As filed with the Securities and Exchange Commission on May 24, 2000
Securities Act File No. 333-_____
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
FORUM FUNDS
(Exact Name of Registrant as Specified in Charter)
Two Portland Square, Portland, Maine 04101
(Address of Principal Executive Offices) (Zip Code)
(207) 879-1900
(Registrant's Area Code and Telephone Number)
Don L. Evans, Esq.
Forum Fund Services, LLC
Two Portland Square
Portland, ME 04101
Copies of Communications to:
Anthony C.J. Nuland, Esq.
Seward & Kissel LLP
1200 G Street, N.W.
Washington, D.C. 20005
Approximate Date of Proposed Public Offering:
As soon as practicable after this
Registration Statement becomes effective.
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It is proposed that this filing will become effective on June 23,
2000 pursuant to Rule 488 under the Securities Act of 1933.
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Title of Securities Being Registered: Investors Equity Fund. No filing fee is
due under the Securities Act of 1933, as amended, in reliance on section 24(f).
<PAGE>
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IMPORTANT NOTICE: PLEASE COMPLETE THE
ENCLOSED PROXY BALLOT AND RETURN IT AS SOON AS POSSIBLE.
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INVESTORS GROWTH FUND
TWO PORTLAND SQUARE
PORTLAND, ME 04101
June 23, 2000
Dear Valued Shareholder:
We are seeking your approval of a proposed reorganization of Investors
Growth Fund ("IGF") into Investors Equity Fund ("IEF") (each a "Fund"). Both
Funds are series of Forum Funds (the "Trust"). By consolidating the Funds, we
expect to reduce management and administrative inefficiencies. We also expect to
achieve increased investment leverage and market presence for the consolidated
Fund, which we believe will be advantageous for Fund shareholders.
FORUM FINANCIAL GROUP AGREED TO PAY ALL EXPENSES OF THE REORGANIZATION
SO THAT SHAREHOLDERS WILL NOT BEAR THESE COSTS.
THE BOARD OF TRUSTEES OF THE TRUST (THE "BOARD") HAS UNANIMOUSLY
APPROVED THE REORGANIZATION AND BELIEVES THAT IT IS IN THE BEST INTERESTS OF
SHAREHOLDERS. THE BOARD RECOMMENDS THAT YOU APPROVE THE REORGANIZATION BY VOTING
YOUR PROXY.
Under the reorganization, IGF will transfer all of its assets and
liabilities to IEF in exchange for shares of IEF. IGF will then distribute the
shares received to its shareholders. As a result of the reorganization IGF
shareholders will become shareholders of IEF.
The anticipated benefits of the reorganization are:
o The asset size of the combining Funds will increase; thus we expect the
reorganization will result in greater investment leverage and market
presence.
o The reorganization may result in operating efficiencies for the Funds.
Please read the enclosed proxy materials and consider the information
provided. We encourage you to complete and mail your proxy card promptly. No
postage is necessary if you mail it in the United States. You also may send your
proxy to us by fax at ([___]) [___]-[____], or telephone at ([___])
[___]-[____].
Very truly yours,
John Y. Keffer
President
Forum Funds
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INVESTORS GROWTH FUND
TWO PORTLAND SQUARE
PORTLAND, ME 04101
June 23, 2000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SCHEDULED FOR JULY 26, 20000
To the Shareholders of Investors Growth Fund:
A special meeting of shareholders will be held on July 26, 2000 at
10:00 a.m. (Eastern Time) at the offices of Forum Fund Services, LLC to consider
the following:
1. A proposal to approve the Agreement and Plan of Reorganization (the "Plan")
between Investors Growth Fund ("IGF") and Investors Equity Fund ("IEF"), each a
separate series of Forum Funds. Under the Plan, IGF will transfer all of its
assets and liabilities to IEF in exchange for shares of IEF. IEF shares will
then be distributed proportionately to the shareholders of IGF; and
2. Any other business that properly comes before the meeting.
Shareholders of record as of the close of business on June 16, 2000 are
entitled to vote at the meeting and any related follow-up meetings.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND
RETURN THE ENCLOSED PROXY CARD (VOTING INSTRUCTION CARD) OR VOTE BY TELEPHONE.
By Order of the Board of Trustees
Leslie K. Klenk
Secretary
Forum Funds
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE
NUMBER OF SHARES THAT YOU OWNED ON THE RECORD DATE.
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PROXY STATEMENT/PROSPECTUS
June 23, 2000
FORUM FUNDS
Two Portland Square
Portland, Maine 04101
(207) 879-1900
At a special meeting of Investors Growth Fund ("IGF") shareholders to be held on
July 26, 2000 at 10:00 a.m. (Eastern time) shareholders will be asked to approve
a proposed Agreement and Plan of Reorganization by and between IGF and Investors
Equity Fund ("IEF") (the "Plan"). Under the Plan, IGF will transfer all of its
assets and liabilities to IEF (the "Reorganization").
This Proxy Statement/Prospectus describes IGF and IEF (each a "Fund") and the
proposed Reorganization. You should consider this information carefully in
deciding whether to approve the proposal.
Please keep this Proxy Statement/Prospectus for future reference. Forum Funds
(the "Trust") has filed additional information about the Funds and the proposed
Reorganization with the Securities and Exchange Commission in a separate
statement of additional information dated June 23, 2000 (the "SAI") that is
incorporated by reference into this Proxy Statement/Prospectus. Call or write
Forum Shareholder Services, LLC, P.O. Box 446, Portland, ME 04112, (207)
879-0001 or (800) 943-6786 to obtain a copy of the SAI.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
TABLE OF CONTENTS
SYNOPSIS........................................................................
INVESTMENT RISKS................................................................
THE REORGANIZATION..............................................................
THE FUNDS AND THE TRUST.........................................................
SECURITIES TO BE ISSUED.........................................................
COMPARISON OF IGF AND IEF.......................................................
VOTING INFORMATION..............................................................
OTHER INFORMATION...............................................................
APPENDIX A......................................................................
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4
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SYNOPSIS
The Synopsis highlights some of the information contained in this Proxy
Statement/Prospectus. Other sections of this Proxy Statement/Prospectus contain
additional information.
THE REORGANIZATION
On May 15, 2000, the Board of Trustees of the Trust (the "Board") approved the
reorganization of IGF into IEF. Under the Plan, the Reorganization will consist
of the following steps:
o the transfer of all the assets and liabilities of IGF to IEF in exchange
for shares of IEF of equivalent value to the net assets transferred;
o the pro rata distribution of IEF's shares to the shareholders of record
of IGF as of the effective date of the Reorganization in full
redemption of those shareholders' shares of IGF; and
o the liquidation and termination of IGF.
As a result of the Reorganization, shareholders of IGF will instead hold shares
of IEF having the same total value as the shares of IGF they held immediately
before the Reorganization. Shareholders of IGF are being asked to approve the
Plan. If a majority of the shares of IGF do not approve the Plan, the
Reorganization will not occur and the Board will consider what further action is
appropriate.
The prospectus of IEF accompanies this Proxy Statement/Prospectus. The IGF
prospectus and annual report have previously been mailed to shareholders. Copies
of these documents and the SAIs for IGF and IEF are available upon request
without charge by writing to or calling:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, ME 04112
(207) 879-0001 or
(800) 943-6786
Shareholders may also view or obtain these documents from the Securities and
Exchange Commission ("SEC"):
In person: At the SEC's Public Reference Room in Washington, D.C.
By phone: 1-800-SEC-0330 (for information on the Public Reference Room's
hours of operation only)
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<PAGE>
By Mail: Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
FEES AND EXPENSES OF THE FUNDS
The fees and expenses of the Funds are similar.
The following table describes the various fees and expenses that you will bear
from an investment in IEF or IGF.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------- --------------- -------------- --------------------
PRO FORMA COMBINED
IEF IGF FUND(5)
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SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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Maximum Sales Charge (Load) Imposed on Purchases (as a 4.00% 4.00% 4.00%
percentage of the offering price)
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Maximum Sales Charge (Load) Imposed on Reinvested None None None
Distributions (as a percentage of amount redeemed)
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Maximum Deferred Sales Charge (Load) (as a percentage of 1.00%(1) 1.00%(1) 1.00%
amount redeemed)
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Redemption Fee None None None
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Exchange Fee None None
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ANNUAL FUND OPERATING EXPENSES (2) (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
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Management Fees 0.65% 0.65% 0.65%
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Distribution (12b-1) Fees None None None
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Other Expenses 0.79% 0.79% 0.76%
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TOTAL ANNUAL FUND OPERATING EXPENSES 1.44%(3) 1.44% 1.41%
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Fee Waiver and Expense Reimbursement 0.34%(4) 0.32%
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Net Expenses 1.10% 1.10%
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</TABLE>
(1) Applicable only on purchases of $1 million or more.
(2) Based on amounts incurred during a Fund's fiscal year ended (May 31,
1999 for IEF and March 31, 1999 for IGF) stated as a percentage of
assets.
(3) Certain service providers voluntarily waived a portion of their fees
and/or reimbursed certain expenses of IEF so that Total Annual Fund
Operating Expenses did not exceed 1.10%. Fee waivers may be reduced or
eliminated at any time.
(4) Based on contractual fee waivers and expense reimbursements that may
increase after July 31, 2000.
(5) Pro Forma amounts based on combined net assets of IEF and IGF as if the
Reorganization had occurred on November 30, 1999.
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EXAMPLES
The following are hypothetical examples intended to help you compare the cost of
investing in the 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 those periods. The examples also assume that
your investment has a 5% annual rate of return, that a Fund's operating expenses
remain the same as stated in the above tables and that all dividends and
distributions are reinvested.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<S> <C> <C> <C>
- ------------------------ ---------------------------- ------------------------------ ------------------------
PRO FORMA
IEF IGF COMBINED FUND
- ------------------------ ---------------------------- ------------------------------ ------------------------
1 year $541 $541 $538
- ------------------------ ---------------------------- ------------------------------ ------------------------
3 years $837 $837 $828
- ------------------------ ---------------------------- ------------------------------ ------------------------
5 years $1,155 $1,155 $1,140
- ------------------------ ---------------------------- ------------------------------ ------------------------
10 years $2,055 $2,055 $2,023
- ------------------------ ---------------------------- ------------------------------ ------------------------
</TABLE>
THE FUNDS AND THE TRUST
The Funds are separate series of the Trust, an open-end registered management
investment company. The Trust is organized as a Delaware business trust. The
Trust commenced operations on March 24, 1980 as a Maryland corporation and was
reorganized as a Delaware business trust on January 5, 1996. The Trust has an
unlimited number of authorized shares. Currently, there are 21 separate series
of the Trust.
COMPARISON OF THE FUNDS
This Proxy Statement/Prospectus compares the key features and discusses the
material differences between the Funds. You should pay particular attention to
these comparisons. You should carefully consider the differences between the
Funds in deciding whether or not to approve the Plan.
INVESTMENT ADVISERS
H.M. Payson & Co. ("Payson") is the adviser for IEF and Peoples Heritage Bank
("Peoples") is the subadviser for IEF. As of June 30, 1999, Payson had
approximately $1.3 billion of assets under management. Peoples is a subsidiary
of Peoples Heritage Financial Group, a multibank holding company. As of June 30,
1999, Peoples had approximately $1 billion of assets under management.
Regardless of whether the Plan is approved by IGF shareholders, shareholders of
IEF will be asked to approve a new advisory agreement with Peoples under which
Peoples would serve as IEF's sole adviser. If the new advisory agreement is
approved by IEF shareholders, Payson would no longer serve as adviser to IEF as
of [________], 2000.
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7
<PAGE>
Forum Investment Advisers, LLC ("FIA"), is the adviser for IGF. As of June 30,
1999, FIA had approximately $2.3 billion of assets under management. FIA and
Peoples have entered into an agreement for Peoples to pay FIA five times the
advisory fee revenues attributable to IGF shareholders who become IEF
shareholders as a result of the Reorganization for FIA's role in arranging,
facilitating and recommending the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES
<TABLE>
<S> <C> <C>
- ------------------ --------------------------------------------------------------- -------------------------------------
IEF IGF
- ------------------ --------------------------------------------------------------- -------------------------------------
Investment Seeks to provide capital appreciation by investing primarily Seeks long-term capital
Objective: in the common stock of companies domiciled in the United appreciation.
States.
- ------------------ --------------------------------------------------------------- -------------------------------------
Investment Payson and Peoples (the "Advisers") identify economic sectors IGF invests in companies that have
Policies: and industries with a potential for above average rates of above average growth potential or
growth for periods of five years or more. The Advisers seek value not fully reflected in their
companies that offer secular growth driven by factors such as stock price. IGF invests primarily
technological changes and demographics and avoid industries all of its total assets in the
subject to heavy governmental regulation or dependence on common stock of domestic companies
commodity pricing for growth. Within these sectors or with market capitalizations of $2
industries, the Advisers concentrate on companies with market billion or more.
capitalizations exceeding $2 billion. IEF does not normally
invest in companies that would be termed "turnaround
situations" or in companies with a high exposure to cyclical
changes in the economy.
- ------------------ --------------------------------------------------------------- -------------------------------------
</TABLE>
PURCHASE REDEMPTION AND EXCHANGE PROCEDURES
The purchase, redemption and exchange procedures of the Funds are identical, as
they are both series of the Trust.
DISTRIBUTIONS
IEF distributes its net investment income annually and capital gain at least
annually. IGF distributes its net investment income quarterly and net capital
gain at least annually. Normally, each Fund reinvests distributions in
additional shares of the Fund unless a shareholder elects to receive
distributions in cash.
TAX MATTERS
IEF and IGF expect to receive an opinion from Seward & Kissel LLP to the effect
that the Reorganization will qualify for federal income tax purposes as a
tax-free reorganization. If so, the shareholders of IGF would not recognize any
gain or loss as a result of the transaction.
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8
<PAGE>
INVESTMENT RISKS
GENERAL
The net asset value and total return of each Fund will fluctuate based upon
changes in the value of their portfolio securities. The market value of
securities in which each 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.
IEF Risk
Because IEF primarily invests in common stock of growth companies, there is a
risk that the earnings of these companies will not continue to grow at expected
rates, thus causing the price of the stock to decline. There is also the risk
that the market will not recognize the intrinsic value of a stock for an
unexpectedly long time. The Advisers' judgment as to the growth potential of a
stock may also prove to be wrong. A decline in investor demand for growth stocks
may also adversely affect the value of these securities.
IGF Risk
Because the Funds pursue similar investment strategies, IGF has the same
investment risks as IEF. IGF has additional risks due to investments in smaller
companies. 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.
THE REORGANIZATION
This section summarizes the important terms of the Plan. For further details,
please refer to a copy of the form of Plan attached as Appendix A.
IEF has net assets of approximately $[__] million. IGF has net assets of
approximately $[__] million. The net expenses of the Funds are the same,
however, the performance of IEF has been better than IGF. At the meeting held on
May 15, 2000, the Board approved the Plan and determined that the proposed
Reorganization would be in the best interest of IEF, IGF and their shareholders.
Before approving the Plan, the Board considered all relevant factors, including
the relative expense ratios of the Funds, the superior performance of IEF, the
tax-free nature of the Reorganization and the experience and resources of Payson
and Peoples. Based upon this information, the Board recommends that the
shareholders of IGF approve the Plan.
The Plan provides for IGF to transfer all of its assets and liabilities to IEF
at the Effective Time (as defined in the Plan) of the Reorganization. In
exchange for the transfer of assets and liabilities, IEF will issue a number of
full and fractional shares of IEF to IGF equal in value to the net assets
transferred to IEF in connection with the Reorganization. IGF will then
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9
<PAGE>
distribute, in complete liquidation, pro rata to its shareholders of record all
of the IEF shares received by IGF. IGF will then be terminated under Delaware
law. Shareholders of IGF at the Effective Time of the Reorganization will
receive IEF shares having the same aggregate value of IGF shares the shareholder
owned immediately before the Reorganization. No front-end sales loads or
contingent deferred sales charges will be imposed in connection with the
Reorganization.
The Plan contains customary representations, warranties and conditions designed
to ensure that the Reorganization is fair to IEF, IGF and their shareholders.
The Plan provides that the consummation of the Reorganization is contingent
upon, among other things: (i) approval of the Plan by IGF shareholders; and (ii)
the receipt by IGF and IEF of a tax opinion to the effect that the
Reorganization will be tax-free to IGF, IEF and the IGF shareholders. The Plan
may be terminated if, on the Closing Date (as defined in the Plan), any of the
applicable conditions have not been met or if the representations and warranties
are not true, or if the Board determines that consummation of the Reorganization
is not in the best interest of IGF or IEF. The Plan provides that the costs of
the Reorganization will be borne by Forum Financial Group.
Upon completion of the Reorganization, IGF shareholders will have become
shareholders of IEF and may purchase additional shares of IEF immediately after
the Reorganization.
THE FUNDS AND THE TRUST
The Funds are both separate series of the Trust. IEF and IGF commenced
investment operations in 1997. H.M. Payson & Co. and Peoples Heritage Bank are
the advisers for IEF. Forum Investment Advisors, LLC is the adviser for IGF.
Shareholders of IEF are being asked to approve a new advisory agreement with
Peoples. If the new advisory agreement with Peoples is approved by IEF
shareholders, as of [________], 2000, Peoples will be the sole investment
adviser for IEF.
The Trust filed additional information about the Funds and the Reorganization
with the SEC as a separate statement of additional information dated June 23,
2000 (the "SAI") that is incorporated by reference in this Proxy
Statement/Prospectus. You may obtain the SAI without charge by calling or
writing to Forum Shareholder Services, LLC, at the address and telephone number
listed above.
The Trust is subject to certain informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended (the "1940 Act"), and in accordance therewith
files reports and other information with the SEC. You may inspect and copy proxy
material, reports, proxy and information statements and other information filed
by the Trust at the public reference facilities maintained by the SEC in
Washington, D.C. In addition, for a prescribed fee, you may obtain copies of
such materials from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549.
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10
<PAGE>
SECURITIES TO BE ISSUED
Because the Funds are separate series of the Trust and are governed by the same
trust instrument, the Reorganization will not result in material differences in
shareholder rights.
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 portfolios or series ("Series"). The Board may
also, without shareholder approval, divide the Series into two or more classes
of shares ("Classes"). Each Fund offers only one Class. The Trust and each
Series will continue indefinitely until terminated.
Each share of each Series and each Class has equal dividend, distribution,
liquidation and voting rights, and fractional shares have those rights
proportionately. Each Series or Class bears its own expenses related to its
distribution of shares (and other expenses such as transfer agency, shareholder
service and administration expenses). Generally, shares of a Series 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; (2) the 1940
Act requires a Class vote; or (3) when the Board determines that the matter
affects more than one Series and all affected Series must vote.
Delaware law does not require the Trust to hold annual meetings of shareholders,
and generally, the Trust will hold shareholder meetings only when specifically
required by federal or state law. Shareholders representing 10% or more of the
Trust's (or Series') outstanding shares may, under 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.
There are no conversion or preemptive rights in connection with shares of the
Trust. All shares are fully paid and non-assessable. A shareholder of a Series
will receive a 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.
COMPARISON OF IGF AND IEF
INVESTMENT OBJECTIVES AND POLICIES
Investors Equity Fund
Payson and Peoples (the "Advisers") identify economic sectors and industries
with a potential for above average rates of growth for periods of five years or
more. The Advisers seek companies that offer secular growth driven by factors
such as technological changes and demographics and avoid industries subject to
heavy governmental regulation or dependence on commodity pricing for growth.
Within these sectors or industries, the Advisers concentrate on companies with
market capitalizations exceeding $2 billion.
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<PAGE>
The Advisers use fundamental research to identify quality companies with
histories of sustained profitability and leadership within their respective
industries. The primary focus is on the core earnings power of the company and
the ability to provide above average growth in revenues, earning and cash flow
for a multi-year period.
IEF does not normally invest in companies that would be termed "turnaround
situations" or in companies with a high exposure to cyclical changes in the
economy. In addition to a company's financial strength and growth potential, the
Advisers consider, among other things. The following factors when selecting a
potential investment for the Fund:
o the possession of a sustainable competitive advantage (such as a
dominant technological position of a strong business franchise)
o an ability to maintain a high gross operating margin relative to the
competition
o a strong, experienced management team
The Advisers monitor the companies in the Fund's portfolio to determine if there
have been any fundamental changes in the companies. The Advisers may sell a
stock:
o if there has been a sustained deterioration in the fundamentals of a
company
o if a more attractive investment is found
o to maintain appropriate diversification with the Fund's portfolio
Investors Growth Fund
FIA may invest in companies that have above average growth potential or value
not fully reflected in their stock price. FIA uses fundamental analysis,
valuation measures such as price/earnings ratios and price/cash flow ratios and
technical analysis to determine those companies whose shares are attractive for
purchase. In evaluating companies, FIA considers a company's:
o historical growth rate and return on capital
o expected future growth rate and return on capital
o financial condition
o industry and competitive position in the industry
o management quality
FIA constantly monitors the companies in the Fund's portfolio to determine if
there have been any fundamental changes in the companies. FIA may sell a stock
if:
o a more attractively priced stock is found or if funds are needed for
other purposes
o the underlying company experiences negative internal developments
o the underlying company experiences a decline in financial condition
o the underlying company experiences a significant erosion in
profitability, earnings or cash flow
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<PAGE>
o the security is overvalued compared to its fundamentals
o it is oversized compared to other holdings
IGF invests primarily all of its total assets 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.
MANAGEMENT
The Funds are two separate series of the Trust, an open-end, management
investment company. The business of the Trust and each Fund is managed under the
direction of the Board. The Board formulates the general policies of the Funds
and meets periodically to review the Funds' performance, monitor investment
activities and practices and discuss other matters affecting the Funds.
Additional information regarding the Board, and the Trust's executive officers,
may be found in the SAI.
IEF's Advisers
IEF's adviser is H.M. Payson & Co., One Portland Square, P.O. Box 31, Portland,
Maine 04112. Payson was founded in 1954 and incorporated in Maine in 1987,
making it one of the oldest investment firms in the United States operating
under its original name. As of June 30, 1999, Payson had approximately $1.3
billion of assets under management.
People Heritage Bank, One Portland Square, Portland, Maine 04101, serves as
investment subadviser to the Fund. Peoples is a subsidiary of Peoples Heritage
Financial Group, a multi-bank holding company. Peoples has provided investment
advisory and management services to clients for 5 years. As of June 30, 1999,
Peoples had approximately $1 billion of assets under management.
Subject to the general control of the Board, the Advisers make investment
decisions for the Fund. For its services, Payson receives an advisory fee at an
annual rate of 0.65% of the average daily net assets of the Fund. For the fiscal
year ended May 31, 1999, Payson waived a portion of its fee and only received an
advisory fee of 0.31% of the Fund's average daily net assets. Pursuant to an
investment subadvisory agreement, Payson pays Peoples an investment subadvisory
fee at an annual rate of 0.25% of the average daily net assets of the Fund.
Because this fee is paid by Payson, it does not increase the fees paid by the
shareholders of the Fund.
Shareholders of IEF will be asked to approve a new advisory agreement with
Peoples under which Peoples would serve as the Fund's sole adviser. If the new
advisory agreement were approved by IEF shareholders, Payson would no longer
serve as adviser to IEF as of [________], 2000.
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<PAGE>
William N. Weickert, Jr., Dana R. Mitiguy, and Jonathan W. White are responsible
for the day-to-day management of the Fund. Each of them is a Chartered Financial
Analyst. Each portfolio manager's business experience is as follows:
WILLIAM N. WEICKERT, JR. - Director, Equity and Fixed Income Research Analyst of
Payson and responsible for the day-to-day management of the Fund since its
inception in December 1997. Mr. Weickert has 17 years of experience in the
investment industry and has been associated with Payson since 1989.
DANA R. MITIGUY - Chief Investment Officer of Peoples and responsible for the
day-to-day management of the Fund since its inception in December 1997. Mr.
Mitiguy has 15 years of experience in the investment industry and has been
associated with Peoples since 1995. Prior to his association with Peoples, Mr.
Mitiguy was a Vice President at Key Trust of Maine.
JONATHAN W. WHITE - Member of the Peoples Heritage Bank Investment Committee and
Chief Investment Officer for the Bank of New Hampshire (a subsidiary of Peoples
Heritage Financial Group) and responsible for the day-to-day management of the
Fund since its inception in December 1997. Mr. White has over 25 years of
experience in the investment industry and has been associated with the Bank of
New Hampshire since 1974.
IGF's Adviser
IGF's Adviser is Forum Investment Advisors, LLC ("FIA"), Two Portland Square,
Portland, Maine 04101. FIA is a privately owned company controlled by John Y.
Keffer, who is Chairman of the Board of the Trust. As of June 30, 1999, FIA had
approximately $2.3 billion of assets under management.
Subject to the general control of the Board, FIA makes investment decisions for
the Fund. For its services, the Fund paid FIA an advisory fee of 0.65% of the
average daily net assets of the Fund during its most recent fiscal year.
MARK D. KAPLAN - Portfolio Manager of FIA, has been primarily responsible for
the day-to-day management of the Fund's portfolio since its inception on
December 12, 1997. Mr. Kaplan has over 15 years of experience in the investment
industry and, prior to his association with FIA in September 1995, was Managing
Director and Director of Research at H.M. Payson & Co. Mr. Kaplan is a Chartered
Financial Analysis.
DISTRIBUTIONS
IEF distributes its net investment income annually and net capital gain at least
annually. IGF distributes its net investment income quarterly and net capital
gain at least annually. Normally, a Fund reinvests distributions in additional
shares of the Fund unless a shareholder elects to receive distributions in cash.
- --------------------------------------------------------------------------------
14
<PAGE>
For each Fund all distributions are reinvested in additional shares, unless a
shareholder elects to receive distributions in cash. For Federal income tax
purposes, distributions are treated the same whether they are received in cash
or reinvested. For each Fund, shares become entitled to receive distributions on
the day after the shares are issued.
FEDERAL INCOME TAX STATUS
The Funds have similar tax treatment. Each Fund intends to qualify each fiscal
year to be taxed as a regulated investment company (a "RIC") under the Code. As
a RIC, a Fund generally will not be liable for federal income taxes on the net
investment income and capital gain distributed to its shareholders. Each Fund
intends to distribute all of its net income and net capital gains each year.
Accordingly, neither Fund should be subject to federal income and excise taxes.
A Fund's distributions of net income (or short-term capital gain) are taxable to
shareholders as ordinary income. A Fund's distributions of long-term capital
gain are taxable to shareholders as long-term capital gain.
Fund distributions are taxable to shareholders even if they are invested in
additional shares. A Fund will send its shareholders information about the
income tax status of distributions paid during the year after the close of the
year.
Distributions reduce the net asset value of the Funds' shares by the amount of
the distribution. A distribution made shortly after the purchase of shares,
although in effect a return of capital, will be taxable as described above.
Capital gain or loss may result when you sell or exchange your shares. The
amount of this gain or loss is the difference between the amount paid for the
shares and the value of the shares upon redemption. If you hold Fund shares for
six months or less and during that period receive a distribution of net
long-term capital gains, any loss realized on the sale of your shares during
that six-month period would be deemed a long-term capital loss to the extent of
the amount of the distribution.
Fund shareholders that are not U.S. citizens or residents and that are not
considered to be engaged in a U.S. trade or business under the Code generally
will be subject to withholding tax at a 30% rate on distributions of the Fund's
net income, which include short-term capital gains. This rate may be reduced
under an applicable income tax treaty. Long-term capital gains distributions by
a fund generally will not be subject to withholding tax for such shareholders.
CAPITALIZATION
The following table sets forth as of June 16, 2000 (i) the capitalization of
IEF, (ii) the capitalization of IEF and IGF, and (iii) the pro forma combined
capitalization of IEF assuming that the Plan is approved and the Reorganization
is consummated.
- --------------------------------------------------------------------------------
15
<PAGE>
<TABLE>
<S> <C> <C> <C>
IEF IGF PRO FORMA COMBINED FUND
NET ASSETS........................
NET ASSET VALUE PER SHARE.........
SHARES OUTSTANDING................
</TABLE>
VOTING INFORMATION
This Proxy Statement/Prospectus is being furnished by the Board in connection
with the solicitation of proxies for the special meeting of shareholders.
Solicitation of proxies will be primarily by mail. Officers and service
contractors of the Trust may also solicit proxies by telephone, facsimile,
Internet, or in person. The costs of solicitation will be borne by Forum
Financial Group.
Each share of IGF is entitled to one vote. Approval of the Plan requires the
lesser of (a) 67% or more of the voting shares present at the meeting, if the
holders of more than 50% of the outstanding voting shares of IGF are present or
represented by proxy; or (b) more than 50% of the outstanding voting shares of
IGF.
Please use the Proxy card enclosed with the Proxy Statement/Prospectus (the
"Proxy Card") to vote on the Reorganization. You should complete the Proxy Card
by:
(1) Indicating whether you vote "FOR", "AGAINST", or "ABSTAIN" from voting
on the Reorganization by checking the appropriate box on the Proxy
Card;
(2) Signing and dating the Proxy Card; and
(3) Returning it to [________] in the enclosed postage-paid envelope.
To change a vote after returning a Proxy Card you must provide [________] with a
"Revocation Letter" that:
(1) Identifies yourself;
(2) States that as shareholder of IGF, you revoke your prior decisions as
set forth in the previously returned Proxy Card;
(3) Indicates your approval, disapproval or abstention from voting on the
Reorganization.
[________] must receive your Proxy Card or Revocation Letter on or before July
25, 2000. If you do not return your Proxy Card by that date or you abstain from
voting, you will be treated as having voted "AGAINST" the Reorganization.
It is not anticipated that any matters other than the approval of the Plan will
be brought before the meeting. Should other business be brought before the
meeting, it is intended that the accompanying proxies will be voted in
accordance with the judgment of the persons named as proxies. If sufficient
- --------------------------------------------------------------------------------
16
<PAGE>
votes in favor of approving the Plan are not received by the time scheduled for
the meeting, the persons named as proxies may propose one or more adjournments
of the meeting for a reasonable period of time to permit further solicitation of
proxies. Any adjournment will require the affirmative vote of a majority of the
votes cast on the question in person or by proxy at the session of the meeting
to be adjourned. The persons named as proxies will vote "FOR" adjournment those
proxies required to be voted "FOR" the approval of the proposal. The persons
named as proxies will vote "AGAINST" adjournment those proxies required to be
voted "AGAINST" the proposal. The costs of any additional solicitation and of
any adjourned session will be by Forum Financial Group.
OTHER INFORMATION
INTERESTED PERSONS
Mr. John Y. Keffer, as chairman and president of the Trust and controlling
person of certain of the service providers of each Fund, may have a material
interest in the Reorganization to the extent that the service providers receive
for their services fees paid out of the assets of the Funds.
RECORD DATES
Only shareholders of record of IGF at the close of business on June 16, 2000
(the "Record Date") are entitled to notice of and to vote at the meeting and any
postponement or adjournment thereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the Record Date, the officers and Trustees of the Trust as a group,
beneficially owned less than 1% of the outstanding shares of IGF. As of the
Record Date, the following persons owned of record or beneficially 5% or more of
the outstanding shares of IGF:
Name and Address Percentage Ownership
OTHER SERVICE PROVIDERS
The Forum Financial Group ("Forum") of companies provides services to the Funds.
As of March 31, 1999, Forum provided administration and distribution services to
investment companies and collective investment funds with assets of
approximately $53 billion.
- --------------------------------------------------------------------------------
17
<PAGE>
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Funds' shares. The distributor acts as the agent of the
Trust in connection with the offering of the Funds' shares. The distributor may
enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of the Funds' shares.
Forum Administrative Services, LLC provides administrative services to the
Funds, Forum Accounting Services, LLC is the Funds' accountant, Forum
Shareholder Services, LLC ("Transfer Agent") is the Funds' transfer agent and
Forum Trust LLC is the Funds' custodian.
LEGAL MATTERS
Seward & Kissel LLP serves as counsel for the Trust. Seward & Kissel LLP does
not represent Payson or Peoples or the Funds' shareholders regarding the
Reorganization or any related transaction.
FUND EXPENSES
The Funds pay for all of their expenses. Each Fund's expenses are comprised of
expenses attributable to the particular Fund as well as expenses not
attributable to any particular Fund that are allocated among the various series
of the Trust. The advisers or other service providers may voluntarily waive all
or any portion of their fees and/or reimburse certain expenses of a Fund. Any
fee waiver or expense reimbursement would have the effect of increasing a Fund's
performance for the period during which the waiver or reimbursement was 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 of each Fund in order to limit the Funds'
expenses (excluding taxes, interest, portfolio transaction expenses and
extraordinary expenses) to 1.10% or less of the average daily net assets of IEF
and IGF.
HOW TO CONTACT THE FUNDS
Write to us at:
Forum Shareholder Services, LLC
P.O. Box 446
Two Portland Square
Portland, Maine 04112
Telephone us at:
(800) 943-6786 (toll free)
(207) 879-0001
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18
<PAGE>
Wire investments (or ACH payments) to us at:
Bankers Trust Company
New York, New York
ABA #021001033
For Credit to:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: (Name of Your Fund)
(Your Name)
(Your Account Number)
(Your Social Security number or tax identification number)
GENERAL INFORMATION
You may purchase or sell (redeem) shares of a Fund at the net asset value of a
share ("NAV") plus any applicable sales charge (minus any applicable charge in
the case of redemptions) next calculated after the transfer agent receives your
request in proper form. For instance, if the transfer agent receives your
purchase request in proper form after 4 p.m., Eastern time, your transaction
will be priced at the next day's NAV plus the applicable sales charge. The Funds
cannot accept orders that request a particular day or price for the transaction
or any other special conditions.
The Funds do not issue share certificates.
If you purchase shares directly from a Fund you will receive monthly statements
and a confirmation of each transaction. You should verify the accuracy of all
transactions in your account as soon as you receive your confirmations.
The Funds reserve the right to waive minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED
Each Fund calculates its NAV as of the close of the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on each weekday except days when the New York
Stock Exchange is closed. The time at which NAV is calculated may change in case
of an emergency. A Fund's NAV is determined by taking the market value of all
securities owned by the Fund (plus all other assets such as cash), subtracting
all liabilities and then dividing the result by the number of shares
outstanding. A Fund values securities for which market quotations are readily
available at current market value. If market quotations are not readily
available, then a Fund values securities at estimated fair value under
procedures adopted by the Board.
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19
<PAGE>
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 Funds. 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 further information.
TAXES
Each Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Funds' distributions of net income (or short-term capital gains) are taxable
to you as ordinary income. The Funds' distributions of long-term capital gains
are taxable to you as long-term capital gains. The Funds' distributions also may
be subject to certain state and local taxes.
If you buy shares just before a Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution. The sale or exchange of Fund shares is a taxable
transaction for Federal income tax purposes.
The Funds will 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, please see
the SAI and consult your tax adviser.
- --------------------------------------------------------------------------------
20
<PAGE>
Exhibit A - Agreement and Plan of Reorganization
AGREEMENT AND
PLAN OF
REORGANIZATION
As of
________, 2000
<PAGE>
This AGREEMENT AND PLAN OF REORGANIZATION (the "Plan") is made as of
this __ day of _____, 2000, by and between Investors Growth Fund (the "Target")
and Investors Equity Fund (the "Acquiring Fund"), each a separate series of
Forum Funds (the "Trust"), a Delaware business trust.
WHEREAS, the Trust is an open-end management investment company
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the parties desire that the Acquiring Fund acquire the assets
and assume the liabilities of the Target in exchange for shares of equal value
of the Acquiring Fund and the distribution of the shares of the Acquiring Fund
to the shareholders of the Target in connection with the dissolution and
liquidation of the Target (the "Reorganization"); and
WHEREAS, the parties intend that the Reorganization qualify as a
"reorganization," within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that the Acquiring Fund and the
Target each be a "party to a reorganization," within the meaning of Section
368(b) of the Code, with respect to the Reorganization;
NOW, THEREFORE, in accordance with the mutual promises described
herein, the parties agree as follows:
1. Definitions.
The following terms shall have the following meanings:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
1933 Act............................ The Securities Act of 1933, as amended.
- ----------------------------------------------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
1934 Act............................ The Securities Exchange Act of 1934, as amended.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Assets.............................. All property and assets of any kind and all interests, rights, privileges
and powers of or attributable to the Target whether or not determinable at
the Effective Time and wherever located. Assets include all cash, cash
equivalents, securities, claims (whether absolute or contingent, Known or
unknown, accrued or unaccrued or conditional or unmatured), contract rights
and receivables (including dividend and interest receivables) owned by the
Target and any deferred or prepaid expense shown as an asset on the Target's
books.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Assets List......................... A list of securities and other Assets and Known Liabilities of or
attributable to the Target.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------- ------------------------------------------------------------------------------
Closing Date........................ July 28, 2000, or such other date as the parties may agree to in writing.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Effective Time...................... 9:00 a.m. Eastern time on the business day following the Closing Date, or
such other time as the parties may agree to in writing.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Fund................................ The Acquiring Fund or the Target as the context may require.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
HSR Act............................. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Know, Known or Knowledge............ Known after reasonable inquiry.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Liabilities......................... All liabilities of, allocated or attributable to the Target whether Known or
unknown, accrued or unaccrued, absolute or contingent or conditional or
unmatured.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
N-14 Registration Statement......... The Registration Statement Form N-14 under the 1933 Act that will register
the shares of the Acquiring Fund to be issued in the Reorganization and
which includes the proxy materials necessary for the shareholders of the
Target to approve the Reorganization.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Material Agreements................. The agreements set forth in Schedule A as it may be amended.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Reorganization Documents............ Such bills of sale, assignments and other instruments as the Trust deems
desirable for the Target to transfer to
the Acquiring Fund all right and title
to and interest in the Target's Assets
and for the Acquiring Fund to assume the
Target's Liabilities.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Schedule A.......................... Schedule A to this Plan.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Schedule B.......................... Schedule B to this Plan.
- --------------------------------------- ------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------------------------------------------------
Target Financial Statements......... The audited financial statements of the Target for its most recently
completed fiscal year and, if applicable, the unaudited financial statements
of the Target for its most recently completed semi-annual period.
- --------------------------------------- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------- ------------------------------------------------------------------------------
Valuation Time...................... The time on the Closing Date, the business day immediately preceding the
Closing Date if the Closing Date is not a business day or such other date as
the parties may agree to in writing, that the Trust determines the net asset
value of the shares of the Acquiring Fund and determines the net value of
the Assets of or attributable to the Target. Unless otherwise agreed to in
writing, the Valuation Time shall be at the time of day then set forth in
the Acquiring Fund's and Target's Registration Statement on Form N-1A as the
time of day at which net asset value is calculated.
- --------------------------------------- ------------------------------------------------------------------------------
</TABLE>
2. Regulatory Filings and Shareholder Action.
(a) The Trust, on behalf of the Acquiring Fund, shall promptly
prepare and file the N-14 Registration Statement with the SEC. The Trust also
shall make any other appropriate filings including, without limitation, filings
with state or foreign securities regulatory authorities.
(b) The parties shall seek an order of the SEC, if appropriate,
providing them with any necessary relief from Section 17 of the 1940 Act to
permit them to consummate the transactions contemplated by this Plan.
(c) As soon as practicable after the effective date of the N-14
Registration Statement the Trust shall hold a Target shareholder meeting to
consider and approve this Plan, the Reorganization and such other matters as the
Board of Trustees of the Trust may determine.
