management $447,000 $1,182,000
BankBoston Corp. $433,000 $0
Merrill Lynch & Co., Inc. $531,000 $570,000
AG Edwards & Sons, Inc. $294,000 $0
Chase Manhattan Corp. $0 $524,000
Chase Manhattan Corp. $0 $198,000
Bear Stearns Cos., Inc. $0 $152,000
Morgan Stanley Group, Inc. $0 $200,000
</TABLE>
TABLE 8 - 5% SHAREHOLDERS
<TABLE>
<S> <C> <C> <C>
The following table lists the persons who owned of record 5% or more of the
outstanding shares of a Fund as of July 1, 2000.
FUND/CLASS OF SHARES NAME AND ADDRESS SHARES % OF FUND
PAYSON VALUE FUND Payse & Co. 184,499.699 20.99
C/O H M Payson & Co.
PO Box 31
Portland, ME 04112
....................................... ...................... .......................
Ala & Co. 140,709.381 16.01
C/O H M Payson & Co.
PO Box 31
Portland, ME 04112
............................... ....................................... ...................... .......................
PAYSON BALANCED FUND Payse & Co. 203,969.137 14.38
C/O H M Payson & Co.
PO Box 31
Portland, ME 04112
....................................... ...................... .......................
Ala & Co. 188,207.263 13.27
C/O H M Payson & Co.
PO Box 31
Portland, ME 04112
....................................... ...................... .......................
Allagash & Co. 112,010.281 7.90
C/O Bank of New Hampshire
PO Box 477
Concord, NH 03302
</TABLE>
B-3
<PAGE>
APPENDIX C - PERFORMANCE DATA
--------------------------------------------------------------------------------
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGES)
The average annual total return of each Fund for the period ended March 31,
2000, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR SINCE
ONE MONTH THREE YEAR TO ONE THREE FIVE TEN YEARS INCEPTION
MONTHS DATE YEAR YEARS YEARS (ANNUALIZED)
PAYSON VALUE
FUND 11.76% 7.37% 7.37% 17.20% 17.56% 18.60% N/A 15.86%
.............. ............ ............ ............ ............ ........... ............ .......... ..............
PAYSON
BALANCED FUND 9.09% 3.32% 3.32% 4.53% 8.00% 10.90% N/A 10.25%
</TABLE>
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGES)
The average annual total return of each Fund for the period ended March 31,
2000, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C>
SINCE INCEPTION
ONE THREE FIVE TEN (ANNUALIZED)
YEAR YEARS YEARS YEARS
PAYSON VALUE FUND
12.51% 15.97% 17.63% N/A 15.25%
..................... .................. .................. .................. ................... ..................
PAYSON BALANCED FUND
0.35% 6.54% 10.00% N/A 9.71%
</TABLE>
C-1
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
--------------------------------------------------------------------------------
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text, which is currently in use, is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 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.
D-1
<PAGE>
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
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals with decades of experience with some of the country's major
financial institutions.
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.
D-2
<PAGE>
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-3
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in 18 funds, including the unique
Maine TaxSaver Bond Fund and New Hampshire TaxSaver 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."
Fifteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire State bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 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
$1.7 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1.25 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.
D-4
<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance,
expense accounting, budgeting for all funds
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: $70.4 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:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment Advisers,
LLC,
(207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
D-5
<PAGE>
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $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) 772-376
D-6
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
August 1, 2000
INVESTMENT ADVISER: INVESTORS GROWTH FUND
Forum Investment Advisors, LLC
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 94FORUM
(800) 943-6786
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 1, 2000, as may be amended from time to time, offering shares of
Investors Growth Fund (the "Fund"), a separate series of Forum Funds, a
registered, open-end management investment company (the "Trust"). This SAI is
not a prospectus and should only be read in conjunction with the Prospectus. You
may obtain the Prospectus without charge by contacting Forum Shareholder
Services at the address or telephone number listed above.
Financial Statements for the Fund for the year ended March 31, 2000, included in
the Annual Report to shareholders, are incorporated into this SAI by reference.
Copies of the Annual Report may be obtained, without charge, upon request by
contacting Forum Shareholder Services, LLC at the address or telephone number
listed above.
<PAGE>
TABLE OF CONTENTS
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GLOSSARY.......................................................................1
1. INVESTMENT POLICIES AND RISKS..............................................2
2. INVESTMENT LIMITATIONS.....................................................8
3. PERFORMANCE DATA AND ADVERTISING..........................................10
4. MANAGEMENT................................................................15
5. PORTFOLIO TRANSACTIONS....................................................20
6. PURCHASE AND REDEMPTION INFORMATION.......................................22
7. TAXATION..................................................................26
8. OTHER MATTERS.............................................................30
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS...............................A-1
APPENDIX B - MISCELLANEOUS TABLES............................................B-1
APPENDIX C - PERFORMANCE DATA................................................C-1
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS................................D-1
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GLOSSARY
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As used in this SAI, the following terms have the meanings listed.
"Adviser" means Forum Investment Advisors, LLC.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means Forum Trust, LLC, the custodian of the Fund's assets.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of the Fund.
"FAdS" means Forum Administrative Services, LLC, the administrator of the Fund.
"Fitch" means Fitch IBCA, Inc.
"FFS" means Forum Fund Services, LLC, the distributor of the Fund's shares.
"FSS" means Forum Shareholder Services, LLC, the transfer agent of each Fund.
"FFSI" means Forum Financial Services, Inc., the distributor of each Fund's
shares prior to August 1,1999.
"Fund" means Investors Growth Fund.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value per share.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, A Division of the McGraw Hill Companies.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
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1. INVESTMENT POLICIES AND RISKS
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The Fund is a diversified series of the Trust. The section discusses in greater
detail than the Fund's Prospectus certain investments that the Fund may make.
A. SECURITY RATINGS INFORMATION
The Fund's investments in convertible securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund may only invest in convertible
securities that are considered investment grade. Investment grade securities are
rated in the top four long-term rating categories or the two highest short-term
rating categories by an NRSA or are unrated and determined by the Adviser to be
of comparable quality. The Fund may purchase unrated convertible securities if,
at the time of purchase, the Adviser believes that they are of comparable
quality to rated securities that the Fund may purchase.
The lowest rated convertible security bond in which the Fund may invest is "Baa"
in the case of Moody's and "BBB" in the case of S&P and Fitch. The lowest rated
preferred stock in which the Fund may invest is "baa" in the case of Mood's and
"BBB" in the case of S&P. Unrated securities may not be as actively traded as
rated securities.
The Fund may retain securities whose rating has been lowered below the lowest
permissible rating category (or that are unrated and determined by the Adviser
to be of comparable quality to securities whose rating has been lowered below
the lowest permissible rating category) if the Adviser determines that retaining
such security is in the best interests of the Fund. Because a downgrade often
results in a reduction in the market price of the security, 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 convertible
securities by several NRSROs is included in Appendix A to this SAI. The Fund may
use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by the Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by a NRSRO
may change as a result of changes in such organizations or their rating systems,
the Adviser will attempt to substitute comparable ratings. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
B. EQUITY SECURITIES
1. COMMON AND PREFERRED STOCK
GENERAL. The 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
possibility that the value of the stock might decrease. Stock values fluctuate
in response to either the activities of an individual company or in response to
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general market and/or economic conditions. Historically, common stocks have
provided greater long-term returns and have entailed greater short-term risks
than preferred stocks, fixed-income and money market investments. The market
value of all securities, including common and preferred stocks, is based upon
the market's perception of value and not necessarily the book value of an issuer
or other objective measure of a company's worth. If you invest in the Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
2. CONVERTIBLE SECURITIES
GENERAL. The Fund may invest in investment grade convertible debt securities.
Investment grade securities are those securities rated in the top four highest
rating categories by an NRSRO or if, unrated, are judged to be of comparable
quality by the adviser. 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 subordinate to comparable nonconvertible
securities. Convertible securities have unique investment characteristics in
that they generally: (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities; (2) are less subject to fluctuation
in value than the underlying stocks since they have fixed income
characteristics; and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
3. WARRANTS & STOCK RIGHTS
GENERAL. Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to purchase a given number of shares of
common stock at a specified price and time. The price usually represents a
premium over the applicable market value of the common stock at the time of the
warrant's issuance. Warrants have no voting rights with respect to the common
stock, receive no dividends and have no rights with respect to the assets of the
issuer. The Fund will limit its purchases of warrants to not more than 5% of the
value of its total assets. The Fund may also invest up to 5% of its total assets
in stock rights. A stock right is an option given to a shareholder to buy
additional shares at a predetermined price during a specified time.
RISKS. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations due to adverse market conditions or other factors and failure of
the price of the common stock to rise. If the warrant is not exercised within
the specified time period, it becomes worthless.
4. DEPOSITARY RECEIPTS
GENERAL. A depositary receipt is a receipt for shares of a foreign-based company
that entitles the holder to distributions on the underlying security. Depositary
receipts include sponsored and unsponsored American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and other similar global
instruments. ADRs typically are issued by a U.S. bank or trust company, evidence
ownership of underlying securities issued by a foreign company, and are designed
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for use in U.S. securities markets. EDRs (sometimes called Continental
Depositary Receipts) are receipts issued by a European financial institution
evidencing an arrangement similar to that of ADRs, and are designed for use in
European securities markets. The Fund invests in depositary receipts in order to
obtain exposure to foreign securities markets.
RISKS. Unsponsored depositary receipts may be created without the participation
of the foreign issuer. Holders of these receipts generally bear all the costs of
the depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depositary of
an unsponsored depositary receipt may be under no obligation either to
distribute shareholder communications received from the foreign issuer or to
pass through voting rights. Accordingly, available information concerning the
issuer may not be current and the prices of unsponsored depositary receipts may
be more volatile than the prices of sponsored depositary receipts.
C. FOREIGN SECURITIES
The Fund may invest in foreign securities but expects to limit investments in
foreign issuers to less than 15% of its total assets. Investments in the
securities of foreign issuers may involve risks in addition to those normally
associated with investments in the securities of U.S. issuers. All foreign
investments are subject to risks of: (1) foreign political and economic
instability; (2) adverse movements in foreign exchange rates; (3) the imposition
or tightening of exchange controls or other limitations on repatriation of
foreign capital; and (4) changes in foreign governmental attitudes towards
private investment, including potential nationalization, increased taxation or
confiscation of the Fund's assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States, and therefore, less information may be
available about foreign companies than is available about issuers of comparable
U.S. companies. Foreign securities also may trade less frequently and with lower
volume and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by the Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and the Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar after the Fund's income has been earned and computed in
U.S. dollars may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
D. REPURCHASE AGREEMENTS
1. GENERAL
The Fund may enter into repurchase agreements. Repurchase agreements are
transactions in which the Fund purchases securities from a bank or securities
dealer and simultaneously commits to resell the securities to the bank or dealer
at an agreed-upon date and at a price reflecting a market rate of interest
unrelated to the purchased security. During the term of a repurchase agreement,
the Fund's custodian maintains possession of the purchased securities and any
underlying collateral, which is maintained at not less than 100% of the
repurchase price. Repurchase agreements allow the Fund to earn income on its
uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments.