3. Transfer of Target Assets. The Target shall take the following
steps with respect to the Reorganization:
(a) On or prior to the Closing Date, the Target shall endeavor
to pay or make reasonable provision to pay out of the Target's Assets all of the
Liabilities, expenses, costs and charges of or attributable to the Target that
are Known to the Target and that are due and payable as of the Closing Date.
(b) At the Effective Time, the Target shall assign, transfer,
deliver and convey all of the Target's Assets to the Acquiring Fund, subject to
all of the Target's Liabilities. The Acquiring Fund, shall then accept the
Target's Assets and assume the Target's Liabilities such that at and after the
Effective Time (i) all of the Target's Assets at or after the Effective Time
shall become and be the Assets of the Acquiring Fund and (ii) all of the
Target's Liabilities at the Effective Time shall attach to the Acquiring Fund,
enforceable against the Acquiring Fund to the same extent as if initially
incurred by the Acquiring Fund.
(c) Within a reasonable time prior to the Closing Date, the
Target shall provide, if requested, the Target's Assets List to the Acquiring
Fund. The parties agree that the Target may sell any asset on the Assets List
prior to the Effective Time. After the Target provides the Assets List, the
<PAGE>
Target will not acquire any additional securities or permit to exist any
encumbrances, rights, restrictions or claims not reflected on the Assets List,
without the prior written approval of the Acquiring Fund. Within a reasonable
time after receipt of the Assets List and prior to the Closing Date, the
Acquiring Fund will advise the Target in writing of any investments shown on the
Assets List that the Acquiring Fund has determined to be inconsistent with the
investment objective, policies and restrictions of the Acquiring Fund. The
Target will dispose of any such securities prior to the Closing Date to the
extent practicable and consistent with applicable legal requirements, including
the Target's investment objectives, policies and restrictions. In addition, if
the Acquiring Fund determines that, as a result of the Reorganization, the
Acquiring Fund would own an aggregate amount of an investment that would exceed
a percentage limitation applicable to the Acquiring Fund, the Acquiring Fund
will advise the Target in writing of any such limitation and the Target shall
dispose of a sufficient amount of such investment as may be necessary to avoid
the limitation as of the Effective Time, to the extent practicable and
consistent with applicable legal requirements, including the Target's investment
objectives, policies and restrictions.
(d) The Target shall assign, transfer, deliver and convey its
Assets to the Acquiring Fund at the Effective Time on the following bases:
(1) In exchange for the transfer of the Assets, the
Acquiring Fund shall simultaneously issue and deliver to the Target
full and fractional shares of beneficial interest of the Acquiring
Fund. The Acquiring Fund shall determine the number of shares of the
Acquiring Fund to issue by dividing the net value of the Assets of the
Target by the net asset value of one Acquiring Fund share. Based on
this calculation, the Acquiring Fund shall issue shares of beneficial
interest of the Acquiring Fund with an aggregate net asset value equal
to the net value of the Assets of the Target.
(2) The parties shall determine the net asset value of the
Acquiring Fund shares to be delivered, and the net value of the Assets
to be conveyed, as of the Valuation Time substantially in accordance
with the Trust's current valuation procedures. The parties shall make
all computations to the fourth decimal place or such other decimal
place as the parties may agree to in writing.
(3) The Target shall transfer the Assets with good and
marketable title to the custodian for the account of the Acquiring
Fund. The Target shall transfer all cash in the form of immediately
available funds payable to the order of the Acquiring Fund's custodian
for the account of the Acquiring Fund. The Target shall transfer any
Assets that were not transferred to the Acquiring Fund's custodian at
the Effective Time to the Acquiring Fund's custodian at the earliest
practicable date thereafter.
(e) Promptly after the Closing Date, the Target will deliver to
the Acquiring Fund a Statement of Assets and Liabilities of the Target as of the
Closing Date.
<PAGE>
4. Dissolution and Liquidation of the Target, Registration of
Shares and Access to Records. The Target and the Acquiring Fund also shall take
the following steps:
(a) At or as soon as reasonably practical after the Effective
Time, the Target shall dissolve and liquidate by transferring to shareholders of
record of the Target full and fractional shares of beneficial interest of the
Acquiring Fund equal in value to the shares of the Target held by the
shareholder. Each shareholder also shall have the right to receive any unpaid
dividends or other distributions that the Target declared with respect to the
shareholder's shares before the Effective Time. The Acquiring Fund shall record
on its books the ownership by the shareholders of the Acquiring Fund shares; the
Target shall simultaneously redeem and cancel on its books all of its issued and
outstanding shares. The Target shall then wind up its affairs and take all steps
as are necessary and proper to terminate as soon as is reasonably possible after
the Effective Time and in accordance with all applicable laws and regulations.
(b) If a former Target shareholder requests a change in the
registration of the shareholder's Acquiring Fund shares to a person other than
the shareholder, the Acquiring Fund shall require the shareholder to (i) furnish
the Acquiring Fund an instrument of transfer properly endorsed, accompanied by
any required signature guarantees and otherwise in proper form for transfer;
((ii) if any of the shares are outstanding in certificate form, deliver to the
Acquiring Fund the certificate representing such shares; and) (iii) pay to the
Acquiring Fund any transfer or other taxes required by reason of such
registration or establish to the reasonable satisfaction of the Acquiring Fund
that such tax has been paid or does not apply.
(c) At and after the Closing Date, the Target shall provide the
Acquiring Fund and its transfer agent with immediate access to: (i) all records
containing the names, addresses and taxpayer identification numbers of all of
the Target shareholders and the number and percentage ownership of the
outstanding shares of the Target owned by each shareholder as of the Effective
Time and (ii) all original documentation (including all applicable Internal
Revenue Service forms, certificates, certifications and correspondence) relating
to the Target shareholders' taxpayer identification numbers and their liability
for or exemption from back-up withholding. The Target shall preserve and
maintain, or shall direct its service providers to preserve and maintain,
records with respect to the Target as required by Section 31 of and Rules 31a-1
and 31a-2 under the 1940 Act.
5. Certain Representations, Warranties and Agreements of the Target.
The Target represents and warrants to, and agrees with, the Acquiring Fund as
follows:
(a) The Trust is a business trust duly created, validly existing
and in good standing under the laws of the State of Delaware. The Board of
Trustees of the Trust duly established and designated the Target as a series of
the Trust. The Trust is registered with the SEC as an open-end management
investment company under the 1940 Act, and such registration is in full force
and effect.
(b) On behalf of the Target, the Trust has the power and all
necessary federal, state and local qualifications and authorizations to own all
of its properties and Assets, to carry on its business as now being conducted
<PAGE>
and described in its currently effective Registration Statement on Form N-1A, to
enter into this Plan and to consummate the transactions contemplated herein.
(c) The Board of Trustees of the Trust has duly authorized the
execution and delivery of the Plan and the transactions contemplated herein.
Duly authorized officers of the Trust have executed and delivered the Plan. The
Plan represents a valid and binding contract, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles. The
execution and delivery of this Plan does not, and, subject to the approval of
shareholders referred to in Section 2, the consummation of the transactions
contemplated by this Plan will not, violate the Trust's Amended and Restated
Trust Instrument or By-Laws or any Material Agreement. Except for the approval
of Target shareholders, the Target does not need to take any other action to
authorize its officers to effectuate this Plan and the transactions contemplated
herein.
(d) The Target has qualified as a regulated investment company
under Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, in respect
of each taxable year since the commencement of its operations and qualifies and
shall continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation.
(e) The materials included within the N-14 Registration
Statement when filed with the SEC, when Part A of the N-14 Registration
Statement is distributed to shareholders, at the time of the Target shareholder
meeting and at the Effective Time of the Reorganization, insofar as they relate
to the Trust and the Target: (i) shall comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act, the rules
and regulations thereunder and state securities laws and (ii) shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein
not misleading.
(f) The Trust has duly authorized and validly issued all of the
issued and outstanding shares of the Target and all of the shares are validly
outstanding, fully paid and non-assessable, and were offered for sale and sold
in conformity with the registration requirements of all applicable federal and
state securities laws. There are no outstanding options, warrants or other
rights to subscribe for or purchase any Target shares, nor are there any
securities convertible into Target shares.
(g) The Target shall operate its business in the ordinary course
between the date hereof and the Effective Time, it being agreed that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions and any other dividends and distributions
deemed advisable in anticipation of the Reorganization.
(h) At the Effective Time, the Target will have good and
marketable title to its Assets and full right, power and authority to assign,
transfer, deliver and convey such Assets.
<PAGE>
(i) At the Closing Date, the Target Financial Statements, copies
of which have been previously delivered to the Acquiring Fund, fairly present
the financial position of the Target as of the Target's most recent fiscal
year-end and the results of the Target's operations and changes in its net
Assets for the periods indicated. The Target Financial Statements are in
accordance with generally accepted accounting principles consistently applied.
(j) To the Knowledge of the Target it has no Liabilities,
whether or not determined or determinable, other than the Liabilities disclosed
or provided for in the Target Financial Statements or Liabilities incurred in
the ordinary course of business subsequent to the date of the Assets List
required by Section 3(c) of this Plan.
(k) Other than the claims, actions, suits, investigations or
proceedings set forth on Schedule B, the Target does not Know of any claims,
actions, suits, investigations or proceedings of any type pending or threatened
against it or its Assets or businesses. The Target does not Know of any facts
that it currently has reason to believe are likely to form the basis for the
institution of any such claim, action, suit, investigation or proceeding against
it. For purposes of this provision, investment underperformance or negative
investment performance shall not be deemed to constitute such facts, provided
all required performance disclosures have been made. Other than the orders,
decrees or judgments set forth on Schedule B, the Target is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body that adversely affects, or is reasonably likely to adversely
affect, its financial condition, results of operations, business, properties or
Assets or its ability to consummate the transactions contemplated by the Plan.
(l) Except for contracts, agreements, franchises, licenses or
permits entered into or granted in the ordinary course of its business or listed
in Schedule A, in each case under which no material default exists, the Target
is not a party to or subject to any material contract, debt instrument, employee
benefit plan, lease, franchise, license or permit of any kind or nature
whatsoever.
(m) The Trust has filed the federal income tax returns of the
Target, copies of which have been previously delivered to the Acquiring Fund,
for all taxable years to and including the Target's most recent taxable year,
and has paid all taxes payable pursuant to such returns. No such return is
currently under audit and no assessment has been asserted with respect to such
returns.
(n) Since the date of the Target Financial Statements, there has
been no material adverse change in the financial condition, results of
operations, business, properties or Assets of the Target. For all purposes under
this Plan, investment underperformance, negative investment performance and/or
investor redemptions shall not be considered material adverse changes, provided
all required performance disclosures have been made.
6. Certain Representations, Warranties and Agreements of the
Acquiring Fund. The Acquiring Fund, represents and warrants to, and agrees with
the Target as follows:
<PAGE>
(a) The Trust is a business trust duly created, validly existing
and in good standing under the laws of the State of Delaware. The Board of
Trustees of the Trust duly established and designated the Acquiring Fund as a
series of the Trust. The Trust is registered with the SEC as an open-end
management investment company under the 1940 Act.
(b) On behalf of the Acquiring Fund, the Trust has the power and
all necessary federal, state and local qualifications and authorizations to own
all of its properties and Assets, to carry on its business as described in its
Registration Statement on Form N-1A as filed with the SEC, to enter into this
Plan and to consummate the transactions contemplated herein.
(c) The Board of Trustees of the Trust has duly authorized
execution and delivery of the Plan and the transactions contemplated herein.
Duly authorized officers of the Trust have executed and delivered the Plan. The
Plan represents a valid and binding contract, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles. The
execution and delivery of this Plan does not, and the consummation of the
transactions contemplated by this Plan will not, violate the Declaration of
Trust of the Trust or any Material Agreement. The Acquiring Fund does not need
to take any other action to authorize its officers to effectuate the Plan and
the transactions contemplated herein.
(d) The Acquiring Fund shall qualify as a regulated investment
company under Part I of Subchapter M of Subtitle A, Chapter 1, of the Code in
respect of its current taxable year.
(e) The N-14 Registration Statement, when filed with the SEC,
when Part A of the N-14 Registration Statement is distributed to shareholders,
at the time of the shareholder meeting and at the Effective Time, insofar as it
relates to the Trust and the Acquiring Fund: (i) shall comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act and the
1940 Act, the rules and regulations thereunder and state securities laws and
(ii) shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements made therein not misleading.
(f) The Trust shall duly authorize the Acquiring Fund shares to
be issued and delivered to the Target as of the Effective Time. When issued and
delivered, the Acquiring Fund shares shall be duly and validly issued, fully
paid and non-assessable, and no shareholder of the Acquiring Fund shall have any
preemptive right of subscription or purchase in respect of them. There are no
outstanding options, warrants or other rights to subscribe for or purchase any
Acquiring Fund shares, nor are there any securities convertible into Acquiring
Fund shares.
(g) The Acquiring Fund does not Know of any claims, actions,
suits, investigations or proceedings of any type pending or threatened against
it or its Assets or businesses. There are no facts that the Acquiring Fund
currently has reason to believe are likely to form the basis for the institution
of any such claim, action, suit, investigation or proceeding against it. The
Acquiring Fund is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body that adversely affects, or
is reasonably likely to adversely affect, its financial condition, results of
<PAGE>
operations, business, properties or Assets or its ability to consummate the
transactions contemplated herein.
(h) Except for contracts, agreements, franchises, licenses or
permits entered into or granted in the ordinary course of its business, in each
case under which no material default exists, the Acquiring Fund is not a party
to or subject to any material contract, debt instrument, employee benefit plan,
lease, franchise, license or permit of any kind or nature whatsoever.
7. Conditions to the Target's Obligations. The obligations of the
Target with respect to the Reorganization shall be subject to the following
conditions precedent:
(a) The Target's shareholders shall have approved the
Reorganization in the manner required by the Amended and Restated Trust
Instrument of the Trust and applicable law.
(b) The Acquiring Fund shall have duly executed and delivered
the applicable Reorganization Documents to the Target.
(c) The Acquiring Fund shall have delivered to the Target a
certificate dated as of the Closing Date and executed in its name by the
Secretary or Assistant Secretary of the Trust, in a form reasonably satisfactory
to the Target, stating that the representations and warranties of the Acquiring
Fund in this Plan that apply to the Reorganization are true and correct in all
material respects at and as of the Valuation Time, that it has approved the
Target's Assets as being consistent with its investment objectives, policies and
restrictions and that the Target's Assets may otherwise be lawfully acquired by
the Acquiring Fund.
(d) The Target shall have received an opinion of Seward & Kissel
LLP, as counsel to the Acquiring Fund, in form and substance reasonably
satisfactory to the Target and dated as of the Closing Date, substantially to
the effect that:
(1) The Trust is a business trust duly created, validly
existing and in good standing under the laws of the State of Delaware
and is an open-end, management investment company registered under the
1940 Act;
(2) The Plan has been duly authorized, executed and
delivered by the Acquiring Fund, and assuming due authorization,
execution, and delivery of this Plan by the Trust on behalf of the
Target, represents a legal, valid and binding contract, enforceable in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, moratorium, fraudulent conveyance and transfer and similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and further subject to the application
of equitable principles in any proceeding whether at law or in equity
or with respect to the enforcement of provisions of the Plan and the
effect of judicial decisions which have held that certain provisions
are unenforceable when their enforcement would violate an implied
covenant of good faith and fair dealing or would be commercially
unreasonable or when default under the Plan is not material;
<PAGE>
(3) the shares of the Acquiring Fund to be delivered as
provided for by this Plan are duly authorized and upon delivery will be
validly issued, fully paid and non-assessable by the Trust;
(4) the execution and delivery of this Plan did not, and
the consummation of the Reorganization will not, violate the
Declaration of Trust of the Trust or any Material Agreement to which
the Acquiring Fund is a party or by which it is bound; and
(5) to the Knowledge of such counsel, no consent,approval,
authorization or order of any court or governmental authority is
required for the consummation by the Acquiring Fund of the
Reorganization or for the execution and delivery of the Acquiring
Fund's Reorganization Documents, except those that have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act and the rules and
regulations under those Acts or that may be required under state
securities laws, the HSR Act or subsequent to the Effective Time or
when the failure to obtain the consent, approval, authorization or
order would not have a material adverse effect on the operation of the
Acquiring Fund.
In rendering such opinion, such counsel may (i) rely on the opinion
of other counsel to the extent set forth in such opinion, (ii) make assumptions
regarding the authenticity, genuineness and/or conformity of documents and
copies thereof without independent verification thereof, (iii) limit such
opinion to applicable federal and state law, (iv) define the word "Knowledge"
and related terms to mean the Knowledge of attorneys then with such firm who
have devoted substantive attention to matters directly related to this Plan and
(v) rely on certificates of officers or trustees of the Trust.
(e) The Target shall have received an opinion of Seward & Kissel
LLP with respect to the tax matters specified in Subsection 8(e) addressed to
the Target and the Acquiring Fund in form and substance reasonably satisfactory
to them, and dated as of the Closing Date.
(f) The Trust shall have received (i) a memorandum addressed to
the Target in form and substance reasonably satisfactory to them, prepared by
Seward & Kissel LLP concerning compliance with each relevant jurisdiction's
securities laws in connection with the Acquiring Fund's issuance of shares, and
(ii) assurance reasonably satisfactory to it that all necessary steps have been
taken under all relevant jurisdictions' securities laws to consummate the
Reorganization.
(g) The N-14 Registration Statement shall have become effective
under the 1933 Act as to the Acquiring Fund's shares and the SEC shall not have
instituted or, to the Knowledge of the Acquiring Fund, contemplated instituting,
any stop order suspending the effectiveness of the N-14 Registration Statement.
(h) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, the
Reorganization.
<PAGE>
(i) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking
to enjoin consummation of the Reorganization under Section 25(c) of the 1940
Act.
(j) The Acquiring Fund shall have performed and complied in all
material respects with each of its agreements and covenants required by this
Plan to be performed or complied with by it prior to or at the Reorganization's
Valuation Time and Effective Time.
(k) The Target shall have received from the Acquiring Fund a
duly executed instrument whereby the Acquiring Fund assumes all of the
Liabilities of or attributable to the Target.
(l) The Target shall have received a letter dated as of the
Closing Date from [KPMG LLP] addressed to the Target and the Acquiring Fund in
form and substance reasonably satisfactory to them to the effect that on the
basis of limited procedures as agreed to by them and described in such letter
(but not an examination in accordance with generally accepted auditing
standards):
(1) nothing came to their attention that caused them to
believe that the relevant unaudited pro forma financial statements
included in the N-14 Registration Statement do not comply as to form in
all material respects with the applicable accounting requirements of
Rule 11-02 of Regulation S-X or that the relevant pro forma adjustments
have not properly been applied to the historical amounts in the
compilation of those amounts;
(2) the data used in the calculation of the current and
pro forma expense ratios of the Target Fund and the Acquiring Fund
appearing in the N-14 Registration Statement, including the proxy
materials, agree with the underlying accounting records of the Target
and the Acquiring Fund, as appropriate, or with written estimates
provided by officers of the Trust having responsibility for financial
and reporting matters; and
(3) the information relating to the Acquiring Fund and the
Target appearing in the N-14 Registration Statement that is expressed
in dollars or percentages of dollars has been obtained from the
accounting records of the Acquiring Fund or the Target, as appropriate,
or from schedules prepared by officers of the Trust having
responsibility for financial and reporting matters and such information
is in agreement with such records or schedules or with computations
made therefrom.
(m) Neither party shall have terminated this Plan with respect
to the Reorganization pursuant to Section 10 of this Plan.
(n) The parties shall have received any necessary order of the
SEC exempting the parties from the prohibitions of Section 17 of the 1940 Act or
any similar relief necessary to permit the Reorganization.
<PAGE>
(o) The parties shall have received a certificate from Forum
Financial Group stating that it will pay all of the expenses incurred by the
Target and the Acquiring Fund in connection with the Reorganization.
8. Conditions to the Acquiring Fund Obligations. The obligations
of the Acquiring Fund with respect to the Reorganization shall be subject to the
following conditions precedent:
(a) The Target's shareholders shall have approved the
Reorganization in the manner required by the Trust Instrument of the Trust and
applicable law.
(b) The Target shall have duly executed and delivered the
Target's applicable Reorganization Documents to the Acquiring Fund.
(c) The Target shall have delivered to the Acquiring Fund a
certificate dated as of the Closing Date and executed in its name by the Trust's
Secretary or Assistant Secretary, in a form reasonably satisfactory to the
Acquiring Fund, stating that the representations and warranties of the Target in
this Plan that apply to the Reorganization are true and correct in all material
respects at and as of the Valuation Time.
(d) The Acquiring Fund shall have received an opinion of Seward
& Kissel LLP, as counsel to the Target, in form and substance reasonably
satisfactory to the Acquiring Fund and dated as of the Closing Date,
substantially to the effect that:
(1) The Trust is a business trust duly created, validly
existing and in good standing under the laws of the State of Delaware
and is an open-end, management investment company registered under the
1940 Act;
(2) this Plan has been duly authorized, executed and
delivered by the Target and, assuming due authorization, execution and
delivery of this Plan by the Acquiring Fund, represents a legal, valid
and binding contract, enforceable in accordance with its terms, subject
to the effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and transfer and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and further subject to the application of equitable principles in any
proceeding, whether at law or in equity or with respect to the
enforcement of provisions of the Plan and the effect of judicial
decisions which have held that certain provisions are unenforceable
when their enforcement would violate an implied covenant of good faith
and fair dealing or would be commercially unreasonable or when default
under the Plan is not material;
(3) the execution and delivery of this Plan did not, and
the consummation of the Reorganization will not, violate the Trust
Instrument or By-Laws of the Trust or any Material Agreement to which
the Target is a party or by which it is bound; and
(4) to the Knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority
is required for the consummation by the Target of the Reorganization or
<PAGE>
the execution and delivery of the Target's Reorganization Documents,
except those that have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act and the rules and regulations under those Acts or that may
be required under state securities laws, the HSR Act or subsequent to
the Effective Time or when the failure to obtain the consent, approval,
authorization or order would not have a material adverse effect on the
operation of the Target.
In rendering such opinion, such counsel may (i) rely on the opinion of other
counsel to the extent set forth in such opinion, (ii) make assumptions regarding
the authenticity, genuineness and/or conformity of documents and copies thereof
without independent verification thereof, (iii) limit such opinion to applicable
federal and state law, (iv) define the word "Knowledge" and related terms to
mean the Knowledge of attorneys then with such firm who have devoted substantive
attention to matters directly related to this Plan and (v) rely on certificates
of officers or trustees of the Trust.
(e) The Acquiring Fund shall have received an opinion of Seward
& Kissel LLP addressed to the Target and the Acquiring Fund in form and
substance reasonably satisfactory to them, based upon representations made in
certificates provided by them, their affiliates and/or principal shareholders
and dated as of the Closing Date, substantially to the effect that, for federal
income tax purposes:
(1) The Reorganization will constitute a "reorganization" within the
meaning of Code Section 368(a). The Acquiring Fund and the Target each
will be a "party to a reorganization." Code Section 368(b).
(2) The Target shareholders will recognize no gain or loss on their receipt
of voting shares of the Acquiring Fund in exchange for their voting
shares of the Target pursuant to the Reorganization. Code Section
354(a)(1).
(3) The Target will not recognize gain or loss on the transfer of all of its
assets to the Acquiring Fund solely in exchange for voting shares of the
Acquiring Fund and the assumption by the Acquiring Fund of Target
liabilities pursuant to the Reorganization. Code Sections 357(a) and
361(a).
(4) The Target will not recognize gain or loss on its distribution of
voting shares of the Acquiring Fund to its shareholders pursuant to
the liquidation of the Target. Code Section 361(c).
(5) The Acquiring Fund will not recognize gain or loss on its acquisition of
all of the assets of the Target solely in exchange for voting shares of
the Acquiring Fund and the assumption by the Acquiring Fund of the
Target's liabilities. Code Section 1032(a).
(6) The aggregate tax basis of the voting shares of the Acquiring Fund
received by each of the Target's shareholders pursuant to the
Reorganization will equal the aggregate tax basis of the voting shares
of the Target surrendered in exchange therefor. Code Section 358(a)(1).
<PAGE>
(7) The holding period of the voting shares of the Acquiring Fund received
by each of the Target's shareholders pursuant to the Reorganization will
include the period that the shareholder held the voting shares of the
Target exchanged therefor, provided that the shareholder held such
shares as a capital asset on the date of the Reorganization. Code
Section 1223(1).
(8) The Acquiring Fund's basis in the assets of the Target received
pursuant to the Reorganization will equal the Target's basis in the
assets immediately before the Reorganization. Code Section 362(b).
(9) The Acquiring Fund's holding period in the Target assets received
pursuant to the Reorganization will include the period during which
the Target held the assets. Code Section 1223(2).
(10) The Acquiring Fund will succeed to and take into account the items of
the Target described in Code Section 381(c), including the earnings and
profits, or deficit in earnings and profits, of the Target as of the
date of the Reorganization. The Acquiring Fund will take these items
into account subject to the conditions and limitations specified in Code
Sections 381, 382, 383 and 384 and applicable regulations thereunder.
(f) The N-14 Registration Statement shall have become effective
under the 1933 Act as to the Acquiring Fund's shares and no stop order
suspending the effectiveness of the N-14 Registration Statement shall have been
instituted or, to the Knowledge of the Acquiring Fund, contemplated by the SEC.
(g) No action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit or obtain damages or other relief in connection with the
Reorganization.
(h) The SEC shall not have issued any unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking
to enjoin consummation of the Reorganization under Section 25(c) of the 1940
Act.
(i) The Target shall have performed and complied in all material
respects with each of its agreements and covenants required by this Plan to be
performed or complied with by it prior to or at the Valuation Time and Effective
Time.
(j) The Acquiring Fund shall have received a letter from [KPMG
LLP] addressed to the Target and the Acquiring Fund as described in Subsection
7(l).
(k) Except to the extent prohibited by Rule 19b-1 under the 1940
Act, the Target shall have declared a dividend or dividends that, together with
all previous such dividends, shall have the effect of distributing to the Target
shareholders substantially all investment company taxable income of or
<PAGE>
attributable to the Target earned prior to the Closing Date and substantially
all net capital gain of or attributable to the Target realized prior to such
date.
(l) Neither party shall have terminated this Plan with respect
to the Reorganization pursuant to Section 10 of this Plan.
(m) The parties shall have received any necessary order of the
SEC exempting the parties from the prohibitions of Section 17 of the 1940 Act or
any similar relief necessary to permit the Reorganization.
(n) The parties shall have received a certificate from Forum
Financial Group stating that it will pay all of the expenses incurred by the
Acquiring Fund and the Target in connection with the Reorganizations.
9. Survival of Representations and Warranties. The representations
and warranties of the parties hereto shall survive the completion of the
transactions contemplated herein.
10. Termination of Plan. A majority of the Trust's Board of Trustees
may terminate this Plan with respect to the Acquiring Fund or the Target, as
appropriate, at any time before the applicable Effective Time if: (i) the
party's conditions precedent set forth in Sections 7 or 8, as appropriate, are
not satisfied or (ii) the Board of Trustees determines that the consummation of
the applicable Reorganization is not in the best interests of shareholders and
gives notice to the other party.
11. Governing Law. This Plan and the transactions contemplated hereby
shall be governed, construed and enforced in accordance with the laws of the
State of Delaware, except to the extent preempted by federal law, without
regard to conflicts of law principles.
12. Brokerage Fees. Each party represents and warrants that there are
no brokers or finders entitled to receive any payments in connection with the
transactions provided for in the Plan.
13. Amendments. The parties may, by agreement in writing authorized by
the Board of Trustees, amend this Plan at any time before or after the Target's
shareholders approve the Reorganization. However, after a Target's shareholders
approve the Reorganization, the parties may not amend this Plan in a manner that
materially alters the obligations of either party. The parties shall not deem
this Section to preclude them from changing the Closing Date or the Effective
Time of a Reorganization by mutual agreement.
14. Waivers. At any time prior to the Closing Date, either party may by
written instrument signed by it (i) waive the effect of any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the agreements, covenants or conditions made for its
benefit contained herein. The parties agree that any waiver shall apply only to
the particular inaccuracy or requirement for compliance waived, and not any
other or future inaccuracy or lack of compliance.
<PAGE>
15. Indemnification of Trustees. The Acquiring Fund agrees that it will
assume all liabilities and obligations of the Target relating to any obligation
of the Acquiring Fund to indemnify the Trust's current and former Trustees and
officers, acting in their capacities as such, to the fullest extent permitted by
law and the Acquiring Fund's Trust Instrument, as in effect as of the date of
this Plan. The Acquiring Fund also agrees that all rights to indemnification and
all limitations of liability existing in favor of the current and former
Trustees and officers, acting in their capacities as such, under the Trust
Instrument as in effect as of the date of this Plan shall survive the
Reorganization and shall continue in full force and effect, without any
amendment thereto, and shall constitute rights which may be asserted against the
Acquiring Fund, its successors and assigns.
16. Cooperation and Further Assurances. Each party will cooperate with
the other in fulfilling its obligations under this Plan and will provide such
information and documentation as is reasonably requested by the other in
carrying out this Plan's terms. Each party will provide such further assurances
concerning the performance of obligations under this Plan and the consummation
of the Reorganization as the other shall deem necessary, advisable or
appropriate.
17. Updating of N-14 Registration Statement. If at any time prior to
the Effective Time a party becomes aware of any untrue statement of a material
fact or omission to state a material fact required to be stated therein or
necessary to make the statements made not misleading in the N-14 Registration
Statement the party discovering the item shall notify the other party and the
parties shall cooperate in promptly preparing, filing and clearing with the SEC
and, if appropriate, distributing to shareholders appropriate disclosure with
respect to the item.
18. Limitation on Liabilities. The obligations of the Target and the
Acquiring Fund shall not bind any of the Trustees, shareholders, nominees,
officers, agents, or employees of the Trust personally, but shall bind only the
Assets and property of the Acquiring Fund and Target. The execution and delivery
of this Plan by the parties' officers shall not be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
but shall bind only the Assets and the property of the Acquiring Fund or Target,
as appropriate.
19. Notices. Any notice, report, statement, certificate or demand
required or permitted by any provision of this Plan shall be in writing and
shall be given by prepaid telegraph, telecopy, certified mail or overnight
express courier to:
David I. Goldstein, Esq.
Forum Financial Group
Two Portland Square
Portland, ME 04101
With copies to:
Anthony C.J. Nuland
Seward & Kissel LLP
<PAGE>
1200 G Street, N.W., Suite 350
Washington, DC 20005
20. General. This Plan supersedes all prior agreements between the
parties (written or oral), is intended as a complete and exclusive statement of
the terms of the agreement between the parties and may not be changed or
terminated orally. The parties may execute this Plan in counterparts, which
shall be considered one and the same agreement, and shall become effective when
the counterparts have been executed by and delivered to both parties. The
headings contained in this Plan are for reference only and shall not affect in
any way the meaning or interpretation of this Plan. Nothing in this Plan,
expressed or implied, confers upon any other person any rights or remedies under
or by reason of this Plan. Neither party may assign or transfer any right or
obligation under this Plan without the written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers designated below to execute this Plan as of the date first
written above.
<TABLE>
<S> <C>
FORUM FUNDS, on behalf of
INVESTORS EQUITY FUND
ATTEST:
____________________________________________ By: ______________________________________________
Name: Name:
Title: Title:
FORUM FUNDS, on behalf of
INVESTORS GROWTH FUND
ATTEST:
____________________________________________ By: ______________________________________________
Name: Name:
Title: Title:
</TABLE>
<PAGE>
SCHEDULE A
MATERIAL AGREEMENTS
The following agreements states the Material Agreements of the Target:
Investment Advisory Agreement
Investment Subadvisory Agreement
Distribution Services Agreement
Custodian Agreement
Transfer Agency Agreement
Fund Accounting Agreement
Administration Agreement
Distribution Plan
<PAGE>
SCHEDULE B
I. Claims, actions, suits, investigations or proceedings pending or threatened
against the Target or its Assets or businesses:
None
II. Orders, decrees or judgments to which the Target is a party that adversely
affect, or are reasonably likely to adversely affect, the Target's financial
condition, results of operations, business, properties or Assets or ability to
consummate the transactions contemplated by the Plan:
None
<PAGE>
Exhibit B - Power of Attorney
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that J. Michael Parish constitutes and
appoints John Y. Keffer, David I. Goldstein, Max Berueffy and Anthony C. J.
Nuland and each of them to act severally as attorneys-in-fact and agents, with
full power of substitution and resubstitution, for the undersigned in any and
all capacities to sign the Registration Statement, and any amendments thereto,
on Form N-14 of Forum Funds and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, and
their substitute or substitutes, may do or cause to be done by virtue hereof.
/s/ J. Michael Parish
---------------------------------
J. Michael Parish
Dated: April 2, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that James C. Cheng constitutes and
appoints John Y. Keffer, David I. Goldstein, Max Berueffy and Anthony C. J.
Nuland and each of them to act severally as attorneys-in-fact and agents, with
full power of substitution and resubstitution, for the undersigned in any and
all capacities to sign the Registration Statement, and any amendments thereto,
on Form N-14 of Forum Funds and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, and
their substitute or substitutes, may do or cause to be done by virtue hereof.
/s/ James C. Cheng
---------------------------------
James C. Cheng
Dated: April 2, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Costas Azariadis constitutes and
appoints John Y. Keffer, David I. Goldstein, Max Berueffy and Anthony C. J.
Nuland and each of them to act severally as attorneys-in-fact and agents, with
full power of substitution and resubstitution, for the undersigned in any and
all capacities to sign the Registration Statement, and any amendments thereto,
on Form N-14 of Forum Funds and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, and
their substitute or substitutes, may do or cause to be done by virtue hereof.
/s/ Costas Azariadis
---------------------------------
Costas Azariadis
Dated: April 3, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John Y. Keffer constitutes and
appoints David I. Goldstein, Max Berueffy and Anthony C. J. Nuland and each of
them to act severally as attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned in any and all capacities
to sign the Registration Statement, and any amendments thereto, on Form N-14 of
Forum Funds and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, and their substitute
or substitutes, may do or cause to be done by virtue hereof.
/s/ John Y. Keffer
---------------------------------
John Y. Keffer
Dated: April 3, 1998
<PAGE>
FORUM FUNDS
TWO PORTLAND SQUARE
PORTLAND, MAINE 04101
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
Revoking any such prior appointments, the undersigned appoints David I.
Goldstein, Don L. Evans and Leslie K. Klenk and (or, if only one shall act, that
one) proxies with the power of substitution to vote all of the shares of
Investors Growth Fund (the "Fund"), a series of Forum Funds (the "Trust"),
registered in the name of the undersigned at the Special Meeting of Shareholders
of the Fund to be held at the offices of Forum Fund Services, LLC, Two Portland
Square, Portland, Maine 04101, on July 26, 2000, at 10:00 a.m. (Eastern Time),
and at any postponement or adjournment thereof.
The shares of beneficial interest represented by this Proxy will be
voted in accordance with the instructions given by the undersigned below. IF NO
INSTRUCTIONS ARE GIVEN, SUCH SHARES WILL BE VOTED FOR THE PROPOSAL SET FORTH
BELOW. The Trust has proposed the Proposal. The Board of Trustees recommends
voting FOR the Proposal.
PROPOSAL: To approve the Agreement and Plan of Reorganization (the
"Plan") between Investors Growth Fund ("IGF") and Investors Equity
Fund ("IEF"), each a separate series of Forum Funds. Under the Plan,
IGF will transfer all of its assets and liabilities to IEF in
exchange for shares of IEF. IEF shares will then be distributed
proportionately to the shareholders of IGF.
FOR _____ AGAINST _____ ABSTAIN _____
(NOTE: Checking the box labeled ABSTAIN will result in the shares covered by the
Proxy being treated as if they were voted AGAINST the Proposal.) Receipt is
acknowledged of the Notice and Proxy Statement for the Special Meeting of
Shareholders to be held on July 26, 2000. PLEASE SIGN AND DATE THIS PROXY IN THE
SPACE PROVIDED. Execution by shareholders who are not individuals must be made
by an authorized signatory. Executors, administrators, trustees, guardians and
others signing in a representative capacity should give their full title as
such.
Authorized Signature Date
Printed Name (and Title if Applicable)
Authorized Signature (Joint Investor or Second Signatory) Date
Printed Name (and Title if Applicable)
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the assets of Investors Growth Fund ("IGF") by and in
exhcnage for shares of Investors Equity Fund ("IEF"), each series of Forum
Funds, Two Portland Square, Portland, Maine 04101.
This Statement of Additional Information or SAI relating to the proposed
transfer of the assets of IGF to IEF in exchange for shares of IEF consists of
this cover page and the following described documents, each of which is attached
hereto or incorporated herein by reference:
(1) The SAI for IEF dated October 1, 1999 (as amended May 24, 2000).
(2) Report of Independent Accountants and financial statements of the IEF
as of May 31, 1999, contained in IEF's SAI.
(3) Unaudited financial statments of IEF as of November 30, 1999.
(4) The SAI for IGF dated August 1, 1999.
(5) Report of Independent Auditors and financial statements of IGF as of
March 31, 1999, contained in IGF's SAI.
(6) Unaudited pro forma combined financial information as of November 30,
1999. The pro forma financial statements give effect to the
reorganization as if it had occured for the periods presented.
This SAI is not a prospectus and should be read in conjunction with the
Prospectus of IEF, dated October 1, 1999. A Prospectus/Proxy Statement dated
June__, 2000 relating to the above referenced matter may be obtained without
charge by calling (207) 879-0001 or (800) 540-6807 or writing to Forum
Shareholder Services, LLC, P.O. Box 446, Portland, ME 04112. This SAI relates to
and should be read in conjunction with, such Prospectus/Proxy Statement.
This SAI is dated June__, 2000.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1999
AS AMENDED MARCH 24, 2000
INVESTORS EQUITY FUND
EQUITY INDEX FUND
INVESTMENT ADVISERS:
H.M. Payson & Co.
One Portland Square
P.O. Box 31
Portland, Maine 04112
Norwest Investment Management, Inc.
Norwest Center, Sixth Street and Marquette
Minneapolis, Minnesota 55749
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 943-6786
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated October 1, 1999, as may be amended from time to time, offering shares of
Investors Equity Fund and Equity Index Fund (the "Funds"), two separate series
of Forum Funds, a registered, open-end management investment company (the
"Trust"). This SAI is not a prospectus and should only be read in conjunction
with the Prospectus. You may obtain the Prospectus without charge by contacting
Forum Shareholder Services, LLC at the address or telephone number listed above.
Financial Statements for the Funds for the year ended May 31, 1999, included in
the Annual Report to shareholders, and are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
GLOSSARY....................................................................3
1. INVESTMENT POLICIES AND RISKS..........................................4
2. INVESTMENT LIMITATIONS................................................13
3. PERFORMANCE DATA AND ADVERTISING......................................17
4. MANAGEMENT............................................................21
5. PORTFOLIO TRANSACTIONS................................................27
6. PURCHASE AND REDEMPTION INFORMATION...................................29
7. TAXATION..............................................................32
8. OTHER MATTERS.........................................................36
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS..............................1
APPENDIX B - MISCELLANEOUS TABLES...........................................1
APPENDIX C - PERFORMANCE DATA...............................................1
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS...............................1
2
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means each of Payson, Peoples and Norwest.