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2. RISKS
The Fund may be exposed to the risks of financial failure or insolvency of
another party. To help reduce those risks, the Adviser, subject to the Board's
supervision, monitors and evaluates the creditworthiness of counterparties to
the Fund's transactions and intend to enter into a transaction only when it
believes that the counterparty presents minimal credit risks and the benefits
from the transaction justify the attendant risks.
E. LEVERAGE
1. GENERAL
The Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to the Fund through an investment technique is used to
make additional Fund investments. Lending portfolio securities are transactions
involving leverage. The Fund uses these investment techniques only when the
Adviser believes that the leveraging and the returns available to the Fund from
investing the cash will provide investors a potentially higher return.
2. SECURITIES LENDING
The Fund may lend portfolio securities or participate in repurchase agreements
in an amount up to 33 1/3% of its total assets to brokers, dealers and other
financial institutions. Securities loans must be continuously collateralized and
the collateral must have market value at least equal to the value of the Fund's
loaned securities, plus accrued interest. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any fees (such
as finders or administrative fees) the Fund pays in arranging the loan. The Fund
may share the interest it receives on the collateral securities with the
borrower. The terms of a Fund's loans permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter. Loans are subject to termination at the option of a Fund or the borrower
at any time, and the borrowed securities must be returned when the loan is
terminated.
3. RISKS
Leverage creates the risk of magnified capital losses. Borrowings and other
liabilities that exceed the equity base of the 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 the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
a Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
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value, which is marked to market daily, will be at least equal to a Fund's
commitments under these transactions.
F. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
The Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act ("restricted securities").
2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and the Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. The Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemptions. There can be no
assurance that a liquid market will exist for any security at any particular
time. Any security, including securities determined by the Adviser to be liquid,
can become illiquid.
3. DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
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G. U.S. GOVERNMENT SECURITIES
1. GENERAL
U.S. Government Securities include securities issued by the U.S. Treasury and by
U.S. Government agencies and instrumentalities. U.S. Government Securities may
be supported by the full faith and credit of the United States (e.g.,
mortgage-related securities and certificates of the Government National Mortgage
Association and securities of the Small Business Administration); by the right
of the issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Bank
securities); by the discretionary authority of the U.S. Treasury to lend to the
issuer (e.g., Fannie Mai (formerly the Federal National Mortgage Association)
securities); or solely by the creditworthiness of the issuer (e.g., Federal Home
Loan Mortgage Corporation securities).
2. RISKS
Holders of U.S. Government Securities not backed by the full faith and credit of
the United States must look principally to the agency or instrumentality issuing
the obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. No assurance can be given that the U.S. Government would provide
support if it is not obligated to do so by law. Neither the U.S. Government nor
any of its agencies or instrumentalities guarantees the market value of the
securities they issue.
H. BANK OBLIGATIONS
1. GENERAL
The Fund may invest in obligations of U.S. banks including certificates of
deposit, bankers' acceptances, having total assets at the time of purchase in
excess of $1 billion. Such banks must also be members of the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance Corporation.
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 drafts drawn by
customers and are usually backed by goods in international trade. Certificates
of deposit 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.
The Fund also may invest in certificates of deposit issued by foreign banks,
denominated in any major foreign currency. The Fund will invest in instruments
issued by foreign banks which, in the view of its investment adviser and the
Trust's Trustees, are of credit-worthiness and financial stature in their
respective countries comparable to U.S. banks in which the Fund invests.
2. RISKS
Obligations of banks are debt securities. The value of debt securities may
fluctuate in response to changes in interest rates. An increase in interest
rates typically causes a fall in the value of the debt securities in which the
Fund may invest. Debt securities are also subject to the risk that the issuer's
financial condition may change. The issuer, for example, may default or become
unable to pay interest or principal due on the security.
I. CORE AND GATEWAY(R)
The Fund may seek to achieve its investment objective by converting to a Core
and Gateway(R) structure. The Fund operating under a Core and Gateway(R)
structure holds, as its only investment, shares of another investment company
having substantially the same investment objective and policies. The Board will
not authorize conversion to a Core and Gateway(R) structure if it would
materially increase costs to the Fund's shareholders. The Board will not convert
a Fund to a Core and Gateway(R) structure without notice to the shareholders.
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J. TEMPORARY DEFENSIVE POSITION
The Fund may assume a temporary defensive position and may invest without limit
in commercial paper and other money market instruments that are of prime
quality. Prime quality instruments are those instruments that are rated in one
of the two highest short-term rating categories by an NRSRO or, if not rated,
determined by the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include U.S. Government Securities, time deposits, bankers acceptances and
certificates of deposit of depository institutions (such as banks), corporate
notes and short-term bonds and money market mutual funds. The Fund may only
invest in money market mutual funds to the extent permitted by the 1940 Act.
The money market instruments in which the Fund may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. These obligations often
include the right, after a given period, to prepay the outstanding principal
amount of the obligations upon a specified number of days' notice. These
obligations generally are not traded, nor generally is there an established
secondary market for these obligations. To the extent a demand note does not
have a 7-day or shorter demand feature and there is no readily available market
for the obligation, it is treated as an illiquid security.
2. INVESTMENT LIMITATIONS
--------------------------------------------------------------------------------
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund, including the Fund's investment objective of
long-term capital appreciation, cannot be changed without the affirmative vote
of the lesser of: (1) 50% of the outstanding shares of the Fund; or (2) 67% of
the shares of the Fund present or represented at a shareholders meeting at which
the holders of more than 50% of the outstanding shares of the Fund are present
or represented. A nonfundamental policy of the Fund may be changed by the Board
without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund.
The Fund:
1. DIVERSIFICATION
May not, with respect to 75% of its assets, purchase a security if as a result:
(1) more than 5% of its assets would be invested in the securities of any single
issuer; or (2) the Fund would own more than 10% of the outstanding voting
securities of any single issuer. This restriction does not apply to securities
issued by the U.S. Government, its agencies or instrumentalities. The Fund
reserves the right to invest up to 100% of its investable assets in one
investment company.
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2. CONCENTRATION
Will not invest 25% or more of the value of its total assets in any one
industry.
3. UNDERWRITING ACTIVITIES
Will not underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under U.S. securities laws.
4. BORROWING
May borrow money for temporary or emergency purposes, including the meeting of
redemption requests, but not in excess of 33 1/3% of the value of the Fund's
total assets (computed immediately after the borrowing).
5. MARGIN AND SHORT SALES
May not purchase securities on margin; however, the Fund may make margin
deposits in connection with any hedging instruments, which it may use as
permitted by any of its other fundamental policies. The Fund may not sell
securities short.
6. INVESTING FOR CONTROL
May not make investments for the purpose of exercising control or management.
7. REAL ESTATE
May not purchase or sell real estate, provided that the Fund may invest in
securities issued by companies that invest in real estate or interests therein.
8. LENDING
Will not lend money except in connection with the acquisition of that portion of
publicly-distributed debt securities which the Fund's investment policies and
restrictions permit it to purchase; the Fund may also make loans of portfolio
securities and enter into repurchase agreements.
9. SENIOR SECURITIES
Will not issue senior securities except pursuant to Section 18 of the Investment
Company Act of 1940 ("1940 Act") and except that the Fund may borrow money
subject to investment limitations specified in the Fund's Prospectus.
10. PURCHASES AND SALES OF COMMODITIES
Will not invest in commodities or commodity contracts (other than hedging
instruments, which it may use as permitted by any of its other fundamental
policies, whether or not any such hedging instrument is considered to be a
commodity or a commodity contract).
11. OPTIONS AND FUTURES CONTRACTS
May not purchase or write puts or calls except as permitted by any of its other
fundamental investment policies.
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B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following nonfundamental investment limitation that may
be changed by the Board without shareholder approval. The Fund may not:
1. ILLIQUID SECURITIES
Invest more than 15% of its net assets in "illiquid securities", which are
securities that cannot be disposed of within seven days at their then current
value. For purposes of this limitation, "illiquid securities" includes, except
in those circumstances described below: (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.
2. WARRANTS
Invest in warrants, valued at the lower of cost or market, more than 5% of the
value of the Fund's net assets (included within that amount, but not to exceed
2% of the value of the Fund's net assets, may be warrants which are not listed
on the New York or American Stock Exchange. Warrants acquired by the Fund in
units or attached to securities may be deemed to be without value).
3. PLEDGING
Purchase securities in margin; however, the Fund may make margin deposits in
connection with any hedging instruments, which it may use as permitted by any of
its other fundamental policies.
3. PERFORMANCE DATA AND ADVERTISING
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A. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
The Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, 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 MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley - Europe,
Australia, Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Shearson Lehman Bond Index, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index
as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
10
<PAGE>
Indices are not used in the management of the Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
The Fund may refer to: (1) general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its "Stocks,
Bonds, Bills and Inflation Yearbook"); (2) mutual fund performance rankings and
other data published by Fund Tracking Companies; and (3) material and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
The Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Fund.
1. SEC YIELD
Standardized SEC yields for the Fund used in advertising are computed by
dividing the Fund's interest income (in accordance with specific standardized
rules) for a given 30 day or one month period, net of expenses, by the average
number of shares entitled to receive income distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income in accordance
with specific standardized rules) in order to arrive at an annual percentage
rate.
Capital gains and losses are generally excluded from these calculations.
Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in the Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
The yields of the Fund are not fixed or guaranteed, and an investment in the
Fund is not insured or guaranteed. Accordingly, yield information should not be
used to compare shares of the Fund with investment alternatives, which, like
money market instruments or bank accounts, may provide a fixed rate of interest.
Also, it may not be appropriate to compare the Fund's yield information directly
to similar information regarding investment alternatives that are insured or
guaranteed.
Yield quotations are based on amounts invested in the Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that does take into account payment of sales charges.
11
<PAGE>
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in the Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period; and (2)
calculates the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that performance is not constant over time but changes from year to year, and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns that reflect
the Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
12
<PAGE>
Any total return may be quoted as a percentage or dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration the Fund's front-end sales charge or contingent
deferred sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
C. OTHER MATTERS
The Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principle of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's investment adviser, summaries of
the views of the portfolio managers with respect to the financial markets, or
descriptions of the nature of the Adviser's and its staff's management
techniques; (7) the results of a hypothetical investment in the Fund over a
given number of years, including the amount that the investment would be at the
end of the period; (8) the effects of investing in a tax-deferred account, such
as an individual retirement account or Section 401(k) pension plan; (9) the net
asset value, net assets or number of shareholders of the Fund as of one or more
dates; and (10) a comparison of the Fund's operations to the operations of other
funds or similar investment products, such as a comparison of the nature and
scope of regulation of the products and the products' weighted average maturity,
liquidity, investment policies, and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,188 at the end
of the second year (an increase of $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
The Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in the Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in the Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
13
<PAGE>
<TABLE>
<S> <C> <C> <C>
PERIOD SYSTEMATIC INVESTMENT SHARE PRICE SHARES 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 Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements, the Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service provider's policies
or business practices
14
<PAGE>
4. MANAGEMENT
--------------------------------------------------------------------------------
A. TRUSTEES AND OFFICERS
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C> <C>
NAME, DATE OF BIRTH AND POSITION WITH PRINCIPAL OCCUPATION(S) DURING
ADDRESS THE TRUST PAST 5 YEARS
John Y. Keffer* Chairman and Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 President 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 Trustee of one other investment company for which Forum Financial
40 West 57th Street Group, LLC provides services
New York, NY 10019
.............................. ................. .....................................................................