"Board" means the Board of Trustees of Forum Funds.
"CFTC" means the Commodity Futures Trading Commission.
"Core Trust" means Core Trust (Delaware), a Delaware business trust.
"Core Trust Board" means the Board of Trustees of Core Trust (Delaware).
"FAcS" means Forum Accounting Services, LLC, each Fund's fund accountant.
"FAdS" means Forum Administrative Services, LLC, each Fund's administrator.
"FFS" means Forum Fund Services, LLC, each Fund's distributor.
"FSS" means Forum Shareholder Services, LLC, each Fund's transfer agent.
"FFSI" means Forum Financial Services, Inc., each Fund's distributor prior to
March 1, 1999.
"Fund" means Equity Index Fund and Investors Equity Fund.
"Fund Business Day" has the meaning ascribed thereto in the Funds' current
Prospectus.
"IRS" means Internal Revenue Service.
"Moody's" means Moody's Investor Service.
"NRSRO" means a nationally recognized statistical rating organization.
"Norwest" means Norwest Investment Management, Inc.
"Norwest Bank" means Norwest Bank Minnesota, N.A.
"Payson" means H. M. Payson & Co.
"Peoples" means Peoples Heritage Bank.
"Portfolio" means Index Portfolio.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, a Division of the McGraw Hill Companies.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means a debt security issued or guaranteed by the
United States, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
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INVESTMENT POLICIES AND RISKS
Each Fund is a diversified series of the Trust. This section discusses in
greater detail than the Funds' Prospectus certain investments that each Fund may
make.
A. SECURITY RATINGS INFORMATION
A Fund's investments in convertible securities or other fixed income securities
are subject to the credit risk relating to the financial condition of the
issuers of the securities that the Fund holds. To limit credit risk, the Fund
generally invests in: (1) convertible or other debt securities that are rated
"Baa" or higher by Moody's or "BBB" or higher by S&P at the time of purchase;
and (2) preferred stock rated "baa" or higher by Moody's or "BBB" or higher by
S&P at the time of purchase. A Fund may purchase unrated convertible securities
if, at the time of purchase, the Adviser believes that they are of comparable
quality to rated securities that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. Each Fund
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. To
the extent that the ratings given by an NRSRO may change as a result of changes
in such organizations or their rating systems, the Adviser will attempt to
substitute comparable ratings. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
ratings. An issuer's current financial condition may be better or worse than a
rating indicates.
B. EQUITY SECURITIES
1. COMMON AND PREFERRED STOCK
GENERAL Each Fund may invest in common and preferred stock. Common stock
represents an equity (ownership) interest in a company, and usually possesses
voting rights and earns dividends. Dividends on common stock are not fixed but
are declared at the discretion of the issuer. Common stock generally represents
the riskiest investment in a company. In addition, common stock generally has
the greatest appreciation and depreciation potential because increases and
decreases in earnings are usually reflected in a company's stock price.
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
RISKS The fundamental risk of investing in common and preferred stock is the
risk that the value of the stock might decrease. Stock values fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
preferred stocks, fixed-income and money market investments. The market value of
all securities, including common and preferred stocks, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measures of a company's worth. If you invest in a Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
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<PAGE>
2. CONVERTIBLE SECURITIES
GENERAL Each Fund may invest in convertible securities. Convertible securities
include debt securities, preferred stock or other securities that may be
converted into or exchanged for a given amount of common stock of the same or a
different issuer during a specified period and at a specified price in the
future. A convertible security entitles the holder to receive interest on debt
or the dividend on preferred stock until the convertible security matures or is
redeemed, converted or exchanged.
Convertible securities rank senior to common stock in a company's capital
structure but are usually subordinated to comparable non-convertible securities.
Convertible securities have unique investment characteristics in that they
generally: (1) have higher yields than common stocks, but lower yields than
comparable nonconvertible securities; (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics;
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, a Fund will be required to permit
the issuer to redeem the security, convert it into the underlying common stock
or sell it to a third party.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Smaller capitalized companies whose
stock price may be volatile, however, typically issue convertible securities. In
addition, the price of a convertible security may reflect variations in the
price of the underlying in a way that non-convertible debt does not. The extent
to which such risk is reduced, however, depends in large upon the degree to
which convertible security sells above its value as a fixed income security.
3. WARRANTS
GENERAL Each Fund may invest in warrants. Warrants are securities, typically
issued with preferred stock or bonds that give the holder the right to purchase
a given number of shares of common stock at a specified price and time. The
price usually represents a premium over the applicable market value of the
common stock at the time of the warrant's issuance. Warrants have no voting
rights with respect to the common stock, receive no dividends and have no rights
with respect to the assets of the issuer. Each Fund will limit its purchases of
warrants (at the time of investment) to not more than 5% of the value of its net
assets (other than those that have been acquired in units or attached to other
securities). No more than 2% of a Fund's net assets (at the time of investment)
may be invested in warrants that are not listed on the New York or American
Stock Exchange.
RISKS Investments in warrants involve certain risks, including the possible lack
of a liquid market for the resale of the warrants, potential price fluctuations
due to adverse market conditions or other factors and failure of the price of
the common stock to rise. If a warrant is not exercised within the specified
time period, it becomes worthless.
4. DEPOSITARY RECEIPTS
GENERAL Each Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") and other similar
securities of foreign issuers in order to obtain exposure to foreign securities
markets. Depositary receipts are receipts for shares of a foreign-based company
and they evidence ownership of the underlying securities issued by that foreign
company. ADRs typically are issued by a U.S. bank or trust company and are
designed for use in U.S. securities markets. EDRs are receipts issued by a
European financial institution and are designed for use in European securities
markets. Investors Equity Fund expects to limit foreign investments to less than
10% of its total assets.
RISKS Unsponsored depositary receipts may be created without the participation
of the foreign issuer Holders of these receipts generally bear all the costs of
the depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depositary of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
5
<PAGE>
C. FIXED INCOME INVESTMENTS
Equity Index Fund may invest in the following:
1. VARIABLE AND FLOATING RATE SECURITIES
The Fund may invest in variable and floating rate securities. Debt securities
have variable or floating rates of interest and, under certain limited
circumstances, may have varying principal amounts. These securities pay interest
at rates that are adjusted periodically according to a specified formula,
usually with reference to one or more interest rate indices or market interest
rates (the "underlying index"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. These adjustments minimize changes in the market value of
the obligation. Similar to fixed rate debt instruments, variable and floating
rate instruments are subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. The rate of interest
on securities may be tied to U.S. Government Securities or indices on those
securities as well as any other rate of interest or index. Certain variable rate
securities pay interest at a rate that varies inversely to prevailing short-term
interest rates (sometimes referred to as "inverse floaters"). Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This mechanism may increase the volatility
of the security's market value while increasing the security's yield.
Variable and floating rate demand notes of corporations are redeemable upon a
specified period of notice. These obligations include master demand notes that
permit investment of fluctuating amounts at varying interest rates under direct
arrangements with the issuer of the instrument. The issuer of these obligations
often has the right, after a given period, to prepay the outstanding principal
amount of the obligations upon a specified number of days' notice.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, the Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Fund intends to purchase these securities only when its Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Adviser may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that the Adviser
will be able to limit the effects of principal fluctuations and, accordingly,
the Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for the Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. The Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Adviser monitors the liquidity of
the Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
2. FINANCIAL INSTITUTION OBLIGATIONS
The Fund may invest in obligations of financial institutions, including
certificates of deposit, bankers' acceptances, time deposits, and other
short-term debt obligations.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft that
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand by the Fund but may
be subject to early withdrawal penalties which could reduce the Fund's
performance. Although fixed time deposits do not in all cases have a secondary
market, there are no contractual restrictions on the Funds' rights to transfer a
beneficial interest in the deposits to third parties.
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<PAGE>
3. COMMERCIAL PAPER
The Fund may invest in commercial paper. Companies issue commercial paper to
finance their current obligations. Commercial paper is short-term unsecured
promissory notes and usually has a maturity of less than 9 months.
4. RISKS
GENERAL The market value of the interest-bearing debt securities held by the
Fund will be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. The longer the remaining
maturity (and duration) of a security, the more sensitive the security is to
changes in interest rates. All debt securities, including U.S. Government
Securities, can change in value when there is a change in interest rates.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of that issuer's debt securities. As a result, an investment in
a Fund is subject to risk even if all debt securities in the Fund's investment
portfolio are paid in full at maturity. In addition, certain debt securities may
be subject to extension risk, which refers to the change in total return on a
security resulting from an extension or abbreviation of the security's maturity.
Yields on debt securities, including municipal securities, are dependent on a
variety of factors, including the general conditions of the debt securities
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Debt securities with longer maturities tend to produce
higher yields and are generally subject to greater price movements than
obligations with shorter maturities. A portion of the municipal securities held
by a Fund may be supported by credit and liquidity enhancements, such as letters
of credit (which are not covered by federal deposit insurance) or puts or demand
features of third party financial institutions, generally domestic and foreign
banks.
The issuers of debt securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors that
may restrict the ability of the issuer to pay, when due, the principal of and
interest on its debt securities. The possibility exists therefore, that, as a
result of bankruptcy, litigation or other conditions, the ability of an issuer
to pay, when due, the principal of and interest on its debt securities may
become impaired.
CREDIT RISK The Fund's investments in debt securities are subject to credit risk
relating to the financial condition of the issuers of the securities that each
Fund holds. To limit credit risk, the Funds may only generally invests in (1)
convertible debt securities that are rated "Baa" or higher by Moody's or "BBB"
or higher by S&P at the time of purchase; and (2) preferred stock rated "baa" or
higher by Moody's or "BBB" or higher by S&P at the time of purchase or in the
top two short-term rating categories by an NRSRO. Moody's, Standard & Poor's and
other NRSROs are private services that provide ratings of the credit quality of
debt obligations, including convertible securities. A description of the range
of ratings assigned to various types of securities by several NRSROs is included
in Appendix A. The Adviser may use these ratings to determine whether to
purchase, sell or hold a security. Ratings are not, however, absolute standards
of quality. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Consequently, similar securities with the same rating may have different market
prices. In addition, rating agencies may fail to make timely changes in credit
ratings and the issuer's current financial condition may be better or worse than
a rating indicates.
The Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
The Fund may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Fund may
purchase. Unrated securities may not be as actively traded as rated securities.
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D. TEMPORARY DEFENSIVE POSITION
Each Fund may assume a temporary defensive position and may invest without limit
in money market instruments that are of prime quality. Prime quality instruments
are those instruments that are rated in one of the two highest short-term rating
categories by an NRSRO or, if not rated, determined by the Adviser to be of
comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which a Fund may invest include
U.S. Government Securities, commercial paper, time deposits, banker's
acceptances and certificates of deposit, repurchase agreements and money market
mutual funds. The money market instruments in which a Fund may invest have
variable and floating rates of interest. To the extent that Investors Equity
Fund may invest in foreign issuers, the Fund may also hold cash and bank
instruments denominated in any major foreign currency.
E. OPTIONS AND FUTURES
1. GENERAL
Equity Index Fund may purchase or write (sell) put and call options on
securities, stock indices and stock index futures. The Fund may employ these
investment strategies to enhance the Fund's performance or to hedge against a
decline in the value of securities owned by the Fund. The Fund may purchase put
and call options written by others and may write covered options which are
exchange-traded or over-the-counter options. An option is "covered" if the Fund
maintains with its custodian a diversified portfolio of securities comprising
the index or liquid assets equal to the contract value. A call option is also
covered if the Fund holds an offsetting call on the same instrument or index as
the call written. The Fund invests (purchase and sell) in futures and options
for hedging purposes.
2. OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price. A put option gives its purchaser, in
return for a premium, the right to sell the underlying security at a specified
price during the term of the option. The writer of the put, who receives the
premium, has the obligation to buy, upon exercise of the option, the underlying
security at the exercise price. The amount of a premium received or paid for an
option is based upon certain factors, including the market price of the
underlying security, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security, the option period
and interest rates.
OPTIONS ON INDICES A stock index option is an option contract whose value is
based on the value of a stock index at some future point in time. Stock indexes
fluctuate with changes in the market values of the stocks included in the index.
The effectiveness of purchasing or writing stock index options will depend upon
the extent to which price movements in a Fund's investment portfolio correlate
with price movements of the stock index selected. Accordingly, successful use by
a Fund of options on stock indexes will be subject to the Adviser's ability to
correctly analyze movements in the direction of the stock market generally or of
particular industry or market segments. When a Fund writes an option on a stock
index, the Fund will place in a segregated account with the Fund's custodian
cash or liquid securities in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is open or
otherwise will cover the transaction.
INDEX FUTURES CONTRACTS The Fund may invest in stock index futures contracts. A
stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the securities comprising the index
is made. Generally these futures contracts are closed out prior to the
expiration date of the contracts.
OPTIONS AND FUTURES CONTRACTS The purchase of options on stock index futures
contracts are similar to other options contracts as described above, where a
Fund pays a premium for the option to purchase or sell a stock index futures
contract for a specified price at a specified date. With options on stock index
futures contracts, the Fund risks the loss of the premium paid for the option.
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An option on a futures contract gives the purchaser a right to assume a position
in a futures contract rather than to purchase or sell stock. Upon exercise of
the option, the delivery of the futures position to the holder of the option
will be accompanied by transfer to the holder of an accumulated balance
representing the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option in the future.
3. RISKS OF OPTIONS AND FUTURES TRANSACTIONS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which a
Fund invest; and (4) lack of assurance that a liquid secondary market will exist
for any particular instrument at any particular time, which, among other things,
may hinder a Fund's ability to limit exposures by closing its positions.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices or related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. A Fund may use various futures contracts that
are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market in those
contracts will develop or continue to exist. A Fund's activities in the futures
and options markets may result in higher portfolio turnover rates and additional
brokerage costs, which could reduce a Fund's yield.
4. OPTIONS AND FUTURES LIMITATIONS
The Fund may enter into futures contracts if the aggregate of initial margin
deposits for all open futures positions does not exceed 5%. The Funds may not
purchase a call or put option of futures contracts if the premiums associated
with all such options held by the Fund would exceed 5% of the Fund's total
assets as of the date the option is purchased.
The Fund will not sell a put option if the exercise value of all put options
written by the Fund would exceed 50% of the Fund's total assets or sell a call
if the exercise value of all calls written would exceed the value of the Fund's
assets In addition, the current market value of all open futures positions held
by the Fund will not exceed 5% of its total assets. Finally, the Fund will not
buy an option if as a result, more than 5% of the value of the Fund's total
assets would be so invested.
F. ILLIQUID AND RESTRICTED SECURITIES
1. GENERAL
Each Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 15% of a Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act, except as otherwise determined by
the Adviser ("restricted securities").
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2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and a Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. A Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty-satisfying redemptions. There can be no
assurance that a liquid market will exist for any security at any particular
time. Any security, including securities determined by the Adviser to be liquid,
can become illiquid.
3. DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
G. FOREIGN SECURITIES
Investors Equity Fund may invest in foreign securities. Investments in the
securities of foreign issuers may involve risks in addition to those normally
associated with investments in the securities of U.S. issuers. All foreign
investments are subject to risks of: (1) foreign political and economic
instability; (2) adverse movements in foreign exchange rates; (3) the imposition
or tightening of exchange controls or other limitations on repatriation of
foreign capital; and (4) changes in foreign governmental attitudes toward
private investment, including potential nationalization, increased taxation or
confiscation of your assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States, and therefore, less information may be
available about foreign companies than is available about issuers of comparable
U.S. companies. Foreign securities also may trade less frequently and with lower
volume and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by Investors Equity Fund. Exchange
rates are influenced generally by the forces of supply and demand in the foreign
currency markets and by numerous other political and economic events occurring
outside the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and Investors Equity Fund is required to compute and distribute
income in U.S. dollars. Accordingly, a decline in the value of a particular
foreign currency against the U.S. dollar after the Fund's income has been earned
and computed in U.S. dollars may require the Fund to liquidate portfolio
securities to acquire sufficient U.S. dollars to make a distribution. Similarly,
if the exchange rate declines between the time the Fund incurs expenses in U.S.
dollars and the time such expenses are paid, the Fund may be required to
liquidate additional foreign securities to purchase the U.S. dollars required to
meet such expenses.
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H. REPURCHASE AGREEMENTS
1. GENERAL
Each Fund may enter into repurchase agreements. Repurchase agreements are
transactions in which a Fund purchases securities from a bank or securities
dealer and simultaneously commits to resell the securities to the bank or dealer
at an agreed-upon date and at a price reflecting a market rate of interest
unrelated to the purchased security. During the term of a repurchase agreement,
each Fund's custodian maintains possession of the purchased securities and any
underlying collateral, which is maintained at not less than 100% of the
repurchase price. Repurchase agreements allow a Fund to earn income on its
uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments.
2. RISKS
Repurchase agreements involve credit risk. Credit risk is the risk that a
counterparty to a transaction will be unable to honor its financial obligation.
In the event that bankruptcy, insolvency or similar proceedings are commenced
against a counterparty, a Fund may have difficulties in exercising its rights to
the underlying securities or currencies, as applicable. A Fund may incur costs
and expensive time delays in disposing of the underlying securities and it may
suffer a loss. Failure by the other party to deliver a security or currency
purchased by a Fund may result in a missed opportunity to make an alternative
investment. Favorable insolvency laws that allow a Fund, among other things, to
liquidate the collateral held in the event of the bankruptcy of the counterparty
reduce counterparty insolvency risk with respect to repurchase agreements.
I. LEVERAGE TRANSACTIONS
Each Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to a Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into reverse
repurchase agreements, purchasing securities on a when-issued, delayed delivery
or forward commitment basis and the use of swaps and related agreements are
transactions that result in leverage. Each Fund uses these investment techniques
only when the Adviser believes that the leveraging and the returns available to
a Fund from investing the cash will provide investors a potentially higher
return.
1. BORROWING
Each Fund may borrow money from banks for temporary or emergency purposes in an
amount up to 33 1/3% of a Fund's total assets. Each Fund may borrow money for
other purposes so long as such borrowings do not exceed 5% of a Fund's total
assets. The purchase of securities is prohibited if a Fund's borrowing exceeds
5% or more of a Fund's total assets.
Equity Index Fund may also enter into reverse repurchase agreements. A reverse
repurchase agreement is a transaction in which a Fund sells securities to a bank
or securities dealer and simultaneously commits to repurchase the security from
the bank or dealer at an agreed upon date and at a price reflecting a market
rate of interest unrelated to the sold security. An investment of a Fund's
assets in reverse repurchase agreements will increase the volatility of the
Fund's net asset value per share. A Fund will use the proceeds of reverse
repurchase agreements to fund redemptions or to make investments.
2. SECURITIES LENDING
Securities loans must be continuously collateralized and the collateral must
have market value at least equal to the value of a Fund's loaned securities,
plus accrued interest. In a portfolio securities lending transaction, a Fund
receives from the borrower an amount equal to the interest paid or the dividends
declared on the loaned securities during the term of the loan as well as the
interest on the collateral securities, less any fees (such as finders or
administrative fees) the Fund pays in arranging the loan. The Fund may share the
interest it receives on the collateral securities with the borrower. The terms
of a Fund's loans permit the Fund to reacquire loaned securities on five
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business days' notice or in time to vote on any important matter. Loans are
subject to termination at the option of a Fund or the borrower at any time, and
the borrowed securities must be returned when the loan is terminated. The Fund
will limit securities lending to not more than 33 1/3% of the value of its total
asset.
3. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase securities offered on a "when-issued" or
"delayed-delivery" basis and may purchase or sell securities on a "forward
commitment" (including "dollar roll" transactions) basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and thus, no
interest accrues to the purchaser from the transaction. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value. Equity
Index Fund will not purchase securities on a when-issued, delayed delivery or
forward commitment basis if, as a result, more than 15% of the value of the
Fund's total assets would be committed to such transactions.
4. DOLLAR ROLL TRANSACTIONS
Equity Index Fund may enter into dollar roll transactions. Dollar roll
transactions are transactions in which the Fund sells securities to a bank or
securities dealer, and makes a commitment to purchase similar, but not
identical, securities at a later date from the same party. During the period
between the commitment and settlement, no payment is made for the securities
purchased and no interest or principal payments on the securities accrue to the
purchaser, but the Fund assumes the risk of ownership. The Fund is compensated
for entering into dollar roll transactions by a dealer for the difference
between the current sales price and the forward price for the future purchase,
as well as by the interest earned on the cash proceeds of the initial sale. The
Fund will engage in dollar roll transactions for the purpose of acquiring
securities for their investment portfolios. The Fund will limit its obligations
on dollar roll transactions to 35% of the Fund's net assets.
5. RISKS
Leverage creates the risk of magnified capital losses. Borrowings and other
liabilities that exceed the equity base of a Fund may magnify losses incurred by
a Fund. Leverage may involve the creation of a liability that requires a Fund to
pay interest (for instance, reverse repurchase agreements) or the creation of a
liability that does not entail any interest costs (for instance, forward
commitment costs).
The risks of leverage include a higher volatility of the net asset value of a
Fund's securities. So long as a Fund is able to realize a net return on its
investment portfolio that is higher than the interest expense incurred, if any,
leverage will result in higher current net investment income for a Fund than if
the Fund were not leveraged. Changes in interest rates and related economic
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on a Fund's investment
portfolio, the benefit of leveraging will be reduced, and, if the interest
expense on borrowings were to exceed the net return to investors, a Fund's use
of leverage would result in a lower rate of return than if the Fund were not
leveraged. In an extreme case, if a Fund's current investment income were not
sufficient to meet the interest expense of leveraging, it could be necessary for
the Fund to liquidate certain of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, each Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to a Fund's
commitments under these transactions.
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J. CORE AND GATEWAY(R)
Equity Index Fund currently seeks to obtain its investment objective through the
Core and Gateway(R) structure. Investors Equity Fund may at some point in the
future seek to achieve its investment objective by converting to a Core and
Gateway structure. A Fund operating under a Core and Gateway structure holds, as
its only investment, shares of another investment company having substantially
the same investment objective and policies. The Board will not authorize
conversion to a Core and Gateway structure if it would materially increase costs
to the Fund's shareholders.
K. YEAR 2000
The date change transition to the Year 2000 prompted concern that certain
computer systems may not process date-related information properly on and after
January 1, 2000. The Adviser and each Fund's administrator have addressed and
continue to monitor this Year 2000 issue and its possible impact on their
systems. Each Fund's other service providers have informed the Fund that they
are taking similar measures. Services provided to each Fund or any companies in
which it invests could still be adversely affected by a computer's failure to
accurately process date related information and, therefore, may lower the value
of your shares. While no adverse consequences have yet arisen, or have been
reported to the Adviser or each Fund's administrator, there is still the
possibility that certain computer systems may not be able to process
date-related information at some point during the year.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of each Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which a Fund may rely; and (2) the term Code includes the rules thereunder, IRS
interpretations and any private letter ruling or similar authority upon which a
Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy of a Fund and a Fund's investment objective cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. A nonfundamental
policy of a Fund may be changed by the Board without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, which are
fundamental policies of the Fund. Each Fund may not:
INVESTORS EQUITY FUND
1. DIVERSIFICATION
With respect to 75% of its assets, purchase a security if as a result: (1) more
than 5% of its assets would be invested in the securities of any single issuer;
or (2) the Fund would own more than 10% of the outstanding voting securities of
any single issuer. This restriction does not apply to securities issued by the
U.S. Government, its agencies or instrumentalities.
2. CONCENTRATION
Purchase a security if, as a result, more than 25% of the Fund's total assets
would be invested in securities of issuers conducting their principal business
activities in the same industry; provided, however, there is no limit on
investments in U.S. Government Securities, repurchase agreements covering U.S.
Government Securities, municipal securities and issuers domiciled in a single
country; that financial service companies are classified according to the end
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<PAGE>
users of their services (for example, automobile finance, bank finance and
diversified finance); and that utility companies are classified according to
their services (for example, gas, gas transmission, electric and gas, electric
and telephone. Notwithstanding anything to the contrary, to the extent permitted
by the 1940 Act, the Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund treats the
assets of the investment companies in which it invests as its own for purposes
of this policy.
3. ILLIQUID SECURITIES
Invest more than 15% of its assets in "illiquid securities," which are
securities that cannot be disposed of within seven days at their current value.
For purposes of this limitation, "illiquid securities" includes, except in those
circumstances described below: (1) "restricted securities," which are securities
that cannot be resold to the public without registration under the Federal
Securities laws and (2) securities of issuers having a record (together with all
predecessors) of less than three years of continuous operation.
4. BORROWING MONEY
Borrow money for temporary or emergency purposes, including the meeting of
redemption requests, but not in excess of 33 1/3% of the value of the Fund's
total assets (as computed immediately after the borrowing).
5. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate, provided that the Fund may invest in securities
issued by companies that invest in real estate or interests therein.
6. MAKING LOANS
Lend money except in connection with the acquisition of that portion of publicly
distributed debt securities which the Fund's investment policies and
restrictions permit it to purchase; the Fund may also make loans of portfolio
securities and enter into repurchase agreements.
7. PURCHASES AND SALES OF COMMODITIES
Invest in commodities or commodity contracts (other than hedging instruments,
which it may use as permitted by any of its other fundamental policies, whether
or not any such hedging instrument is considered to be a commodity or a
commodity contract).
8. UNDERWRITING ACTIVITIES
Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under U.S. securities laws.
9. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except to the extent permitted by the 1940 Act.
10. INVESTING FOR CONTROL
Make investments for the purpose of exercising control over management.
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EQUITY INDEX FUND
1. DIVERSIFICATION
With respect to 75% of its assets, purchase a security (other than a U.S.
Government Security or a security of an investment company) if as a result: (1)
more than 5% of its assets would be invested in the securities of any single
issuer; or (2) the Fund would own more than 10% of the outstanding voting
securities of any single issuer.
2. CONCENTRATION
Purchase a security if, as a result, more than 25% of the Fund's total assets
would be invested in securities of issuers conducting their principal business
activities in the same industry; provided, however, that there is no limit on
investments in U.S. Government Securities, repurchase agreements covering U.S.
Government Securities, foreign government securities, mortgage-related or
housing-related securities and issuers domiciled in a single country; that
financial service companies are classified according to the end users of their
services (for example, automobile finance, bank finance and diversified
finance); and that utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric and telephone.
3. BORROWING MONEY
Borrow money from a bank for temporary or emergency purposes, including the
meeting of redemption requests, but not in excess of 33 1/3% of the value of the
Fund's total assets (as computed immediately after the borrowing).
4. PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate, any interest therein or real estate limited
partnership interests, except that the Funds may invest in debt obligations
secured by real estate or interests therein or securities issued by companies
that invest in real estate or interests therein.
5. MAKING LOANS
Make loans, except the Fund may enter into repurchase agreements, purchase debt
securities that are otherwise permitted investments and lend portfolio
securities.
6. PURCHASE AND SALE OF COMMODITIES
Purchase or sell physical commodities or contracts, options or options on
contracts to purchase or sell physical commodities provided that currency and
currency-related contracts and contracts on indices are not be deemed to be
physical commodities.
7. UNDERWRITING ACTIVITIES
Underwrite securities of other issuers, except to the extent that the Fund may
be considered to be acting as an underwriter in connection with the disposition
of portfolio securities.
8. ISSUANCE OF SENIOR SECURITIES
Issue senior securities except to the extent permitted by the 1940 Act.
B. NONFUNDAMENTAL LIMITATIONS
Each Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. Each Fund may:
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INVESTORS EQUITY FUND
1. BORROWING
Not borrow money or enter into leverage transactions if, as a result, the total
of borrowings and liabilities under leverage transactions (other than for
temporary or emergency purposes), would exceed an amount equal to 5% of the
Fund's total assets. The Fund may not purchase or otherwise acquire any security
if the total of borrowings and liabilities under leverage transactions would
exceed an amount equal to 5% of the Fund's total assets.
2. EXERCISING CONTROL OF ISSUERS
Not make investments for the purpose of exercising control of an issuer.
Investments by the Fund in entities created under the laws of foreign countries
solely to facilitate investment in securities in that country will not be deemed
the making of investments for the purpose of exercising control.
3. SHORT SALES AND PURCHASING ON MARGIN
Not sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short (short sales "against
the box"), and provided that transactions in futures contracts and options are
not deemed to constitute selling securities short. The Fund may not purchase
securities on margin, except that the Fund may use short-term credit for the
clearance of the Fund's transactions, and provided that initial and variation
margin payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
4. SECURITIES OF INVESTMENT COMPANIES
Not invest in the securities of any investment company except to the extent
permitted by the 1940 Act.
5. OPTIONS AND FUTURES CONTRACTS
Invest in futures or options contracts regulated by the CFTC for: (1) bona fide
hedging purposes within the meaning of the rules of the CFTC and (2) for other
purposes if, as a result, no more than 5% of the Fund's net assets would be
invested in initial margin and premiums (excluding amounts "in-the-money")
required to establish the contracts. The Fund: (1) will not hedge more than 50%
of its total assets by selling futures contracts, buying put options, and
writing call options (so called "short positions"); (2) will not buy futures
contracts or write put options whose underlying value exceeds 25% of the Fund's
total assets; and (3) will not buy call options with a value exceeding 5% of the
Fund's total assets.
EQUITY INDEX FUND
1. ILLIQUID SECURITIES
Not invest or hold more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.
2. SECURITIES OF INVESTMENT COMPANIES
Invest in shares of other investment companies to the extent permitted under the
1940 Act, including the rules, regulations and exemptions thereunder.
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3. SHORT SALES
Not sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short (short sales "against
the box"), and provided that transactions in futures contracts and options are
not deemed to constitute selling securities short.
4. PURCHASING ON MARGIN
Not purchase securities on margin (except for short-term credits necessary for
the clearance of transactions).
5. LENDING OF PORTFOLIO SECURITIES
Lend securities from its portfolio to approved brokers, dealers and financial
institutions, to the extent permitted under the 1940 Act, including the rules,
regulations and exemptions thereunder, which currently limit such activities to
one-third of the value of a Portfolio's total assets (including the value of the
collateral received). Any such loans of portfolio securities will be fully
collateralized based on values that are marked-to-market daily.
6. OPTIONS AND FUTURES CONTRACTS
May invest in futures or options contracts regulated by the CFTC for (i) bona
fide hedging purposes within the meaning of the rules of the CFTC and (ii) for
other purposes if, as a result, no more than 5% of the Fund's net assets would
be invested in initial margin and premiums (excluding amounts "in-the-money")
required to establish the contracts.
7. INVESTING FOR CONTROL
Not make investments for the purpose of exercising control or management,
provided that this restriction does not limit the Fund's investment in
securities of other investment companies or investments in entities created
under the laws of foreign countries to facilitate investment in securities of
that country.
3. PERFORMANCE DATA AND ADVERTISING
A. PERFORMANCE DATA
A Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
A Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, Inc., iMoneyNet, Inc. (IBC Financial Data, Inc.),
CDA/Wiesenberger or other companies which track the investment
performance of investment companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell Midcap (TM) Index, the Russell 1000(R)
Value Index, the Russell 2500TM Index, the Morgan Stanley - Europe,
Australia, Far East Index, the Dow Jones Industrial Average, the
Salomon Brothers Bond Index, the Lehman Bond Index, U.S. Treasury
bonds, bills or notes and changes in the Consumer Price Index as
published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of a Fund but rather are standards by
which the Funds' Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
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The Funds may refer to: (1) general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its "Stocks,
Bonds, Bills and Inflation Yearbook"); (2) mutual fund performance rankings and
other data published by Fund Tracking Companies; and (3) material and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
The Funds' performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
A Fund's performance may be quoted in terms of yield or total return. Table 1 in
Appendix C includes performance information for each Fund.
1. SEC YIELD
Standardized SEC yields for the Funds used in advertising are computed by
dividing a Fund's interest income (in accordance with specific standardized
rules) for a given 30 day or one month period, net of expenses, by the average
number of shares entitled to receive income distributions during the period,
dividing this figure by the Fund's net asset value per share at the end of the
period and annualizing the result (assuming compounding of income in accordance
with specific standardized rules) in order to arrive at an annual percentage
rate.
Capital gains and losses generally are excluded from these calculations.
Income calculated for the purpose of determining a Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for a Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing a
Fund's performance, investors should be aware that a Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in a Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
The yields of a Fund are not fixed or guaranteed, and an investment in a Fund is
not insured or guaranteed. Accordingly, yield information should not be used to
compare shares of a Fund with investment alternatives, which, like money market
instruments or bank accounts, may provide a fixed rate of interest. Also, it may
not be appropriate to compare a Fund's yield information directly to similar
information regarding investment alternatives that are insured or guaranteed.
Yield quotations are based on amounts invested in a Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
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2. TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price and assuming that all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in a Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period; and (2) calculates the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual returns are a convenient
means of comparing investment alternatives, investors should realize that
performance is not constant over time but changes from year to year, and that
average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in a Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
A Fund may quote unaveraged or cumulative total returns that reflect a
Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a Fund's front-end sales charge or contingent deferred
sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
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C. OTHER MATTERS
A Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging; (6) biographical descriptions of a Fund's portfolio managers and the
portfolio management staff of a Fund's Adviser, summaries of the views of the
portfolio managers with respect to the financial markets, or descriptions of the
nature of the Adviser's and its staff's management techniques; (7) the results
of a hypothetical investment in a Fund over a given number of years, including
the amount that the investment would be at the end of the period; (8) the
effects of investing in a tax-deferred account, such as an individual retirement
account or Section 401(k) pension plan; (9) the net asset value, net assets or
number of shareholders of a Fund as of one or more dates; and (10) a comparison
of a Fund's operations to the operations of other funds or similar investment
products, such as a comparison of the nature and scope of regulation of the
products and the products' weighted average maturity, liquidity, investment
policies, and the manner of calculating and reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,188 at the end
of the second year (an increase of $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of a Fund's performance.
A Fund may advertise information regarding the effects of systematic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month in a Fund for
a period of six months the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
- ------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
In connection with its advertisements, a Fund may provide "shareholder's
letters" that serve to provide shareholders or investors with an introduction to
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices.
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<PAGE>
4. MANAGEMENT
A. TRUSTEES AND OFFICERS
THE TRUST
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C>
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
- -------------------------------------------- -----------------------------------------------------------------------
- -------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*, Chairman and President Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 services holding company)
Two Portland Square Director, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Visiting Professor of Economics, Athens University of Economics and
Department of Economics Business 1998 - 1999
University of California Trustee of one other investment company for which Forum Financial
Los Angeles, CA 90024 Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
James C. Cheng, Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in New
27 Temple Street England)
Belmont, MA 02718 Trustee of one other investment company for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner, Winthrop, Stimson, Putnam & Roberts (law firm) 1989 - 1995
40 West 57th Street Trustee of one other investment company for which Forum Financial
New York, NY 10019 Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Stephen J. Barrett, Vice President Manager of Client Services and Senior Relationship Manager, Forum
Born: November 14, 1968 Financial Group, LLC since 1996
Two Portland Square Senior Product Manager, Fidelity Investments, 1994 - 1996
Portland, Maine 04101 Officer of four other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein, Vice President Counsel and General Counsel, Forum Financial Group LLC
Born: August 3, 1961 Officer of five other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
- -------------------------------------------- -----------------------------------------------------------------------
Ronald H. Hirsch, Treasurer Managing Director, Operations/Finance and Operations/Sales, Forum
Born: October 14, 1943 Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991 - 1998
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Assistant Counsel and Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993 -
Two Portland Square 1998
Portland, ME 04101 Officer of one other investment company for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
</TABLE>
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<PAGE>
CORE TRUST
The names of the Trustees and officers of Core Trust, their positions with Core
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of Core Trust is indicated by an asterisk (*). The
Board supervises Index Portfolio's activities, monitors its contractual
arrangements with various service providers and decides upon matters of general
policy.
<TABLE>
<S> <C>
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
AGE AND ADDRESS PAST 5 YEARS
- --------------------------------------------------- ----------------------------------------------------------------
John Y. Keffer*,Chairman and President
- --------------------------------------------------- ----------------------------------------------------------------
Costas Azariadas, Trustee
- --------------------------------------------------- ----------------------------------------------------------------
James C. Cheng, Trustee
- --------------------------------------------------- ----------------------------------------------------------------
J. Michael Parish, Trustee
- --------------------------------------------------- ----------------------------------------------------------------
David I. Goldstein, Vice President
- --------------------------------------------------- ----------------------------------------------------------------
Ronald H. Hirsch, Treasurer
- --------------------------------------------------- ----------------------------------------------------------------
Don L. Evans, Secretary Assistant Counsel and Counsel, Forum Financial Group, since
Born: August 12, 1948 1995
Two Portland Square Associate, Weiner & Strother (law firm), 1994 - 1995
Portland, Maine 04101 Officer of two other investment companies for which Forum
Financial Group, LLC provides services
- --------------------------------------------------- ----------------------------------------------------------------
</TABLE>
B. COMPENSATION OF TRUSTEES AND OFFICERS
Effective February 7, 2000, each Trustee of the Trust will be paid a quarterly
retainer fee of $1,750 for his service to the Trust. In addition, each Trustee
will be paid a fee of $500 for each Board meeting attended (whether in person or
by electronic communication). Trustees are also reimbursed for travel and
related expenses incurred in attending Board meetings. Mr. Keffer receives no
compensation (other than reimbursement for travel and related expenses) for his
service as Trustee of the Trust. No officer of the Trust is compensated by the
Trust but officers are reimbursed for travel and related expenses incurred in
attending Board meetings held outside of Portland, Maine.
The following table sets forth the fees paid to each Trustee by the Trust and
the Fund Complex that includes all series of the Trust and Core Trust for the
fiscal year ended May 31, 1999.
COMPENSATION TOTAL COMPENSATION FROM
TRUSTEE FROM TRUST TRUST AND FUND COMPLEX
John Y. Keffer $0 $0
Costas Azariadis $13,300 $23,800
James C. Cheng $14,800 $25,300
J. Michael Parish $14,800 $25,300
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
INVESTORS EQUITY FUND
Payson serves as investment adviser to Investors Equity Fund pursuant to an
investment advisory agreement (the "Agreement") with the Trust. Under the
Agreement, the Adviser furnishes at its own expense all services, facilities and
personnel necessary to manage the Fund's investments and effect portfolio
transactions for the Fund.
Payson has entered into an investment subadvisory agreement with Peoples
Heritage Bank ("Peoples") under which Peoples exercises certain investment
discretion over the assets (or a portion of assets) of Investors Equity Fund.
Subject to the general supervision of the Board, Peoples is responsible for,
among other things, developing a continuing investment program for Investors
22
<PAGE>
Equity Fund in accordance with its investment objective and reviewing the
investment strategies and policies of Investors Equity Fund.
EQUITY INDEX FUND
Norwest is the investment adviser to Index Portfolio, in which Equity Index Fund
invests, and is required to furnish at its expense all services, facilities and
personnel necessary to manage the investments of, and effect portfolio
transactions for that Portfolio.
2. OWNERSHIP OF ADVISERS
Payson is a privately owned company incorporated in 1987 under the laws of the
State of Maine.
Peoples is a subsidiary of Peoples Heritage Financial Group, a multi-bank
holding company.
Norwest is a subsidiary of Norwest Bank. Norwest Bank is a subsidiary of Wells
Fargo & Company, a national bank holding company.
3. FEES
The Advisers' fees are calculated as a percentage of a Fund's average net
assets. The fee is accrued daily by each Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from a Fund, the Advisers may also act
and be compensated as investment manager for its clients with respect to assets
they invested in the Fund. If you have a separately managed account with the
Adviser with assets invested in the Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
Table 1 in Appendix B shows the dollar amount of the fees payable by each Fund
to its Adviser, the amount of fees waived by the Advisers, and the actual fees
received by the Advisers. The data are for the past three fiscal years.
4. OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's Agreement remains in effect for a period of two years from the
date of its effectiveness. Subsequently, the Agreement must be approved at least
annually by the Board or by majority vote of the shareholders, and in either
case by a majority of the Trustees who are not parties to the agreement or
interested persons of any such party.
The Agreement is terminable without penalty by the Trust regarding the Fund on
30 days' written notice when authorized either by vote of the Fund's
shareholders or by a majority vote of the Board, or by the Adviser on 90 days'
written notice to the Trust. The Agreement terminates immediately upon
assignment.
Under the Agreement, Payson is not liable for any action or inaction in the
absence of bad faith, willful misconduct or gross negligence in the performance
of its duties.
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<PAGE>
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Prior to March 1, 1999, Forum Financial Services, Inc.
(FFSI) was the distributor of each Fund pursuant to similar terms and
compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under a distribution agreement (the "Distribution Agreement") with the Trust,
FFS acts as the agent of the Trust in connection with the offering of shares of
the Funds. FFS continually distributes shares of the Funds on a best effort
basis. FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Funds.
FFS may enter into agreements with selected broker-dealers, banks or other
financial institutions for distribution of shares of the Funds. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Funds are sold with sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Funds.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through which they purchase shares, which may include
charges, investment minimums, cutoff times and other restrictions in addition
to, or different from, those listed herein. Information concerning any charges
or services will be provided to customers by the financial institution.
Investors purchasing shares of a Fund in this manner should acquaint themselves
with their institution's procedures and should read the Prospectus in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of the Funds'
shares. Table 2 in Appendix B shows the aggregate sales charges paid to FFSI,
the amount of sales charge reallowed by FFSI, and the amount of sales charge
retained by FFSI. The data are for the past three years (or shorter depending on
a Fund's commencement of operations).
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
The Distribution Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party.
The Distribution Agreement is terminable without penalty by the Trust with
respect to a Fund on 60 days' written notice when authorized either by vote of
the Fund's shareholders or by a majority vote of the Board, or by FFS on 60
days' written notice to the Trust.
Under the Distribution Agreement, FFS is not liable to the Trust or the Trust's
shareholders for any error of judgment or mistake of law, for any loss arising
out of any investment or for any act or omission in the performance of its
duties to a Fund, except for willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of reckless disregard of its
obligations and duties under the agreement.
24
<PAGE>
Under the Distribution Agreement, FFS and certain related parties (such as FFS's
officers and persons that control FFS) are indemnified by the Trust against all
claims and expenses in any way related to alleged untrue statements of material
fact contained in the Funds' Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust (the "Administration
Agreement"), FAdS is responsible for the supervision of the overall management
of the Trust, providing the Trust with general office facilities and providing
persons satisfactory to the Board to serve as officers of the Trust.
For its services, FAdS receives a fee from each Fund at an annual rate of 0.20%
of the average daily net assets of each Fund. The fee is accrued daily by each
Fund and is paid monthly based on average net assets for the previous month.
The Administration Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Administration Agreement is terminable without penalty by the Trust
or by FAdS with respect to a Fund on 60 days' written notice.
Under the Administration Agreement, FAdS is not liable to the Trust or the
Trust's shareholders for any act or omission, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement. Under the
Administration Agreement, FAdS and certain related parties (such as FAdS's
officers and persons who control FAdS) are indemnified by the Trust against any
and all claims and expenses related to FAdS's actions or omissions that are
consistent with FAdS's contractual standard of care.
Table 3 in Appendix B shows the dollar amount of the fees payable by each Fund
to FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data are for the past fiscal year (or shorter period depending on a
Fund's commencement of operations).
2. FUND ACCOUNTANT
As fund accountant, pursuant to an accounting agreement with the Trust (the
"Accounting Agreement"), FAcS provides fund accounting services to each Fund.
These services include calculating the NAV per share of each Fund and preparing
the Fund's financial statements and tax returns.
For its services, Faces receives a fee from each Fund at an annual rate of
$36,000 plus $2,200 for the preparation of tax returns and certain surcharges
based upon the number and type of the Fund's portfolio transactions and
positions. The fee is accrued daily by the Funds and is paid monthly based on
the transactions and positions for the previous month.
The Accounting Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Accounting Agreement is terminable without penalty by the Trust or by
FAcS with respect to a Fund on 60 days' written notice.
Under the Accounting Agreement, FAcS is not liable for any action or omission in
the performance of its duties to a Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the Accounting Agreement, FAcS and certain
related parties (such as FAcS's officers and persons who control FAcS) are
indemnified by the Trust against any and all claims and expenses related to
FAcS's actions or omissions that are consistent with FAcS's contractual standard
of care.
25
<PAGE>
Under the Accounting Agreement, in calculating a Fund's NAV per share, FAcS is
deemed not to have committed an error if the NAV per share it calculates is
within 1/10 of 1% of the actual NAV per share (after recalculation). The
Accounting Agreement also provides that FAcS will not be liable to a shareholder
for any loss incurred due to an NAV difference if such difference is less than
or equal 1/2 of 1% or less than or equal to $10.00. In addition, FAcS is not
liable for the errors of others, including the companies that supply securities
prices to FAcS and the Funds.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Funds
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data are for the past three fiscal years (or shorter period depending
on a Fund's commencement of operations).
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agency
agreement with the Trust (the "Transfer Agency Agreement"), FSS maintains an
account for each shareholder of record of a Fund and is responsible for
processing purchase and redemption requests and paying distributions to
shareholders of record. FSS is located at Two Portland Square, Portland, Maine
04101 and is registered as a transfer agent with the SEC.
For its services, FSS receives with respect to each Fund 0.25% of the average
daily net assets of the Fund, an annual fee of $12,000 and $18 per shareholder
account. The fee is accrued daily by each Fund and is paid monthly based on the
average net assets for the previous month.
The Transfer Agency Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Transfer Agency Agreement is terminable without penalty by the Trust
or by FSS with respect to the Fund on 60 days' written notice.
Under the Transfer Agency Agreement, FSS is not liable for any act in the
performance of its duties to a Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties under the agreement. Under
the Transfer Agency Agreement, FSS and certain related parties (such as FSS's
officers and persons who control FSS) are indemnified by the Trust against any
and all claims and expenses related to FSS's actions or omissions that are
consistent with FSS's contractual standard of care.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Funds
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data are for the past three fiscal years (or shorter period depending
on a Fund's commencement of operations).
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Funds' cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of a Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of a Fund. Each Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Funds and are paid monthly based on average net assets and transactions for the
previous month.
5. LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005 passes upon
legal matters in connection with the issuance of shares of the Trust.
26
<PAGE>
6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, Fourteenth Floor, Boston,
Massachusetts 02116, independent auditors, have been selected as auditors for
the Funds. The auditors audit the annual financial statements of the Funds and
provide the Funds with an audit opinion. The auditors also review certain
regulatory filings of the Funds and the Funds' tax returns.
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, serves as independent
auditors for Index Portfolio, in which Equity Index Fund invests.
5. PORTFOLIO TRANSACTIONS
A. HOW SECURITIES ARE PURCHASED AND SOLD
Purchases and sales of portfolio securities that are fixed income securities
(for instance, money market instruments and bonds, notes and bills) usually are
principal transactions. In a principal transaction, the party from whom the Fund
purchases or to whom the Fund sells is acting on its own behalf (and not as the
agent of some other party such as its customers). These securities normally are
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for these
securities.
Purchases and sales of portfolio securities that are equity securities (for
instance common stock and preferred stock) are generally effected: (1) if the
security is traded on an exchange, through brokers who charge commissions; and
(2) if the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In transactions on stock exchanges,
commissions are negotiated. When transactions are executed in an
over-the-counter market, the Adviser will seek to deal with the primary market
makers; but when necessary in order to obtain best execution, the Adviser will
utilize the services of others.
Purchases of securities from underwriters of the securities include a disclosed
fixed commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers include the spread between the
bid and asked price.
In the case of fixed income and equity securities traded in the over-the-counter
markets, there is generally no stated commission, but the price usually includes
an undisclosed commission or markup.
B. COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions paid by
Investors Equity Fund as well as the aggregate brokerage commissions paid by the
Fund to an affiliate of the Fund or its Adviser. Equity Index Fund does not pay
brokerage commissions directly as it invests substantially all of its assets in
the Portfolio. The data presented are for the past three fiscal years (or
shorter period depending on when a Fund commenced operations). The table also
indicates the reason, if any, for any material change in the amount of brokerage
commissions paid by the Investors Equity Fund in the last three years (or
shorter depending on when the Fund commenced operations).
C. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with brokers
and dealers selected by and in the discretion of the Adviser. Neither Fund has
any obligation to deal with a specific broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers and
the frequency of transactions are determined by the Adviser in its best judgment
and in a manner deemed to be in the best interest of each Fund rather than by
any formula.
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for a Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
27
<PAGE>
1. CHOOSING BROKER-DEALERS
The Funds may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser takes into account
factors such as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the research services described below)
and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Funds as a factor in the selection of
broker-dealers to execute portfolio transactions for a Fund; and (2) take into
account payments made by brokers effecting transactions for a Fund (these
payments may be made to the Fund or to other persons on behalf of the Fund for
services provided to the Fund for which those other persons would be obligated
to pay).
2. OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause a Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Funds, and the Adviser in connection with the
Funds may use not all research services. The Adviser's fees are not reduced by
reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services obtained for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser utilizes a broker and pays a slightly higher
commission than another broker may charge. The higher commission is paid because
of the Adviser's need for specific research, for specific expertise a firm may
have in a particular type of transaction (due to factors such as size or
difficulty), or for speed/efficiency in execution. Since most of the Adviser's
brokerage commissions for research are for economic research on specific
companies or industries, and since the Adviser is involved with a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
There are occasions in which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to its Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect transactions through affiliates of the Adviser (or
affiliates of those persons) pursuant to procedures adopted by the Trust.
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<PAGE>
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for a Fund are made independently from those for any other
account or investment company that is or may in the future become managed by the
Adviser or its affiliates. Investment decisions are the product of many factors,
including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. In addition, two or more clients may
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the Adviser's opinion,
is equitable to each and in accordance with the amount being purchased or sold
by each. There may be circumstances when purchases or sales of a portfolio
security for one client could have an adverse effect on another client that has
a position in that security. When purchases or sales of the same security for a
Fund and other client accounts managed by the Adviser occurs contemporaneously,
the purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all of the securities in the Fund were
replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to a Fund and a possible increase in
short-term capital gains or losses.
D. SECURITIES OF REGULAR BROKER-DEALERS
From time to time a Fund may acquire and hold securities issued by its "regular
brokers and dealers" or the parents of those brokers and dealers. For this
purpose, regular brokers and dealers are the 10 brokers or dealers that: (1)
received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the Fund's last fiscal year.
Table 7 in Appendix B lists the regular broker and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
6. PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
You may purchase or redeem shares or request any shareholder privilege in person
at the offices of Forum Shareholder Services, LLC located at Two Portland
Square, Portland, Maine 04101.
The Funds accept orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
Not all classes or funds of the Trust may be available for sale in the sate in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
B. ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor.
Each Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, a Fund may accept portfolio securities that meet the investment
objective and policies of a Fund as payment for Fund shares. A Fund will only
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accept securities that: (1) are not restricted as to transfer by law and are not
illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through systematic investments are treated as IRA
contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Funds.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in a Fund directly. When you purchase a Fund's shares
through a financial institution, you may or may not be the shareholder of record
and, subject to your institution's procedures; you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
You may not be eligible for certain shareholder services when you purchase
shares through a financial institution. Contact your institution for further
information. If you hold shares through a financial institution, the Funds may
confirm purchases and redemptions to the financial institution, which will
provide you with confirmations and periodic statements. The Funds are not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of the Funds through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
C. ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to
transactions effected for the benefit of a shareholder which is applicable to a
Fund's shares as provided in the Prospectus.
1. SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that trading thereon is
restricted; (2) an emergency (as determined by the SEC) exists as a result of
which disposal by a Fund of its securities is not reasonably practicable or as a
result of which it is not reasonably practicable for a Fund fairly to determine
the value of its net assets; or (3) the SEC may by order permit for the
protection of the shareholders of a Fund.
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2. REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of a
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
shareholders may incur brokerage costs by converting the securities to cash. The
Trust has filed an election with the SEC pursuant to which a Fund may only
effect a redemption in portfolio securities if the particular shareholder is
redeeming more than $250,000 or 1% of the Fund's total net assets, whichever is
less, during any 90-day period.
D. NAV DETERMINATION
In determining a Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sales price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at a Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of a
Fund on the payment date for the distribution. Cash payments may be made more
than seven days following the date on which distributions would otherwise be
reinvested.
F. SALES CHARGES
1. REDUCED SALES CHARGES
You may qualify for a reduced sales charge on purchases of a Fund under rights
of accumulation ("ROA") or a letter of intent ("LOI"). If you qualify under the
ROA, the sales charge you pay is based on the total of your current purchase and
the net asset value (at the end of the previous fund business day) of shares
that you already hold. To qualify for ROA on a purchase, you must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount. You may also enter into a LOI, which expresses your
intent to invest $100,000 or more in a Fund within a period of 13 months. Each
purchase under a LOI will be made at the public offering price applicable at the
time of the purchase to a single transaction of the dollar amount indicated in
the LOI. If you do not purchase the minimum investment referenced in the LOI,
you must pay the Fund an amount equal to the difference between the dollar value
of the sales charges paid under the LOI and the dollar value of the sales
charges due on the aggregate purchases of the Fund as if such purchases were
executed in a single transaction.
2. ELIMINATION OF SALES CHARGES
No sales charge is assessed on the reinvestment of a Fund's distributions. No
sales charge is assessed on purchases made for investment purposes or on
redemptions by:
o Any bank, trust company, savings association or similar institution
with whom the distributor has entered into a share purchase agreement
acting on behalf of the institution's fiduciary customer accounts or
any account maintained by its trust department (including a pension,
profit sharing or other employee benefit trust created pursuant to a
qualified retirement plan)
o Any registered investment adviser with whom the distributor has
entered into a share purchase agreement and which is acting on behalf
of its fiduciary customer accounts
o Any broker-dealer with whom the distributor has entered into a
Fee-Based Wrap Account Agreement or similar agreement and which is
acting on behalf if its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Adviser, the distributor, any of their affiliates or
any organization with which the distributor has entered into a
Selected Dealer or similar agreement; the spouse, sibling, direct
ancestor or direct descendent (collectively, "relatives") of any such
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person; any trust or individual retirement account or self-employed
retirement plan for the benefit of any such person or relative; or the
estate of any such person or relative
o Any person who has, within the preceding 90 days, redeemed Fund shares
(but only on purchases in amounts not exceeding the redeemed amounts)
and completes a reinstatement form upon investment
o Persons who exchange into a Fund from a mutual fund other than a fund
of the Trust that participates in the Trust's exchange program
o Employee benefit plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended.
Each Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to that Fund.
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that each Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting each Fund and its shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect. ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISER AS TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year-end of each Fund is May 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its net investment income (that is, taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (that is, the excess of long-term capital gains over long-term
capital losses) that it distributes to shareholders. In order to qualify as a
regulated investment company a Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income (that is, net investment income and capital gain net
income) for the tax year. (Certain distributions made by a Fund after
the close of its tax year are considered distributions attributable to
the previous tax year for purposes of satisfying this requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of an issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
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invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits. A
portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its net investment
income for each tax year. These distributions are taxable to you as ordinary
income. These distributions may qualify for the 70% dividends-received deduction
for corporate shareholders.
Each Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Funds may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions do not qualify for the dividend-received deduction. Each Fund may
have capital loss carryovers (unutilized capital losses from prior years). These
capital loss carryovers (which can be used for up to eight years) may be used to
offset any current capital gain (whether short- or long-term). All capital loss
carryovers are listed in the Funds' financial statements. Any such losses may
not be carried back.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, it will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
You may purchase shares whose net asset value at the time reflects undistributed
net investment income or recognized capital gain, or unrealized appreciation in
the value of the assets of a Fund. Distributions of these amounts are taxable to
you in the manner described above, although the distribution economically
constitutes a return of capital to you.
If you purchase shares of a Fund just prior to a distribution, you will be taxed
on the entire amount of the distribution received, even though the net asset
value per share on the date of the purchase reflected the amount of the
distribution.
If you hold shares for six months or less and redeem shares at a loss after
receiving a capital gain distribution, the loss will be treated as a long-term
capital loss to the extent of the distribution.
Ordinarily, you are required to take distributions by a Fund into account in the
year in which they are made. A distribution declared in October, November or
December of any year and payable to you on a specified date in those months,
however, is deemed to be received by you (and made by the Fund) on December 31
of that calendar year even if the distribution is actually paid in January of
the following year.
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You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUNDS' TRANSACTIONS
For federal income tax purposes, when put and call options purchased by a Fund
expire unexercised, the premiums paid by a Fund give rise to short- or long-term
capital losses at the time of expiration (depending on the length of the
respective exercise periods for the options). When put and call options written
by a Fund expire unexercised, the premiums received by a Fund give rise to
short-term capital gains at the time of expiration. When a Fund exercise a call,
the purchase price of the underlying security is increased by the amount of the
premium paid by a Fund. When a Fund exercise a put, the proceeds from the sale
of the underlying security are decreased by the premium paid. When a put or call
written by a Fund is exercised, the purchase price (selling price in the case of
a call) of the underlying security is decreased (increased in the case of a
call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts that are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by a Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains or losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to a Fund that may mitigate the effects of the straddle
rules, particularly with respect to mixed straddles. In general, the straddle
rules described above do not apply to any straddles held by a Fund if all of the
offsetting positions consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. The
balance of each Fund's income must be distributed during the next calendar year.
Each Fund will be treated as having distributed any amount on which it is
subject to income tax for any tax year.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or November 30 or December 31 if
it has made the election described above) in determining the amount of ordinary
taxable income for the current calendar year. Each Fund will include foreign
currency gains and losses incurred after October 31 in determining ordinary
taxable income for the succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. Investors should note, however, that a Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
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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 a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases (for example, by reinvesting dividends) other shares of the Fund
within 30 days before or after the sale or redemption (a so called "wash sale").
In general, any gain or loss arising from the sale or redemption of shares of a
Fund will be considered capital gain or loss and will be long-term capital gain
or loss if the shares were held for longer than one year. Any capital loss
arising from the sale or redemption of shares held for six months or less,
however, is treated as a long-term capital loss to the extent of the amount of
capital gain distributions received on such shares. In determining the holding
period of such shares for this purpose, any period during which a shareholder's
risk of loss is offset by means of options, short sales or similar transactions
is not counted. Capital losses in any year are deductible only to the extent of
capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary
income.
F. BACKUP WITHHOLDING
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide a correct tax payer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to a Fund that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient." Backup withholding is
not an additional tax; any amounts so withheld may be credited against a
shareholder's federal income tax liability or refunded.
G. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from a Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the distribution.
The foreign shareholder generally would be exempt from U.S. federal income tax
on gain realized on the sale of shares of a Fund, capital gain distributions
from a Fund, and amounts retained by a Fund that are designated as undistributed
capital gain.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from a Fund can
differ from the rules from the U.S. federal income taxation rules described
above. These foreign rules are not discussed herein. Foreign shareholders are
urged to consult their own tax advisers as to the consequences of foreign tax
rules with respect to an investment in a Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from a Fund can differ from the U.S. federal
income taxation rules described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund, distributions from each Fund and the applicability of state and local
taxes and related matters.
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8. OTHER MATTERS
A. THE TRUST AND ITS SHAREHOLDERS
1. GENERAL INFORMATION
Forum Funds was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to the
assets and liabilities of Forum Funds, Inc.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
Austin Global Equity Fund Investors Equity Fund
BIA Growth Equity Fund Investors Growth Fund
BIA Small-Cap Growth Fund Investors High Grade Bond Fund
Daily Assets Cash Fund(1) Maine Municipal Bond Fund
Daily Assets Government Fund(1) New Hampshire Bond Fund
Daily Assets Government Obligations Fund(1) Payson Balanced Fund
Daily Asset Municipal Fund(1) Payson Value Fund
Daily Assets Treasury Obligations Fund(1) Polaris Global Value Fund
Equity Index Fund TaxSaver Bond Fund
Investors Bond Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
Each of the Trust, the investment adviser and subadviser for Investors Equity
Fund and Index Portfolio, and the principal underwriter have adopted codes of
ethics under Rule 17j-1, as amended, of the 1940 Act. These codes permit
personnel subject to the codes to invest in securities, including securities
that may be purchased or held by a Fund. The Board will consider approving
amendments to the code of ethics for the Trust, the investment adviser and
subadviser for Investrs Equity Fund and Index Portfolio, and the principal
underwriter at its next regularly scheduled meeting.
The Trust and each Fund will continue indefinitely until terminated.
2. SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and its
expenses will affect each class' performance. For more information on any other
class of shares of a Fund, investors may contact FSS.
3. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency, shareholder service and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted separately by individual series except if: (1) the 1940 Act
requires shares to be voted in the aggregate and not by individual series; and
(2) when the Trustees determine that the matter affects more than one series and
all affected series must vote. The Trustees may also determine that a matter
only affects certain classes of the Trust and thus only those classes are
entitled to vote on the matter. Delaware law does not require the Trust to hold
annual meetings of shareholders, and it is anticipated that shareholder meetings
will be held only when specifically required by federal or state law. There are
no conversion or preemptive rights in connection with shares of the Trust.
All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable.
A shareholder in a series is entitled to the shareholder's pro rata share of all
distributions arising from that series' assets and, upon redeeming shares, will
receive the portion of the series' net assets represented by the redeemed
shares.
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Shareholders representing 10% or more of the Trust's (or a series) shares may,
as set forth in the Trust Instrument, call meetings of the Trust (or series) for
any purpose related to the Trust (or series), including, in the case of a
meeting of the Trust, the purpose of voting on removal of one or more Trustees.
4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust or certain series to merge or consolidate into
one or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end,
management investment company that will succeed to or assume the Trust's
registration statement.
B. FUND OWNERSHIP
As of September 1, 1999, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding Shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of a Fund.
These shareholders and any shareholder known by the Funds to own beneficially 5%
or more of a Fund are listed in Table 8 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As of September 1, 1999, the
following persons beneficially or of record owned 25% or more of the shares of a
Fund (or of the Trust) and may be deemed to control the Fund (or the Trust). For
each person listed that is a company, the jurisdiction under the laws of which
the company is organized (if applicable) and the company's parents are listed.
CONTROLLING PERSON INFORMATION
INVESTORS EQUITY FUND
SHAREHOLDER PERCENTAGE OF
SHARES OWNED
Babb & Co. (incorporated in New Hampshire) 91.37%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
EQUITY INDEX FUND
SHAREHOLDER PERCENTAGE OF
SHARES OWNED
Allagash & Co. (incorporated in Maine) 55.38%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
Allagash & Co. (incorporated in Maine) 41.83%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
Bank of New Hampshire is the parent company of Babb & Co. Peoples Heritage Bank
is the parent company of Allagash & Co.
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C. LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some states, however, have indicated that they and the courts in
their states may decline to apply Delaware law on this point. The Forum Fund's
Trust Instrument (the document that governs the operation of the Trust) contains
an express disclaimer of shareholder liability for the debts, liabilities,
obligations and expenses of the Trust. The Trust Instrument provides for
indemnification out of each series' property of any shareholder or former
shareholder held personally liable for the obligations of the series. The Trust
Instrument also provides that each series shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the series and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which Delaware law does not apply, no contractual limitation of
liability was in effect, and a Fund is unable to meet its obligations. FAdS
believes that, in view of the above, there is no risk of personal liability to
shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
D. REGISTRATION STATEMENT
This SAI and the Prospectus do not contain all the information included in the
Trust's registration statement filed with the SEC under the 1933 Act with
respect to the securities offered hereby. The registration statement, including
the exhibits filed therewith, may be examined at the office of the SEC in
Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents are not necessarily complete, and, in each instance,
are qualified by reference to the copy of such contract or other documents filed
as exhibits to the registration statement.
E. FINANCIAL STATEMENTS
The financial statements of Investors Equity Fund, Equity Index Fund and Index
Portfolio of Core Trust for the year ended May 31, 1999 which are included in
the Funds' Annual Report to Shareholders dated May 31, 1999 are incorporated
herein by reference These financial statements include the schedules of
investments, statement of assets and liabilities, statements of operations,
statements of changes in net assets, financial highlights, notes and independent
auditors' reports.
F. REORGANIZATION OF INDEX PORTFOLIO
On April 21, 1999 the Core Trust Board approved an Agreement and Plan of
Reorganization whereby the Portfolio, among other series of Core Trust, will
reorganize into a separate series of Wells Fargo Core Trust, another open-end
management investment company, that has substantially similar investment
objectives and policies. The reorganization is part of a plan to consolidate the
mutual fund families of Wells Fargo & Company and Norwest Corporation following
last November's merger and to centralize their management as well as the
management of the portfolios of Core Trust under one Board of Directors.
Pursuant to the Trust's Trust Instrument, the reorganization does not require
the approval of the Portfolios' interestholders. The reorganization is expected
to occur as soon as reasonably possible. The reorganization is expected to be a
tax-free transaction.
The names of the Trustees and officers of Wells Fargo Core Trust, their
positions with Wells Fargo Core Trust, age and principal occupations during the
past five years are set forth below. The address of each, unless otherwise
indicated is 111 Center Street, Little Rock, Arkansas 72201. Each Trustee who is
an "interested person" (as defined by the 1940 Act) of Wells Fargo Core Trust is
indicated by an asterisk (*).
38
<PAGE>
<TABLE>
<S> <C>
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
Robert C. Brown*, Trustee, Secretary and Director, Federal Farm Credit Banks Funding Corporation and Farm
Treasurer Credit System Financial Assistance Corporation since 1993
Born: August 21, 1931
5038 Kestral Parkway South
Sarasota, FL 34231
Donald H. Burkhardt, Trustee Principal of the Burkhardt Law Firm
Born: June 4, 1926
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, Trustee Private Investor
Born: May 28, 1922 Trustee, Barclays Global Investors Funds
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, Trustee Benson-Pruitt Professorship and Associate Professor of Finance, Wake
Born: August 7, 1942 Forest University, Calloway School of Business and Accountancy
321 Beechcliff Court
Winston-Salem, NC 27104
Peter G. Gordon, Trustee Chairman and Co-Founder of Crystal Geyser Water Company and
Born: September 29, 1942 President of Crystal Geyser Roxane Water Company
Crystal Geyser Water Co.
55 Francisco Street, Suite 410
San Francisco, CA 94133
W. Rodney Hughes*, Trustee and President Private Investor
Born: September 24, 1926 President, Wells Fargo Funds since 1999
31 Dellwood Court Independent Director/Trustee, Master Works Funds, Inc. and Master
San Rafael, CA 94901 Investment Portfolio, since 1999
Richard M. Leach, Trustee President of Richard M. Leach Associates (a financial consulting
Born: July 16, 1933 firm)
25 Maple Lane
New London, NH 03257
J. Tucker Morse*, Trustee Private Investor/Real Estate Developer
Born: August 2, 1944 Chairman of Vault Holdings, LLC
10 Legare Street
Charleston, SC 29401
Timothy J. Penny, Trustee Senior Counselor, Himle-Horner (a public relations firm) since 1995
Born: November 19, 1951 Senior Fellow, Humphrey Institute (public policy organization) since
500 North State Street 1995
Waseca, MN 56093
Donald C. Willeke, Trustee Prinicpal, Willeke & Daniels (a law firm)
Born: June 22, 1940
210 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
39
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds, which are rated Aaa, are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds, which are rated Aa, are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present, which make the long-term risk,
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds, which are rated B generally, lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA Bonds, which are rated Caa, are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds, which are rated Ca, represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
<PAGE>
2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
A-2
<PAGE>
3. DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A,A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B,B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
4. FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
A-3
<PAGE>
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD,D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
B. PREFERRED STOCK
1. MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
BAA An issue, which is rated "baa", is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
BA An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
B An issue, which is rated "b" generally, lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
CA An issue, which is rated "ca", is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
A-4
<PAGE>
C This is the lowest rated class of preferred or preference stock. Issues
so rated can thus be regarded as having extremely poor prospects of
ever attaining any real investment standing.
NOTE Moody's applies numerical modifiers 1, 2, and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
2. STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B,CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
C. SHORT TERM RATINGS
1. MOODY'S INVESTORS SERVICE
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
A-5
<PAGE>
o Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
NOT
PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
2. STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for timely
repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. This rating is
automatically assigned to all obligations issued or guaranteed by the
sovereign state. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative
degree of risk is slightly higher than for issues classified as `A1'
A-6
<PAGE>
and capacity for timely repayment may be susceptible to adverse change
sin business, economic, or financial conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is more
susceptible to adverse changes in business, economic, or financial
conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is uncertain
relative to other obligors in the same country. The capacity for timely
repayment is susceptible to adverse changes in business, economic, or
financial conditions.
C Obligations for which there is a high risk of default to other obligors
in the same country or which are in default.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following table shows the dollar amount of fees payable to the Adviser with
respect to each Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
INVESTORS EQUITY FUND
Year Ended May 31, 1999 $201,585 $106,979 $94,606
December 17, 1997 to May 31, 1998 $44,695 $30,943 $13,752
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
EQUITY INDEX FUND
Year Ended May 31, 1999 $11,645 $0 $11,645
December 17, 1997 to May 31, 1998 $2,990 $0 $2,990
TABLE 2 - SALES CHARGES
The following table shows the dollar amount of aggregate sales charge paid to
FFS or FFSI, the amount retained, and the amount reallowed to financial
institutions.
AGGREGATE SALES CHARGE AMOUNT AMOUNT
INVESTORS EQUITY FUND RETAINED REALLOWED
Year Ended May 31, 1999 $0 $0 $0
December 17, 1997 to May 31, 1998 $0 $0 $0
AGGREGATE SALES CHARGE AMOUNT AMOUNT
EQUITY INDEX FUND RETAINED REALLOWED
Year Ended May 31, 1999 $0 $0 $0
December 17, 1997 to May 31, 1998 $0 $0 $0
TABLE 3 - ADMINISTRATION FEES
The following table shows the dollar amount of fees payable to FAdS with respect
to each Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
INVESTORS EQUITY FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $62,026 $0 $62,026
December 17, 1997 to May 31, 1998 $13,752 $13,752 $0
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
EQUITY INDEX FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $19,476 $19,454 $22
December 17, 1997 to May 31, 1998 $5,154 $5,147 $7
TABLE 4 - ACCOUNTING FEES
The following table shows the dollar amount of fees paid to FAcS with respect to
each Fund, the amount of fee that was waived by FAcS, if any, and the actual fee
received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
INVESTORS EQUITY FUND
Year Ended May 31, 1999 $36,000 $0 $36,000
December 17, 1997 to May 31, 1998 $18,452 $0 $18,452
B-1
<PAGE>
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
EQUITY INDEX FUND
Year Ended May 31, 1999 $12,760 $12,000 $760
December 17, 1997 to May 31, 1998 $7,506 $0 $7,506
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of fees payable to FSS with respect
to each Fund, the amount of fee that was waived by FSS, if any, and the actual
fee received by FSS.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
INVESTORS EQUITY FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $89,880 $0 $89,880
December 17, 1997 to May 31, 1998 $22,715 $17,123 $5,592
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
EQUITY INDEX FUND PAYABLE WAIVED RETAINED
Year Ended May 31, 1999 $31,635 $31,434 $201
December 17, 1997 to May 31, 1998 $10,295 $4,998 $5,297
</TABLE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions of the Investors
Equity Fund. The data is for the past three fiscal years (or shorter period if a
Fund has been in operation for a shorter period).
<TABLE>
<S> <C> <C> <C> <C>
INVESTORS EQUITY FUND TOTAL BROKERAGE % OF BROKERAGE
COMMISSIONS ($) COMMISSIONS % OF
PAID TO AN PAID TO AN TRANSACTIONS
TOTAL BROKERAGE AFFILIATE OF AFFILIATE OF EXECUTED BY AN
COMMISSIONS ($) THE FUND OR THE FUND OR AFFILIATE OF THE
ADVISER ADVISER FUND OR ADVISER
Year Ended May 31, 1999 $13,077 0% 0% 0%
December 17, 1997 to May 31, 1998 $4,512 0% 0% 0%
</TABLE>
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
<TABLE>
<S> <C> <C>
INVESTORS EQUITY FUND EQUITY INDEX FUND
REGULAR BROKER OR DEALER
1. MERRILL LYNCH & CO., INC $504,000 $0
Wells Fargo & Co. $520,000 $0
</TABLE>
B-2
<PAGE>
TABLE 8 - 5% SHAREHOLDERS
The following table lists: (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund; and (2) any person known by a
Fund to own beneficially 5% or more of a class of shares of the Fund, as of
September 1, 1999.
INVESTORS EQUITY FUND
NAME AND ADDRESS % OF FUND
Babb & Co. #02-6004105 91.37%
c/o Bank of New Hampshire
P.O. Box 477
Concord, NH 03302-0477
Allagash & Co. 6.43%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
EQUITY INDEX FUND
NAME AND ADDRESS % OF FUND
Allagash & Co. 55.38%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
Allagash & Co. 42.83%
C/O Bank of New Hampshire
P.O. Box 477
Concord, NH 03302
B-3
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGE)
The average annual total return of each Fund for the period ended May 31, 1999,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN SINCE
INVESTORS EQUITY FUND MONTHS DATE YEARS YEARS YEARS INCEPTION
(2.34)% 1.09% 2.94% 24.21% N/A N/A N/A 27.30%
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN SINCE
EQUITY INDEX FUND MONTHS DATE YEARS YEARS YEARS INCEPTION
(2.37)% 5.42% 6.14% 20.98% N/A N/A N/A 24.13%
</TABLE>
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGE)
The average annual total return of each Fund for the period ended May 31, 1999,
was as follows.
ONE YEAR FIVE TEN YEARS SINCE
INVESTORS EQUITY FUND YEARS INCEPTION
19.24% N/A N/A 23.77%
ONE YEAR FIVE TEN YEARS SINCE
EQUITY INDEX FUND YEARS INCEPTION
16.14% N/A N/A 23.79%
C-1
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, a Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. Text, which is currently in use, is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 181
mutual funds for 17 different fund managers, with more than $70 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 390 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start-up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to take advantage of this full-service master/feeder
structure.
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of-the-art accounting
support (Forum has 7 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary accounting system
D-1
<PAGE>
is continually upgraded and can provide custom-built modules to satisfy a fund's
specific requirements. This service is joined with transfer agency and
shareholder service groups that draw their strength both from the high caliber
of the people staffing each unit and from Forum's advanced technology support
system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals wit decades of experience with some of the country's major financial
institutions.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1.25 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.95 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
- -- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-2
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ: PHBK) announced today that it
has formed an alliance with a major mutual fund provider and an investment
advisory firm to expand its mutual fund offerings. The alliance with Forum
Financial Group and H.M. Payson & Company will result in 18 funds, including the
unique Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered
through the branches of Peoples' affiliate banks in Maine, New Hampshire and
northern Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, debt and equity funds.
Forum Financial, based in Portland, Maine since 1987, administers 124 funds with
more than $29 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.95 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1.25 billion in assets under management and $412 million in
non-managed custodial accounts. The Payson Value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson President and Managing Director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance, expense
accounting, budgeting for all funds
D-3
<PAGE>
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: $73 billion
*Client Assets Processed by Fund Accounting: $53 billion
*Client Funds under Administration and Distribution: 181 mutual funds with 89
share classes
*International Ventures: Joint venture with Bank Handlowy in Warsaw, Poland,
using Forum's proprietary transfer agency
and distribution systems Off-shore investment fund administration, using Bermuda
as Forum's center of operations
*Forum Employees: United States -215, Poland - 180, Bermuda - 4
FORUM CONTACTS:
John Burns, Director, Forum Investment Advisors, LLC, (207) 879-1900 X 6132
Tony Santaniello, Director of Marketing, (207) 879-1900 X 6175
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.25 Billion
*Non-managed Custody Assets: $412 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 11 shareholders; 10 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
D-4
<PAGE>
[FORUM SEMI-ANNUAL REPORT
FUNDS]
NOVEMBER 30, 1999
INVESTORS EQUITY FUND
EQUITY INDEX FUND
[Picture graphics of Parthenon}
<PAGE>
TABLE OF CONTENTS
A Message to Our Shareholders................................................1
FINANCIAL STATEMENTS OF FORUM FUNDS (UNAUDITED)
Schedules of Investments:
Investors Equity Fund....................................................3
Equity Index Fund........................................................3
Statements of Assets and Liabilities.........................................4
Statements of Operations.....................................................5
Statements of Changes in Net Assets......................................... 6
Financial Highlights.........................................................7
Notes to Financial Statements................................................9
FINANCIAL STATEMENTS OF INDEX PORTFOLIO OF WELLS FARGO CORE TRUST
NOVEMBER 30, 1999 (UNAUDITED)
Statement of Assets and Liabilities..........................................13
Schedule of Investments......................................................14
FINANCIAL STATEMENTS OF INDEX PORTFOLIO OF CORE TRUST (DELAWARE)
ANNUAL REPORT - SEPTEMBER 30, 1999
Independent Auditors' Report.................................................22
Statement of Assets and Liabilities..........................................23
Statement of Operations......................................................24
Statements of Changes in Net Assets..........................................25
Financial Highlights.........................................................26
Notes to Financial Statements................................................27
Schedule of Investments......................................................30
<PAGE>
FORUM FUNDS(R)
- --------------------------------------------------------------------------------
[Picture of Forum Logo]
INVESTORS EQUITY FUND
EQUITY INDEX FUND
November 30, 1999 SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
Dear Investor:
This Semi-annual Report covers Investors Equity Fund and Equity Index Fund, two
series of Forum Funds, and reviews their performance for the six month period
ended November 30, 1999. As of this date, the two Funds have combined total
assets of over $47 million.
INVESTORS EQUITY FUND
For the six-month period ended November 30, 1999, Investors Equity Fund achieved
a total return of 8.49%. This compares favorably to the 7.36% total return of
the S&P 500 Index.*
The Fund's investment advisers remain committed to those sectors and industries
that have generated long-term, high quality, and consistent growth, focusing on
technology, health care, financial services and consumer oriented industries.
The advisers seek the leading companies in those industries because leaders are
in the best position to control their future company growth.
The U.S. economy continues to forge ahead, surprising even the optimists with
its strength, and foreign economies appear to be regaining their footing after
the cyclical downturns experienced in 1998. The strength in our economy has
naturally led to a tighter labor market and to modest rises in some commodity
prices. These factors prompted the Federal Reserve to raise short-term interest
rates in a preemptive move to deflect anticipated inflation. Higher interest
rates have clearly had an impact on certain sectors of the stock market,
particularly the financial services area. The Fund managers believe that these
actions by the Federal Reserve will gradually slow the economy, ultimately
leading to a modest decline in interest rates, which should provide for a better
operating environment for the financial services sector.