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
Two Portland Square Financial 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>
15
<PAGE>
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 another investment
company for which Forum Financial Group, LLC provides services for the fiscal
year ended March 31, 2000.
<TABLE>
<S> <C> <C> <C> <C>
TOTAL COMPENSATION
FROM TRUST AND FUND
COMPENSATION FROM COMPLEX
TRUSTEE FUND BENEFITS RETIREMENT
John Y. Keffer $0 $0 $0 $0
...................... ....................... ....................... ....................... .......................
Costas Azariadis $15,500 $0 $0 $24,900
...................... ....................... ....................... ....................... .......................
James C. Cheng $15,500 $0 $0 $24,900
...................... ....................... ....................... ....................... .......................
J. Michael Parish $15,500 $0 $0 $24,900
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to the 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 in connection with managing the Fund's investments and effecting
portfolio transactions for the Fund.
2. OWNERSHIP OF ADVISER
The Adviser is 99% owned by Forum Trust, LLC and 1% owned by Forum Holdings
Corp. I, both of which are mutual fund services holding companies controlled by
John Y. Keffer, Chairman and President of the Trust. Forum Investment Advisors,
LLC is registered as an investment adviser with the SEC under the Investment
Advisers Act of 1940, as amended.
3. FEES
The Adviser's fee is calculated as a percentage of the Fund's average net
assets. The fee is accrued daily by the Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in the Fund. If you have a separately managed account with
the Adviser with assets invested in the Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data are for the past three fiscal years.
16
<PAGE>
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The 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, the Adviser is not liable for any mistake of judgment or in
any event whatsoever except for breach of fiduciary duty, willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
Forum Fund Services, LLC (FFS), the distributor (also known as principal
underwriter) of the shares of the Fund, is located at Two Portland Square,
Portland, Maine 04101. FFS is a registered broker-dealer and is a member of the
National Association of Securities Dealers, Inc. Prior to August 1, 1999, Forum
Financial Services, Inc. was the distributor of each Fund pursuant to similar
terms and compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC. Forum Financial Group, LLC is controlled by John Y. Keffer.
Under a distribution agreement with the Trust (the "Distribution Agreement"),
FFS acts as the agent of the Trust in connection with the offering of shares of
the Fund. FFS continually distributes shares of the Fund on a best efforts
basis. FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold with a sales charge. These
financial institutions may otherwise act as processing agents and will be
responsible for promptly transmitting purchase, redemption and other requests to
the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and 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 Fund's
shares. Table 2 in Appendix B shows the aggregate sales charges paid to FFSI,
the amount of sales charge reallowed by FFSI, and the amount of sales charge
retained by FFSI. The data are for the past three years (or shorter depending on
a Fund's commencement of operations).
17
<PAGE>
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 the Fund on 60 days' written notice when authorized either by vote of
the Fund's shareholders or by a majority vote of the Board, or by FFS on 60
days' written notice to the Trust.
Under 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 the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement.
Under 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 Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an administration agreement with the Trust (the
"Administration Agreement"), Forum Administrative Services, LLC (FAdS) is
responsible for the supervision of the overall management of the Trust,
providing the Trust with general office facilities and providing persons
satisfactory to the Board to serve as officers of the Trust.
For its services, FAdS receives a fee from the Fund at an annual rate of 0.20%
of the average daily net assets of the Fund. The fee is accrued daily by the
Fund and is paid monthly based on average net assets for the previous month.
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 the 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 the Fund to
FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data are for the past three fiscal years.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an accounting agreement with the Trust (the
"Accounting Agreement"), Forum Accounting Services, LLC (FAcS) provides fund
accounting services to the Fund. These services include calculating the NAV per
share of the Fund and preparing the Fund's financial statements and tax returns.
18
<PAGE>
For its services, FAcS receives a fee from the Fund at an annual rate of $36,000
with certain surcharges based upon the number and type of the Fund's portfolio
transactions and positions. The fee is accrued daily by the Fund and is paid
monthly based on the transactions and positions for the previous month.
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 the 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 the Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the 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.
Under the Accounting Agreement, in calculating the Fund's NAV per share, FAcS is
deemed not to have committed an error if the NAV per share it calculates is (1)
within 1/10 of 1% of the actual NAV per share (after recalculation). The
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 Fund.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data are for the past three fiscal years.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agent
agreement with the Trust (the "Transfer Agent Agreement"), FSS maintains an
account for each shareholder of record of the Fund and is responsible for
processing purchase and redemption requests and paying distributions to
shareholders of record. 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 from the Fund 0.25% of the average daily net
assets of the Fund, an annual fee of $12,000 and $18 per shareholder account.
The Transfer Agent Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Transfer Agent Agreement is terminable without penalty by the Trust
or by FSS with respect to the Fund on 60 days' written notice.
Under the Transfer Agent Agreement, FSS is not liable for any act in the
performance of its duties to the Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties under the agreement. Under
the Transfer Agent 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 FAdS's actions or omissions that are
consistent with FAdS's contractual standard of care.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Fund to
FSS, the amount of the fee waived by FSS, and the actual fees received by FSS.
The data are for the past three fiscal years.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Fund's cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
19
<PAGE>
provide custody of the Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of the Fund. The Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Fund and are paid monthly based on average net assets and transactions for the
previous month.
5. LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005, passes upon
legal matters in connection with the issuance of shares of the Trust.
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, 14th Floor, Boston, Massachusetts,
02116-5022, independent auditors, have been selected as auditors for the Fund.
The auditors audit the annual financial statements of the Fund and provide the
Fund with an audit opinion. The auditors also review certain regulatory filings
of the Fund and the Fund's tax returns.
5. PORTFOLIO TRANSACTIONS
--------------------------------------------------------------------------------
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected: (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions paid by the
Fund. The data presented are for the past three fiscal years or shorter period
if the Fund has been in operation for a shorter period.
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with brokers
and dealers selected by and in the discretion of the Adviser. The Fund does not
have any obligation to deal with any specific broker or dealer in the execution
of portfolio transactions. Allocations of transactions to brokers and dealers
and the frequency of transactions are determined by the Adviser in its best
20
<PAGE>
judgment and in a manner deemed to be in the best interest of the Fund rather
than by any formula.
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for the Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
1. CHOOSING BROKER-DEALERS
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser takes into account
factors such as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the research services described below)
and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) take into
account payments made by brokers effecting transactions for the Fund (these
payments may be made to the Fund or to other persons on behalf of the Fund for
services provided to the Fund for which those other persons would be obligated
to pay.)
2. OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause the Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Fund, and not all research services may be
used by the Adviser in connection with the Fund. The Adviser's fees are not
reduced by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser may execute a transaction through a broker and pay a
slightly higher commission than another broker might 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 on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
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3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to the Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect brokerage transactions through affiliates of the Adviser
(or affiliates of those persons) pursuant to procedures adopted by the Trust.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. 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. In addition, when purchases or sales of the same
security for the Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time
the Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. An annual
portfolio turnover rate of 100% would occur if all of the securities in the Fund
were replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the Fund may acquire and hold securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers. For
this purpose, regular brokers and dealers 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 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 Fund's holdings of those
securities as of the Fund's most recent fiscal year.
6. PURCHASE AND REDEMPTION INFORMATION
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A. GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at FSS's offices located at Two Portland Square, Portland, Maine 04101.
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The Fund accepts 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 state in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
B. ADDITIONAL PURCHASE INFORMATION
The distributor sells shares of the Fund on a continuous basis. Set forth below
is an example of the method of computing the offering price of the Fund's
shares. The example assumes a purchase of shares of beneficial interest
aggregating less than $100,000 subject to the schedule of sales charges set
forth in the Prospectus at a price based on the net asset value per share of the
Fund on March 31, 2000.
Net Asset Value Per Share $11.60
Sales Charge, 4.00% of offering price
(4.17% of net asset value per share) $0.48
Offering to Public $12.08
The Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that: (1) are not restricted as to transfer by law and
are not illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the contribution is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in the Fund directly. When you purchase the Fund's
shares through a financial institution, you may or may not be the shareholder of
record and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
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You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Fund may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Fund through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
The Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to
the Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings) or during which the Securities and Exchange Commission
determines that trading thereon is restricted; (2) an emergency (as determined
by the SEC) exists as a result of which disposal by the Fund of its securities
is not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund fairly to determine the value of its net assets; or (3)
the SEC may by order permit for the protection of the shareholders of the Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisable by the Adviser, the Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which the
Fund may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of
the Fund on the payment date for the distribution. Cash payments may be made
more than seven days following the date on which distributions would otherwise
be reinvested.
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F. SIGNATURE GUARANTEE REQUIREMENTS
For requests made in writing, a signature guarantee is required for any of the
following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name
o Redemptions from an account for which the address or account
registration has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different
registration (name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution,
telephone redemption or exchange option or any other election in
connection with your account
G. SALES CHARGES
1. REDUCED SALES CHARGES
You may qualify for a reduced sales charge on Fund purchases under rights of
accumulation or a letter of intent. If you qualify for rights of accumulation
("ROA"), the sales charge you pay is based on the total of your current purchase
and the net asset value (at the end of the previous fund business day) of shares
that you already hold. To qualify for ROA on a purchase, you must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount. You may also enter into a written Letter of Intent
("LOI"), which expresses your intent to invest $100,000 or more in a Fund within
a period of 13 months. Each purchase under a LOI will be made at the public
offering price applicable at the time of the purchase to a single transaction of
the dollar amount indicated in the LOI. If you do not purchase the minimum
investment referenced in the LOI, you must pay the Fund an amount equal to the
difference between the dollar value of the sales charges paid under the LOI and
the dollar value of the sales charges due on the aggregate purchases of the Fund
as if such purchases were executed in a single transaction.
2. ELIMINATION OF SALES CHARGES
No sales charge is assessed on the reinvestment of Fund distributions. No sales
charge is assessed on purchases made for investment purposes or on redemptions
by:
o any bank, trust company, savings association or similar institution with
whom the distributor has entered into a share purchase agreement acting on
behalf of the institution's fiduciary customer accounts or any account
maintained by its trust department (including a pension, profit sharing or
other employee benefit trust created pursuant to a qualified retirement
plan)
o any registered investment adviser with whom the distributor has entered
into a share purchase agreement and which is acting on behalf of its
fiduciary customer accounts
o any broker-dealer with whom the distributor has entered into a Fee-Based
Wrap Account Agreement or similar agreement and which is acting on behalf
of its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Advisor, the distributor, any of their affiliates or any
organization with which the distributor has entered into a Selected Dealer
or similar agreement; the spouse, sibling, direct ancestor or direct
descendent (collectively, "relatives") of any such person; any trust or
individual retirement account or self-employed retirement plan for the
benefit of any such person or relative; or the estate of any such person or
relative
o any person who has, within the preceding 90 days, redeemed Fund shares (but
only on purchases in amounts not exceeding the redeemed amounts) and
completes a reinstatement form upon investment
o persons who exchange into a Fund from a mutual fund other than a Fund of
the Trust that participates in the Trust's exchange program
o employee benefit plans qualified under Section 401 of the Internal Revenue
Code of 1986, as amended.
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The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
7. TAXATION
--------------------------------------------------------------------------------
The tax information set forth in the Prospectus and the information in this
section relate solely to U.S. federal income tax law and assume that the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of the Fund.
The tax year end of the Fund is March 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its investment company taxable income (that is,
taxable interest, dividends, net short-term capital gains and other taxable
ordinary income, net of expenses) and net capital gain (that is, the excess of
net long-term capital gains over net short-term capital losses) that it
distributes to shareholders. In order to qualify as a regulated investment
company the Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income for the tax year. (Certain distributions made by the
Fund after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies) or in two or more issuers which the Fund controls and which
are engaged in the same or similar trades or businesses.
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2. FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
A portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on the Fund's income and performance. It is possible that the Fund will
not qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you as
ordinary income. A potion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
The Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions will not qualify for the dividends-received deduction.
The Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Fund's financial statements. Any
such losses may not be carried back.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions 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 the Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares the net asset value of which at the time reflects
undistributed net investment income or recognized capital gain, or unrealized
appreciation in the value of the assets of the Fund. Distributions of these
amounts are taxable to you in the manner described above, although the
distribution economically constitutes a return of capital to you.
If you purchase shares of the Fund just prior to the ex-dividend date of a
distribution, you will be taxed on the entire amount of the distribution
received, even though the net asset value per share on the date of the purchase
reflected the amount of the distribution.
Ordinarily, you are required to take distributions by the Fund into account in
the year in which they are made. A distribution declared in October, November or
December of any year and payable to shareholder of record on a specified date in
those months, however, is deemed to be received by you (and made by the Fund) on
December 31 of that calendar year if the distribution is actually paid in
January of the following year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) to you during the year.
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C. CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by the Fund is exercised, the purchase price
(selling price in the case of a call) of the underlying security is decreased
(increased in the case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Fund at the end of each tax year
are "marked to market" and treated for federal income tax purposes as though
sold for fair market value on the last business day of the tax year. Gains or
losses realized by the Fund on Section 1256 contracts are generally considered
60% long-term and 40% short-term capital gains or losses. The Fund can elect to
exempt its Section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by the Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle, of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to the Fund that may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held by a Fund if
all of the offsetting positions consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. The
balance of the Fund's income must be distributed during the next calendar year.
The Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year ending in the calendar year.
For purposes of calculating the excise tax, the Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year in determining the amount of
ordinary taxable income for the current calendar year. The Fund will include
foreign currency gains and losses incurred after October 31 in determining
ordinary taxable income for the succeeding calendar year.
The Fund intends to make sufficient distributions of its ordinary taxable income
and capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Fund may
in certain circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
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E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases (for example, by reinvesting dividends) other shares of
the Fund within 30 days before or after the sale or redemption (a so called
"wash sale"). If disallowed, the loss will be reflected in an upward adjustment
to the basis of the shares purchased. In general, any gain or loss arising from
the sale or redemption of shares of the Fund will be considered capital gain or
loss and will be long-term capital gain or loss if the shares were held for
longer than one year. Any capital loss arising from the sale or redemption of
shares held for six months or less, however, is treated as a long-term capital
loss to the extent of the amount of distributions of net capital gain received
on such shares. In determining the holding period of such shares for this
purpose, any period during which a shareholder's risk of loss is offset by means
of options, short sales or similar transactions is not counted. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
F. WITHHOLDING TAX
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide a correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient." Backup
withholding is not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
G. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the distribution.
The foreign shareholder generally would be exempt from U.S. federal income tax
on gain realized on the sale of shares of the Fund, capital gain distributions
from the Fund and amounts retained by the Fund that are designated as
undistributed capital gain.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income
distributions, capital gain distributions, and any gain realized upon the sale
of shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the rules for U.S. federal income taxation described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in the Fund.
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H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from the Fund can differ from the rules for U.S.
federal income taxation described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in the
Fund.
8. OTHER MATTERS
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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:
Investors Bond Fund Payson Value Fund
TaxSaver Bond Fund Payson Balanced Fund
Investors High Grade Bond Fund Austin Global Equity Fund
Maine TaxSaver Bond Fund Polaris Global Value Fund
New Hampshire TaxSaver Bond Fund Investors Equity Fund
Daily Assets Government Fund(1) Equity Index Fund
Daily Assets Treasury Obligations Fund(1) Investors Growth Fund
Daily Assets Cash Fund(1) BIA Small-Cap Growth Fund
Daily Assets Government Obligations Fund(1) BIA Growth Equity Fund
Daily Assets Municipal Fund(1) Mastrapasqua Value Growth Fund
(1)The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust, Fund's investment adviser 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 the Fund. The Board will consider
approving amendments to the code of ethics for Trust, the Fund's investment
adviser and the principal underwriter at its next regularly scheduled meeting.
The Trust and the Fund will continue indefinitely until terminated.
2. SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and each
class' performance will be affected by its expenses. For more information on any
other class of shares of the Fund, investors may contact 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
30
<PAGE>
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. 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) the Trustees determine that the matter affects more than one series and all
affected series must vote. The Trustees may also determine that a matter only
affects certain classes of the Trust and thus only those such classes are
entitled to vote on the matter. Delaware law does not require the Trust to hold
annual meetings of shareholders, and it is anticipated that shareholder meetings
will be held only when specifically required by federal or state law. There are
no conversion or preemptive rights in connection with shares of the Trust.
All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable.
A shareholder in a series is entitled to the shareholder's pro rata share of all
distributions arising from that series' assets and, upon redeeming shares, will
receive the portion of the series' net assets represented by the redeemed
shares.
Shareholders representing 10% or more of the Trust's (or a series') outstanding
shares may, as set forth in the Trust Instrument, call meetings of the Trust (or
series) for any purpose related to the Trust (or series), including, in the case
of a meeting of the Trust, the purpose of voting on removal of one or more
Trustees.
4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or the Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust to merge or consolidate into one or more
trusts, partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end, management
investment company that will succeed to or assume the Trust's registration
statement.
B. FUND OWNERSHIP
As of July 1, 2000, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding Shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of the
Fund. These shareholders and any shareholder known by the Fund to own
beneficially 5% or more of the Fund are listed in Table 8 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of July 1, 2000, the
following persons beneficially owned 25% or more of the shares of a Fund (or of
the Trust) and may be deemed to control the Fund (or the Trust). For each person
listed that is a company, the jurisdiction under the laws of which the company
is organized (if applicable) and the company's parents are listed.
31
<PAGE>
CONTROLLING PERSON INFORMATION
PERCENTAGE OF
SHAREHOLDER SHARES OWNED
FirsTrust Co (incorporated in Indiana) 92.29%
National City Bank Trust Dept
227 Main Street
Evansville, Indiana 47708
National City Bank of Evansville is the parent company of FirsTrust.
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some states, however, have indicated that they and the courts in
their state may decline to apply Delaware law on this point. The Forum Funds'
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 the portfolio is unable to meet its obligations.
FAdS believes that, in view of the above, there is no risk of personal liability
to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference to the copy of such contract or other documents
filed as exhibits to the registration statement.
E. FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended March 31, 2000, which
are included in the Annual Report to Shareholders of the Fund, are incorporated
herein by reference. These financial statements only include the schedules of
investments, statements of assets and liabilities, statements of operations,
statements of changes in net assets, financial highlights, notes and independent
auditors' reports.
32
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
--------------------------------------------------------------------------------
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
<PAGE>
2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
A-2
<PAGE>
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD, D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
B. PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
BAA An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
BA An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
B An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
A-4
<PAGE>
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
CA An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
C This is the lowest rated class of preferred or preference stock. Issues
so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B,CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
A-5
<PAGE>
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
2. STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
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.
A-6
<PAGE>
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for timely
repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. This rating is
automatically assigned to all obligations issued or guaranteed by the
sovereign state. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative
degree of risk is slightly higher than for issues classified as `A1'
and capacity for timely repayment may be susceptible to adverse changes
in business, economic, or financial conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is more
susceptible to adverse changes in business, economic, or financial
conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is uncertain
relative to other obligors in the same country. The capacity for timely
repayment is susceptible to adverse changes in business, economic, or
financial conditions.
C Obligations for which there is a high risk of default to other obligors
in the same country or which are in default.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
--------------------------------------------------------------------------------
TABLE 1 - INVESTMENT ADVISORY FEES
The following table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE ADVISORY FEE RETAINED
WAIVED
Year Ended March 31, 2000 $163,737 $45,005 $118,732
Year Ended March 31, 1999 $207,130 $0 $207,130
Period Ended March 31, 1998 $59,250 $0 $59,250
TABLE 2 - SALES CHARGES
AGGREGATE SALES CHARGE SALES CHARGE SALES CHARGE
RETAINED REALLOWED
Year Ended March 31, 2000 $0 $0 $0
Year Ended March 31, 1999 $0 $0 $0
Period Ended March 31, 1998 $0 $0 $0
TABLE 3 - ADMINISTRATION FEES
The following table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
ADMINISTRATION FEE ADMINISTRATION ADMINISTRATION FEE
PAYABLE FEE WAIVED RETAINED
Year Ended March 31, 2000 $50,381 $44,921 $5,460
Year Ended March 31, 1999 $63,732 $63,732 $0
Period Ended March 31, 1998 $18,231 $18,231 $0
TABLE 4 - ACCOUNTING FEES
The following table shows the dollar amount of fees paid to FAcS.
ACCOUNTING FEE ACCOUNTING FEE ACCOUNTING FEE
PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $38,200 $27,000 $11,200
Year Ended March 31, 1999 $37,000 $37,000 $0
Period Ended March 31, 1998 $10,935 $10,935 $0
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
PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $75,356 $6,788 $68,568
Year Ended March 31, 1999 $91,741 $44,032 $47,709
Period Ended March 31, 1998 $26,445 $22,744 $3,701
</TABLE>
B-1
<PAGE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
the Fund that incurred brokerage costs. The data are for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
Note that the Fund was only in operation for less than three months for the
period ended March 31, 1998.
AGGREGATE COMMISSION PAID
Year Ended March 31, 2000 $17,798
Year Ended March 31, 1999 $37,518
Period Ended March 31, 1998 $9,612
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Fund's most recent fiscal year.