Technology stocks remain the largest commitment within the Fund. Clearly this
sector has enjoyed the greatest earnings growth in our economy and investors
have been generously rewarded. The advisers anticipate additional high earnings
growth for technology stocks in the upcoming year, as companies gain further
market share with the introduction of new products and services.
EQUITY INDEX FUND
For the six-month period ended November 30, 1999, the Equity Index Fund
experienced a gain of 7.49%. This compares favorably to the 7.36% total return
of the S&P 500 Index.* In seeking to achieve its objective--to replicate the
return of the S&P 500 Index with a minimum of tracking error--the Fund invests
substantially all of its assets in Index Portfolio, a series of Wells Fargo Core
Trust, another open-end management investment company. Index Portfolio invests
in all 500 securities that make up the S&P 500 Index and in the same weightings
as in the S&P 500 Index. Index Portfolio also invests in S&P 500 futures. In
addition to its investment in the Index Portfolio, the Fund maintains a small
portion of its assets in cash, mainly to satisfy shareholders' cash flows.
1 FORUM FUNDS[R]
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION & ANALYSIS (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
IN CONCLUSION
In our current environment of increases in interest rates and with a tightening
of monetary policy by the Federal Reserve, we again remind you that you should
remain focused on your long-term investment goals. As an investor you should
review your portfolio allocation and diversification to ensure that the
portfolio remains aligned with your long-term plan. Housing starts and consumer
spending are still strong in our economy, despite the increases in interest
rates. This vitality is based on buoyant consumer confidence, low unemployment
and stronger economies in many parts of the world. The U.S. equity market
continues to be driven by the technology sector. As usual, we suggest that you
work with your financial professional to determine the appropriate asset
investment mix that is likely to meet your needs.
Thank you for your confidence in Forum Funds. We will continue to provide you
with the high quality investment service to which you have grown accustomed. If
you have questions, please discuss them with your investment professional, or
call us at (207) 879-0001.
Sincerely,
/s/ John Y. Keffer
John Y. Keffer,
Chairman
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DURING THE PERIOD CERTAIN
FEES AND EXPENSES WERE WAIVED BY THE SERVICE PROVIDERS. WITHOUT THESE WAIVERS
TOTAL RETURNS WOULD HAVE BEEN LOWER. IF THE MAXIMUM SALES CHARGE HAD BEEN
REFLECTED AND IF THERE HAD BEEN NO FEE WAIVERS, THE QUOTED PERFORMANCE WOULD
HAVE BEEN LOWER.
THE S&P 500 INDEX IS A GROUP OF UNMANAGED SECURITIES WIDELY REGARDED BY
INVESTORS TO BE REPRESENTATIVE OF THE MARKET IN GENERAL. ONE CANNOT INVEST
DIRECTLY IN AN INDEX.
THE VIEWS IN THIS REPORT WERE THOSE OF THE FUNDS' MANAGERS AS OF NOVEMBER 30,
1999, AND MAY NOT REFLECT THE VIEWS OF THE MANAGERS ON THE DATE THIS REPORT IS
FIRST PUBLISHED OR ANY TIME THEREAFTER. THESE VIEWS ARE INTENDED TO ASSIST
SHAREHOLDERS OF THE FUNDS IN UNDERSTANDING THEIR INVESTMENT IN THE FUNDS AND DO
NOT CONSTITUTE INVESTMENT ADVICE.
2 FORUM FUNDS[R]
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (unaudited)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
INVESTORS EQUITY FUND
COMMON STOCK (99.4%)
Shares Security Description Value
- ------------- ----------------------------- --------------
APPAREL & ACCESSORY STORES (2.7%)
22,500 Gap, Inc. $ 911,250
--------------
BANKS & CREDIT INSTITUTIONS (4.9%)
42,000 MBNA Corp. 1,060,500
13,000 Wells Fargo & Co. 604,500
--------------
1,665,000
--------------
BUILDING MATERIALS (3.1%)
13,200 Home Depot, Inc. 1,043,625
--------------
BUSINESS SERVICES (14.3%)
28,800 Automatic Data Processing, Inc . 1,422,000
17,000 Ecolab, Inc. 588,625
26,100 Interpublic Group Cos., Inc. 1,226,700
18,000 Microsoft Corp. * 1,638,844
--------------
4,876,169
--------------
CHEMICALS & ALLIED PRODUCTS (6.1%)
20,000 Gillette Co. 803,750
11,800 The Procter & Gamble Co. 1,274,400
--------------
2,078,150
--------------
COMMUNICATIONS (6.1%)
18,000 BellSouth Corp. 831,375
23,902 SBC Communications, Inc. 1,241,410
--------------
2,072,785
--------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS,
EXCEPT COMPUTER EQUIPMENT (10.2%)
10,000 ADC Telecommunications, Inc. * 533,125
8,550 General Electric Co. 1,111,500
24,050 Intel Corp. 1,844,334
--------------
3,488,959
--------------
FINANCIAL INSTITUTIONS (2.9%)
14,925 Federal National Mortgage Assn . 994,378
--------------
FOOD & KINDRED PRODUCTS (1.5%)
7,500 The Coca Cola Co. 504,844
--------------
GROCERY STORES (1.7%)
28,000 Kroger Co. * 596,750
--------------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (14.0%)
11,400 Applied Materials, Inc. * 1,110,789
15,000 Cisco Systems, Inc. * 2,318,875
14,000 Solectron Corp. * 906,125
7,000 Tellabs, Inc. * 454,125
--------------
4,789,914
--------------
INSURANCE (4.5%)
14,952 American International Group, Inc. 1,543,794
--------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (4.6%)
28,600 Medtronic, Inc. $ 1,111,825
8,000 Stryker Corp. 455,500
----------------
1,567,325
----------------
MISCELLANEOUS RETAIL (2.6%)
38,000 Staples, Inc. * 893,000
----------------
PETROLEUM REFINING & RELATED INDUSTRIES (3.4%)
14,700 Exxon Corp. 1,165,894
----------------
PHARMACEUTICAL PREPARATIONS (9.4%)
19,800 Abbott Laboratories 752,400
12,800 Merck & Co., Inc. 1,004,800
24,300 Pfizer, Inc. 879,356
11,200 Schering-Plough Corp. 572,600
----------------
3,209,156
----------------
SECURITY & COMMODITY BROKERS, DEALERS,
EXCHANGES & SERVICES (2.1%)
9,000 Merrill Lynch & Co., Inc. 725,625
----------------
WATER TRANSPORTATION (2.3%)
18,000 Carnival Corp. 794,250
----------------
WHOLESALE TRADE - DURABLE GOODS (3.0%)
10,000 Danaher Corp. 491,250
8,000 Illinois Tool Works, Inc. 518,000
----------------
1,009,250
----------------
Total Common Stock (Cost $14,456,996)
33,930,118
----------------
SHORT-TERM INVESTMENTS (0.6%)
Principal Amount Security Description Value
------------------- ----------------------- ----------------
$ 208,977 Bankers Trust Investment Money
Market Fund (Cost $208,977) $ 208,977
----------------
Total Investments (100.0%) (Cost $14,665,973) $ 34,139,095
================
EQUITY INDEX FUND
INVESTMENT COMPANY (100.0%)
Security Description Value
- --------------------------------------------- ----------------
Index Portfolio of Wells Fargo Core Trust
(Cost $10,403,539) $ 13,360,658
================
- -------------------------------------------
* Non-income producing security.
See Notes to Financial Statments 3 FORUM FUNDS[R]
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
NOVEMBER 30, 1999
- -----------------------------------------------------------------------------------------------------------------
INVESTORS EQUITY
EQUITY INDEX
FUND FUND
----------------- ----------------
ASSETS
Investments (Notes 1 and 2)
Investments, at cost $ 14,665,973 $ 10,403,539
Net unrealized appreciation 19,473,122 2,957,119
----------------- ----------------
Total investments, at value 34,139,095 13,360,658
Interest, dividends and other receivables 22,506 -
Receivable for Fund shares sold - 1,000
Organization costs, net of amortization (Note 2) 2,072 1,615
----------------- ----------------
Total Assets 34,163,673 13,363,273
----------------- ----------------
LIABILITIES
Payable for Fund shares redeemed - 1,993
Payable to adviser (Note 3) 12,597 -
Payable to other related parties (Note 3) 5,574 -
Accrued expenses and other liabilities 37,837 7,671
----------------- ----------------
Total Liabilities 56,008 9,664
----------------- ----------------
NET ASSETS $ 34,107,665 $ 13,353,609
================= ================
COMPONENTS OF NET ASSETS
Paid-in capital $ 11,649,315 $ 10,251,211
Undistributed (distributions in excess of) net investment income (36,962) 119,209
Unrealized appreciation of investments 19,473,122 2,957,119
Net realized gain from investments 3,022,190 26,070
----------------- ----------------
NET ASSETS $ 34,107,665 $ 13,353,609
================= ================
SHARES OF BENEFICIAL INTEREST 2,425,617 886,626
NET ASSET VALUE AND
REDEMPTION PRICE PER SHARE $ 14.06 $ 15.06
OFFERING PRICE PER SHARE
(NAV / (1 - MAXIMUM SALES LOAD)) $ 14.65 $ 15.69
MAXIMUM SALES LOAD 4.00% 4.00%
</TABLE>
See Notes to Financial Statements 4 FORUM FUNDS[R]
<PAGE>
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (unaudited)
PERIOD ENDED NOVEMBER 30, 1999
- ----------------------------------------------------------------------------------------------------------------------
INVESTORS EQUITY
EQUITY INDEX
FUND FUND
---------------- ----------------
INVESTMENT INCOME
Interest income $ 11,024 $ -
Dividend income 131,897 -
Interest income allocated from Portfolio (Note 1) - 8,079
Dividend income allocated from Portfolio (Note 1) - 73,090
Securities lending income allocated from Portfolio (Note 1) - 1,104
Net expenses allocated from Portfolio (Note 1) - (10,126)
---------------- ----------------
Total Investment Income 142,921 72,147
---------------- ----------------
EXPENSES
Investment advisory (Note 3) 106,219 -
Adminstration (Note 3) 32,683 11,957
Transfer agency (Note 3) 47,246 21,074
Custody 4,530 -
Accounting (Note 3) 18,000 6,000
Audit 7,700 11,200
Legal 3,824 625
Trustees 985 358
Reporting 5,321 2,668
Compliance 1,522 1,507
Amortization of organization costs (Note 2) 341 264
Miscellaneous 2,667 769
---------------- ----------------
Total Expenses 231,038 56,422
Expenses reimbursed and fees waived (Note 4) (51,155) (51,709)
---------------- ----------------
Net Expenses 179,883 4,713
---------------- ----------------
NET INVESTMENT INCOME (LOSS) (36,962) 67,434
---------------- ----------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FUTURES TRANSACTIONS
Net realized gain on investments 620,885 -
Net realized gain on investments in Portfolio (Note 1) - 49,785
Net realized gain on futures transactions
in Portfolio (Note 1) - 9,392
---------------- ----------------
Net Realized Gain on Investments 620,885 59,177
---------------- ----------------
Net change in unrealized appreciation on investments 2,146,469 -
Net change in unrealized appreciation
on investments in Portfolio (Note 1) - 731,428
Net change in unrealized appreciation on futures
transactions in Portfolio (Note 1) - 21,039
---------------- ----------------
Net Change in Unrealized Appreciation on Investments
and Futures Transactions 2,146,469 752,467
---------------- ----------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 2,767,354 811,644
---------------- ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,730,392 $ 879,078
================ ================
</TABLE>
See Notes to Financial Statements 5 FORUM FUNDS[R]
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
FOR THE YEAR ENDED MAY 31, 1999, AND THE SIX MONTHS ENDED NOVEMBER 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
INVESTORS EQUITY
EQUITY INDEX
FUND FUND
-------------------------------- ---------------------------------
AMOUNT SHARES AMOUNT SHARES
NET ASSETS, May 31, 1998 .............................. $ 30,090,343 $ 5,037,606
------------ ------------
OPERATIONS
Net investment income (loss) ...................... (20,133) 99,175
Net realized gain (loss) on investments ........... 4,243,115 (31,534)
Net change in unrealized appreciation
of investments ................................. 2,435,455 1,642,777
------------ ------------
Net Increase in Net Assets Resulting from Operations .. 6,658,437 1,710,418
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income ............................. (5,924) (75,754)
Net realized gain on investments .................. (2,567,208) (1,550)
------------ ------------
Total Distributions to Shareholders ................... (2,573,132) (77,304)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of shares .................................... 2,270,010 5,660,156
Reinvestment of distributions ..................... 2,414,394 216,957 77,304 6,272
Redemption of shares .............................. (6,725,877) (553,217) (1,280,812) (93,576)
------------ ------------ ------------ ------------
Net Increase (Decrease) from Capital Share Transactions (2,041,473) (151,094) 4,456,648 363,213
------------ ============ ------------ ============
Net Increase in Net Assets ............................ 2,043,832 6,089,762
------------ ------------
NET ASSETS, May 31, 1999 (A) .......................... 32,134,175 11,127,368
------------ ------------
OPERATIONS
Net investment income (loss) ...................... (36,962) 67,434
Net realized gain on investments .................. 620,885 59,177
Net change in unrealized appreciation
of investments ............................... 2,146,469 752,467
------------ ------------
Net Increase in Net Assets Resulting from Operations .. 2,730,392 879,078
------------ ------------
CAPITAL SHARE TRANSACTIONS
Sale of shares .................................... 1,071,254 79,871 1,724,883 118,754
Redemption of shares .............................. (1,828,156) (134,604) (377,720) (26,308)
------------ ------------ ------------ ------------
Net Increase (Decrease) from Capital Share Transactions (756,902) (54,733) 1,347,163 92,446
------------ ============ ------------ ============
Net Increase in Net Assets ............................ 1,973,490 2,226,241
------------ ------------
NET ASSETS, November 30, 1999 (B) ..................... $ 34,107,665 $ 13,353,609
============ ============
(A) Undistributed net investment income ............... $ -- $ 51,775
============ ============
(B) Undistributed (distributions in excess of)
net investment income ......................... $ (36,962) $ 119,209
============ ============
</TABLE>
See Notes to Financial Statments 6 FORUM FUNDS[R]
<PAGE>
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (unaudited)
- --------------------------------------------------------------------------------------------------------------------------
These financial highlights reflect selected data for a share outstanding
throughout each period:
INVESTORS
EQUITY
FUND
---------------------------------------------------------------------
June 1, 1999 June 1, 1998 December 17, 1997
to to to
November 30, 1999 May 31, 1999 May 31, 1998
---------------------------------------------------------------------
NET ASSET VALUE PER SHARE, Beginning of Period $12.96 $11.43 $10.00
--------------------- ---------------- ---------------------
INVESTMENT OPERATIONS
Net investment income (loss) (0.02) (0.01) - (d)
Net realized and unrealized gain
on investments 1.12 2.60 1.43
--------------------- ---------------- ---------------------
Total from Investment Operations 1.10 2.59 1.43
--------------------- ---------------- ---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income - - (c) -
Net realized gain - (1.06) -
--------------------- ---------------- ---------------------
Decrease in Net Assets from Distributions - (1.06) -
--------------------- ---------------- ---------------------
NET ASSET VALUE, End of Period $14.06 $12.96 $11.43
===================== ================ =====================
TOTAL RETURN (a) 8.49% 24.21% 14.30%
RATIO/SUPPLEMENTARY DATA
Net assets at end of period (000's omitted) $34,108 $32,134 $30,090
Ratios to Average Net Assets
Expenses, including reimbursement/
waiver of fees 1.10% (b) 1.10% 1.10% (b)
Expenses, excluding reimbursement/
waiver of fees 1.41% (b) 1.44% 2.09% (b)
Net investment income (loss), including
reimbursement/waiver of fees (0.23)% (b) (0.06)% 0.09% (b)
PORTFOLIO TURNOVER RATE 5% 16% 11%
</TABLE>
- -----------------------------------------------------------------------------
(a) Total return calculations do not include sales charge.
(b) Annualized.
(c) Distributions per share were $0.00250.
(d) Net investment income per share was $.002224.
Notes to Financial Statements 7 FORUM FUNDS[R]
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (unaudited)
- -------------------------------------------------------------------------------------------------------------------------
These financial highlights reflect selected data for a share outstanding
throughout each period:
EQUITY
INDEX
FUND
-----------------------------------------------------------------------
June 1, 1999 June 1, 1998 December 24, 1997
to to to
November 30, 1999 May 31, 1999 May 31, 1998
-----------------------------------------------------------------------
NET ASSET VALUE PER SHARE, Beginning of Period $14.01 $11.69 $10.00
------------------------- ----------------- ---------------------
INVESTMENT OPERATIONS
Net investment income (a) 0.08 0.16 0.07
Net realized and unrealized gain
on investments 0.97 2.27 1.62
------------------------- ----------------- ---------------------
Total from Investment Operations 1.05 2.43 1.69
------------------------- ----------------- ---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income - (0.11) -
Net realized gain - - (d) -
------------------------- ----------------- ---------------------
Decrease in Net Assets from Distributions - (0.11) -
------------------------- ----------------- ---------------------
NET ASSET VALUE, End of Period $15.06 $14.01 $11.69
========================= ================= =====================
TOTAL RETURN (b) 7.49% 20.98% 16.90%
RATIO/SUPPLEMENTARY DATA
Net assets at end of period (000's omitted) $13,354 $11,127 $5,038
Ratios to Average Net Assets
Expenses, including reimbursement/
waiver of fees 0.25% (c) 0.25% 0.25% (c)
Expenses, excluding reimbursement/
waiver of fees 1.16% (c) 1.26% 2.25% (c)
Net investment income (loss), including
reimbursement/waiver of fees 1.13% (c) 1.27% 1.41% (c)
PORTFOLIO TURNOVER RATE 11% (e) 4% (e) 7% (e)
</TABLE>
- ---------------------------------------------------------------------------
(a) Includes the Fund's proportionate share of income and expenses of
Portfolio.
(b) Total return calculations do not include sales charge.
(c) Annualized.
(d) Distributions per share were $0.002332.
(e) Information presented is that of the Portfolio in which the Fund invests
(Note 1).
See Notes to Financial Statements 8 FORUM FUNDS[R]
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Forum Funds(R) (the "Trust") is a Delaware business trust that is registered as
an open-end, management investment company under the Investment Company Act of
1940, as amended (the "Act"). The Trust currently has nineteen active investment
portfolios. Included in this report is Investors Equity Fund and Equity Index
Fund (individually a "Fund", and collectively, "the Funds"), each a diversified
portfolio. Under its Trust Instrument, the Trust is authorized to issue an
unlimited number of each Fund's shares of beneficial interest without par value.
Commencement of operations for each Fund was as follows:
Investors Equity Fund December 17, 1997
Equity Index Fund December 24, 1997
MASTER FEEDER ARRANGEMENT - Equity Index Fund seeks to achieve its investment
objective by investing all its investable assets in Index Portfolio (the
"Portfolio"), a diversified portfolio of Wells Fargo Core Trust, a registered,
open-end management investment company. This is commonly referred to as a
master-feeder arrangement. Prior to November 5, 1999, Equity Index Fund invested
all of its investable assets in Index Portfolio, a diversified portfolio of Core
Trust (Delaware), another registered, open-end investment company. On November
5, 1999, Index Portfolio of Core Trust (Delaware) reorganized into the
Portfolio. The Portfolio directly acquires portfolio securities and a fund
investing in the Portfolio acquires an indirect interest in those securities.
The Fund accounts for its investment in the Portfolio as a partnership interest
and records daily its share of the Portfolio's income, expenses, and realized
and unrealized gain and loss. In addition, the Fund incurs its own expenses. The
Fund may withdraw its investment from the Portfolio at any time if the Trust's
Board of Trustees determines that it is in the best interest of the Fund and its
shareholders to do so. The financial statements of the Portfolio, including its
schedule of investments, are in this report and should be read in conjunction
with the Fund's financial statements. Equity Index Fund's ownership interest in
Index Portfolio was 0.77% as of November 30, 1999.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual amounts could differ from these
estimates. The following summarizes the significant accounting policies of each
Fund:
SECURITY VALUATION - On each Fund business day, the Trust determines the net
asset value per share of each Fund as of the close of the regular trading day on
the New York Stock Exchange. Securities, other than short-term securities, held
by Investors Equity Fund, and for which market quotations are readily available
are valued using the last reported sales price provided by independent pricing
services. If no sales price is reported, the mean of the last bid and asked
price is used. In the absence of readily available market quotations, securities
are valued at fair value as determined by the Trust's Board of Trustees pursuant
to the Trust's valuation procedures. Securities held by Investors Equity Fund
that have a maturity of 60 days or less are valued at amortized cost, which
approximates market value. Equity Index Fund records its investments in the
Portfolio at value. The value of such an investment reflects the Fund's
proportionate interest in the net assets of the Portfolio. The valuation of
securities held in the Portfolio is discussed in the Notes to the Financial
Statements of the Portfolio, which are included in this report.
SECURITY TRANSACTIONS AND INVESTMENT INCOME - Investment transactions are
accounted for on trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recorded as earned. Identified cost of investments sold
is used to determine gain or loss for both financial statements and federal
income tax purposes.
REPURCHASE AGREEMENTS - Investors Equity Fund may invest in repurchase
agreements. The Fund, through its custodian, receives delivery of the underlying
securities, whose market value must always exceed the repurchase price.
9 FORUM FUNDS[R]
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS - Distributions of net investment income and net
capital gain, if any, are declared and paid at least annually. Distributions are
based on amounts calculated in accordance with applicable income tax
regulations, which may differ from generally accepted accounting principles.
These differences are due primarily to differing treatments of income and gain
on various investment securities held by the Funds, timing differences and
differing characterizations of distributions made by the Funds.
ORGANIZATION COSTS - Costs incurred by each Fund in connection with its
organization are amortized using the straight-line method over a five-year
period.
FEDERAL TAXES - Each Fund intends to qualify each year as a regulated investment
company and distribute all its taxable income. In addition, by distributing in
each calendar year substantially all its net investment income, capital gain and
certain other amounts, if any, each Fund will not be subject to a federal excise
tax. Therefore, no federal income or excise tax provision is required.
EXPENSE ALLOCATION - The Trust accounts separately for the assets, liabilities
and operations of each of its funds. Expenses that are directly attributable to
more than one fund are allocated among the respective funds in proportion to
each fund's average daily net assets.
NOTE 3. ADVISORY FEES AND OTHER TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISER - The investment adviser for Investors Equity Fund is H.M.
Payson & Co. ("Payson"). Pursuant to an Investment Advisory Agreement, Payson
receives an advisory fee from the Fund at an annual rate of 0.65% of the Fund's
average daily net assets. Payson has entered into an investment sub-advisory
agreement with Peoples Heritage Bank ("Peoples") under which Peoples exercises
certain investment discretion over the assets (or a portion of assets) of the
Fund. For its sub-advisory services, Payson pays a fee to Peoples at an annual
rate of 0.25% of the Fund's average daily net assets.
The investment adviser for the Portfolio in which Equity Index Fund invests is
Wells Fargo Bank ("WFB"). WFB is a wholly owned subsidiary of Wells Fargo &
Company, a national bank holding company. Pursuant to an Investment Advisory
Agreement, WFB receives an advisory fee at an annual rate of 0.15% of the
Portfolio's average daily net assets. Equity Index Fund pays its pro rata
portion of the advisory fees incurred by the Portfolio. WFB has retained the
services of Wells Capital Management Inc. ("WCM"), an affiliate, as an
investment subadviser to the Portfolio. The fees related to WCM's subadviser
services are borne directly by WFB and do not increase the overall fees paid by
the Portfolio to WFB.
ADMINISTRATOR - The administrator for each Fund is Forum Administrative
Services, LLC ("FAdS"). For its services, FAdS receives a fee at an annual rate
of 0.20% of the average daily net assets of each Fund.
TRANSFER AGENT - The transfer agent and dividend disbursing agent for each Fund
is Forum Shareholder Services, LLC ("FSS"). FSS receives from each Fund an
annual fee of $12,000, plus 0.25% of the average daily net assets of each Fund,
and an annual shareholder account fee of $18 per shareholder account.
DISTRIBUTOR - Forum Fund Services, LLC ("FFS"), a registered broker-dealer and a
member of the National Association of Securities Dealers, Inc., is each Fund's
distributor. For its services, FFS receives, and may reallocate to certain
financial institutions, the sales charges paid in connection with purchases or
sales of each Fund's shares. Prior to March 1, 1999, Forum Financial Services,
Inc. was each Fund's distributor and received similar compensation from each
Fund for its distribution services.
OTHER SERVICE PROVIDER - Forum Accounting Services, LLC ("FAcS") provides fund
accounting services to each Fund. For its services, FAcS receives an annual fee
of $36,000 from Investors Equity Fund, plus certain amounts based upon the
number and types of portfolio transactions made by the Fund. FAcS is compensated
$12,000 annually by Equity Index Fund for its services.
10 FORUM FUNDS[R]
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 4. WAIVER OF FEES AND REIMBURSEMENT OF EXPENSES
Certain service providers of each Fund have voluntarily undertaken to waive a
portion of their fees and/or reimburse certain expenses of each Fund so that
total expenses of each Fund would not exceed certain limitations. Fee waivers
and expense reimbursements may be reduced or eliminated at any time. For the six
months ended November 30, 1999, expenses reimbursed and fees waived were as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
TOTAL
EXPENSES
EXPENSES REIMBURSED
REIMBURSED FEES WAIVED AND FEES
FADS FSS FADS FACS PAYSON WAIVED
Investors Equity Fund $ - $ - $ - $ - $ 51,155 $51,155
Equity Index Fund 13,168 20,584 11,957 6,000 - 51,709
</TABLE>
NOTE 5. SECURITY TRANSACTIONS
The cost of purchases and proceeds from sales of securities, other than
short-term investments, held by Investors Equity Fund were $2,207,106 and
$1,742,555, respectively, for the period June 1 to November 30, 1999. Please
refer to the Portfolio's financial statements for disclosure of the purchases
and sales figures of the Portfolio, in which Equity Index Fund invests.
For federal income tax purposes, the tax basis of investment securities owned by
Investors Equity Fund as of November 30, 1999 was $14,665,973, and the net
unrealized appreciation of investment securities was $19,473,122. The aggregate
gross unrealized appreciation for all securities in which there was an excess of
market value over tax cost was $19,694,273 and the aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost over
market value was $221,151.
11 FORUM FUNDS[R]
<PAGE>
NOVEMBER 30, 1999
INDEX PORTFOLIO
WELLS FARGO CORE TRUST
(UNAUDITED)
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------------
INDEX PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------------------------------------
INDEX
PORTFOLIO
--------------------
ASSETS
Investments
Investments, at cost $ 1,069,996,003
Net unrealized appreciation 652,876,041
--------------------
Total investments, at value 1,722,872,044
Cash 3,279
Collateral for securities loaned 422,394,545
Receivable for investments sold 890,850
Receivable for dividends, interest and other receivables 2,185,238
--------------------
Total Assets 2,148,345,956
--------------------
LIABILITIES
Payable for securities loaned 422,394,545
Payable for daily variation margin on financial futures
contracts 495,250
Accrued expenses and other liabilities 239,542
--------------------
Total Liabilities 423,129,337
--------------------
NET ASSETS $ 1,725,216,619
====================
</TABLE>
13 WELLS FARGO CORE TRUST
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (unaudited)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK (97.8%)
Shares Security Description Value
- ------------- -------------------------------- --------------
AGRICULTURE (0.0%)
47,800 Nabisco Group Holdings Corp. $ 552,687
--------------
AMUSEMENT & RECREATION SERVICES (0.5%)
18,800 Harrah's Entertainment, Inc.* 519,350
302,100 Walt Disney Co. # 8,421,038
--------------
8,940,388
--------------
APPAREL & ACCESSORY STORES (0.7%)
57,400 CVS Corp. # 2,278,063
125,600 Gap, Inc. # 5,086,800
23,800 Kohl's Corp. *# 1,718,063
31,400 Limited, Inc. 1,332,538
20,500 Nordstrom, Inc. 570,156
46,500 TJX Cos., Inc. 1,217,718
--------------
12,203,338
--------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS
& SIMILAR MATERIALS (0.1%)
9,000 Liz Claiborne, Inc. # 336,937
17,400 V.F. Corp. # 519,825
--------------
856,762
--------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (0.0%)
21,800 Autozone, Inc. *# 600,862
7,700 Pep Boys - Manny, Moe & Jack # 74,594
--------------
675,456
--------------
AUTOMOTIVE REPAIR, SERVICES & PARKING (0.0%)
10,200 Ryder System, Inc. 230,138
--------------
BUILDING CONSTRUCTION-GENERAL CONTRACTORS &
OPERATIVE BUILDERS (0.0%)
8,700 Centex Corp. 206,625
7,000 Kaufman & Broad Home Corp. # 154,875
6,300 Pulte Corp. # 126,394
--------------
487,894
--------------
BUILDING MATERIALS, HARDWARE GARDEN SUPPLY & MOBILE
HOME DEALERS (1.2%)
217,200 Home Depot, Inc. 17,172,375
55,900 Lowe's Cos., Inc. 2,784,519
--------------
19,956,894
--------------
BUSINESS SERVICES (9.3%)
52,400 3COM Corp. * 2,086,175
17,800 Adobe Systems, Inc. # 1,222,638
324,600 America Online, Inc. *# 23,594,362
8,600 Autodesk, Inc. # 252,087
90,600 Automatic Data Processing, Inc. 4,473,375
35,000 BMC Software, Inc. * 2,548,438
25,500 Cabletron Systems, Inc. *# 584,906
105,500 Cendant Corp. *# 1,747,344
21,200 Ceridian Corp. *# 458,450
78,700 Computer Associates International, In 5,115,500
23,400 Computer Sciences Corp. *# 1,526,850
BUSINESS SERVICES - CONTINUED
52,300 Compuware Corp. *# $ 1,768,394
72,200 Electronic Data Systems Corp. 4,643,362
21,100 Equifax, Inc. 522,225
62,800 First Data Corp. 2,716,100
45,800 IMS Health, Inc. 1,079,162
41,300 Interpublic Group of Cos., Inc. # 1,941,100
41,200 McKesson HBOC, Inc. # 963,050
747,500 Microsoft Corp. * 68,057,558
49,100 Novell, Inc. * 960,519
26,000 Omnicom Group, Inc. # 2,291,250
210,800 Oracle Corp. *# 14,294,875
39,400 Parametric Technology Co. * # 893,887
35,600 PeopleSoft, Inc. *# 669,725
3,900 Shared Medical Systems Corp. # 170,625
113,300 Sun Microsystems, Inc. * 14,983,925
25,500 UST, Inc. # 678,938
---------------
160,244,820
---------------
CHEMICALS & ALLIED PRODUCTS (10.2%)
222,800 Abbott Laboratories # 8,466,400
33,600 Air Products and Chemicals, Inc. # 1,087,800
8,200 Alberto Culver Co. # 215,762
9,700 Allergan, Inc. # 954,238
14,900 ALZA Corp. * 643,494
38,200 Avon Products, Inc. # 1,391,912
42,600 Baxter International, Inc. 2,878,162
290,900 Bristol-Myers Squibb Co. 21,253,881
34,600 Clorox Co. # 1,541,863
85,400 Colgate-Palmolive Co. 4,686,325
32,200 Dow Chemical Co. # 3,771,425
152,800 E.i. Du Pont De Nemours & Co. 9,082,071
11,500 Eastman Chemical Co. # 447,063
19,000 Ecolab, Inc. # 657,875
160,100 Eli Lilly & Co. 11,487,175
4,700 FMC Corp. * # 227,950
16,100 Goodrich (B.F.) Co. # 363,256
8,600 Great Lakes Chemical Corp. 285,413
15,500 Hercules, Inc. # 368,125
15,500 International Flavors &
Fragrances, Inc. # 570,594
10,400 Mallinckrodt, Inc. 345,800
343,500 Merck & Co., Inc. 26,964,750
92,800 Monsanto Co. # 3,915,000
567,500 Pfizer, Inc. 20,536,406
74,200 Pharmacia & Upjohn, Inc. # 4,057,812
25,400 PPG Industries, Inc. # 1,487,488
23,300 Praxair, Inc. 1,039,763
194,600 Procter & Gamble Co. 21,016,800
31,900 Rohm & Haas Co. 1,168,337
215,100 Schering-Plough Corp. # 10,996,988
24,800 Sherwin-Williams Co. 531,650
19,500 Union Carbide Corp. 1,140,750
10,400 W.R. Grace & Co. *# 141,700
125,200 Warner Lambert Co. 11,228,875
14,000 Watson Pharmaceuticals *# 520,625
---------------
175,473,528
---------------
14 WELLS FARGO CORE TRUST
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK - CONTINUED
Shares Security Description Value
- ------------- -------------------------------- --------------
COMMUNICATIONS (9.8%)
44,700 Alltel Corp. # $ 3,866,550
468,000 AT&T Corp.# 26,149,500
227,400 Bell Atlantic Corp. # 14,397,263
276,100 BellSouth Corp. # 12,752,369
111,624 CBS Corp. * 5,804,448
20,400 CenturyTel, Inc. 938,400
49,400 Clear Channel Communications, Inc. *# 3,970,525
109,800 Comcast Corp., Class A# 4,961,587
112,500 Global Crossing Ltd. *# 4,907,813
143,700 GTE Corp. 10,490,100
274,300 MCI Worldcom, Inc. # 22,681,181
88,800 MediaOne Group, Inc. *# 7,037,400
53,000 Nextel Communications, Inc. *# 5,253,625
500,000 SBC Communications, Inc. # 25,968,750
127,100 Sprint Corp. (FON Group) 8,817,562
64,400 Sprint Corp. (PCS Group) *# 5,908,700
73,900 US West, Inc. 4,586,419
--------------
168,492,192
--------------
DEPOSITORY INSTITUTIONS (5.9%)
57,600 AmSouth Bancorp. 1,299,600
253,000 Bank of America Corp. # 14,800,500
107,700 Bank of New York Co., Inc. # 4,294,538
171,800 Bank One Corp. # 6,055,950
46,800 BB&T Corp. # 1,503,450
121,900 Chase Manhattan Corp. 9,416,775
22,900 Comerica, Inc. # 1,213,700
44,200 Fifth Third Bancorp # 3,094,000
140,100 First Union Corp. # 5,420,119
144,200 Firstar Corp. # 3,749,200
135,000 FleetBoston Financial Corp. # 5,104,688
8,100 Golden West Financial Corp. # 817,594
33,700 Huntington Bancshares, Inc. 933,069
25,700 J.P. Morgan & Co., Inc. 3,379,550
65,700 KeyCorp # 1,773,900
75,300 Mellon Bank Corp. 2,743,744
90,500 National City Corp. 2,256,844
16,300 Northern Trust Corp. # 1,578,044
44,500 PNC Bank Corp. 2,480,875
32,800 Regions Financial Corp. 899,950
15,300 Republic New York Corp. # 1,081,519
24,500 SouthTrust Corp. 950,906
23,600 State Street Corp. 1,733,125
25,900 Summit Bancorp 844,987
47,100 Suntrust Banks, Inc. # 3,291,112
39,700 Synovus Financial Corp. # 794,000
107,200 U.S. Bancorp 3,664,900
20,900 Union Planters Corp. # 890,862
29,600 Wachovia Corp. # 2,292,150
84,800 Washington Mutual, Inc. # 2,459,200
241,600 Wells Fargo Co. # 11,234,400
--------------
102,053,251
--------------
EATING & DRINKING PLACES (0.6%)
19,400 Darden Restaurants, Inc. # $ 345,563
198,400 McDonald's Corp. 8,928,000
22,500 Tricon Global Restaurants, Inc.* 933,750
17,800 Wendy's International, Inc. # 392,712
---------------
10,600,025
---------------
ELECTRIC, GAS & SANITARY SERVICES (2.4%)
30,200 AES Corp. *# 1,749,713
27,600 Allied Waste Industries, Inc. * 224,250
20,100 Ameren Corp. # 695,963
28,300 American Electric Power Co. # 887,912