<TABLE>
<S> <C>
REGULAR BROKER DEALER VALUE HELD
Merrill Lynch & Co., Inc. $884,375
........................................................... .........................................................
BankAmerica Corp. $645,230
........................................................... .........................................................
Wells Fargo & Co. $631,124
........................................................... .........................................................
Dreyfus Cash Management $467,027
</TABLE>
TABLE 8 - 5% SHAREHOLDERS
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund and (2) any person known by
the Fund to own beneficially 5% or more of a class of shares of the Fund, as of
July 1, 2000.
<TABLE>
<S> <C> <C>
NAME AND ADDRESS SHARES % OF FUND
FirsTrust Co 490,714.852 92.29%
National City Bank Trust Dept
227 Main Street
Evansville, Indiana 47708
FirsTrust Co 35,423.571 6.66%
c/o National City Bank of Evansville
227 Main Street
P.O. Box 868
Evansville, IN 47705-0868
</TABLE>
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
--------------------------------------------------------------------------------
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGE)
The average annual total return of the Fund for the period ended March 31, 2000,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTORS CALENDAR SINCE
GROWTH FUND ONE THREE YEAR TO DATE ONE YEAR THREE FIVE YEARS TEN YEARS INCEPTION
MONTH MONTHS YEARS (ANNUALIZED)
10.42% 2.14% 2.14% 6.54% N/A N/A N/A 11.52%
</TABLE>
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGE)
The average annual total return of the Fund for the period ended March 31, 2000,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C>
INVESTORS GROWTH SINCE INCEPTION
FUND ONE THREE FIVE TEN (ANNUALIZED)
YEAR YEARS YEARS YEARS
2.28% N/A N/A N/A 9.55%
</TABLE>
C-1
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
--------------------------------------------------------------------------------
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text, which is currently in use, is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represents more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 181
mutual funds for 17 different fund managers, with approximately $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.
D-1
<PAGE>
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
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible.
Serving as portfolio managers for the Forum Family of Funds are individuals with
decades of experience with some of the country's major financial institutions.
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.
D-2
<PAGE>
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-3
<PAGE>
PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in fifteen funds, including the
unique Maine TaxSaver Bond Fund and New Hampshire TaxSaver Bond Fund, being
offered through the branches of Peoples' affiliate banks in Maine, New Hampshire
and northern Massachusetts and the Company's trust and investment subsidiaries
"There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire State bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 124funds with
more than $29 billion in assets. Forum manages mutual funds for independent
investment advisors such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment 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 advisor, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
D-4
<PAGE>
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisors and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance,
expense accounting, budgeting for all funds
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: $70.4 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:
Mark Kaplan, Managing Director and Portfolio Manager, Forum Investment Advisors,
LLC, (207) 879-1900 X 6123
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
D-5
<PAGE>
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $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-6
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-------------------------------------
August 1, 2000
[FORUM
LOGO]
INVESTMENT ADVISER: AUSTIN GLOBAL EQUITY FUND
Austin Investment Management, Inc.
375 Park Avenue
New York, New York 10152
ACCOUNT INFORMATION AND SHAREHOLDER
SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 805-8258
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 1, 2000, as may be amended from time to time, offering shares of
Austin Global Equity Fund (the "Fund"), a separate series of Forum Funds, a
registered, open-end management investment company (the "Trust"). This SAI is
not a prospectus and should only be read in conjunction with the Prospectus. You
may obtain the Prospectus without charge by contacting Forum Shareholder
Services at the address or telephone number listed above.
Financial Statements for the Fund for the year ended March 31, 2000, included in
the Annual Report to shareholders, are incorporated into this SAI by reference.
Copies of the Annual Report may be obtained, without charge, upon request by
contacting Forum Shareholder Services, LLC at the address or telephone number
listed above.
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GLOSSARY.......................................................................1
1. INVESTMENT POLICIES AND RISKS..............................................2
2. INVESTMENT LIMITATIONS.....................................................9
3. PERFORMANCE DATA AND ADVERTISING..........................................11
4. MANAGEMENT................................................................16
5. PORTFOLIO TRANSACTIONS....................................................21
6. PURCHASE AND REDEMPTION INFORMATION.......................................23
7. TAXATION..................................................................25
8. OTHER MATTERS.............................................................30
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS...............................A-1
APPENDIX B - MISCELLANEOUS TABLES............................................B-1
APPENDIX C - PERFORMANCE DATA................................................C-1
<PAGE>
GLOSSARY
--------------------------------------------------------------------------------
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Austin Investment Management, Inc.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of the Fund's assets.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of each Fund.
"FAdS" means Forum Administrative Services, LLC, the administrator of the Fund.
"Fitch" means Fitch IBCA, Inc.
"FFS" means Forum Fund Services, LLC, the distributor of the Fund's shares.
"FFSI" means Forum Financial Services, Inc., the distributor of the Fund's
shares prior to August 1, 1999.
"FSS" means Forum Shareholder Services, LLC, the transfer agent of the Fund.
"Fund" means Austin Global Equity Fund.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value per share.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, A Division of the McGraw Hill Companies.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
1
<PAGE>
1. INVESTMENT POLICIES AND RISKS
--------------------------------------------------------------------------------
The Fund is a diversified series of the Trust. This section discusses in greater
detail than the Fund's Prospectus certain investments that the Fund may make.
A. SECURITY RATINGS INFORMATION
The Fund's investments in convertible securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund may only invest in: (1) convertible
debt securities that are rated B or higher by Moody's or S&P at the time of
purchase; and (2) preferred stock rated b or higher by Moody's or B or higher by
S&P at the time of purchase. The Fund will limit its investment in convertible
securities rated below BBB by S&P or bbb by Moody's to 10% of its total assets.
The Fund may purchase unrated convertible securities if, at the time of
purchase, the Adviser believes that they are of comparable quality to rated
securities that the Fund may purchase.
Moody's characterizes securities in the lowest permissible rating category as
generally lacking characteristics of a desirable investment and by S&P as being
predominantly speculative. A Fund may retain securities whose rating has been
lowered below the lowest permissible rating category (or that are unrated and
determined by the Adviser to be of comparable quality to securities whose rating
has been lowered below the lowest permissible rating category) if the Adviser
determines that retaining such security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of convertible
securities by several NRSROs is included in Appendix A to this SAI. The Fund may
use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by the Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by a NRSRO
may change as a result of changes in such organizations or their rating systems,
the Adviser will attempt to substitute comparable ratings. Credit ratings
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
B. EQUITY SECURITIES
1. COMMON AND PREFERRED STOCK
GENERAL. Common stock represents an equity (ownership) interest in a company,
and usually possesses voting rights and earns dividends. Dividends on common
stock are not fixed but are declared at the discretion of the issuer. Common
stock generally represents the riskiest investment in a company. In addition,
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
possibility that the value of the stock might decrease. Stock values fluctuate
in response either to the activities of an individual company or to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
2
<PAGE>
preferred stocks, fixed-income and money market investments. The market value of
all securities, including common and preferred stocks, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth. If you invest in the Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
2. CONVERTIBLE SECURITIES
GENERAL. The Fund may invest up to 35% of its assets 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 subordinate to comparable nonconvertible securities. Convertible
securities have unique investment characteristics in that they generally: (1)
have higher yields than common stocks, but lower yields than comparable
non-convertible securities; (2) are less subject to fluctuation in value than
the underlying stocks since they have fixed income characteristics; and (3)
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
3. WARRANTS
GENERAL. The Fund may invest up to 5% of the value of its total assets 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.
RISKS. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations due to adverse market conditions or other factors and failure of
the price of the common stock to rise. If the warrant is not exercised within
the specified time period, it becomes worthless.
4. DEPOSITARY RECEIPTS
GENERAL. The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs typically are issued by a U.S. bank or trust company,
evidence ownership of underlying securities issued by a foreign company, and are
designed for use in U.S. securities markets. The Fund invests in depositary
receipts in order to obtain exposure to foreign securities markets.
RISKS. Unsponsored depositary receipts may be created without the participation
of the foreign issuer. Holders of these receipts generally bear all the costs of
the depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depositary of
an unsponsored depositary receipt may be under no obligation either to
distribute shareholder communications received from the foreign issuer or to
3
<PAGE>
pass through voting rights. Accordingly, available information concerning the
issuer may not be current and the prices of unsponsored depositary receipts may
be more volatile than the prices of sponsored depositary receipts.
C. FOREIGN SECURITIES FORWARD CONTRACTS
1. GENERAL
The Fund may conduct foreign currency exchange transactions either on a spot
(cash) basis at the spot rate prevailing in the foreign exchange market or by
entering into a forward foreign currency contract. A forward foreign currency
contract ("forward contract") involves an obligation to purchase or sell a
specific amount of a specific currency at a future date, which may be any fixed
number of days (usually less than one year) from the date of the contract agreed
upon by the parties, at a price set at the time of the contract. Forward
contracts are considered to be "derivatives" -- financial instruments whose
performance is derived, at least in part, from the performance of another asset
(such as a security, currency or an index of securities). The Fund enters into
forward contracts in order to "lock in" the exchange rate between the currency
it will deliver and the currency it will receive for the duration of the
contract. In addition, the Fund may enter into forward contracts to hedge
against risks arising from securities the Fund owns or anticipates purchasing,
or the U.S. dollar value of interest and dividends paid on those securities. The
Fund does not intend to enter into forward contracts on a regular or continuing
basis. The Fund will not have more than 25% of its total assets committed to
forward contracts or maintain a net exposure to forward contracts that would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Portfolio's investment securities or other assets denominated in
that currency.
If the Fund makes delivery of the foreign currency at or before the settlement
of a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. The Fund may close out a
forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
2. RISKS
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
D. OPTIONS AND FUTURES CONTRACTS
1. GENERAL
The Fund may purchase or write (sell) put and call options to enhance the Fund's
performance or to hedge against either a decline in the value of securities
owned by the Fund or an increase in the price of securities that the Fund plans
to purchase. The Fund may purchase or write (sell) options on securities,
currencies and stock indices. The Fund may also invest in stock index and
foreign currency futures contracts and options on those contracts. The Fund may
purchase put and call options written by others and may write covered calls. The
Fund may not write puts on futures contracts and may only write covered put
options on securities, foreign currencies and stock indices to effect closing
transactions. The Fund may only invest in options that trade on an exchange or
over-the-counter.
4
<PAGE>
2. OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
(or index) underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price. A put option gives
its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy, upon exercise of the
option, the underlying security (or a cash amount equal to the value of the
index) at the exercise price. The amount of a premium received or paid for an
option is based upon certain factors, including the market price of the
underlying security, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security, the option period
and interest rates.
OPTIONS ON INDICES. An index assigns relative values to the securities in the
index, and the index fluctuates with changes in the market values of the
securities included in the index. Index options operate in the same way as the
more traditional options on securities except that index options are settled
exclusively in cash and do not involve delivery of securities. Thus, upon
exercise of index options, the purchaser will realize and the writer will pay an
amount based on the differences between the exercise price and the closing price
of the index.
OPTIONS ON FOREIGN CURRENCY. Options on foreign currency operate in the same way
as more traditional options on securities except that currency options are
settled exclusively in the currency subject to the option. The value of a
currency option is dependent upon the value of the currency relative to the U.S.
dollar and has no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, the Fund may be disadvantaged by having to deal in an
odd lot market (generally consisting in transactions of less than $1 million)
for the underlying currencies at prices that are less favorable than round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies are open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.
OPTIONS ON FUTURES. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell a security or currency, at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position to the holder of the option will be
accompanied by transfer to the holder of an accumulated balance representing the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying debt security or a currency, as called for in
the contract, at a specified date and at an agreed upon price. An index futures
contract involves the delivery of an amount of cash equal to a specified dollar
amount multiplied by the difference between the index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the securities comprising the index
is made. Generally, these futures contracts are closed out prior to the
expiration date of the contracts.
3. LIMITATIONS ON OPTIONS AND FUTURES TRANSACTIONS
The Fund will not sell futures contracts, buy put options and write call options
if, as a result, more than 25% of the Fund's total assets would be hedged
through the use of options and futures contracts. The Fund will not buy futures
contracts or write put options whose underlying value exceeds 25% of the Fund's
total assets. The Fund will not purchase call options if the value of option
premiums purchased would exceed 5% of the Fund's total assets.
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The Fund will only invest in futures and options contracts after providing
notice to its shareholders and filing a notice of eligibility (if required) and
otherwise complying with the requirements of the Commodity Futures Trading
Commission ("CFTC"). The CFTC's rules provide that a Fund is permitted to
purchase such futures or options contracts only: (1) for bona fide hedging
purposes within the meaning of the rules of the CFTC; provided, however, that in
the alternative with respect to each long position in a futures or options
contract entered into by a Fund, the underlying commodity value of such contract
at all times does not exceed the sum of cash, short-term United States debt
obligations or other United States dollar denominated short-term money market
instruments set aside for this purpose by the Fund, accrued profit on the
contract held with a futures commission merchant and cash proceeds from existing
Fund investments due in 30 days; and (2) subject to certain other limitations.
4. RISKS OF OPTIONS AND FUTURES TRANSACTIONS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which a
Fund invests; and (4) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder a Fund's ability to limit exposures by closing its positions.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. A Fund may use various futures contracts that
are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market in those
contracts will develop or continue to exist. A Fund's activities in the futures
and options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield.
E. LEVERAGE TRANSACTIONS
1. GENERAL
The Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to a Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into reverse
repurchase agreements, and purchasing securities on a when-issued, delayed
delivery or forward commitment basis are transactions involving leverage. The
Fund uses these investment techniques only when the Adviser believes that the
leveraging and the returns available to the Fund from investing the cash will
provide investors a potentially higher return.
REVERSE REPURCHASE. The Fund may also enter into reverse repurchase agreements.
A reverse repurchase agreement is a transaction in which a Fund sells securities
to a bank or securities dealer and simultaneously commits to repurchase the
security from the bank or dealer at an agreed upon date and at a price
reflecting a market rate of interest unrelated to the sold security. An
investment of a Fund's assets in reverse repurchase agreements will increase the
volatility of the Fund's net asset value per unit. A Fund will use the proceeds
of reverse repurchase agreements to fund redemptions or to make investments.
SECURITIES LENDING. The Fund may lend portfolio securities or participate in
repurchase agreements in an amount up to 33 1/3% of its total assets to brokers,
dealers and other financial institutions. Repurchase agreements are transactions
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<PAGE>
in which a Fund purchases a security and simultaneously agrees to resell that
security to the seller at an agreed upon price on an agreed upon future date,
normally, one to seven days later. If the Fund enters into a repurchase
agreement, it will maintain possession of the purchased securities and any
underlying collateral. Securities loans and repurchase agreements must be
continuously collateralized and the collateral must have market value at least
equal to the value of the Fund's loaned securities, plus accrued interest or, in
the case of repurchase agreements, equal to the repurchase price of the
securities, plus accrued interest. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any fees (such
as finders or administrative fees) the Fund pays in arranging the loan. The Fund
may share the interest it receives on the collateral securities with the
borrower. The terms of a Fund's loans permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter. Loans are subject to termination at the option of the Fund or the
borrower at any time, and the borrowed securities must be returned when the loan
is terminated.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase securities
offered on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. When these transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment and settlement, no payment is made for the securities
purchased by the purchaser and, thus, no interest accrues to the purchaser from
the transaction. At the time the Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund will record the
transaction as a purchase and thereafter reflect the value each day of such
securities in determining its net asset value.
2. RISKS
Leverage creates the risk of magnified capital losses. Borrowings and other
liabilities that exceed the equity base of the 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 the
Fund's securities and the relatively greater effect on the net asset value of
the securities caused by favorable or adverse market movements or changes in the
cost of cash obtained by leveraging and the yield from invested cash. So long as
a Fund is able to realize a net return on its investment portfolio that is
higher than interest expense incurred, if any, leverage will result in higher
current net investment income for the Fund than if the Fund were not leveraged.
Changes in interest rates and related economic factors could cause the
relationship between the cost of leveraging and the yield to change so that
rates involved in the leveraging arrangement may substantially increase relative
to the yield on the obligations in which the proceeds of the leveraging have
been invested. To the extent that the interest expense involved in leveraging
approaches the net return on a Fund's investment portfolio, the benefit of
leveraging will be reduced, and, if the interest expense on borrowings were to
exceed the net return to investors, the Fund's use of leverage would result in a
lower rate of return than if the Fund were not leveraged. In an extreme case, if
a Fund's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Fund to liquidate certain
of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, the Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions.
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F. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
The Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act ("restricted securities").
2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and the Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. 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
The Fund may invest in foreign securities. The Fund limits the amount of its
total assets that may be invested in any one country or denominated in one
currency (other than the U.S. dollar) to 25%. Investments in the securities of
foreign issuers may involve risks in addition to those normally associated with
investments in the securities of U.S. issuers. All foreign investments are
subject to risks of (1) foreign political and economic instability; (2) adverse
movements in foreign exchange rates; (3) the imposition or tightening of
exchange controls or other limitations on repatriation of foreign capital; and
(4) changes in foreign governmental attitudes towards private investment,
including potential nationalization, increased taxation or confiscation of the
Fund's assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States, and therefore, less information may be
available about foreign companies than is available about issuers of comparable
U.S. companies. Foreign securities also may trade less frequently and with lower
volume and may exhibit greater price volatility than United States securities.
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<PAGE>
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by the Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and the Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar after the Fund's income has been earned and computed in
U.S. dollars may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
H. TEMPORARY DEFENSIVE POSITION
The Fund may assume a temporary defensive position and may invest without limit
in money market instruments that are of prime quality. Prime quality money
market instruments are those instruments that are rated in one of the two
short-term highest rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include U.S. Government Securities, commercial paper, time deposits, bankers
acceptances and certificates of deposit issued by domestic banks, corporate
notes and short-term bonds and money market mutual funds. The Fund may only
invest in money market mutual funds to the extent permitted by the 1940 Act.
The money market instruments in which the Fund may invest may have variable or
floating rates of interest. These obligations include master demand notes that
permit investment of fluctuating amounts at varying rates of interest pursuant
to direct arrangement with the issuer of the instrument. 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.
These obligations generally are not traded, nor generally is there an
established secondary market for these obligations. To the extent a demand note
does not have a 7-day or shorter demand feature and there is no readily
available market for the obligation, it is treated as an illiquid security.
2. INVESTMENT LIMITATIONS
--------------------------------------------------------------------------------
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund and the Fund's investment objective cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. A nonfundamental
policy of the Fund may be changed by the Board without shareholder approval.
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A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. The Fund may not:
1. BORROWING
Borrow money, except that the Fund may enter into commitments to purchase
securities in accordance with its investment program, including delayed-delivery
and when-issued securities and reverse repurchase agreements, provided that the
total amount of any such borrowing does not exceed 33 1/3% of the Fund's total
assets.
2. CONCENTRATION
Purchase securities, other than U.S. Government Securities, if, immediately
after each purchase, more than 25% of the Fund's total assets taken at market
value would be invested in securities of issuers conducting their principal
business activity in the same industry.
3. DIVERSIFICATION
With respect to 75% of the value of its total assets, purchase securities, other
than U.S. Government Securities, of any one issuer, if: (1) more than 5% of the
Fund's total assets taken at market value would at the time of purchase be
invested in the securities of that issuer; or (2) such purchase would at the
time of purchase cause the Fund to hold more than 10% of the outstanding voting
securities of that issuer.
4. UNDERWRITING ACTIVITIES
Act as an underwriter of securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter for purposes of the 1933 Act.
5. MAKE LOANS
Make loans to other persons except for loans of portfolio securities and except
through the use of repurchase agreements and through the purchase of debt
securities which are otherwise permissible investments.
6. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate or any interest therein, except that the Fund may
invest in securities issued or guaranteed by corporate or governmental entities
secured by real estate or interests therein, such as mortgage pass-throughs and
collateralized mortgage obligations, or issued by companies that invest in real
estate or interests therein.
7. PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Fund from
purchasing or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities).
8. ISSUANCE OF SENIOR SECURITIES
Issue any senior security (as defined in the 1940 Act), except that: (1) the
Fund may engage in transactions that may result in the issuance of senior
securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (2) the Fund may acquire
securities to the extent otherwise permitted by its investment policies, the
acquisition of which may result in the issuance of a senior security, to the
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extent permitted under applicable regulations or interpretations of the 1940
Act; and (3) subject to the restrictions set forth above, the Fund may borrow
money as authorized by the 1940 Act.
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. The Fund may not:
1. BORROWING
Borrow money for temporary or emergency purposes in an amount exceeding 5% of
the value of its total assets at the time when the loan is made; provided that
any such temporary or emergency borrowings representing more than 5% of the
Fund's total assets must be repaid before the Fund may make additional
investments.
Purchase securities for investment while any borrowing equaling 5% or more of
the Fund's total assets is outstanding or borrow money, except for temporary or
emergency purposes (including the meeting of redemption requests), in an amount
exceeding 5% of the value of the Fund's total assets.
2. PLEDGING
Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the writing
of put and call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
3. INVESTMENTS IN OTHER INVESTMENT COMPANIES
Invest in securities of another registered investment company, except in
connection with a merger, consolidation, acquisition or reorganization; and
except that the Fund may invest in money market funds and privately-issued
mortgage related securities to the extent permitted by the 1940 Act.
4. MARGIN AND SHORT SELLING
Purchase securities on margin, or make short sales of securities (except short
sales against the box), except for the use of short-term credit necessary for
the clearance of purchases and sales of portfolio securities, but the Fund may
make margin deposits in connection with permitted transactions in options,
futures contracts and options on futures contracts.