23,400 Carolina Power & Light Co. # 704,925
31,100 Central & Southwest Corp. # 622,000
23,300 CINergy Corp. # 589,781
17,300 CMS Energy Corp. # 575,225
31,300 Coastal Corp. # 1,103,325
12,000 Columbia Energy Group 753,000
32,400 Consolidated Edison Co. # 1,117,800
14,000 Consolidated Natural Gas Co. 897,750
21,900 Constellation Energy Group 644,681
28,100 Dominion Resources, Inc. # 1,275,038
21,200 DTE Energy Co. # 700,925
53,400 Duke Energy Corp. 2,706,712
3,900 Eastern Enterprises 221,325
50,900 Edison International # 1,348,850
33,400 El Paso Energy Corp. 1,285,900
104,500 Enron Corp. 3,977,531
36,200 Entergy Corp. # 997,762
34,300 FirstEnergy Corp. # 799,619
14,400 Florida Progress Corp. 615,600
26,300 FPL Group, Inc. 1,150,625
18,400 General Public Utilities, Inc. 588,800
48,400 Laidlaw, Inc. 296,450
16,900 New Century Energies, Inc. # 531,294
27,400 Niagara Mohawk Holdings, Inc. * 411,000
6,900 Nicor, Inc. 239,344
22,600 Northern States Power Co. 461,888
4,600 Oneok, Inc. # 123,912
56,200 Pacific Gas & Electric Co. 1,257,475
27,300 PECO Energy Co. 899,194
5,200 People's Energy Corp. # 191,100
12,400 Pinnacle West Capital Corp. 411,525
23,100 PP&L Resources, Inc. 532,744
32,100 Public Service Enterprise Group, Inc 1,123,500
43,300 Reliant Energy, Inc. # 1,074,381
35,200 Sempra Energy # 651,200
100,100 Southern Co. # 2,339,838
40,500 Texas Utilities Co. 1,450,406
90,700 Waste Management, Inc. 1,473,875
63,600 Williams Cos., Inc. 2,146,500
---------------
41,850,638
---------------
15 WELLS FARGO CORE TRUST
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK - CONTINUED
Shares Security Description Value
- ------------- -------------------------------- --------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT & COMPONENTS,
EXCEPT COMPUTER EQUIPMENT (11.7%)
15,100 Adaptec, Inc. *# $ 813,512
21,900 ADC Telecommunications, Inc. *# 1,167,544
21,600 Advanced Micro Devices, Inc. *# 610,200
25,300 Analog Devices, Inc. *# 1,453,169
12,000 Andrew Corp. * 167,250
13,800 Cooper Industries, Inc. 592,537
63,600 Emerson Electric Co. 3,625,200
480,400 General Electric Co. 62,452,000
25,400 General Instrument Corp. * 1,663,700
484,500 Intel Corp. 37,155,094
21,600 LSI Logic Corp. *# 1,305,450
448,800 Lucent Technologies, Inc. 32,790,450
12,800 Maytag Corp. # 610,400
36,700 Micron Technology, Inc. # 2,463,488
88,900 Motorola, Inc. # 10,156,825
24,600 National Semiconductor Corp. *# 1,045,500
5,900 National Service Industries 174,419
10,800 Network Appliance, Inc. *# 1,271,025
194,400 Nortel Networks Corp. # 14,385,600
23,500 QUALCOMM, Inc. *# 8,514,344
11,200 Scientific-Atlanta, Inc. 653,100
3,986 Teledyne Technologies, Inc. * 35,124
57,300 Tellabs, Inc. *# 3,717,337
115,100 Texas Instruments, Inc. # 11,056,794
8,300 Thomas & Betts Corp. # 340,300
11,000 Whirlpool Corp. # 671,000
23,100 Xilinx, Inc. * 2,067,450
--------------
200,958,812
--------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT &
RELATED SERVICES (0.2%)
23,600 Dun & Bradstreet Corp. 637,200
36,000 Paychex, Inc. 1,437,750
6,700 Perkin Elmer, Inc. 275,538
16,800 Quintiles Transnational * 370,650
--------------
2,721,138
--------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY &
TRANSPORTATION EQUIPMENT (0.6%)
4,500 Ball Corp. # 167,344
9,900 Crane Co. # 181,912
17,900 Crown Cork & Seal Co., Inc. 364,712
20,800 Danaher Corp. # 1,021,800
24,400 Fortune Brands, Inc. 834,175
158,900 Gillette Co. # 6,385,794
15,900 Parker-Hannifin Corp. # 748,294
9,600 Snap-On, Inc. # 290,400
13,000 Stanley Works # 404,625
--------------
10,399,056
--------------
FOOD & KINDRED PRODUCTS (4.0%)
5,400 Adolph Coors Co. # 268,650
68,500 Anheuser-Busch Cos., Inc. # 5,124,656
90,400 Archer Daniels Midland Co. # 1,124,350
40,900 Bestfoods, Inc. # 2,241,831
10,000 Brown-Forman Corp. # 626,875
63,600 Campbell Soup Co. # 2,838,150
FOOD & KINDRED PRODUCTS (CONTINUED)
361,600 Coca-Cola Co. $ 24,340,200
62,200 Coca-Cola Enterprises, Inc. # 1,317,862
71,500 ConAgra, Inc. # 1,724,938
44,800 General Mills, Inc. 1,688,400
52,500 Heinz (H.J.) Co. 2,198,438
20,400 Hershey Foods Corp. 1,002,150
59,300 Kellogg Co. 2,008,788
214,200 PepsiCo, Inc. 7,403,287
19,600 Quaker Oats Co. # 1,278,900
47,400 Ralston-Ralston Purina Group # 1,407,188
132,300 Sara Lee Corp. 3,208,275
63,300 Seagram Co. Ltd. # 2,757,506
83,700 Unilever NV - NY Shares # 4,556,419
17,000 Wrigley (Wm) Jr. Co. 1,414,187
---------------
68,531,050
---------------
FOOD STORES (0.3%)
61,600 Albertson's, Inc. # 1,967,350
5,600 Great Atlantic & Pacific Tea Co. 142,450
121,500 Kroger Co. *# 2,589,469
21,800 Winn-Dixie Stores, Inc. *# 570,887
---------------
5,270,156
---------------
FURNITURE & FIXTURES (0.2%)
28,800 Leggett & Platt # 617,400
64,900 Masco Corp. 1,638,725
41,300 Newell Rubbermaid, Inc. # 1,355,156
---------------
3,611,281
---------------
GENERAL MERCHANDISE STORES (3.1%)
16,100 Consolidated Stores Corp. *# 253,575
32,300 Costco Wholesale Corp. *# 2,961,506
64,800 Dayton Hudson Corp. 4,572,450
15,700 Dilliards, Inc. # 296,337
32,900 Dollar General Corp. # 806,050
30,500 Federated Department Stores, Inc. *# 1,435,406
10,400 Harcourt General, Inc. # 344,500
38,600 J.C. Penney Co., Inc. 861,263
72,300 Kmart Corp. *# 718,481
48,900 May Department Stores Co. 1,644,263
55,700 Sears, Roebuck and Co. 1,904,244
651,800 Wal-Mart Stores, Inc. # 37,559,975
---------------
53,358,050
---------------
HEALTH SERVICES (0.2%)
82,600 Columbia HCA Healthcare Corp. # 2,250,850
60,800 HEALTHSOUTH Corp. * 345,800
15,700 Manor Care, Inc. *# 314,981
45,500 Tenet Healthcare Corp. *# 1,015,219
---------------
3,926,850
---------------
HEAVY CONSTRUCTION OTHER THAN BUILDING CONSTRUCTION -
CONTRACTORS (0.2%)
11,100 Fluor Corp. # 466,894
6,000 Foster Wheeler Corp. # 61,125
64,600 Halliburton Co. # 2,499,212
---------------
3,027,231
---------------
16 WELLS FARGO CORE TRUST
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK - CONTINUED
Shares Security Description Value
- ------------- -------------------------------- --------------
HOLDING & OTHER INVESTMENT OFFICES (0.0%)
17,800 T. Rowe Price $ 640,800
--------------
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES (0.2%)
29,800 Best Buy Co., Inc. *# 1,862,500
29,400 Circuit City Stores 1,425,900
--------------
3,288,400
--------------
HOTELS, ROOMING HOUSES, CAMPS & OTHER
LODGING PLACES (0.1%)
37,300 Hilton Hotels Corp. # 375,331
36,400 Marriott International - Class A 1,185,275
29,100 Mirage Resorts, Inc. * 372,844
--------------
1,933,450
--------------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (8.8%)
23,600 Apple Computer, Inc. *# 2,309,850
55,000 Applied Materials, Inc. *# 5,359,062
48,200 Baker Hughes, Inc. 1,217,050
12,700 Black & Decker Corp. 569,913
3,400 Briggs & Stratton Corp. # 181,688
13,500 Brunswick Corp. 294,469
52,100 Caterpillar, Inc. 2,416,138
476,200 Cisco Systems, Inc. * 42,471,088
249,000 Compaq Computer Corp. 6,084,938
10,200 Comverse Technology, Inc. * 1,232,925
6,100 Cummins Engine Co., Inc. # 247,050
34,200 Deere & Co. # 1,468,462
372,100 Dell Computer Corp. *# 16,000,300
30,500 Dover Corp. # 1,322,937
148,400 EMC Corp. *# 12,400,675
45,900 Gateway 2000, Inc. *# 3,505,612
148,400 Hewlett-Packard Co. 14,079,450
265,000 IBM Corp. 27,311,562
24,200 Ingersoll-Rand Co. 1,172,188
18,900 Lexmark International Group, Inc. * 1,568,700
8,700 McDermott International, Inc. 74,494
5,400 Milacron, Inc. # 78,637
18,200 Pall Corp. # 426,562
39,200 Pitney Bowes, Inc. # 1,879,150
32,600 Seagate Technology, Inc. * 1,206,200
27,600 Silicon Graphics, Inc. *# 260,475
39,500 Solectron Corp.* 3,253,813
28,300 Tandy Corp. # 2,168,488
9,100 Timken Co. # 174,037
44,800 Unisys Corp. * 1,288,000
--------------
152,023,913
--------------
INSURANCE AGENTS, BROKERS & SERVICES (0.3%)
37,500 Aon Corp. # 1,338,281
24,500 Humana, Inc. * 171,500
38,700 Marsh & McLennan Cos., Inc. 3,042,788
16,000 MGIC Investment Corp. 904,000
--------------
5,456,569
--------------
INSURANCE CARRIERS (4.4%)
20,600 Aetna Life & Casualty, Inc. $ 1,125,275
38,900 AFLAC, Inc. 1,862,337
116,900 Allstate Corp. 3,061,319
36,500 American General Corp. 2,675,906
226,800 American International Group, Inc. 23,417,102
25,800 Chubb Corp. 1,381,912
29,200 CIGNA Corp. # 2,401,700
24,200 Cincinnati Financial Corp. 810,700
494,600 Citigroup, Inc. 26,646,575
33,100 Hartford Financial Services Group 1,545,356
15,400 Jefferson-Pilot Corp. 1,045,275
29,100 Lincoln National Corp. # 1,213,106
15,800 Loews Corp. 1,011,200
14,600 MBIA, Inc. # 730,000
10,700 Progressive Corp. # 862,019
20,800 Providian Financial Corp. 1,645,800
19,300 Safeco Corp. # 457,169
33,200 St. Paul Cos., Inc.# 1,002,225
19,500 Torchmark Corp. 619,125
25,400 United Healthcare Corp. 1,319,213
35,000 UnumProvident Corp. 1,139,688
9,600 Wellpoint Health Networks, Inc. * 552,600
---------------
76,525,602
---------------
LUMBER & WOOD PRODUCTS, EXCEPT FURNITURE (0.0%)
15,700 Louisiana-Pacific Corp. 192,325
---------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (1.6%)
7,500 Bard (C.R.), Inc. 407,344
8,400 Bausch & Lomb, Inc. 460,425
36,700 Becton, Dickinson and Co. # 1,000,075
16,500 Biomet, Inc. # 522,844
60,600 Boston Scientific Corp. * 1,280,175
46,400 Eastman Kodak Co. 2,871,000
44,300 Guidant Corp. *# 2,215,000
18,700 Honeywell, Inc. 2,093,231
12,500 Johnson Controls, Inc. # 681,250
12,900 KLA-Tencor Corp. *# 1,090,856
171,800 Medtronic, Inc. 6,678,725
6,600 Millipore Corp. # 216,563
14,900 PE Corp - PE Biosystems Group 1,216,212
6,500 Polaroid Corp. # 125,125
49,500 Raytheon Co., Class B # 1,519,031
12,400 St. Jude Medical, Inc. * 329,375
6,900 Tektronix, Inc. # 234,600
25,100 Teradyne, Inc. *# 1,093,419
23,100 Thermo Electron Corp. * 346,500
97,100 Xerox Corp. # 2,627,769
---------------
27,009,519
---------------
METAL MINING (0.2%)
57,100 Barrick Gold Corp. # 1,027,800
13,200 Cyprus Amax Minerals Co. 238,425
23,900 Freeport-McMoran Inc., Class B*# 377,919
38,100 Homestake Mining Co. 314,325
24,500 Newmont Mining Corp. # 580,344
47,700 Placer Dome, Inc. 542,587
---------------
3,081,400
---------------
17 WELLS FARGO CORE TRUST
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
Shares Security Description Value
- ------------- -------------------------------- --------------
MINING & QUARRYING OF NONMETALLIC MINERALS,
EXCEPT FUELS (0.0%)
14,700 Vulcan Materials Co. # $ 591,675
--------------
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.7%)
28,500 Hasbro, Inc. # 614,531
12,900 ITT Industries, Inc. 449,887
5,000 Jostens, Inc. # 91,875
61,500 Mattel, Inc. # 880,219
1,200 NACCO Industries, Inc. # 58,125
245,000 Tyco International Ltd. # 9,815,313
1,395 Water Pik Technologies, Inc. * 10,288
--------------
11,920,238
--------------
MISCELLANEOUS RETAIL (0.5%)
20,500 Bed Bath & Beyond, Inc. *# 640,625
5,800 Longs Drug Stores, Inc. # 145,725
54,900 Office Depot, Inc. * 610,762
37,900 Rite Aid Corp. # 286,619
68,100 Staples, Inc. * 1,600,350
36,300 Toys 'R' Us, Inc. *# 635,250
147,000 Walgreen Co. # 4,281,375
--------------
8,200,706
--------------
MOTION PICTURES (0.1%)
31,800 Unicom Corp.# 1,015,612
--------------
MOTOR FREIGHT TRANSPORTATION (0.1%)
43,600 FDX Corp. *# 1,839,375
--------------
NONDEPOSITORY CREDIT INSTITUTIONS (2.8%)
65,800 American Express Co. 9,956,362
106,600 Associates First Capital Corp. 3,544,450
28,900 Capital One Financial Corp. # 1,345,656
47,900 Conseco, Inc. # 969,975
16,500 Countrywide Credit Industries, Inc. # 464,063
150,100 Fannie Mae 10,000,413
101,800 Freddie Mac 5,026,375
70,100 Household International, Inc. 2,773,331
117,400 MBNA Corp. 2,964,350
83,600 Morgan Stanley Dean Witter & Co. # 10,084,250
23,600 SLM Holding Corp. 1,169,675
--------------
48,298,900
--------------
OIL & GAS EXTRACTION (0.5%)
18,700 Anadarko Petroleum Corp. 563,338
16,000 Apache Corp. 598,069
31,900 Burlington Resources, Inc. # 1,072,638
7,200 Helmerich & Payne, Inc. 162,900
51,100 Occidental Petroleum Corp. 1,121,006
12,200 Rowan Cos., Inc. * 208,925
80,200 Schlumberger Ltd. 4,817,012
36,900 Union Pacific Resources Group, Inc. # 482,006
--------------
9,025,894
--------------
PAPER & ALLIED PRODUCTS (1.3%)
16,600 Avery Dennison Corp. # 985,625
7,700 Bemis Co., Inc. # 242,550
8,400 Boise Cascade Corp. # 290,850
PAPER & ALLIED PRODUCTS (CONTINUED)
14,100 Champion International Corp. # $ 781,669
32,400 Fort James Corp. 931,500
25,100 Georgia-Pacific Group # 999,294
21,800 IKON Office Solutions, Inc. # 145,787
60,600 International Paper Co. # 3,162,563
78,000 Kimberly-Clark Corp. 4,982,250
15,000 Mead Corp. 535,312
59,000 Minnesota Mining and
Manufacturing Co. 5,638,188
25,000 Pactiv Corp. *# 256,250
12,200 Sealed Air Corp. *# 573,400
8,200 Temple-Inland, Inc. 469,450
14,700 Westvaco Corp. # 443,756
34,500 Weyerhaeuser Co. # 2,113,125
16,300 Willamette Industries, Inc. # 674,412
---------------
23,225,981
---------------
PERSONAL SERVICES (0.1%)
14,300 H&R Block, Inc. 614,900
39,800 Service Corp. International 300,988
---------------
915,888
---------------
PETROLEUM REFINING & RELATED INDUSTRIES (5.0%)
13,300 Amerada Hess Corp. # 770,569
10,600 Ashland, Inc. # 357,750
47,200 Atlantic Richfield Co. 4,548,900
96,100 Chevron Corp. 8,510,856
91,900 Conoco, Inc., Class B 2,406,631
355,600 Exxon Corp. * 28,203,525
12,700 Kerr-McGee Corp. # 727,075
114,700 Mobil Corp. 11,964,644
37,100 Phillips Petroleum Co. 1,773,844
314,100 Royal Dutch Petroleum Co. # 18,217,800
13,300 Sunoco, Inc. 339,981
81,000 Texaco, Inc. 4,935,938
22,300 Tosco Corp. # 603,494
35,500 Unocal Corp. # 1,178,156
45,200 USX-Marathon Group, Inc. # 1,194,975
---------------
85,734,138
---------------
PHARMACEUTICAL PREPARATIONS (1.0%)
191,400 American Home Products Corp. 9,952,800
149,400 Amgen, Inc. * 6,807,038
---------------
16,759,838
---------------
PRIMARY METAL INDUSTRIES (0.5%)
33,100 Alcan Aluminum Ltd. # 1,125,400
53,700 Alcoa, Inc. # 3,517,350
13,950 Allegheny Technologies 351,366
19,200 Bethlehem Steel Corp. * 120,000
18,400 Engelhard Corp. # 309,350
28,100 Inco Ltd. 516,337
12,800 Nucor Corp. # 645,600
8,500 Phelps Dodge Corp. # 442,000
9,200 Reynolds Metals Co. 575,575
12,900 USX-U.S. Steel Group, Inc. 326,531
13,500 Worthington Industries, Inc. # 216,000
---------------
8,145,509
---------------
18 WELLS FARGO CORE TRUST
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCK - CONTINUED
Shares Security Description Value
- ------------- -------------------------------- --------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (1.6%)
9,900 American Greetings Corp. $ 233,269
11,100 Deluxe Corp. # 290,681
13,300 Dow Jones & Co., Inc. # 806,312
41,000 Gannett Co., Inc. # 2,934,063
11,900 Knight Ridder, Inc. # 649,294
28,800 McGraw-Hill Cos., Inc. # 1,632,600
7,600 Meredith Corp. # 287,375
25,500 New York Times Co. # 980,156
18,700 R.R. Donnelley & Sons Co. 448,800
189,400 Time Warner, Inc. # 11,683,613
6,900 Times Mirror Co. # 445,481
34,700 Tribune Co. # 1,667,769
102,000 Viacom, Inc., Class B *# 5,074,500
--------------
27,133,913
--------------
RAILROAD TRANSPORTATION (0.4%)
68,100 Burlington Northern Santa Fe Corp. 1,974,900
31,900 CSX Corp. # 1,134,444
16,200 Kansas City Southern Industries, Inc. 964,912
55,700 Norfolk Southern Corp. # 1,190,588
36,300 Union Pacific Corp. # 1,708,369
--------------
6,973,213
--------------
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (0.4%)
5,900 Armstrong World Industries # 197,650
11,100 Cooper Tire & Rubber Co. 166,500
22,900 Goodyear Tire & Rubber Co. # 772,875
44,000 Illinois Tool Works, Inc. # 2,849,000
41,200 Nike, Inc., Class B # 1,895,200
8,200 Reebok International Ltd. *# 73,800
8,400 Tupperware Corp. 149,625
--------------
6,104,650
--------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES
& SERVICES (0.8%)
17,955 Bear Stearns Cos., Inc. 732,788
119,800 Charles Schwab Corp. 4,544,913
36,900 Franklin Resources, Inc. 1,160,044
17,600 Lehman Brothers Holding, Inc. # 1,344,200
54,100 Merrill Lynch & Co., Inc. 4,361,812
21,300 Paine Webber Group, Inc. # 834,694
--------------
12,978,451
--------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS (0.2%)
35,800 Corning, Inc. # 3,354,012
8,000 Owens Corning # 126,000
22,800 Owens-Illinois, Inc. *# 545,775
--------------
4,025,787
--------------
TEXTILE MILL PRODUCTS (0.0%) $ 64,006
4,900 Russell Corp. # $ 64,006
2,600 Springs Industries, Inc., Class A 104,000
---------------
168,006
---------------
TOBACCO PRODUCTS (0.5%)
350,100 Philip Morris Cos., Inc. 9,212,006
---------------
TRANSPORTATION BY AIR (0.2%)
22,000 AMR Corp. *# 1,339,250
20,600 Delta Airlines, Inc. # 1,014,550
73,800 Southwest Airlines Co. 1,203,862
10,500 US Airways Group, Inc. *# 293,344
---------------
3,851,006
---------------
TRANSPORTATION EQUIPMENT (2.4%)
80,600 Allied-Signal, Inc. *# 4,820,888
140,700 Boeing Co. 5,742,319
24,300 Dana Corp. # 674,325
82,800 Delphi Automotive Systems Corp. 1,304,100
10,600 Eaton Corp. # 820,838
4,900 Fleetwood Enterprises, Inc. 102,900
177,200 Ford Motor Co. 8,948,600
29,200 General Dynamics Corp. 1,505,625
94,300 General Motors Corp. 6,789,600
57,900 Lockheed Martin Corp. # 1,150,763
9,700 Navistar International Corp. * 360,719
10,200 Northrop Grumman Corp. 573,112
11,500 PACCAR, Inc. 472,937
28,000 Rockwell International Corp. # 1,389,500
22,000 Textron, Inc. # 1,563,375
17,800 TRW, Inc. # 928,937
70,500 United Technologies Corp. 3,983,250
---------------
41,131,788
---------------
WATER TRANSPORTATION (0.2%)
89,800 Carnival Corp. 3,962,425
---------------
WHOLESALE TRADE-DURABLE GOODS (1.3%)
26,200 Genuine Parts Co. # 674,650
13,700 Grainger (W.W.), Inc. # 645,612
196,900 Johnson & Johnson 20,428,375
4,200 Potlatch Corp. # 169,837
---------------
21,918,474
---------------
WHOLESALE TRADE-NONDURABLE GOODS (0.4%)
39,900 Cardinal Health, Inc. 2,087,269
74,700 Safeway, Inc. *# 2,754,562
14,800 Sigma Aldrich # 423,650
20,300 SUPERVALU, Inc. # 394,581
48,500 Sysco Corp. 1,846,031
---------------
7,506,093
---------------
Total Common Stocks (Cost $1,032,338,129) 1,685,213,179
---------------
19 WELLS FARGO CORE TRUST
<PAGE>
- -------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (unaudited) (continued)
NOVEMBER 30, 1999
- -------------------------------------------------------------------------
Face Amount Security Description Value
- -------------------- ------------------------------------ ---------------
CORPORATE NOTES (0.2%)
$1,605,000 NationsBank Corp., 6.20% V/R, 7/1/04 $ 1,605,000
1,600,000 Spintab/Swedmortgage, 6.01% V/R,
12/20/99 1,599,520
---------------
Total Corporate (Cost $3,197,586) 3,204,520
---------------
U.S. TREASURY BILLS (0.1%)
2,410,000 4.62% yield, 4/27/00++ (cost $2,363,718) 2,357,775
---------------
TIME DEPOSITS (1.9%)
32,096,570 Fifth Third Bank, 5.78%, 12/1/99 32,096,570
---------------
(Cost $32,096,570)
TOTAL INVESTMENTS (100.0%) $ 1,722,872,044
===============
(Cost 1,069,996,003)
Financial Futures Contracts++
Unrealized
Position Contracts Index Gain
- -------- ------------ -------------------------------- ---------------
Long 109 S&P 500 Futures, Expiring December 17, $11,122,825
1999 (notional value $37,918,375)
- ---------------------------------------------------------
* Non-income producing security.
# Part or all of this investment is on loan.
++ As of November 30, 1999, $2,410,000 of U.S. Treasury Bills, 4/17/00, with a
market value of $2,357,775 were pledged to cover margin requirements for
open futures contracts.
V/R Variable rate - These securities are deemed to have a maturity remaining
until the next adjustment of the interest rate or the longer of the demand
period or readjustment. The interest rates shown reflect the rate in effect
on November 30, 1999.
20 WELLS FARGO CORE TRUST
<PAGE>
ANNUAL REPORT
SEPTEMBER 30, 1999
INDEX PORTFOLIO
CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
To the Board of Trustees and Partners
Core Trust (Delaware)
We have audited the accompanying statement of assets and liabilities of
Index Portfolio of Core Trust (Delaware), including the schedule of investments,
as of September 30, 1999, and the related statements of operations for the
periods presented on page 24, statements of changes in net assets for the
periods presented on page 25 and financial highlights for the periods presented
on page 26. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The statement of changes in net assets and the financial highlights for
all periods ending prior to June 1, 1998 were audited by other auditors, whose
report dated July 21, 1998 expressed an unqualified opinion on those financial
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Index Portfolio as of September 30, 1999, the results of its
operations, changes in its net assets and financial highlights for each of the
periods indicated in the first paragraph above, in conformity with generally
accepted accounting principles.
[KPMG Computerized Signature]
Boston, Massachusetts
November 18, 1999
22 CORE TRUST (DELAWARE)
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------------------------------------------
INDEX
PORTFOLIO
-------------------
ASSETS
Investments (Note 2)
Investments, at cost $1,060,009,766
Net unrealized appreciation 525,192,203
-------------------
Total investments, at value 1,585,201,969
Collateral for securities loaned (Notes 2 and 6) 259,210,830
Receivable from daily variation margin on futures contracts (Note 2) 448,350
Receivable for investments sold 34,899
Receivable for dividends, interest and other receivables 1,769,945
Organization costs, net of amortization (Note 2) 725
-------------------
Total Assets 1,846,666,718
-------------------
LIABILITIES
Payable for investments purchased 3,652,909
Payable for securities loaned (Notes 2 and 6) 259,210,830
Payable to custodian (Note 3) 14,573
Payable to investment adviser and affiliates (Note 3) 200,159
Accrued expenses and other liabilities 29,585
-------------------
Total Liabilities 263,108,056
-------------------
NET ASSETS $1,583,558,662
===================
</TABLE>
See Notes to Financial Statements 23 CORE TRUST (DELAWARE)
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
INDEX
PORTFOLIO
-----------------------------------
FOUR MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, 1999 MAY 31, 1999
INVESTMENT INCOME
Dividend income $ 7,134,863 $ 21,699,973
Interest income 848,084 1,826,068
Securities lending income (Note 2) 92,418 412,363
---------------- ----------------
Total Investment Income 8,075,365 23,938,404
---------------- ----------------
EXPENSES
Advisory (Note 3) 849,293 2,351,029
Administration (Note 3) 283,098 783,676
Custody (Note 3) 61,620 171,735
Accounting (Note 3) 50,000 153,500
Legal 3,206 5,734
Audit 20,000 36,331
Trustees 1,010 2,934
Pricing 15,963 28,971
Amortization of organization costs (Note 2) 2,024 6,072
Miscellaneous 5,591 35,927
---------------- ----------------
Total Expenses 1,291,805 3,575,909
Fees waived (Note 4) (286,572) (779,240)
---------------- ----------------
Net Expenses 1,005,233 2,796,669
---------------- ----------------
NET INVESTMENT INCOME 7,070,132 21,141,735
---------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain from
Securities 14,370,473 21,545,068
Financial futures transactions 3,547,453 4,808,254
---------------- ----------------
Net Realized Gain from Investments 17,917,926 26,353,322
---------------- ----------------
Net Change in Unrealized Appreciation (Depreciation) of
Securities (246,554,792) 248,662,572
Financial futures transactions (510,977) (1,352,724)
---------------- ----------------
Net Change in Unrealized Appreciation (Depreciation) of Investments (247,065,769) 247,309,848
---------------- ----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (229,147,843) 273,663,170
---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($222,077,711) $294,804,905
================ ================
See Notes to Financial Statements 24 CORE TRUST (DELAWARE)
<PAGE>
- -------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS OR PERIODS ENDED MAY 31, 1998, MAY 31, 1999 AND SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------------------------------------------
INDEX
PORTFOLIO
----------------------
NET ASSETS, MAY 31, 1997 $455,992,618
----------------------
OPERATIONS
Net investment income 18,212,835
Net realized gain from investments 40,577,843
Net change in unrealized appreciation of investments 232,315,725
----------------------
Net Increase in Net Assets Resulting from Operations 291,106,403
----------------------
TRANSACTIONS IN INVESTORS' BENEFICAL INTERESTS
Contributions (Note 7) 791,000,962
Withdrawals (152,820,060)
----------------------
Net Increase from Transactions in Investors' Beneficial Interest 638,180,902
----------------------
Net Increase in Net Assets 929,287,305
----------------------
NET ASSETS MAY 31, 1998 (a) 1,385,279,923
----------------------
OPERATIONS
Net investment income 21,141,735
Net realized gain from investments 26,353,322
Net change in unrealized appreciation of investments 247,309,848
----------------------
Net Increase in Net Assets Resulting from Operations 294,804,905
----------------------
TRANSACTIONS IN INVESTORS' BENEFICAL INTERESTS
Contributions 338,399,367
Withdrawals (187,842,788)
----------------------
Net Increase from Transactions in Investors' Beneficial Interest 150,556,579
----------------------
Net Increase in Net Assets 445,361,484
----------------------
NET ASSETS MAY 31, 1999 1,830,641,407
----------------------
OPERATIONS
Net investment income 7,070,132
Net realized gain from investments 17,917,926
Net change in unrealized (depreciation) of investments (247,065,769)
----------------------
Net Decrease in Net Assets Resulting from Operations (222,077,711)
----------------------
TRANSACTIONS IN INVESTORS' BENEFICAL INTERESTS
Contributions 168,104,830
Withdrawals (193,109,864)
----------------------
Net Decrease from Transactions in Investors' Beneficial Interest (25,005,034)
----------------------
Net Decrease in Net Assets (247,082,745)
----------------------
NET ASSETS, SEPTEMBER 30, 1999 $1,583,558,662
======================
(a) Beginning of Period June 1, 1997
</TABLE>
See Notes to Financial Statements 25 CORE TRUST (DELAWARE)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets (a)
------------------------------------------------------------
Net Portfolio
Investment Net Gross Turnover
Income Expenses Expenses (c) Rate
---------------- ------------ -------------- --------------
For Year or Period
June 1, 1999 to September 30, 1999 1.25% 0.18% 0.23% 11%
June 1, 1998 to May 31, 1999 1.35% 0.18% 0.23% 4%
June 1, 1997 to May 31, 1998 1.60% 0.19% 0.24% 7%
June 1, 1996 to May 31, 1997 2.03% 0.11% 0.31% 7%
November 1, 1995 to May 31, 1996 2.35% 0.17% 0.32% 7%
November 11, 1994(b) to October 31, 1995 2.42% 0.17% 0.33% 8%
</TABLE>
- -----------------------------------------------------------
(a) Ratios for periods of less than one year are annualized.
(b) Commencement of operations.
(c) During each period, various fees and expenses were waived and reimbursed.
The ratio of Gross Expenses to Average Net Assets reflects the expense
ratio in the absence of any waivers and reimbursements (Note 4).
See Notes to Financial Statements 26 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
Core Trust (Delaware) ("Core Trust") is organized as a Delaware business trust
and is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "Act"). Core Trust currently has
twenty-one separate investment portfolios. These financial statements relate to
Index Portfolio (the "Portfolio"), which commenced operations on November 11,
1994. Interests in the Portfolio are sold in private placement transactions
without any sales charges to qualified investors, including open-end management
investment companies.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the fiscal period. Actual results could differ from those
estimates. The following summarizes the significant accounting policies of the
Portfolio:
SECURITIES VALUATION - The Portfolio determines its net asset value at 4:00 PM,
Eastern Time, on each Portfolio business day. Short-term securities that mature
in sixty days or less are valued at amortized cost. Equity securities for which
market quotations are readily available are valued using the last reported sales
price provided by independent pricing services. If no sales are reported, the
mean of the last bid and ask price is used. If no mean price is available, the
last bid price is used. Fixed income and other securities, for which market
quotations are readily available, are valued using the mean of the last bid and
ask price provided by independent pricing services. If no mean price is
available, the last bid price is used. In the absence of readily available
market quotations, securities are valued at fair value determined in accordance
with procedures adopted by the Board of Trustees.
SECURITY TRANSACTIONS AND INVESTMENT INCOME - Investment transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on the accrual basis and includes amortization
of premium and accretion of discount. Identified cost of investments sold is
used to determine realized gains and losses for both financial statement and
federal income tax purposes.
FUTURES CONTRACTS - The Portfolio may invest in futures contracts to enhance
return and hedge against a decline in the value of securities. A futures
contract is an agreement between two parties to buy and sell a security at a set
price on a future date. Upon entering into such a contract, the Portfolio is
required to pledge to the broker an amount of cash or securities equal to the
minimum "initial margin" requirements of the exchange on which the contract is
traded. Pursuant to the contract, the Portfolio agrees to receive from, or pay
to, the broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as "variation margin" and are
recorded by the Portfolio as unrealized gain or loss. When the contract is
closed, the Portfolio records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at the
time it was closed. The potential risk to the Portfolio is that the change in
value of the underlying securities may not correlate to the change in value of
the contracts.
FEDERAL TAXES - The Portfolio is not required to pay federal income taxes on its
net investment income and net capital gain as it is treated as a partnership for
federal income tax purposes. All interest, dividends, gain and loss of the
Portfolio is deemed to have been "passed through" to the interest holders in
proportion to their holdings of the Portfolio regardless of whether such
interest, dividends or gain have been distributed by the Portfolio.
EXPENSE ALLOCATION - Core Trust accounts separately for the assets and
liabilities and operations of each Portfolio. Expenses that are directly
attributable to more than one Portfolio are allocated among the respective
Portfolios in proportion to each Portfolio's net assets.
ORGANIZATION COSTS - The costs incurred by the Portfolio in connection with its
organization have been capitalized and are being amortized using the
straight-line method over a five-year period beginning on the commencement of
the Portfolio's operations.
27 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - The Portfolio may invest in repurchase agreements. The
Portfolio, through its custodian, receives delivery of the underlying
collateral, whose market value must always exceed the repurchase price. In the
event of default, the Portfolio may have difficulties with the disposition of
the collateral.
SECURITY LOANS - The Portfolio may receive fees or retain a portion of interest
on the investment securities or cash received as collateral for lending
securities. The Portfolio also continues to receive interest or dividends on the
securities loaned. Security loans are secured by collateral whose market value
must always exceed the market value of the securities loaned plus accrued
interest. Gain or loss in the market price of the securities loaned that may
occur during the term of the loan are reflected in the value of the Portfolio.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The investment adviser of the Portfolio is Norwest
Investment Management, Inc. ("Adviser"), a wholly owned subsidiary of Norwest
Bank Minnesota, N.A. ("Norwest"). Norwest is a subsidiary of Wells Fargo &
Company. The Adviser receives an advisory fee from the Portfolio at an annual
rate of 0.15% of the Portfolio's average daily net assets.
ADMINISTRATION AND OTHER SERVICE PROVIDERS - Forum Administrative Services, LLC
("FAdS") is the administrator to Core Trust and receives a fee with respect to
the Portfolio at an annual rate of 0.05% of the Portfolio's average daily net
assets.
Norwest serves as the custodian for the Portfolio. For its custody services,
Norwest receives a fee with respect to the Portfolio at an annual rate of 0.02%
of the first $100 million of the Portfolio's average daily net assets, .015% of
the daily net assets of the Portfolio with respect to the next $100 million and
.01% of the average daily net assets of the Portfolio in excess of $200 million.
Norwest also receives transaction fees for providing services in connection with
the securities lending program.
Forum Accounting Services, LLC, an affiliate of FAdS, provides portfolio
accounting and interest holder recordkeeping services to the Portfolio.
NOTE 4. WAIVERS AND EXPENSE REIMBURSEMENTS
For the four months ended September 30, 1999, fees waived by the Portfolio's
service providers were as follows: FAdS waived fees of $283,098 and reimbursed
expenses of $3,474. For the year ended May 31, 1999, FAdS waived fees of
$779,240.
NOTE 5. SECURITIES TRANSACTIONS
The cost of purchases and the proceeds from sales (including maturities) of
securities (excluding short-term investments) during the four month period ended
September 30, 1999, were $190,282,208 and $179,041,589, respectively. The cost
of purchases and the proceeds from sales (including maturities) of securities
(excluding short-term investments) during the year ended May 31, 1999, were
$208,621,074 and $52,255,404, respectively. The federal tax cost basis of
investments and related gross unrealized appreciation and depreciation for
federal income tax purposes as of September 30, 1999 was $1,061,548,635,
$600,370,707, and $76,717,373, respectively.
NOTE 6. PORTFOLIO SECURITIES LOANED
As of September 30, 1999, the Portfolio had loaned portfolio investments in
return for securities and cash collateral, which were invested in various
short-term fixed income securities. The risks to a Portfolio from securities
lending are that the borower may not provide additional collateral when required
or return the securities when due or when called for by the Portfolio. The value
of the securities on loan and the value of the related collateral were
$253,513,030 and $259,210,830 respectively.
28 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 7. CONTRIBUTION OF SECURITIES
After the close of business on May 31, 1997, in connection with the commencement
of operations of certain portfolios of Core Trust on June 1, 1997, certain
investors contributed net assets and unrealized gain of $512,437,536 and
$115,520,269, respectively, to the Portfolio.
NOTE 8. PORTFOLIO REORGANIZATION
On April 22, 1999, the Board of Trustees of Core Trust approved the
reorganization of the Portfolio into a separate portfolio of Wells Fargo Core
Trust, another open-end registered management investment company. The Wells
Fargo Core Trust portfolio will have substantially similar investment objectives
and policies as its corresponding Norwest Portfolio. The reorganization is part
of a plan to centralize the management of the Norwest Portfolios and Norwest
Advantage Funds, the principal interestholder, under a common Board of Trustees.
Pursuant to Core Trust's Instrument, the reorganization does not require
interestholder approval.