5. ILLIQUID SECURITIES
Acquire securities or invest in repurchase agreements with respect to any
securities if, as a result, more than: (1) 15% of the Fund's net assets (taken
at current value) would be invested in repurchase agreements not entitling the
holder to payment of principal within seven days and in securities which are not
readily marketable, including securities that are illiquid by virtue of
restrictions on the sale of such securities to the public without registration
under the 1933 Act ("Restricted Securities"); or (2) 10% of the Fund's total
assets would be invested in Restricted Securities.
3. PERFORMANCE DATA AND ADVERTISING
--------------------------------------------------------------------------------
A. PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
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<PAGE>
The 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 MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley - Europe,
Australian and Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Shearson Lehman Bond Index, U.S.
Treasury bonds, bills or notes and changes in the Consumer Price Index
as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of the Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
The Fund may refer to: (1) general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its "Stocks,
Bonds, Bills and Inflation Yearbook"); (2) mutual fund performance rankings and
other data published by Fund Tracking Companies; and (3) material and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
The Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Fund.
1. SEC YIELD
Standardized SEC yields for the Fund used in advertising are computed by
dividing the Fund's interest income (in accordance with specific standardized
rules) for a given 30 day or one month period, net of expenses, by the average
number of shares entitled to receive income distributions during the period.
This figure is then divided 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 are generally excluded from these calculations.
Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in the Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
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<PAGE>
The yields of the Fund are not fixed or guaranteed, and an investment in the
Fund is not insured or guaranteed. Accordingly, yield information should not be
used to compare shares of the Fund with investment alternatives, which, like
money market instruments or bank accounts, may provide a fixed rate of interest.
Also, it may not be appropriate to compare 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 the Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that does take into account payment of sales charges. The
Fund does not charge a sales charge.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in a fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges. The Fund
does not charge a sales charge.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
return, the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period; and (2)
calculates the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that performance is not constant over time but changes from year to year and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
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<PAGE>
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns 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 dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a fund's front-end sales charge or contingent deferred
sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
C. OTHER MATTERS
The Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principle of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's investment adviser, summaries of
the views of the portfolio managers with respect to the financial markets, or
descriptions of the nature of the Adviser's and its staff's management
techniques; (7) the results of a hypothetical investment in the Fund over a
given number of years, including the amount that the investment would be at the
end of the period; (8) the effects of investing in a tax-deferred account, such
as an individual retirement account or Section 401(k) pension plan; (9) the net
asset value, net assets or number of shareholders of the Fund as of one or more
dates; and (10) a comparison of the Fund's operations to the operations of other
funds or similar investment products, such as a comparison of the nature and
scope of regulation of the products and the products' weighted average maturity,
liquidity, investment policies, and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,188 at the end
of the second year (an increase of $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of a Fund's performance.
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<PAGE>
The Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in the Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month in the 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:
<TABLE>
<S> <C> <C> <C>
PERIOD SYSTEMATIC INVESTMENT SHARE PRICE SHARES 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 Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements, a Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service provider's policies
or business practices
15
<PAGE>
4. MANAGEMENT
--------------------------------------------------------------------------------
A. TRUSTEES AND OFFICERS
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C> <C>
NAME, DATE OF BIRTH POSITION WITH PRINCIPAL OCCUPATION(S) DURING
AND ADDRESS THE TRUST, PAST 5 YEARS
John Y. Keffer* Chairman and Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 President 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
Department of Economics and 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 Trustee of one other investment company for which Forum Financial
40 West 57th Street Group, LLC provides services
New York, NY 10019
............................... ................. ....................................................................
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
Two Portland Square Financial 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
Born: August 24, 1964 1998
Two Portland Square Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993
Portland, ME 04101 - 1998
Officer of one other investment company for which Forum Financial
Group, LLC provides services
</TABLE>
16
<PAGE>
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 another investment
company for which Forum Financial Group, LLC provides services for the fiscal
year ended March 31, 2000.
<TABLE>
<S> <C> <C> <C> <C>
TOTAL COMPENSATION
FROM TRUST AND FUND
COMPENSATION FROM COMPLEX
TRUSTEE FUND BENEFITS RETIREMENT
John Y. Keffer $0 $0 $0 $0
......................... ...................... ...................... ...................... ......................
Costas Azariadis $15,500 $0 $0 $24,900
......................... ...................... ...................... ...................... ......................
James C. Cheng $15,500 $0 $0 $24,900
......................... ...................... ...................... ...................... ......................
J. Michael Parish $15,500 $0 $0 $24,900
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to the 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 in connection with managing a Fund's investments and effecting
portfolio transactions for a Fund.
2. OWNERSHIP OF ADVISER
The Adviser is a privately-owned company controlled by Peter A. Vlachos.
3. FEES
The Adviser's fee is calculated as a percentage of the Fund's average net
assets. The fee is accrued daily by the Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in the Fund. If you have a separately managed account with
the Adviser with assets invested in the Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data are for the past three fiscal years.
17
<PAGE>
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Agreement remains in effect for a period of one year 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 with respect to the
Fund on 60 days' written notice when authorized either by vote of the Fund's
shareholders or by a majority vote of the Board, or by the Adviser on 60 days'
written notice to the Trust. The Agreement terminates immediately upon
assignment.
Under the Agreement, the Adviser is not liable for any error of judgment,
mistake of law, any loss arising out of any investment, or in any event
whatsoever except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of the
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and a member of the National Association of Securities
Dealers, Inc. Prior to August 1, 1999, Forum Financial Services, Inc. ("FFSI")
was the distributor of each Fund pursuant to similar terms and compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under a distribution agreement with the Trust (the "Distribution Agreement"),
FFS acts as the agent of the Trust in connection with the offering of shares of
the Fund. FFS continually distributes shares of the Fund on a best efforts
basis. FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund.
FFS may enter into agreements with selected broker-dealers, banks, or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold without sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and 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.
FFS does not receive any compensation for distributing the Fund's shares. FFSI,
the Fund's distributor prior to August 1, 1999, also did not receive
compensation for distributing the Fund's shares.
18
<PAGE>
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 the Fund on 60 days' written notice when authorized either by vote of
the Fund's shareholders or by a majority vote of the Board or by FFS on 60 days'
written notice to the Trust.
Under 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.
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 a Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an administration agreement with the Trust (the
"Admin 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 a Fund at an annual rate of 0.25% of
the average daily net assets of each Fund. The fee is accrued daily by the Fund
and is paid monthly based on average net assets for the previous month.
The Admin Agreement must be approved at least annually by the Board or 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
Admin Agreement is terminable without penalty by the Trust or by FAdS with
respect to a Fund on 60 days' written notice.
Under the Admin Agreement, FAdS is not liable to the Trust or the Trust's
shareholders for any act or omission, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under the agreement. Under the
Agreement, FAdS and certain related parties (such as FAdS's officers and persons
who control FAdS) are indemnified by the Trust against any and all claims and
expenses related to FAdS's actions or omissions that are consistent with FAdS's
contractual standard of care.
Table 2 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data are for the past three fiscal years.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an accounting agreement with the Trust (the
"Accounting Agreement"), FAcS provides fund accounting services to the Fund.
These services include calculating the NAV per share of the Fund and preparing
the Fund's financial statements and tax returns.
19
<PAGE>
For its services, FAcS receives a fee from the Fund at an annual rate of $36,000
and certain surcharges based upon the number and type of the Fund's portfolio
transactions and positions. The fee is accrued daily by the Fund and is paid
monthly based on the transactions and positions for the previous month.
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.
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
agreement also provides that FAcS will not be liable to a shareholder for any
loss incurred due to an NAV difference if such difference is less than or equal
1/2 of 1% or less than or equal to $10.00. In addition, FAcS is not liable for
the errors of others, including the companies that supply securities prices to
FAcS and the Fund.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data are for the past three fiscal years.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agent
agreement with the Trust (the "Transfer Agent Agreement"), FSS maintains an
account for each shareholder of record of the Fund and is responsible for
processing purchase and redemption requests and paying distributions to
shareholders of record. 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 the Fund an annual fee of $12,000
plus $25 per shareholder account.
The Transfer Agent Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Transfer Agent Agreement is terminable without penalty by the Trust
or by the Transfer Agent with respect to a Fund on 60 days' written notice.
Under the Transfer Agent 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 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 FAdS's actions or omissions that are consistent with
FAdS's contractual standard of care.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Fund to
FSS, the amount of the fee waived by FSS, and the actual fees received by FSS.
The data are for the past three fiscal years.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Fund's cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of a Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
20
<PAGE>
For its services, the Custodian receives an annualized percentage of the average
daily net assets of the Fund. The Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Fund and are paid monthly based on average net assets and transactions for the
previous month.
5. LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005, passes upon
legal matters in connection with the issuance of shares of the Trust.
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, 14th Floor, Boston, Massachusetts,
02116-5022, independent auditors, have been selected as auditors for the Fund.
The auditors audit the annual financial statements of the Fund and provide the
Fund with an audit opinion. The auditors also review certain regulatory filings
of the Fund and the Fund's tax returns.
5. Portfolio Transactions
--------------------------------------------------------------------------------
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected: (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions paid by the
Fund. The data presented are for the past three fiscal years.
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with brokers
and dealers selected by and in the discretion of the Adviser. The Fund has no
obligation to deal with any specific broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers and
the frequency of transactions are determined by the Adviser in its best judgment
and in a manner deemed to be in the best interest of the Fund rather than by any
formula.
21
<PAGE>
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for the Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
1. CHOOSING BROKER-DEALERS
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser takes into account
factors such as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the research services described below)
and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) take into
account payments made by brokers effecting transactions for the Fund (these
payments may be made to the Fund or to other persons on behalf of the Fund for
services provided to the Fund for which those other persons would be obligated
to pay.)
2. OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause the Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Fund, and not all research services may be
used by the Adviser in connection with the Fund. The Adviser's fees are not
reduced by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services purchased for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal 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 on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to each Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
22
<PAGE>
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect brokerage transactions through affiliates of the Adviser
(or affiliates of those persons) pursuant to procedures adopted by the Trust.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. 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. In addition, when purchases or sales of the same
security for the Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time
the Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. An annual
portfolio turnover rate of 100% would occur if all of the securities in the Fund
were replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to a Fund and the possible increase in
short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the Fund may acquire and hold securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers. For
this purpose, regular brokers and dealers 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 6 in Appendix B 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.
6. PURCHASE AND REDEMPTION INFORMATION
--------------------------------------------------------------------------------
A. GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at FSS's offices located at Two Portland Square, Portland, Maine 04101.
The Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
Not all classes or funds of the Trust may be available for sale in the state in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
23
<PAGE>
B. ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") per share without any sales charge. Accordingly, the
offering price per share is the same as the NAV per share.
The Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that: (1) are not restricted as to transfer by law and
are not illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the contribution is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in the Fund directly. When you purchase a Fund's
shares through a financial institution, you may or may not be the shareholder of
record and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Fund may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Fund through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
The Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to
the Fund's shares as provided in the Prospectus.
24
<PAGE>
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange, Inc. is closed (other than customary
weekend and holiday closings) or during which the Securities and Exchange
Commission determines that trading thereon is restricted; (2) an emergency (as
determined by the SEC) exists as a result of which disposal by the Fund of its
securities is not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (3) the SEC may by order permit for the protection of the
shareholders of the Fund.