29 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS (97.8%)
Shares Security Description Value
- --------------- ------------------------------ -------------
AGRICULTURAL PRODUCTION-CROPS (0.1%)
47,800 Nabisco Group Holdings Corp. $ 717,000
35,100 Pioneer Hi-Bred International, Inc 1,397,419
-------------
2,114,419
-------------
AMUSEMENT & RECREATION SERVICES (0.5%)
18,800 Harrah's Entertainment, Inc.* 521,700
302,100 Walt Disney Co.*# 7,816,838
-------------
8,338,538
-------------
APPAREL & ACCESSORY STORES (0.5%)
125,600 Gap, Inc. 4,019,200
20,500 Nordstrom, Inc. 553,500
31,400 Limited, Inc. 1,201,050
46,500 TJX Cos., Inc. 1,304,906
-------------
7,078,656
-------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS
& SIMILAR MATERIALS (0.1%)
9,000 Liz Claiborne, Inc.# 279,000
17,400 V.F. Corp. 539,400
-------------
818,400
-------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS (0.0%)
7,700 Pep Boys - Manny, Moe & Jack 114,538
21,800 Autozone, Inc.* 611,762
-------------
726,300
-------------
AUTOMOTIVE REPAIR, SERVICES & PARKING (0.0%)
10,200 Ryder System, Inc. 207,825
-------------
BUILDING CONSTRUCTION-GENERAL CONTRACTORS &
OPERATIVE BUILDERS (0.0%)
8,700 Centex Corp. 257,194
7,000 Kaufman & Broad Home Corp. 144,375
6,300 Pulte Corp. 137,025
-------------
538,594
-------------
BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY & MOBILE
HOME DEALERS (1.1%)
217,200 Home Depot, Inc. 14,905,350
55,900 Lowe's Cos., Inc. 2,725,125
-------------
17,630,475
-------------
BUSINESS SERVICES (8.9%)
52,400 3COM Corp.* 1,506,500
8,900 Adobe Systems, Inc. 1,010,150
162,300 America Online, Inc.*# 16,879,200
8,600 Autodesk, Inc. 188,125
90,600 Automatic Data Processing, Inc. 4,043,025
35,000 BMC Software, Inc.* # 2,504,687
25,500 Cabletron Systems, Inc. * 400,031
105,500 Cendant Corp.* 1,872,625
21,200 Ceridian Corp.* 527,350
78,700 Computer Associates International 4,820,375
23,400 Computer Sciences Corp.* 1,645,312
BUSINESS SERVICES - CONTINUED
52,300 Compuware Corp.*# $ 1,363,069
72,200 Electronic Data Systems Corp. 3,822,088
21,100 Equifax, Inc. 593,437
62,800 First Data Corp. 2,755,350
45,800 IMS Health, Inc. 1,044,813
41,300 Interpublic Group of Cos., Inc. 1,698,462
41,200 McKesson HBOC, Inc.# 1,194,800
747,500 Microsoft Corp.* 67,695,469
49,100 Novell, Inc.* 1,015,756
26,000 Omnicom Group, Inc.# 2,058,875
210,800 Oracle Corp.*# 9,591,400
39,400 Parametric Technology Co.* 531,900
35,600 PeopleSoft, Inc.* 602,975
3,900 Shared Medical Systems Corp. 182,325
113,300 Sun Microsystems, Inc.* 10,536,900
25,500 UST, Inc. 769,781
--------------
140,854,780
--------------
CHEMICALS & ALLIED PRODUCTS (11.1%)
222,800 Abbott Laboratories# 8,187,900
33,600 Air Products and Chemicals, Inc. 976,500
8,200 Alberto Culver Co. 189,625
9,700 Allergan, Inc. 1,067,000
14,900 ALZA Corp.* 637,906
38,200 Avon Products, Inc. 947,837
42,600 Baxter International, Inc.# 2,566,650
290,900 Bristol-Myers Squibb Co. 19,635,750
34,600 Clorox Co. 1,323,450
85,400 Colgate-Palmolive Co.# 3,907,050
32,200 Dow Chemical Co.# 3,658,725
155,200 E.I. du Pont de Nemours & Co. 9,447,800
11,500 Eastman Chemical Co. 460,000
19,000 Ecolab, Inc. 648,375
160,100 Eli Lilly & Co. 10,246,400
4,700 FMC Corp.* 226,775
16,100 Goodrich (B.F.) Co. 466,900
8,600 Great Lakes Chemical Corp. 327,337
15,500 Hercules, Inc. 443,687
15,500 International Flavors & Fragrance 534,750
196,900 Johnson & Johnson 18,090,188
10,400 Mallinckrodt, Inc. 313,950
343,500 Merck & Co., Inc. 22,263,094
92,800 Monsanto Co. 3,311,800
567,500 Pfizer, Inc. 20,394,531
74,200 Pharmacia & Upjohn, Inc.# 3,682,175
25,400 PPG Industries, Inc. 1,524,000
23,300 Praxair, Inc. 1,071,800
194,600 Procter & Gamble Co. 18,243,750
31,900 Rohm & Haas Co. 1,152,388
215,100 Schering-Plough Corp. 9,383,737
24,800 Sherwin-Williams Co. 519,250
14,800 Sigma Aldrich 469,900
19,500 Union Carbide Corp. 1,107,844
10,400 W.R. Grace & Co.* 167,050
See Notes to Financial Statementes 30 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS - continued
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
Shares Security Description Value
------------ ------------------------------ -------------
CHEMICALS AND ALLIED PRODUCTS - CONTINUED
125,200 Warner-Lambert Co. $ 8,310,150
14,000 Watson Pharmaceuticals, Inc.* 427,875
-------------
176,333,899
-------------
COMMUNICATIONS (9.5%)
44,700 Alltel Corp. 3,145,762
161,000 Ameritech Corp. 10,817,187
468,000 AT&T Corp.# 20,358,000
227,400 Bell Atlantic Corp.# 15,306,862
276,100 BellSouth Corp.# 12,424,500
103,200 CBS Corp.*# 4,773,000
20,400 CenturyTel, Inc. 828,750
49,400 Clear Channel Communications, Inc 3,945,825
109,800 Comcast Corp., Class A *# 4,378,275
112,070 Global Crossing Ltd.* 2,969,855
143,700 GTE Corp. 11,046,938
10,400 King World Productions, Inc. * 390,000
274,300 MCI Worldcom, Inc.*# 19,715,313
88,800 MediaOne Group, Inc.* # 6,066,150
48,600 Nextel Communications, Inc.* 3,295,687
288,100 SBC Communications, Inc.# 14,711,106
127,100 Sprint Corp. (FON Group) 6,895,175
64,400 Sprint Corp. (PCS Group)*# 4,801,825
73,900 US West, Inc. 4,216,919
-------------
150,087,129
-------------
DEPOSITORY INSTITUTIONS (6.1%)
25,800 AmSouth Bancorp.# 604,687
253,000 Bank of America Corp.# 14,088,938
107,700 Bank of New York Co., Inc.# 3,601,219
171,800 Bank One Corp. 5,980,788
43,500 BankBoston Corp. 1,886,812
46,800 BB&T Corp.# 1,515,150
121,900 Chase Manhattan Corp. 9,188,212
22,900 Comerica, Inc. 1,159,312
39,700 Fifth Third Bancorp 2,415,499
140,100 First Union Corp. 4,982,306
192,710 Firstar Corp.# 4,938,194
83,400 Fleet Boston Corp. 3,054,525
8,100 Golden West Financial Corp. 795,825
33,700 Huntington Bancshares, Inc. 895,156
25,700 J.P. Morgan & Co., Inc. 2,936,225
65,700 KeyCorp 1,695,881
75,300 Mellon Bank Corp. 2,541,375
90,500 National City Corp. 2,415,219
16,300 Northern Trust Corp. 1,361,050
44,500 PNC Bank Corp. 2,344,594
32,800 Regions Financial Corp. 984,000
15,300 Republic New York Corp. 939,994
24,500 SouthTrust Corp. 878,937
23,600 State Street Corp. 1,525,150
25,900 Summit Bancorp 840,131
47,100 Suntrust Banks, Inc. 3,096,825
39,700 Synovus Financial Corp. 741,894
107,200 U.S. Bancorp 3,236,100
20,900 Union Planters Corp. 851,675
DEPOSITORY INSTITIUTIONS (CONTINUED)
29,600 Wachovia Corp.# $ 2,327,300
84,800 Washington Mutual, Inc.# 2,480,400
241,600 Wells Fargo Co.# 9,573,400
--------------
95,876,773
--------------
EATING & DRINKING PLACES (0.7%)
19,400 Darden Restaurants, Inc. 379,512
198,400 McDonald's Corp. 8,531,200
22,500 Tricon Global Restaurants, Inc.* 921,094
17,800 Wendy's International, Inc.# 469,475
--------------
10,301,281
--------------
ELECTRIC, GAS & SANITARY SERVICES (2.8%)
28,100 AES Corp. *# 1,657,900
27,600 Allied Waste Industries, Inc.* 322,575
20,100 Ameren Corp. 760,031
28,300 American Electric Power Co. 965,737
23,400 Carolina Power & Light Co.# 827,775
31,100 Central & Southwest Corp.# 656,987
23,300 CINergy Corp. 659,681
17,300 CMS Energy Corp. 587,119
31,300 Coastal Corp. 1,281,344
12,000 Columbia Energy Group 664,500
32,400 Consolidated Edison Co. 1,344,600
14,000 Consolidated Natural Gas Co. 873,250
21,900 Constellation Energy Group 615,937
28,100 Dominion Resources, Inc.# 1,268,012
21,200 DTE Energy Co. 765,850
53,400 Duke Energy Corp. # 2,943,675
3,900 Eastern Enterprises 181,106
50,900 Edison International# 1,237,506
104,500 Enron Corp. 4,310,625
36,200 Entergy Corp.# 1,047,537
34,300 FirstEnergy Corp. 874,650
14,400 Florida Progress Corp. 666,000
26,300 FPL Group, Inc. 1,324,863
18,400 GPU, Inc. 600,300
48,400 Laidlaw, Inc. 326,700
16,900 New Century Energies, Inc. 565,094
27,400 Niagara Mohawk Holdings, Inc.* 422,988
6,900 Nicor, Inc. 256,594
22,600 Northern States Power Co. 487,313
4,600 Oneok, Inc. 139,438
56,200 Pacific Gas & Electric Co. 1,454,175
43,500 PacifiCorp 875,438
27,300 PECO Energy Co. 1,023,750
5,200 People's Energy Corp. 182,975
23,100 PP&L Resources, Inc. 625,144
32,100 Public Service Enterprise Group, I 1,239,863
43,300 Reliant Energy, Inc. 1,171,806
35,200 Sempra Energy 732,600
16,100 Sonat, Inc. 638,969
100,100 Southern Co.# 2,577,575
40,500 Texas Utilities Co. 1,511,156
90,700 Waste Management, Inc. 1,745,975
63,600 Williams Cos., Inc. 2,381,025
--------------
44,796,138
--------------
See Notes to Financial Statements 31 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS - continued
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
Shares Security Description Value
------------ ------------------------------ -------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT & COMPONENTS,
EXCEPT COMPUTER EQUIPMENT (10.9%)
15,100 Adaptec, Inc. * $ 599,281
19,800 ADC Telecommunications, Inc.*# 830,362
21,600 Advanced Micro Devices, Inc. * 371,250
12,000 Andrew Corp.* 208,500
13,800 Cooper Industries, Inc. 645,150
63,600 Emerson Electric Co. 4,018,725
480,400 General Electric Co. 56,957,425
25,400 General Instrucment Corp.* 1,222,375
11,700 Harris Corp. 323,213
484,500 Intel Corp. 36,004,406
21,600 LSI Logic Corp.* 1,112,400
448,800 Lucent Technologies, Inc. 29,115,900
12,800 Maytag Corp. 426,400
36,700 Micron Technology, Inc.*# 2,442,844
88,900 Motorola, Inc.# 7,823,200
24,600 National Semiconductor Corp.* 750,300
5,900 National Service Industries 185,850
10,800 Network Appliance, Inc.* 773,550
194,400 Nortel Networks Corp.# 9,914,400
23,500 QUALCOMM, Inc.*# 4,445,906
11,200 Scientific-Atlanta, Inc. 555,100
57,300 Tellabs, Inc.*# 3,262,519
115,100 Texas Instruments, Inc.# 9,466,975
8,300 Thomas & Betts Corp.# 423,300
11,000 Whirlpool Corp.# 718,437
-------------
172,597,768
-------------
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT &
RELATED SERVICES (0.1%)
23,600 Dun & Bradstreet Corp. 705,050
6,700 EG &G, Inc. 266,744
36,000 Paychex, Inc. 1,228,500
-------------
2,200,294
-------------
FABRICATED METAL PRODUCTS, EXCEPT MACHINERY &
TRANSPORTATION EQUIPMENT (0.6%)
4,500 Ball Corp. 198,281
9,900 Crane Co. 222,131
17,900 Crown Cork & Seal Co., Inc. 434,075
20,800 Danaher Corp. 1,095,900
24,400 Fortune Brands, Inc. 786,900
158,900 Gillette Co. 5,392,669
15,900 Parker-Hannifin Corp. 712,519
9,600 Snap-On, Inc. 312,000
13,000 Stanley Works 327,438
-------------
9,481,913
-------------
FOOD & KINDRED PRODUCTS (3.8%)
5,400 Adolph Coors Co. 292,275
68,500 Anheuser-busch Cos., Inc.# 4,799,281
90,400 Archer Daniels Midland Co. 1,101,750
40,900 Bestfoods, Inc. 1,983,650
10,000 Brown-Forman Corp. 623,750
63,600 Campbell Soup Co. 2,488,350
361,600 Coca-Cola Co. 17,379,400
FOOD & KINDRED PRODUCTS (CONTINUED)
62,200 Coca-Cola Enterprises, Inc.# $ 1,403,387
71,500 ConAgra, Inc. 1,613,219
22,400 General Mills, Inc. 1,817,200
52,500 Heinz (H.J.) Co. 2,257,500
20,400 Hershey Foods Corp.# 993,225
59,300 Kellogg Co. 2,220,044
214,200 PepsiCo, Inc. 6,479,550
19,600 Quaker Oats Co.# 1,212,750
47,400 Ralston-Ralston Purina Group 1,318,313
132,300 Sara Lee Corp. 3,100,781
63,300 Seagram Co. Ltd. # 2,880,150
83,700 Unilever NV - NY Shares 5,702,062
17,000 Wrigley (Wm) Jr. Co. 1,169,813
--------------
60,836,450
--------------
FOOD STORES (0.6%)
61,600 Albertson's, Inc.# 2,437,050
5,600 Great Atlantic & Pacific Tea Co. 169,750
121,500 Kroger Co.*# 2,680,594
74,700 Safeway, Inc.* 2,843,269
21,800 Winn-Dixie Stores, Inc. 647,187
--------------
8,777,850
--------------
FURNITURE & FIXTURES (0.1%)
64,900 Masco Corp. 2,011,900
--------------
GENERAL MERCHANDISE STORES (3.0%)
16,100 Consolidated Stores Corp.* 355,206
32,300 Costco Wholesale Corp.* # 2,325,600
64,800 Dayton Hudson Corp. 3,892,050
15,700 Dilliards, Inc. 318,906
32,900 Dollar General Corp. 1,015,787
30,500 Federated Department Stores, Inc.* 1,332,469
10,400 Harcourt General, Inc. 432,900
38,600 J.C. Penney Co., Inc. 1,326,875
72,300 Kmart Corp.* 845,006
23,800 Kohl's Corp.* 1,573,775
48,900 May Department Stores Co. 1,781,794
55,700 Sears, Roebuck and Co. 1,747,588
651,800 Wal-Mart Stores, Inc. 31,001,238
--------------
47,949,194
--------------
HEALTH SERVICES (0.2%)
82,600 Columbia HCA Healthcare Corp. 1,750,087
60,800 HEALTHSOUTH Corp.* 368,600
15,700 Manor Care, Inc.* 269,844
45,500 Tenet Healthcare Corp.* 799,094
--------------
3,187,625
--------------
HEAVY CONSTRUCTION OTHER THAN BUILDING CONSTRUCTION -
CONTRACTORS (0.2%)5
11,100 Fluor Corp. 446,775
6,000 Foster Wheeler Corp. 72,375
64,600 Halliburton Co. 2,648,600
--------------
3,167,750
--------------
See Notes to Financial Statements 32 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS - continued
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
Shares Security Description Value
------------ ------------------------------ -------------
HOLDING & OTHER INVESTMENT OFFICES (0.1%)
47,900 Conseco, Inc.# $ 925,069
-------------
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES (0.2%)
29,800 Best Buy Co., Inc.* 1,849,462
29,400 Circuit City Stores 1,240,313
-------------
3,089,775
-------------
HOTELS, ROOMING HOUSES, CAMPS & OTHER
LODGING PLACES (0.1%)
37,300 Hilton Hotels Corp. 368,337
36,400 Marriott International - Class A 1,189,825
29,100 Mirage Resorts, Inc.* 409,219
-------------
1,967,381
-------------
INDUSTRIAL & COMMERCIAL MACHINERY &
COMPUTER EQUIPMENT (9.7%)
23,600 Apple Computer, Inc.* # 1,494,175
55,000 Applied Materials, Inc.* 4,283,125
48,200 Baker Hughes, Inc. 1,397,800
12,700 Black & Decker Corp. 580,231
3,400 Briggs & Stratton Corp. 198,475
13,500 Brunswick Corp. 335,813
11,400 Case Corp. 567,862
52,100 Caterpillar, Inc. 2,855,731
5,400 Cincinnati Milacron, Inc. 95,850
476,200 Cisco Systems, Inc.* 32,649,462
249,000 Compaq Computer Corp.# 5,711,437
6,100 Cummins Engine Co., Inc. 303,856
7,400 Data General Corp.* 155,862
34,200 Deere & Co. 1,323,113
372,100 Dell Computer Corp.* 15,558,431
30,500 Dover Corp. 1,246,688
148,400 EMC Corp.*# 10,601,325
45,900 Gateway 2000, Inc.*# 2,039,681
148,400 Hewlett-Packard Co. 13,652,800
265,000 IBM Corp. 32,164,375
24,200 Ingersoll-Rand Co. 1,329,488
18,900 Lexmark International Group, Inc.* 1,521,450
8,700 McDermott International, Inc. 176,175
18,200 Pall Corp. 422,013
39,200 Pitney Bowes, Inc. 2,388,750
32,600 Seagate Technology, Inc.* 1,004,488
27,600 Silicon Graphics, Inc.* 301,875
39,500 Solectron Corp.* 2,836,594
28,300 Tandy Corp. 1,462,756
25,000 Tenneco Inc. 425,000
9,100 Timken Co. 146,737
122,500 Tyco International Ltd. 12,648,125
44,800 Unisys Corp.* 2,021,600
-------------
153,901,143
-------------
INSURANCE AGENTS, BROKERS & SERVICE (0.3%)
37,500 Aon Corp. 1,108,594
24,500 Humana, Inc.* 168,437
38,700 Marsh & McLennan Cos., Inc. 2,650,950
-------------
3,927,981
-------------
INSURANCE CARRIERS (4.2%)
20,600 Aetna Life & Casualty, Inc. $ 1,014,550
38,900 AFLAC, Inc. 1,628,937
116,900 Allstate Corp. 2,915,194
36,500 American General Corp. 2,306,344
226,800 American International Group, Inc 19,717,426
25,800 Chubb Corp. 1,285,162
29,200 CIGNA Corp.# 2,270,300
24,200 Cincinnati Financial Corp. 908,257
494,600 Citigroup, Inc. 21,762,400
33,100 Hartford Financial Services Group 1,352,962
15,400 Jefferson-Pilot Corp. 973,087
29,100 Lincoln National Corp. 1,093,069
15,800 Loews Corp. 1,108,963
14,600 MBIA, Inc. 680,725
16,000 Mgic Investment Corp. 764,000
10,700 Progressive Corp. 874,056
20,800 Providian Financial Corp. 1,647,100
19,300 Safeco Corp.# 540,400
33,200 St. Paul Cos., Inc.# 913,000
19,500 Torchmark Corp. 504,563
25,400 United Healthcare Corp. 1,236,663
35,000 UnumProvident Corp. 1,030,313
9,600 Wellpoint Health Networks, Inc.* 547,200
--------------
67,074,671
--------------
LUMBER & WOOD PRODUCTS, EXCEPT FURNITURE (0.0%)
15,700 Louisiana-Pacific Corp. 245,313
--------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS (1.8%) 52,969
7,500 Bard (C.R.), Inc. 352,969
8,400 Bausch & Lomb, Inc. 553,875
36,700 Becton, Dickinson and Co. 1,029,894
16,500 Biomet, Inc. 434,156
60,600 Boston Scientific Corp.* 1,496,062
46,400 Eastman Kodak Co. 3,500,300
44,300 Guidant Corp.* 2,375,587
18,700 Honeywell, Inc. 2,081,544
12,500 Johnson Controls, Inc. 828,906
12,900 KLA-Tencor Corp.* 838,500
171,800 Medtronic, Inc. 6,098,900
6,600 Millipore Corp. 247,913
14,900 PE Corp - PE Biosystems Group 1,076,525
6,500 Polaroid Corp. 169,000
49,500 Raytheon Co., Class B 2,456,438
12,400 St. Jude Medical, Inc.* 390,600
6,900 Tektronix, Inc. 231,150
23,100 Thermo Electron Corp.* 310,406
97,100 Xerox Corp.# 4,072,131
--------------
28,544,856
--------------
METAL MINING (0.2%)
57,100 Barrick Gold Corp. 1,241,925
13,200 Cyprus Amax Minerals Co. 259,050
23,900 Freeport-McMoran Inc., Class B * 371,944
38,100 Homestake Mining Co. 350,044
24,500 Newmont Mining Corp.# 633,937
47,700 Placer Dome, Inc. 709,538
--------------
3,566,438
--------------
See Notes to Financial Statements 33 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS - continued
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
Shares Security Description Value
------------ ------------------------------ -------------
MINING & QUARRYING OF NONMETALLIC MINERALS,
EXCEPT FUELS (0.0%)
14,700 Vulcan Materials Co. $ 538,388
-------------
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.2%)
28,500 Hasbro, Inc. 610,969
12,900 ITT Industries, Inc. 410,381
5,000 Jostens, Inc. 95,625
61,500 Mattel, Inc.# 1,168,500
1,200 NACCO Industries, Inc. 83,850
-------------
2,369,325
-------------
MISCELLANEOUS RETAIL (0.6%)
20,450 Bed Bath & Beyond, Inc.* 714,472
57,400 CVS Corp. 2,342,638
5,800 Longs Drug Stores, Inc. 173,275
54,900 Office Depot, Inc.* 559,294
37,900 Rite Aid Corp.# 523,494
68,100 Staples, Inc.* 1,485,431
36,300 Toys 'R' Us, Inc.* 544,500
147,000 Walgreen Co.# 3,730,125
-------------
10,073,229
-------------
MOTION PICTURES (0.1%)
31,800 Unicom Corp.# 1,174,613
-------------
NONDEPOSITORY CREDIT INSTITUTIONS (2.2%)
65,800 American Express Co. 8,858,325
106,600 Associates First Capital Corp. 3,837,600
28,900 Capital One Financial Corp.# 1,127,100
16,500 Countrywide Credit Industries,Inc. 532,125
150,100 Fannie Mae 9,409,394
101,800 Freddie Mac 5,293,600
70,100 Household International, Inc. 2,812,762
117,400 MBNA Corp.# 2,678,188
23,600 SLM Holding Corp. 1,014,800
-------------
35,563,894
-------------
OIL & GAS EXTRACTION (0.6%)
18,700 Anadarko Petroleum Corp. 571,519
16,700 Apache Corp. 721,231
26,000 Burlington Resources, Inc. # 955,500
7,200 Helmerich & Payne, Inc. 182,250
51,100 Occidental Petroleum Corp. 1,181,687
12,200 Rowan Cos., Inc.* 198,250
80,200 Schlumberger Ltd. 4,997,463
36,900 Union Pacific Resources Group,Inc. 592,706
-------------
9,400,606
-------------
PAPER & ALLIED PRODUCTS (1.3%)
16,600 Avery Dennison Corp. 875,650
7,700 Bemis Co., Inc. 260,837
8,400 Boise Cascade Corp. 306,075
14,100 Champion International Corp. 724,387
32,400 Fort James Corp. 864,675
25,100 Georgia-Pacific Group# 1,016,550
21,800 IKON Office Solutions, Inc. 232,987
60,600 International Paper Co. 2,912,587
PAPER & ALLIED PRODUCTS (CONTINUED)
78,000 Kimberly-Clark Corp. $ 4,095,000
15,000 Mead Corp. 515,625
59,000 Minnesota Mining and
Manufacturing Co. 5,667,688
8,200 Temple-Inland, Inc. 496,100
14,700 Westvaco Corp. 376,688
29,500 Weyerhaeuser Co.# 1,699,938
16,300 Willamette Industries, Inc. 702,938
--------------
20,747,725
--------------
PERSONAL SERVICES (0.1%)
14,300 H&R Block, Inc. 621,156
39,800 Service Corp. International 420,388
--------------
1,041,544
--------------
PETROLEUM REFINING & RELATED INDUSTRIES (5.3%)
13,300 Amerada Hess Corp.# 814,625
10,600 Ashland, Inc. 356,425
47,200 Atlantic Richfield Co. 4,183,100
96,100 Chevron Corp. 8,528,875
91,900 Conoco, Inc. Class B 2,515,762
355,600 Exxon Corp. 27,003,375
12,700 Kerr-McGee Corp.# 699,294
114,700 Mobil Corp. 11,556,025
37,100 Phillips Petroleum Co. 1,808,625
314,100 Royal Dutch Petroleum Co.-NY
Registered Shares 18,551,531
13,300 Sunoco, Inc. 364,088
81,000 Texaco, Inc. 5,113,125
35,500 Unocal Corp. 1,315,719
45,200 USX-Marathon Group, Inc. 1,322,100
--------------
84,132,669
--------------
PHARMACEUTICAL PREPARATIONS (0.9%)
191,400 American Home Products Corp. 7,943,100
74,700 Amgen, Inc.* 6,088,050
--------------
14,031,150
--------------
PRIMARY METAL INDUSTRIES (0.5%)
33,100 Alcan Aluminum Ltd.# 1,034,375
53,700 Alcoa, Inc.# 3,332,756
27,900 Allegheny Teledyne, Inc. 470,812
5,800 ASARCO, Inc. 155,513
19,200 Bethlehem Steel Corp.* 141,600
18,400 Engelhard Corp. 334,650
28,100 Inco, Ltd.* 600,638
12,800 Nucor Corp. 609,600
8,500 Phelps Dodge Corp. 468,031
9,200 Reynolds Metals Co. 555,450
12,900 USX-U.S. Steel Group, Inc. 332,175
13,500 Worthington Industries, Inc. 229,500
--------------
8,265,100
--------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (1.7%)
9,900 American Greetings Corp. 254,925
11,100 Deluxe Corp. 377,400
13,300 Dow Jones & Co., Inc. 709,887
41,000 Gannett Co., Inc. 2,836,688
See Notes to Financial Statements 34 CORE TRUST (DELAWARE)
<PAGE>
- --------------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS - continued
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
Shares Security Description Value
------------ ------------------------------ -------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES (CONTINUING)
11,900 Knight-Ridder, Inc. # $ 653,012
28,800 McGraw-Hill Cos., Inc. 1,393,200
7,600 Meredith Corp. 275,975
25,500 New York Times Co. 956,250
18,700 R.R. Donnelley & Sons Co. 539,963
189,400 Time Warner, Inc.# 11,506,050
10,500 Times Mirror Co. 691,031
34,700 Tribune Co.# 1,726,325
102,000 Viacom, Inc., Class B * 4,309,500
-------------
26,230,206
-------------
RAILROAD TRANSPORTATION (0.5%)
68,100 Burlington Northern Santa Fe Corp. 1,872,750
31,900 CSX Corp.# 1,351,762
16,200 Kansas City Southern Industries, Inc 752,288
55,700 Norfolk Southern Corp. 1,364,650
36,300 Union Pacific Corp.# 1,744,669
-------------
7,086,119
-------------
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (0.5%)
5,900 Armstrong World Industries# 265,131
11,100 Cooper Tire and Rubber Co. 195,637
22,900 Goodyear Tire & Rubber Co. 1,102,063
36,700 Illinois Tool Works, Inc. 2,736,444
41,300 Newell Rubbermaid, Inc.# 1,179,631
41,200 Nike, Inc., Class B 2,343,250
8,200 Reebok International Ltd.* 87,638
12,200 Sealed Air Corp.* 626,013
8,400 Tupperware Corp. 170,100
-------------
8,705,907
-------------
.
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES
& SERVICES (1.2%)
17,100 Bear Stearns Cos., Inc. 657,281
119,800 Charles Schwab Corp. 4,035,763
36,900 Franklin Resources, Inc. 1,134,675
17,600 Lehman Brothers Holding, Inc. 1,026,300
54,100 Merrill Lynch & Co., Inc. 3,634,844
83,600 Morgan Stanley Dean Witter & Co. 7,456,075
21,300 Paine Webber Group, Inc. 772,125
-------------
18,717,063
-------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS (0.2%)
35,800 Corning, Inc.# 2,454,538
8,000 Owens Corning 173,500 C
22,800 Owens-Illinois, Inc.* 451,725
-------------
3,079,763
-------------
TEXTILE MILL PRODUCTS (0.0%)
4,900 Russell Corp. 69,519
2,600 Springs Industries, Inc., Class A 88,237
-------------
157,756
-------------
TOBACCO PRODUCTS (0.8%)
350,100 Philip Morris Cos., Inc. 11,969,044
-------------
TRANSPORTATION BY AIR (0.3%)
22,000 AMR Corp.* $ 1,199,000
20,600 Delta Airlines, Inc.# 999,100
43,600 FDX Corp.* 1,689,500
73,800 Southwest Airlines Co. 1,120,838
10,500 US Airways Group, Inc.* 275,625
--------------
5,284,063
--------------
TRANSPORTATION EQUIPMENT (2.7%)
80,600 Allied-Signal, Inc. 4,830,962
140,700 Boeing Co. 5,997,337
24,300 Dana Corp. 902,138
82,800 Delphi Automotive Systems Corp. 1,329,975
10,600 Eaton Corp. 914,913
4,900 Fleetwood Enterprises, Inc. 98,919
177,200 Ford Motor Co. 8,893,225
29,200 General Dynamics Corp. 1,823,175
94,300 General Motors Corp. 5,935,006
57,900 Lockheed Martin Corp.# 1,892,606
9,700 Navistar International Corp.* 451,050
10,200 Northrop Grumman Corp. 648,338
11,500 PACCAR, Inc. 585,063
28,000 Rockwell International Corp. 1,470,000
22,000 Textron, Inc. 1,702,250
17,800 TRW, Inc. 885,550
70,500 United Technologies Corp. 4,181,531
--------------
42,542,038
--------------
WATER TRANSPORTATION (0.2%)
89,800 Carnival Corp. 3,906,300
--------------
WHOLESALE TRADE-DURABLE GOODS (0.1%)
26,200 Genuine Parts Co. 695,937
13,700 Grainger (W.W.), Inc. 658,456
4,200 Potlatch Corp. 172,988
--------------
1,527,381
--------------
WHOLESALE TRADE-NONDURABLE GOODS (0.3%)
39,900 Cardinal Health, Inc. 2,174,550
20,300 SUPERVALU, Inc. 442,794
48,500 Sysco Corp. 1,700,531
--------------
4,317,875
--------------
Total Common Stocks (cost $1,024,832,164) 1,550,018,336
CORPORATE NOTES (0.2%)
1,605,000 NationsBank Corp., 5.47% V/R, 1,605,000
7/01/04
1,600,000 Spintab/Swedmortgage, 6.01%,
V/R, 12/20/99 1,599,520
--------------
Total Corporate Notes (cost $3,197,667) 3,204,520
--------------
See Notes to Financial Statements 35 CORE TRUST (DELAWARE)
<PAGE>
- -------------------------------------------------------------------------
INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 1999
- -------------------------------------------------------------------------
Face Amount Security Description Value
- ----------------------- -------------------------------- ---------------
TIME DEPOSITS (1.9%)
29,635,292 Union Bank of Switzerland, 5.63%, $929,635,292
10/01/99 (cost $29,635,2920)
U.S. TREASURY BILLS (0.1%)
2,410,000 4.93% yield, 4/27/00++
(cost $2,344,643) 2,343,821
---------------
TOTAL INVESTMENTS (100.0%) (COST $1,060,009,766) $ 1,585,201,969
===============
Financial Futures Contracts++
Unrealized
Position Contracts Index Gain (Loss)
- --------- ----------------- ---------------------------- ---------------
Long 98 S&P 500 Futures, Expiring
December 17, 1999
(notional value $31,805,900) $ (1,446,675)
- ---------------------------------------------------------
* Non-income producing security.
# Part or all of this investment is on loan. See Note 6 of Notes to Financial
Statements.
++ As of September 30, 1999, $2,410,000 of U.S. Treasury Bills, 12/17/99, with
a market value of $2,343,821 were pledged to cover margin requirements for
open futures contracts.
V/R Variable rate - These securities are deemed to have a maturity remaining
until the next adjustment of the interest rate or the longer of the
demand period or readjustment. The interest rates shown reflect the rate
in effect on September 30, 1999.
See Notes to Financial Statements 36 CORE TRUST (DELAWARE)
<PAGE>
FOR MORE INFORMATION FORUM
FUNDS
INVESTORS EQUITY FUND
EQUITY INDEX FUND
TRANSFER AGENT
Forum Shareholder Services, LLC
Two Portland Square
Portland, ME 04101
DISTRIBUTOR
Forum Fund Services, LLC
Two Portland Square
Portland, ME 04101
[Forum Logo]
FORUM FUNDS
P.O. Box 446
Portland, Maine 04112
800-94FORUM
800-943-6786
207-879-0001
This report is authroized for distribution only to shareholders and
to others who have received a copy of the Funds' prospectus.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999
AS AMENDED MARCH 24, 2000
INVESTORS GROWTH FUND
INVESTMENT ADVISER:
Forum Investment Advisors, LLC
Two Portland Square
Portland, Maine 04101
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 94FORUM
(800) 943-6786
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 1, 1999, as may be amended from time to time, offering shares of
Investors Growth Fund (the "Fund"), a separate series of Forum Funds, a
registered, open-end management investment company (the "Trust"). This SAI is
not a prospectus and should only be read in conjunction with the Prospectus. You
may obtain the Prospectus without charge by contacting Forum Shareholder
Services at the address or telephone number listed above.
Financial Statements for the Fund for the year ended March 31, 1999, included in
the Annual Report to shareholders, are incorporated into this SAI by reference.
Copies of the Annual Report may be obtained, without charge, upon request by
contacting 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....................................................8
3. Performance Data And Advertising.........................................10
4. Management...............................................................15
5. Portfolio Transactions...................................................20
6. Purchase And Redemption Information......................................22
7. Taxation.................................................................24
8. Other Matters............................................................29
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 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.
1
<PAGE>
1. INVESTMENT POLICIES AND RISKS
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.
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
risk that the value of the stock might decrease. Stock values fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
preferred stocks, fixed-income and money market investments. The market value of
all securities, including common and preferred stocks, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measure of a company's worth. If you invest in the Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
2. CONVERTIBLE SECURITIES
GENERAL. 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,
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preferred stock or other securities that may be converted into or exchanged for
a given amount of common stock of the same or a different issuer during a
specified period and at a specified price in the future. A convertible security
entitles the holder to receive interest on debt or the dividend on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Convertible securities rank senior to common stock in a company's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities have unique investment characteristics in
that they generally: (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities; (2) are less subject to fluctuation
in value than the underlying stocks since they have fixed income
characteristics; and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
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 asset
in stock rights. A stock rights 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
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 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.
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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 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 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.
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.
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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
value, which is marked to market daily, will be at least equal to a 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. 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.
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
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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 ate 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.
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 bands 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 charges in interest rates. An increase in interest
rates typically cause 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.
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
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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.
K. YEAR 2000
The date change transition to the Year 2000 prompted concern that certain
computer systems may not process date-related information properly on and after
January 1, 2000. The Adviser and the Fund's administrator have addressed and
continue to monitor this Year 2000 issue and its possible impact on their
systems. The Fund's other service providers have informed the Fund that they are
taking similar measures. Services provided to the Fund or any companies in which
it invests could still be adversely affected by a computer's failure to
accurately process date related information and, therefore, may lower the value
of your shares. While no adverse consequences have yet arisen, or have been
reported to the Adviser or the Fund's administrator, there is still the
possibility that certain computer systems may not be able to process
date-related information at some point during the year.
2. INVESTMENT LIMITATIONS
For purposes of all investment policies of 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 companies.
2. CONCENTRATION
Will not invest 25% or more of the value of its total assets in any one
industry.
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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
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.
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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 generally are excluded from these calculations.
Income calculated for the purpose of determining the Fund's yield differs from
income as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding assumed in yield
calculations, the yield quoted for the Fund may differ from the rate of
distribution of income from the Fund over the same period or the rate of income
reported in the Fund's financial statements.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day and that the Fund's yield for any given period is not an
indication or representation by the Fund of future yields or rates of return on
the Fund's shares. Financial intermediaries may charge their customers that
invest in the Fund fees in connection with that investment. This will have the
effect of reducing the Fund's after-fee yield to those shareholders.
The yields of the Fund are not fixed or guaranteed, and an investment in the
Fund is not insured or guaranteed. Accordingly, yield information should not be
used to compare shares of the Fund with investment alternatives, which, like
money market instruments or bank accounts, may provide a fixed rate of interest.
Also, it may not be appropriate to compare the Fund's yield information directly
to similar information regarding investment alternatives which are insured or
guaranteed.
Yield quotations are based on amounts invested in the Fund net of any applicable
sales charges that may be paid by an investor. A computation of yield that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
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Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in the Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period; and (2)
calculates the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that performance is not constant over time but changes from year to year, and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns which reflect
the Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
12
<PAGE>
taking into consideration the Fund's front-end sales charge or contingent
deferred sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
C. OTHER MATTERS
The Fund may also include various information in its advertising, sales
literature, shareholder reports or other materials including, but not limited
to: (1) portfolio holdings and portfolio allocation as of certain dates, such as
portfolio diversification by instrument type, by instrument, by location of
issuer or by maturity; (2) statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
by an investor to meet specific financial goals, such as funding retirement,
paying for children's education and financially supporting aging parents; (3)
information (including charts and illustrations) showing the effects of
compounding interest (compounding is the process of earning interest on
principal plus interest that was earned earlier; interest can be compounded at
different intervals, such as annually, quarterly or daily); (4) information
relating to inflation and its effects on the dollar; (for example, after ten
years the purchasing power of $25,000 would shrink to $16,621, $14,968, $13,465
and $12,100, respectively, if the annual rates of inflation were 4%, 5%, 6% and
7%, respectively); (5) information regarding the effects of automatic investment
and systematic withdrawal plans, including the principal of dollar-cost
averaging; (6) biographical descriptions of the Fund's portfolio managers and
the portfolio management staff of the Fund's investment adviser, summaries of
the views of the portfolio managers with respect to the financial markets, or
descriptions of the nature of the Adviser's and its staff's management
techniques; (7) the results of a hypothetical investment in the Fund over a
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:
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<PAGE>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
- ------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
In connection with its advertisements, 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>
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
- -------------------------------------------- -----------------------------------------------------------------------
- -------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*, Chairman and President Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 services holding company)
Two Portland Square Director, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Visiting Professor of Economics, Athens University of Economics and
Department of Economics Business 1998 - 1999
University of California Trustee of one other investment company for which Forum Financial
Los Angeles, CA 90024 Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
James C. Cheng, Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in New
27 Temple Street England)
Belmont, MA 02718 Trustee of one other investment company for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner, Winthrop, Stimson, Putnam & Roberts (law firm) 1989 - 1995
40 West 57th Street Trustee of one other investment company for which Forum Financial
New York, NY 10019 Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Stephen J. Barrett, Vice President Manager of Client Services and Senior Relationship Manager, Forum
Born: November 14, 1968 Financial Group, LLC since 1996
Two Portland Square Senior Product Manager, Fidelity Investments, 1994 - 1996
Portland, Maine 04101 Officer of four other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein, Vice President Counsel and General Counsel, Forum Financial Group LLC
Born: August 3, 1961 Officer of five other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
- -------------------------------------------- -----------------------------------------------------------------------
Ronald H. Hirsch, Treasurer Managing Director, Operations/Finance and Operations/Sales, Forum
Born: October 14, 1943 Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991 - 1998 Portland,
ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Assistant Counsel and Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993 -
Two Portland Square 1998
Portland, ME 04101 Officer of one other investment company for which Forum Financial
Group, LLC provides services
- -------------------------------------------- -----------------------------------------------------------------------
</TABLE>
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, 1999.
<TABLE>
<S> <C> <C> <C> <C>
Compensation Total Compensation from Trust
Trustee from Trust Benefits Retirement and Fund Complex
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
John Y. Keffer $0 $0 $0 $0
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
Costas Azariadis $11,200 $0 $0 $18,500
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
James C. Cheng $12,700 $0 $0 $20,000
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
J. Michael Parish $12,700 $0 $0 $20,000
- ---------------------- ---------------- ------------ ----------------- -------------------------------------
</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 1940 Act.
3. FEES
The Adviser's fee is calculated as a percentage of the applicable Fund's average
net assets. The fee is accrued daily by the Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in the Fund. If you have a separately managed account with
the Adviser with assets invested in the Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data 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 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 should read the Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution and not its customers will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of the 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 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 with respect to
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 data bases.
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.
21
<PAGE>
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to the Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect brokerage transactions through affiliates of the Adviser
(or affiliates of those persons) pursuant to procedures adopted by the Trust.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. 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
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 sate 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, 1999.
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 which is readily ascertainable (and not
established only by valuation procedures).
1. IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
2. UGMAS/UTMAS
If the trustee's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the investor must provide a copy of the trust
document.
3. PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to the Fund.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in the Fund directly. When you purchase the Fund's
shares through a financial institution, you may or may not be the shareholder of
record and, subject to your institution's procedures, you may have Fund shares
transferred into your name. There is typically a three-day settlement period for
purchases and redemptions through broker-dealers. Certain financial institutions
may also enter purchase orders with payment to follow.
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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. Payments may be made wholly or
partly in portfolio securities, however, if the Board determines conditions
exist which would make payment in cash detrimental to the best interests of the
Fund. If redemption proceeds are paid wholly or partly in portfolio securities,
brokerage costs may be incurred by the shareholder in converting the securities
to cash. The Trust has filed an election with the SEC pursuant to which the Fund
may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
D. NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sale price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
E. DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of
the Fund on the payment date for the distribution. Cash payments may be made
more than seven days following the date on which distributions would otherwise
be reinvested.
7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that the Fund
qualifies as a regulated investment company (as discussed below). Such
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information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX PROVISIONS APPLICABLE TO THEM.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund intends for each tax year to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of the Fund.