2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisable by the Adviser, the Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which the
Fund may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of 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. SIGNATURE GUARANTEE REQUIREMENTS
For requests made in writing, a signature guarantee is required for any of the
following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name
o Redemptions from an account for which the address or account
registration has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm or
bank account not on record
o Sending redemption proceeds to an account with a different
registration (name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution,
telephone redemption or exchange option or any other election in
connection with your account
7. TAXATION
--------------------------------------------------------------------------------
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
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This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of the Fund.
The tax year-end of the Fund is March 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its investment company taxable income (that is,
taxable interest, dividends, net short-term capital gains and other taxable
ordinary income, net of expenses) and net capital gain (that is, the excess of
net long-term capital gains over net short-term capital losses) that it
distributes to shareholders. In order to qualify to be taxed as a regulated
investment company a Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income for the tax year. (Certain distributions made by a Fund
after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies) or in two or more issuers which the Fund controls and which
are engaged in the same or similar trades or businesses.
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2. FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
A portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you as
ordinary income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
The Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions will not qualify for the dividends-received deduction.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by the Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares the net asset value of which at the time reflects
undistributed net investment income or recognized capital gain, or unrealized
appreciation in the value of the assets of the Fund. Distributions of these
amounts are taxable to you in the manner described above, although the
distribution economically constitutes a return of capital to you.
If you purchase shares of the Fund just prior to the ex-dividend date of a
distribution, you will be taxed on the entire amount of the distribution
received, even though the net asset value per share on the date of the purchase
reflected the amount of the distribution.
Ordinarily, you are required to take distributions by the Fund into account in
the year in which they are made. A distribution declared in October, November or
December of any year and payable to shareholders of record on a specified date
in those months, however, is deemed to be received by you (and made by the Fund)
on December 31 of that calendar year if the distribution is actually paid in
January of the following year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) to you during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by the Fund is exercised, the purchase price
(selling price in the case of a call) of the underlying security is decreased
(increased in the case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Fund at the end of each tax year
are "marked to market" and treated for federal income tax purposes as though
sold for fair market value on the last business day of the tax year. Gains or
losses realized by the Fund on Section 1256 contracts are generally considered
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60% long-term and 40% short-term capital gains or losses. The Fund can elect to
exempt its Section 1256 contracts, which are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by the Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to the Fund, which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held by a Fund if
all of the offsetting positions consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. The
balance of the Fund's income must be distributed during the next calendar year.
The Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year ending in the calendar year.
For purposes of calculating the excise tax, the Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year, and (2) excludes foreign currency gains and
losses incurred after October 31 of any year in determining the amount of
ordinary taxable income for the current calendar year. The Fund will include
foreign currency gains and losses incurred after October 31 in determining
ordinary taxable income for the succeeding calendar year.
The Fund intends to make sufficient distributions of its ordinary taxable income
and capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
E. SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases (for example, by reinvesting dividends) other shares of
the Fund within 30 days before or after the sale or redemption (a so called
"wash sale"). If disallowed, the loss will be reflected in an upward adjustment
to the basis of the shares purchased. In general, any gain or loss arising from
the sale or redemption of shares of the Fund will be considered capital gain or
loss and will be long-term capital gain or loss if the shares were held for
longer than one year. Any capital loss arising from the sale or redemption of
shares held for six months or less, however, is treated as a long-term capital
loss to the extent of the amount of distributions of net capital gain 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.
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F. FOREIGN TAXES
Income received by the Fund may be subject to foreign income taxes, including
withholding taxes. If more than 50% of the value of the Fund's total assets at
the close of its taxable year consists of stocks or securities of foreign
corporations, the Fund will be eligible and intends to file an election with the
Internal Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no assurance that the Fund
will be able to do so. Pursuant to this election, a shareholder will be required
to (i) include in gross income (in addition to taxable dividends actually
received) his pro rata share of foreign taxes paid by the Fund, (ii) treat his
pro rata share of such foreign taxes as having been paid by him, and (iii)
either deduct such pro rata share of foreign taxes in computing his taxable
income or treat such foreign taxes as a credit against U.S. federal income
taxes. Shareholders may be subject to rules which limit or reduce their ability
to fully deduct, or claim a credit for, their pro rata share of the foreign
taxes paid by the Fund.
G. WITHHOLDING TAX
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide a correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient." Backup
withholding is not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
H. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder") depends on whether the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(and short-term capital gains) paid to a foreign shareholder will be subject to
U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) upon
the gross amount of the distribution. The foreign shareholder generally would be
exempt from U.S. federal income tax on gain realized on the sale of shares of
the Fund and distributions of net capital gain from the Fund.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income
distributions, capital gain distributions and any gain realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty might be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the U.S. federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in a Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from the Fund can differ from the rules for U.S.
federal income taxation described above. These state and local rules are not
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discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in the
Fund, distributions from the Fund and the applicability of state and local taxes
and related matters.
8. OTHER MATTERS
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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:
Investors Bond Fund Payson Value Fund
TaxSaver Bond Fund Payson Balanced Fund
Investors High Grade Bond Fund Austin Global Equity Fund
Maine TaxSaver Bond Fund Polaris Global Value Fund
New Hampshire TaxSaver Bond Fund Investors Equity Fund
Daily Assets Government Fund(1) Equity Index Fund
Daily Assets Treasury Obligations Fund(1) Investors Growth Fund
Daily Assets Cash Fund(1) BIA Small-Cap Growth Fund
Daily Assets Government Obligations Fund(1) BIA Growth Equity Fund
Daily Assets Municipal Fund(1) Mastrapasqua Growth Value Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust, the Adviser 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 the Fund. The Board will consider approving
amendments to the code of ethics for Trust, the Adviser 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 the 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
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requires shares to be voted in the aggregate and not by individual series; and
(2) 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.
Shareholders representing 10% or more of the Trust's (or a series') outstanding
shares may, as set forth in the Trust Instrument, call meetings of the Trust (or
series) for any purpose related to the Trust (or series), including, in the case
of a meeting of the Trust, the purpose of voting on removal of one or more
Trustees.
4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust 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 July 1, 2000, the percentage of shares owned by all officers and trustees
of the Trust as a group was as follows. To the extent officers and trustees own
less than 1% of the shares of each class of shares of a Fund (or of the Trust),
the table reflects "N/A" for not applicable.
FUND (OR TRUST) PERCENTAGE OF SHARES OWNED
The Trust N/A
.............................. .................................................
Austin Global Equity Fund N/A
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of the Fund. Shareholders known by a Fund to own beneficially 5% or
more of a class of shares of the Fund are listed in Table 7 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of July 1, 2000, no person
beneficially owned 25% or more of the shares of the Fund (or of the Trust).
C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some states, however, have indicated that they and the courts in
their state may decline to apply Delaware law on this point. The Forum Funds'
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
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Instrument also provides that each series shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the series and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which Delaware law does not apply, no contractual limitation of
liability was in effect, and the portfolio is unable to meet its obligations.
FAdS believes that, in view of the above, there is no risk of personal liability
to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by, reference to the copy of such contract or other documents
filed as exhibits to the registration statement.
E. FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended March 31, 2000, which
are included in the Annual Report to Shareholders of the Fund, are incorporated
herein by reference. These financial statements only include the schedules of
investments, statements of assets and liabilities, statements of operations,
statements of changes in net assets, financial highlights, notes and independent
auditors' reports.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
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A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present, which make the long-term risk,
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
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2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
A-2
<PAGE>
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A-3
<PAGE>
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD, D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
B. PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
BAA An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
BA An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
A-4
<PAGE>
B An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
CA An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
C This is the lowest rated class of preferred or preference stock. Issues
so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
A-5
<PAGE>
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
2. STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-6
<PAGE>
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for timely
repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. This rating is
automatically assigned to all obligations issued or guaranteed by the
sovereign state. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative
degree of risk is slightly higher than for issues classified as `A1'
and capacity for timely repayment may be susceptible to adverse changes
in business, economic, or financial conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is more
susceptible to adverse changes in business, economic, or financial
conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is uncertain
relative to other obligors in the same country. The capacity for timely
repayment is susceptible to adverse changes in business, economic, or
financial conditions.
C Obligations for which there is a high risk of default to other obligors
in the same country or which are in default.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
--------------------------------------------------------------------------------
TABLE 1 - INVESTMENT ADVISORY FEES
The following table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
AUSTIN GLOBAL EQUITY FUND
Year Ended March 31, 2000 $452,484 $0 $452,484
Year Ended March 31, 1999 $274,672 $0 $274,672
Year Ended March 31, 1998 $195,053 $24,463 $170,590
TABLE 2 - ADMINISTRATION FEES
The following table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
AUSTIN GLOBAL EQUITY FUND PAYABLE RETAINED
Year Ended March 31, 2000 $75,414 $0 $75,414
Year Ended March 31, 1999 $45,779 $0 $45,779
Year Ended March 31, 1998 $32,509 $0 $32,509
TABLE 3 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS with respect
to the Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
AUSTIN GLOBAL EQUITY FUND RETAINED
Year Ended March 31, 2000 $43,200 $0 $43,200
Year Ended March 31, 1999 $36,000 $0 $36,000
Year Ended March 31, 1998 $36,000 $0 $36,000
TABLE 4 - TRANSFER AGENCY FEES
The following table shows the dollar amount of fees payable to FSS with respect
to the 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
AUSTIN GLOBAL EQUITY FUND PAYABLE WAIVED RETAINED
Year Ended March 31, 2000 $18,274 $0 $18,274
Year Ended March 31, 1999 $19,647 $0 $19,647
Year Ended March 31, 1998 $25,482 $0 $25,482
B-1
<PAGE>
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions with respect to
the Fund that incurred brokerage costs. The data are for the past three fiscal
years or shorter period if the Fund has been in operation for a shorter period.
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
AUSTIN GLOBAL EQUITY FUND $44,873 $26,205 $19,974
</TABLE>
TABLE 6 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
REGULAR BROKER DEALER VALUE HELD
Dreyfus Cash Management $250,000
TABLE 7 - 5% SHAREHOLDERS
The following table lists the persons who owned of record 5% or more of the
outstanding shares of the Fund as of July 1, 2000.
NAME AND ADDRESS SHARES % OF FUND
Bear Stearns Securities Corp. 23.21
1 Metrotech Center North
Brooklyn, NY 11201 376,879.607
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
--------------------------------------------------------------------------------
TABLE 1 - TOTAL RETURNS
The average annual total return without sales charges of the Fund for the period
ended March 31, 2000, was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CALENDAR SINCE INCEPTION
AUSTIN GLOBAL EQUITY ONE MONTH THREE MONTHS YEAR TO DATE ONE YEAR THREE FIVE YEARS (ANNUALIZED)
FUND YEARS
2.73% (0.36)% (0.36)% 9.51% 18.46% 17.08% 15.77%
</TABLE>
C-1