The tax year end of the Fund is March 31 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its net investment income (that is, taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (that is, the excess of long-term capital gains over
long-term capital losses) that it distributes to shareholders. In order to
qualify as a regulated investment company the Fund must satisfy the following
requirements:
o The Fund must distribute at least 90% of its investment company
taxable income (that is, net investment income and capital gain net
income) for the tax year. (Certain distributions made by the Fund
after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of the issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
2. FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
A portion of these distributions generally may be eligible for the
dividends-received deduction in the case of corporate shareholders.
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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 net investment income
for each tax year. These distributions are taxable to you as ordinary income.
These distributions may qualify for the 70% dividends-received deduction for
corporate shareholders.
The Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares.
The Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Fund's financial statements. Any
such losses may not be carried back.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduces your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by the Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, it will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
You may purchase shares whose net asset value at the time reflects undistributed
net investment income or recognized capital gain, or unrealized appreciation in
the value of the assets of the Fund. Distributions of these amounts are taxable
to you in the manner described above, although the distribution economically
constitutes a return of capital to you.
If you purchase shares of the Fund just prior to the ex-dividend date of a
distribution, you will be taxed on the entire amount of the distribution
received, even though the net asset value per share on the date of the purchase
reflected the amount of the distribution.
If you hold shares for six months or less and redeem shares at a loss after
receiving a capital gain distribution, the loss will be treated as a long-term
capital loss to the extent of the distribution.
Ordinarily, you are required to take distributions by the Fund into account in
the year in which they are made. A distribution declared in October, November or
December of any year and payable to you on a specified date in those months,
however, is deemed to be received by you (and made by the Fund) on December 31
of that calendar year if the distribution is actually paid in January of the
following year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) to them during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
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rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by the Fund is exercised, the purchase price
(selling price in the case of a call) of the underlying security is decreased
(increased in the case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Fund at the end of each tax year
are "marked to market" and treated for federal income tax purposes as though
sold for fair market value on the last business day of the tax year. Gains or
losses realized by the Fund on Section 1256 contracts generally is considered
60% long-term and 40% short-term capital gains or losses. The Fund can elect to
exempt its Section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract, or other position entered into or held by the Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle". In general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to the Fund which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held by the Fund
all of the offsetting positions of which consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of
ordinary its taxable income for the calendar year; and (2) 98% of its capital
gain net income for the one-year period ended on October 31 of the calendar
year. If the Fund changes its tax year end to November 30 or December 31, it may
elect to use that date instead of the October 31 date in making this
calculation. The balance of the Fund's income must be distributed during the
next calendar year. The Fund will be treated as having distributed any amount on
which it is subject to income tax for any tax year ending in a calendar year.
For purposes of calculating the excise tax, the Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year (or November 30 or December 31 if
it has made the election described above) in determining the amount of ordinary
taxable income for the current calendar year. The Fund will include foreign
currency gains and losses incurred after October 31 in determining ordinary
taxable income for the succeeding calendar year.
The Fund intends to make sufficient distributions of its ordinary taxable income
and capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Fund may
in certain circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
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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 other shares of the Fund within 30 days before or after
the sale or redemption (a so called "wash sale"). In general, any gain or loss
arising from the sale or redemption of shares of the Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. Any capital loss arising from the sale or
redemption of shares held for six months or less, however, is treated as a
long-term capital loss to the extent of the amount of capital gain distributions
received on such shares. For this purpose, the special holding period rules of
Code Section 246(c) (3) and (4) generally will apply in determining the holding
period of shares. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
F. WITHHOLDING TAX
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide correct tax payer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
G. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder"), depends on whether the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income distributions paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the distribution.
The foreign shareholder generally would be exempt from U.S. federal income tax
on gain realized on the sale of shares of the Fund, capital gain distributions
from the Fund and amounts retained by the Fund that are designated as
undistributed capital gain.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income
distributions, capital gain distributions, and any gain realized upon the sale
of shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the rules for U.S. federal income taxation described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in the Fund, distributions from the Fund and the
applicability of foreign taxes and related matters.
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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, distributions from the Fund and the applicability of state and local taxes
and related matters.
8. OTHER MATTERS
A. THE TRUST AND ITS SHAREHOLDERS
1. GENERAL INFORMATION
Forum Funds was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to the
assets and liabilities of Forum Funds, Inc.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
Investors Bond Fund Payson Value Fund
TaxSaver Bond Fund Payson Balanced Fund
Investors High Grade Bond Fund Austin Global Equity Fund
Maine Municipal Bond Fund Polaris Global Value Fund
New Hampshire 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)
(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 be purchased or held by the Fund. The Board will consider
approving amendments to the code of ethics for the Trust, the Funds' 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
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,
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shares will be voted separately by individual series except if: (1) the 1940 Act
requires shares to be voted in the aggregate and not by individual series; and
(2) when the Trustees determine that the matter affects more than one series and
all affected series must vote. The Trustees may also determine that a matter
only affects certain classes of the Trust and thus only those such classes are
entitled to vote on the matter. Delaware law does not require the Trust to hold
annual meetings of shareholders, and it is anticipated that shareholder meetings
will be held only when specifically required by federal or state law. There are
no conversion or preemptive rights in connection with shares of the Trust.
All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable.
A shareholder in a series is entitled to the shareholder's pro rata share of all
distributions arising from that series' assets and, upon redeeming shares, will
receive the portion of the series' net assets represented by the redeemed
shares.
Shareholders representing 10% or more of the Trust's (or a series') outstanding
shares may, as set forth in the Trust Instrument, call meetings of the Trust (or
series) for any purpose related to the Trust (or series), including, in the case
of a meeting of the Trust, the purpose of voting on removal of one or more
Trustees.
4. CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or the Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust to merge or consolidate into one or more
trusts, partnerships or corporations or cause the Trust to be incorporated under
Delaware law, so long as the surviving entity is an open-end, management
investment company that will succeed to or assume the Trust's registration
statement.
B. FUND OWNERSHIP
As of July 1, 1999, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding Shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of the
Fund. These shareholders and any shareholder known by the Fund to own
beneficially 5% or more of the Fund are listed in Table 8 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of July 1, 1999, the
following persons beneficially owned 25% or more of the shares of a Fund (or of
the Trust) and may be deemed to control the Fund (or the Trust). For each person
listed that is a company, the jurisdiction under the laws of which the company
is organized (if applicable) and the company's parents are listed.
CONTROLLING PERSON INFORMATION
SHAREHOLDER PERCENTAGE OF
SHARES OWNED
FirsTrust Co (incorporated in Indiana)
National City Bank Trust Dept
227 Main Street
Evansville, Indiana 47708 85.66%
National City Bank of Evansville is the parent company of FirsTrust.
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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, 1999, which
are included in the Annual Report to Shareholders of the Fund, are incorporated
herein by reference. These financial statements only include the schedules of
investments, statements of assets and liabilities, statements of operations,
statements of changes in net assets, financial highlights, notes and independent
auditors' reports.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
A. CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
1. MOODY'S INVESTORS SERVICE
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
<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-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 ADVISORY FEE RETAINED
INVESTORS GROWTH FUND WAIVED
Year Ended March 31, 1999 $207,130 $0 $207,130
Period Ended March 31, 1998 $59,250 $0 $59,250
TABLE 2 - SALES CHARGES
AGGREGATE SALES
FISCAL YEAR ENDED MARCH 31, CHARGE AMOUNT RETAINED AMOUNT REALLOWED
1999 $0 $0 $0
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 FEE WAIVED ADMINISTRATION FEE
PAYABLE RETAINED
Year Ended March 31, 1999 $63,732 $63,732 $0
Period Ended March 31, 1998 $18,231 $18,231 $0
TABLE 4 - ACCOUNTING FEES
The following table shows the dollar amount of fees paid to FAcS.
ACCOUNTING FEE AMOUNT AMOUNT REALLOWED
RETAINED
Year Ended March 31, 1999 $37,000 $37,000 $0
Period Ended March 31, 1998 $10,935 $10,935 $0
</TABLE>
B-1
<PAGE>
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of fees payable to FSS with respect
to each Fund, the amount of fee that was waived by FSS, if any, and the actual
fee received by FSS.
<TABLE>
<S> <C> <C> <C>
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Year Ended March 31, 1999 $91,741 $44,032 $47,709
Period Ended March 31, 1998 $26,445 $22,744 $3,701
</TABLE>
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
INVESTORS GROWTH FUND PAID
Year Ended March 31, 1999 $37,518
Period Ended March 31, 1998 $9,612
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Fund's most recent fiscal year.
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 8 - 5% SHAREHOLDERS
The following table lists (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund and (2) any person known by
the Fund to own beneficially 5% or more of a class of shares of the Fund, as of
July 1, 1999.
NAME AND ADDRESS % OF FUND
FirsTrust Co
National City Bank Trust Dept
227 Main Street
Evansville, Indiana 47708 13.89%
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGE)
The average annual total return of the Fund for the period ended March 31, 1999,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR SINCE
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE YEARS TEN YEARS INCEPTION
INVESTORS MONTHS DATE YEARS (ANNUALIZED)
GROWTH FUND
1.96% 1.25% 1.25% 6.25% N/A N/A N/A 15.51%
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGE)
The average annual total return of the Fund for the period ended March 31, 1999,
was as follows.
CALENDAR SINCE
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE YEARS TEN YEARS INCEPTION
INVESTORS MONTHS DATE YEARS (ANNUALIZED)
GROWTH FUND
(2.12)% (2.80)% (2.80)% 2.00% N/A N/A N/A 11.94%
</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.
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
D-2
<PAGE>
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-3
<PAGE>
PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ:PHBK) announced today that it has
formed an alliance with a major mutual fund provider and an investment advisory
firm to expand its mutual fund offerings. The alliance with Forum Financial
Group and H.M. Payson & Company will result in fifteen funds, including the
unique Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered
through the branches of Peoples' affiliate banks in Maine, New Hampshire and
northern Massachusetts and the Company's trust and investment subsidiaries
"There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire State bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, fixed income and equity
funds.
Forum Financial, based in Portland, Maine since 1987, administers 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>
Pro Forma Combined Financial
Information for the period ended November 30, 1999
The following unaudited pro forma combined financial
information relates to the acquisition of all the assets and liabilities of
Investors Growth Fund, a series of Forum Funds by and in exchange for shares of
Investors Equity Fund, also a series of Forum Funds (the "Reorganization"). The
information gives effect to the Reorganization as if it had occurred on November
30, 1999 and consists of a statement of the pro forma combined portfolio of
investments and a statement of assets and liabilities as of November 30, 1999
and a statement of operations for the six months ended November 30, 1999 and the
year ended May 31, 1999. The pro forma combined results of operations represent
the level of expenses of Investors Equity Fund following the Reorganization if
the Reorganization had been consummated on November 30, 1999. There is no
guarantee that the pro forma financial information will accurately predict the
actual results of the Reorganization. This unaudited information should be read
in conjunction with the separate financial statements of Investors Equity Fund
and Investors Growth Fund.
<PAGE>
FORUM FUNDS
PRO FORMA STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
NOVEMBER 30, 1999
<TABLE>
<S> <C> <C> <C> <C>
INVESTORS INVESTORS
EQUITY GROWTH PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
Assets
Investments in Portfolio (Notes 1 and 2)
Investments at cost $ 14,665,973 $ 8,768,315 $ - $ 23,434,288
Net unrealized appreciation 19,473,122 15,996,429 - 35,469,551
----------------------------------------------------------------------------
Total investments at value 34,139,095 24,764,744 - 58,903,839
Investment in other net assets (liabilities)
of Portfolio 22,506 38,006 - 60,512
----------------------------------------------------------------------------
Total investments in Portfolios 34,161,601 24,802,750 - 58,964,351
Receivable from advisor - 12,625 - 12,625
Organization costs, net of amortization (Note 2) 2,072 9,274 - 11,346
----------------------------------------------------------------------------
Total Assets 34,163,673 24,824,649 - 58,988,322
----------------------------------------------------------------------------
Liabilities
Payable to administrator - 4,058 - 4,058
Payable to advisor 12,597 - - 12,597
Payable to other related parties 5,574 50,120 - 55,694
Accrued expenses and other liabilities 37,837 7,110 - 44,947
Dividends payable - - 1,518,822 1,518,822
----------------------------------------------------------------------------
Total Liabilities 56,008 61,288 1,518,822 1,636,118
----------------------------------------------------------------------------
Net Assets $ 34,107,665 $ 24,763,361 $ (1,518,822) $ 57,352,204
============================================================================
Components of Net Assets
Paid in capital $ 11,649,315 $ 7,240,570 $ - $ 18,889,885
Undistributed 9distributions in excess of) net
investment income (36,962) 7,540 - (29,422)
Accumulated net realized gain from investments sold 3,022,190 1,518,822 (1,518,822) 3,022,190
Net unrealized appreciation from investments 19,473,122 15,996,429 - 35,469,551
----------------------------------------------------------------------------
Net Assets $ 34,107,665 $ 24,763,361 $ (1,518,822) $ 57,352,204
============================================================================
Shares of Beneficial Interest 2,425,617 2,158,969 (505,730) 4,078,856
Net Asset Value and Offering Price Per Share (Net
Assets Divided by Shares of Beneficial Interest) $ 14.06 $ 11.47 $ 14.06
</TABLE>
See Pro Forma Footnotes to Pro Forma Financial Statements
<PAGE>
FORUM FUNDS
PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTORS INVESTORS
EQUITY GROWTH PRO FORMA
FUND FUND COMBINED
------------------------------- ----------------------------
------------------------------- ----------------------------
For the For the For the
Six Months For the Six Months For the Six Months For the
Ended Year Ended Ended Year Ended Ended Year Ended
November 30, 1999 May 31, 1999 November 30, 1999 May 31, 1999 November 30, 1999May 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Income
Interest income $ 11,024 $ 35,815 $ 25,945 $ 68,161 $ 36,969 $ 103,976
Dividend income 131,897 285,012 140,451 465,190 272,348 750,202
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Total Investment Loss 142,921 320,827 166,396 533,351 309,317 854,178
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Expenses
Investment advisory 106,219 201,585 84,679 202,130 190,898 403,715
Administration 32,683 62,026 26,055 62,194 58,738 124,220
Transfer agency 47,246 89,880 38,644 89,822 85,890 179,702
Custody 4,530 8,013 4,250 8,189 8,780 16,202
Accounting 18,000 36,000 18,000 37,000 36,000 73,000
Legal 3,824 9,913 1,835 13,940 5,659 23,853
Reporting 5,321 - 3,000 - 8,321 -
Compliance 1,522 1,869 - - 1,522 1,869
Audit 7,700 17,122 8,630 18,422 16,330 35,544
Trustees 985 2,163 863 2,167 1,848 4,330
Amortization of organization costs 341 680 1,518 3,035 1,859 3,715
Miscellaneous 2,667 18,688 1,908 13,902 4,575 32,590
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Total Expenses 231,038 447,939 189,382 450,801 420,420 898,740
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Fees waived and expenses reimbursed (51,155) (106,979) (45,816) (108,798) (96,971) (215,777)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net Expenses 179,883 340,960 143,566 342,003 323,449 682,963
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net Investment Loss (36,962) (20,133) 22,830 191,348 (14,132) 171,215
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain on
Investments
Net Realized Gain on Investments 620,885 4,243,115 94,068 2,382,883 714,953 6,625,998
Net Change in Unrealized Appreciation
(Depreciation) on Investments
Allocated from Portfolios 2,146,469 2,435,455 (248,732) (373,254) 1,897,737 2,062,201
--------------------------------------------------------------- ----------------------------
--------------------------------------------------------------- ----------------------------
Net Realized and Unrealized Gain on
Investments 2,767,354 6,678,570 (154,664) 2,009,629 2,612,690 8,688,199
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Increase in Net Assets Resulting
from Operations $ 2,730,392 $ 6,658,437 $ (131,834) $ 2,200,977 $ 2,598,558 $ 8,859,414
==============================================================================================
==============================================================================================
</TABLE>
See Pro Forma Footnotes to Pro Forma Financial Statements
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INVESTORS GROWTH FUND AND INVESTORS
EQUITY FUND (UNAUDITED)
NOVEMBER 30, 1999
NOTE 1. GENERAL
The accompanying pro forma financial statements are presented to show the effect
of the proposed merger of Investors Growth Fund, a series of Forum Funds, with
Investors Equity Fund, also a series of Forum Funds Fund (the "Fund), as if such
merger had taken place as of November 30, 1999.
Under the terms of the Agreement and Plan of Reorganization, the combination of
Investors Growth Fund and the Fund should be treated as a tax free business
combination and accordingly will be accounted for by a method of accounting for
tax free mergers of investment companies (sometimes referred to as the pooling
without restatement method). The acquisition would be accomplished by an
acquisition of the net assets of Investors Growth Fund in exchange for shares of
the Fund at net asset value. The statements of assets and liabilities and the
related statements of operations of the Fund and Investors Growth Fund have been
combined as of, and for the year ended, May 31, 1999. The statements of assets
and liabilities are also reported as of November 30, 1999.
The Fund seeks to achieve its investment objective by investing primarily in the
common stock of established, growth orientated domestic companies with market
capitalizations exceeding $2 billion.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedules of investments of Investors Growth
Fund and the Fund which are included in their annual reports dated March 31,
1999, and May 31, 1999, respectively.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned merger of the Fund and Investors Growth Fund had taken
place as of November 30, 1999.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Forum Funds(R) (the "Trust") is a Delaware business trust that is registered as
an open-end, management investment company under the Investment Company Act of
1940, as amended (the "Act"). The Trust currently has nineteen active investment
portfolios. Under its Trust Instrument, the Trust is authorized to issue an
unlimited number of each Fund's shares of beneficial interest without par value.
The significant accounting policies consistently followed by the Fund are as
follows:
SECURITY VALUATION - On each Fund business day, the Trust determines the net
asset value per share of each Fund as of the close of the regular trading day on
the New York Stock Exchange. Securities, other than short-term securities, held
by Investors Equity Fund, and for which market quotations are readily available
are valued using the last reported sales price provided by independent pricing
services. If no sales price is reported, the mean of the last bid and asked
price is used. In the absence of readily available market quotations, securities
are valued at fair value as determined by the Trust's Board of Trustees pursuant
to the Trust's valuation procedures. Securities held by Investors Equity Fund
that have a maturity of 60 days or less are valued at amortized cost, which
approximates market value.
SECURITY TRANSACTIONS AND INTEREST AND DIVIDEND INCOME - Investment transactions
are accounted for on trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recorded as earned. Identified cost of investments sold
is used to determine gain or loss for both financial statements and federal
income tax purposes.
REPURCHASE AGREEMENTS - Investors Equity Fund may invest in repurchase
agreements. The Fund, through its custodian, receives delivery of the underlying
securities, whose market value must always exceed the repurchase price.
DISTRIBUTIONS TO SHAREHOLDERS - Distributions of net investment income and net
capital gain, if any, are declared and paid at least annually. Distributions are
based on amounts calculated in accordance with applicable income tax
regulations, which may differ from generally accepted accounting principles.
These differences are due primarily to differing treatments of income and gain
on various investment securities held by the Funds, timing differences and
differing characterizations of distributions made by the Funds.
ORGANIZATION COSTS - Costs incurred by each Fund in connection with its
organization are amortized using the straight-line method over a five-year
period.
FEDERAL TAXES - The Fund intends to qualify each year as a regulated investment
company and distribute all its taxable income. In addition, by distributing in
each calendar year substantially all its net investment income, capital gain and
certain other amounts, if any, each Fund will not be subject to a federal excise
tax. Therefore, no federal income or excise tax provision is required.
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN INVESTORS GROWTH FUND AND INVESTORS
EQUITY FUND (UNAUDITED) (CONCLUDED)
MAY 31, 1999
EXPENSE ALLOCATION - The Trust accounts separately for the assets, liabilities
and operations of each of its funds. Expenses that are directly attributable to
more than one fund are allocated among the respective funds in proportion to
each fund's average daily net assets.
NOTE 3. ADVISORY, SERVICING FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISERS-- The investment adviser for Investors Equity Fund is H.M.
Payson & Co. ("Payson"). Pursuant to an Investment Advisory Agreement, Payson
receives an advisory fee from the Fund at an annual rate of 0.65% of the Fund's
average daily net assets. Payson has entered into an investment sub-advisory
agreement with Peoples Heritage Bank ("Peoples") under which Peoples exercises
certain investment discretion over the assets (or a portion of assets) of the
Fund. For its sub-advisory services, Payson pays a fee to Peoples at an annual
rate of 0.25% of the Fund's average daily net assets.
ADMINISTRATOR - The administrator for the Fund is Forum Administrative Services,
LLC ("FAdS"). For its services, FAdS receives a fee at an annual rate of 0.20%
of the average daily net assets of the Fund.
TRANSFER AGENT - The transfer agent and dividend disbursing agent for the Fund
is Forum Shareholder Services, LLC ("FSS"). FSS receives from the Fund an annual
fee of $12,000, plus 0.25% of the average daily net assets of the Fund, and an
annual shareholder account fee of $18 per shareholder account.
DISTRIBUTOR - Forum Fund Services, LLC ("FFS"), a registered broker-dealer and a
member of the National Association of Securities Dealers, Inc., is the Fund's
distributor. For its services, FFS receives, and may reallocate to certain
financial institutions, the sales charges paid in connection with purchases or
sales of the Fund's shares. Prior to March 1, 1999, Forum Financial Services,
Inc. was the Fund's distributor and received similar compensation from the Fund
for its distribution services.
OTHER SERVICE PROVIDER - Forum Accounting Services, LLC ("FAcS") provides fund
accounting services to the Fund. For its services, FAcS receives an annual fee
of $36,000 from Investors Equity Fund, plus certain amounts based upon the
number and types of portfolio transactions made by the Fund.
NOTE 4. PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements include an adjustment to reflect
a distribution of net realized gain from Investors Growth Fund to its
shareholders as if the distribution had occurred prior to November 30, 1999.
An adjustment was made to fund shares as if the merger had taken place on
November 30, 1999. The number of shares were adjusted to reflect the same net
asset value per share for the combined entity as for the Fund.
<PAGE>
FORUM FUNDS
PRO FORMA COMBINED SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Investors Equity Investors Growth Pro Forma
Face/Share Security Fund Fund Combined
-------------------- -------------------- --------------------
Amount Description Value Value Value
Common Stocks 99.4% 93.2% 95.9%
Apparel & Accessory Stores 2.7% 4.3% 3.4%
22,500 Gap, Inc. 911,250 - 911,250
14,000 Nike, Inc - Class B - 644,000 644,000
- Walt Disney Co. - 418,125 418,125
------------------------------------------------------------------------
911,250 1,062,125 1,973,375
------------------------------------------------------------------------
Basic Materials 3.1% 1.3%
16,000 Air Products & Chemicals - 518,000 518,000
4,086 E.I. Du Pont de Nemours - 242,862 242,862
------------------------------------------------------------------------
- 760,862 760,862
------------------------------------------------------------------------
Building Materials 3.1% 1.8%
13,200 Home Depot, Inc. 1,043,625 - 1,043,625
------------------------------------------------------------------------
Business Services 14.3% 3.2% 9.6%
28,800 Automatic Data Processing, Inc. 1,422,000 - 1,422,000
17,000 Ecolab, Inc. 588,625 - 588,625
22,500 Fiserv, Inc. - 798,750 798,750
26,100 Interpublic Group Cos., Inc. 1,226,700 - 1,226,700
18,000 Microsoft Corp. 1,638,844 - 1,638,844
------------------------------------------------------------------------
4,876,169 798,750 5,674,919
------------------------------------------------------------------------
Chemicals & Allied Products 6.1% 3.5%
20,000 Gillette Co. 803,750 - 803,750
11,800 The Procter & Gamble Co. 1,274,400 - 1,274,400
------------------------------------------------------------------------
2,078,150 - 2,078,150
------------------------------------------------------------------------
Communications 6.1% 11.2% 8.2%
15,000 AT & T Corporation - 838,125 838,125
18,000 BellSouth Corp. 831,375 - 831,375
34,102 SBC Communications, Inc. 1,241,410 529,763 1,771,173
30,000 Vodafone Airtouch plc ADR - 1,415,625 1,415,625
------------------------------------------------------------------------
2,072,785 2,783,513 4,856,298
------------------------------------------------------------------------
Eating & Drinking Places 3.4% 1.4%
20,000 Tricon Global Restaurants - 830,000 830,000
------------------------------------------------------------------------
Electronic & Other Electrical Equipment & Components,
Except Computer Equipment 10.2% 6.8% 8.8%
10,000 ADC Telecommunications, Inc. 533,125 - 533,125
13,000 General Electric Co. - 1,690,000 1,690,000
8,550 General Electric Co. 1,111,500 - 1,111,500
24,050 Intel Corp. 1,844,334 - 1,844,334
-------------------- ---------------------------------------------
3,488,959 1,690,000 5,178,959
------------------------------------------------------------------------
Financial Institutions 7.8% 9.4% 8.5%
9,136 Bank of America Corporation - 534,456 534,456
157 Berkshire Hthaway - B - 292,805 292,805
10,000 Federal National Mortgage Assn. - 666,250 666,250
14,925 Federal National Mortgage Assn. 994,378 - 994,378
42,000 MBNA Corp. 1,060,500 - 1,060,500
18,000 Wells Fargo & Co. - 837,000 837,000
13,000 Wells Fargo & Co. 604,500 - 604,500
------------------------------------------------------------------------
2,659,378 2,330,511 4,989,889
------------------------------------------------------------------------
Food & Kindred Products 1.5% 1.5% 1.5%
7,500 Coca Cola Co. 504,844 - 504,844
11,000 PepsiCo - 380,187 380,187
------------------------------------------------------------------------
504,844 380,187 885,031
------------------------------------------------------------------------
Grocery Stores 1.7% 1.0%
28,000 Kroger Co. 596,750 - 596,750
------------------------------------------------------------------------
Industrial & Commercial Machinery &
Computer Equipment 14.0% 8.1%
11,400 Applied Materials, Inc. 1,110,789 1,110,789-
15,000 Cisco Systems, Inc. 2,318,875 - 2,318,875
14,000 Solectron Corp. 906,125 - 906,125
7,000 Tellabs, Inc. 454,125 - 454,125
------------------------------------------------------------------------
4,789,914 - 4,789,914
------------------------------------------------------------------------
Insurance 4.5% 5.3% 4.9%
12,656 American International Group, Inc. - 1,306,732 1,306,732
14,952 American International Group, Inc. 1,543,794 - 1,543,794
------------------------------------------------------------------------
1,543,794 1,306,732 2,850,526
------------------------------------------------------------------------
Measuring, Analyzing, & Controlling Instruments;
Photographic, Medical & Optical Goods 4.6% 2.7%
28,600 Medtronic, Inc. 1,111,825 - 1,111,825
8,000 Stryker Corp. 455,500 - 455,500
------------------------------------------------------------------------
1,567,325 - 1,567,325
------------------------------------------------------------------------
Miscellaneous Retail 2.6% 1.5%
38,000 Staples, Inc. 893,000 - 893,000
------------------------------------------------------------------------
Petroleum Refining & Related Industries 3.4% 6.6% 4.8%
8,596 Conoco Inc - Class B - 225,108 225,108
10,000 Exxon Corp. - 793,125 793,125
14,700 Exxon Corp. 1,165,894 - 1,165,894
6,000 Mobil Corporation - 625,875 625,875
------------------------------------------------------------------------
1,165,894 1,644,108 2,810,002
------------------------------------------------------------------------
Pharmaceutical Preparations 9.4% 15.3% 11.9%
16,000 Abbott Laboratories - 608,000 608,000
19,800 Abbott Laboratories 752,400 752,400
14,000 American Home Products - 728,000 728,000
8,000 Johnson & Johnson - 830,000 830,000
13,800 Merck & Co., Inc. - 1,083,300 1,083,300
12,800 Merck & Co., Inc. 1,004,800 - 1,004,800
24,300 Pfizer, Inc. 879,356 - 879,356
11,200 Schering-Plough Corp. 572,600 - 572,600
9,000 Schlumberger Limited - 540,562 540,562
------------------------------------------------------------------------
3,209,156 3,789,862 6,999,018
------------------------------------------------------------------------
Security & Commodity Brokers, Dealers,
Exchanges & Services 2.1% 3.3% 2.6%
19,000 Merrill Lynch & Co., Inc. 725,625 806,250 1,531,875
------------------------------------------------------------------------
Technology 17.2% 7.2%
8,000 Automatic Data Processing - 395,000 395,000
6,000 Computer Sciences Corporation - 391,500 391,500
7,500 IBM Corporation - 772,969 772,969
25,000 Oracle Corporation - 1,695,312 1,695,312
12,000 United Technologies Corporation - 678,000 678,000
12,000 Xerox Corporation - 324,750 324,750
------------------------------------------------------------------------
- 4,257,531 4,257,531
------------------------------------------------------------------------
Transportation Equipment 2.6% 1.1%
9,352 Daimler Chrysler AG - 637,105 637,105
------------------------------------------------------------------------
Water Transportation 2.3% 1.3%
18,000 Carnival Corp. 794,250 - 794,250
------------------------------------------------------------------------
Wholesale Trade - Durable Goods 3.0% 1.7%
10,000 Danaher Corp. 491,250 - 491,250
8,000 Illinois Tool Works, Inc. 518,000 - 518,000
------------------------------------------------------------------------
1,009,250 - 1,009,250
------------------------------------------------------------------------
Total Common Stock (Cost $21,538,103) 33,930,118 23,077,536 57,007,654
- ---------------------------------------------------------------------------------------------------------------------------
Short-Term Investments .6% 6.8% 3.2%
208,977 Bankers Trust Investment Money
Market Fund 208,977 - 208,977
1,180,849 Bankers Trust Investment Money
Market Fund - 1,180,849 1,180,849
506,359 Bankers Trust Institutional Cash
Management - 506,359 506,359
------------------------------------------------------------------------
Total Short-Term Investments 208,977 1,687,208 1,896,185
- ---------------------------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0%
Total Investments - Costs 14,665,973 8,768,315 23,434,288
Total Investments (100.0%) $34,139,095 $24,764,744 $58,903,839
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 15 - INDEMNIFICATION.
THE TRUST INSTRUMENT
In accordance with Section 3803 of the Delaware Business Trust Act, SECTION 10.2
of the Registrant's Trust Instrument provides as follows:
"SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection 10.02
(b):
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or thereafter,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described in Subsection
10.02(a) of this Section 10.02 may be paid by the Trust or Series from time to
time prior to final disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over by him to the
2
<PAGE>
Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under Section 10.02.
THE INVESTMENT ADVISORY AGREEMENTS
Section 4 of the Trust's Investment Advisory Agreements with Austin Investment
Management, Inc., Forum Investment Advisors, LLC (Investors Bond Fund, Investors
High Grade Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund and Investors Growth Fund), Peoples Heritage Bank and H.M.
Payson & Company (Payson Balanced Fund and Payson Value Fund) includes language
similar to the following:
"SECTION 4. STANDARD OF CARE
The Adviser shall use its best judgment and efforts in rendering the services
described in this Agreement. The Adviser shall not be liable to the Trust for
any action or inaction of the Adviser in the absence of bad faith, willful
misconduct or gross negligence or based upon information, instructions or
requests with respect to the Fund made to the Adviser by a duly authorized
officer of the Trust. The Adviser shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement caused
by circumstances beyond its reasonable control."
Section 5 of the Trust's Investment Advisory Agreements between the Trust and
Polaris Capital Management, Inc., Mastrapasqua & Associates and Brown Investment
Advisors & Company include language similar to the following:
"SECTION 5. STANDARD OF CARE.
(a) The Trust shall expect of the Adviser, and the Adviser will give the
Trust the benefit of, the Adviser's best judgment and efforts in
rendering its services to the Trust. The Adviser shall not be liable
hereunder for error of judgment or mistake of law or in any event
whatsoever, except for lack of good faith, provided that nothing
herein shall be deemed to protect, or purport to protect, the Adviser
against any liability to the Trust or to the Trust's security holders
to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
Adviser's duties hereunder, or by reason of the Adviser's reckless
disregard of its obligations and duties hereunder.
(b) The Adviser shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its
reasonable control including, without limitation, acts of civil or
military authority, national emergencies, labor difficulties (other
than those related to the Adviser's employees), fire, mechanical
breakdowns, flood or catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power
supply."
THE DISTRIBUTION AGREEMENT
Section 8 of the Trust's Distribution Agreement with Forum Fund Services LLC
provides:
"SECTION 8. INDEMNIFICATION
(a) The Trust will indemnify, defend and hold the Distributor, its employees,
agents, directors and officers and any person who controls the Distributor
within the meaning of section 15 of the Securities Act or section 20 of the 1934
Act ("Distributor Indemnitees") free and harmless from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
3
<PAGE>
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) which any Distributor Indemnitee may incur, under the
Securities Act, or under common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectuses or arising out of or based upon any alleged
omission to state a material fact required to be stated in any one thereof or
necessary to make the statements in any one thereof not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Trust in connection with the preparation
of the Registration Statement or exhibits to the Registration Statement by or on
behalf of the Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section 13(e),
the Trust shall indemnify and hold each Distributor Indemnitee free and harmless
from and against any Distributor Claim; provided, that the term Distributor
Claim for purposes of this sentence shall mean any Distributor Claim related to
the matters for which the Distributor has requested amendment to the
Registration Statement and for which the Trust has not filed a Required
Amendment, regardless of with respect to such matters whether any statement in
or omission from the Registration Statement was made in reliance upon, or in
conformity with, information furnished to the Trust by or on behalf of the
Distributor.
(b) The Trust may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Trust
and approved by the Distributor, which approval shall not be withheld
unreasonably. The Trust shall advise the Distributor that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Trust assumes the defense of any such suit and
retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Trust does not assume the defense of
any such suit, or if the Distributor does not approve of counsel chosen by the
Trust or has been advised that it may have available defenses or claims that are
not available to or conflict with those available to the Trust, the Trust will
reimburse any Distributor Indemnitee named as defendant in such suit for the
reasonable fees and expenses of any counsel that person retains. A Distributor
Indemnitee shall not settle or confess any claim without the prior written
consent of the Trust, which consent shall not be unreasonably withheld or
delayed.
(c) The Distributor will indemnify, defend and hold the Trust and its several
officers and trustees (collectively, the "Trust Indemnitees"), free and harmless
from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, reasonable counsel fees and other
expenses of every nature and character (including the cost of investigating or
defending such claims, demands, actions, suits or liabilities and any reasonable
counsel fees incurred in connection therewith), but only to the extent that such
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses result from, arise out of or
are based upon:
(i) any alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus or any alleged omission of a
material fact required to be stated or necessary to make the statements
therein not misleading, if such statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust in writing in connection with the preparation of the Registration
Statement or Prospectus by or on behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement ("Trust Claims").
(d) The Distributor may assume the defense of any suit brought to enforce any
Trust Claim and may retain counsel of good standing chosen by the Distributor
and approved by the Trust, which approval shall not be withheld unreasonably.
The Distributor shall advise the Trust that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Distributor assumes the defense of any such suit and retains
counsel, the defendants shall bear the fees and expenses of any additional
counsel that they retain. If the Distributor does not assume the defense of any
such suit, or if the Trust does not approve of counsel chosen by the Distributor
4
<PAGE>
or has been advised that it may have available defenses or claims that are not
available to or conflict with those available to the Distributor, the
Distributor will reimburse any Trust Indemnitee named as defendant in such suit
for the reasonable fees and expenses of any counsel that person retains. A Trust
Indemnitee shall not settle or confess any claim without the prior written
consent of the Distributor, which consent shall not be unreasonably withheld or
delayed.
(e) The Trust's and the Distributor's obligations to provide indemnification
under this Section is conditioned upon the Trust or the Distributor receiving
notice of any action brought against a Distributor Indemnitee or Trust
Indemnitee, respectively, by the person against whom such action is brought
within twenty (20) days after the summons or other first legal process is
served. Such notice shall refer to the person or persons against whom the action
is brought. The failure to provide such notice shall not relieve the party
entitled to such notice of any liability that it may have to any Distributor
Indemnitee or Trust Indemnitee except to the extent that the ability of the
party entitled to such notice to defend such action has been materially
adversely affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Trust Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Trust Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) Each party agrees promptly to notify the other party of the commencement of
any litigation or proceeding of which it becomes aware arising out of or in any
way connected with the issuance or sale of Shares.
(h) Nothing contained herein shall require the Trust to take any action contrary
to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws or any applicable statute
or regulation; provided, however, that neither the Trust nor the Distributor may
amend their Organic Documents or Articles of Incorporation and Bylaws,
respectively, in any manner that would result in a violation of a representation
or warranty made in this Agreement.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Trust or its security holders to which
the Distributor would otherwise be subject by reason of its failure to satisfy
the standard of care set forth in Section 7 of this Agreement.
ITEM 16 - EXHIBITS.
All references to a post effective amendment are to Registrant's Registration
Statement on Form N-1A, file numbers 2-67052 and 811-3023.
(1) Copy of Registrant's Trust Instrument dated August 29, 1995 as amended
June 25, 1999 is incorporated herein by reference. The Trust
Instrument, Exhibit (a) to post effective amendment 73, was filed via
EDGAR on July 30, 1999 (accession number 0001004402-99-000341).
(2) Copy of Registrant's By-Laws is incorporated herein by reference. The
By-Laws, Exhibit (b) to post effective amendment 43 were filed via
EDGAR on July 31, 1997 (accession number 0000912057-97-025707).
(3) None.
(4) Agreement and Plan of Reorganization is filed herewith as Attachment
B to Part A to Form N-14.
(5) Sections 2.04 and 2.06 of Registrant's Trust Instrument provide as
follows:
5
<PAGE>
"SECTION 2.04 TRANSFER OF SHARES.
Except as otherwise provided by the Trustees, Shares shall be transferable on
the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Trust's transfer agent of a duly executed instrument of transfer and such
evidence of the genuineness of such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery the
transfer shall be recorded on the register of the Trust. Until such record is
made, the Shareholder of record shall be deemed to be the holder of such Shares
for all purposes hereunder and neither the Trustees nor the Trust, nor any
transfer agent or registrar nor any officer, employee or agent of the Trust
shall be affected by any notice of the proposed transfer."
"SECTION 2.06 ESTABLISHMENT OF SERIES.
The Trust created hereby shall consist of one or more Series and separate and
distinct records shall be maintained by the Trust for each Series and the assets
associated with any such Series shall be held and accounted for separately from
the assets of the Trust or any other Series. The Trustees shall have full power
and authority, in their sole discretion, and without obtaining any prior
authorization or vote of the Shareholders of any Series of the Trust, to
establish and designate and to change in any manner any such Series of Shares or
any classes of initial or additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes thereof as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or classes thereof into a greater or lesser number, to classify or reclassify
any issued Shares or any Series or classes thereof into one or more Series or
classes of Shares, and to take such other action with respect to the Shares as
the Trustees may deem desirable. The establishment and designation of any Series
shall be effective upon the adoption of a resolution by a majority of the
Trustees setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Series. A Series may issue any
number of Shares and need not issue shares. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may by a majority vote abolish that Series and the establishment and
designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be Shares
of any or all Series, or classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial interest
in the net assets of such Series. Each holder of Shares of a Series shall be
entitled to receive his pro rata share of all distributions made with respect to
such Series. Upon redemption of his Shares, such Shareholder shall be paid
solely out of the funds and property of such Series of the Trust."
(6) Investment Advisory Agreements
(a) Investment Advisory Agreement between Registrant and Austin Investment
Management, Inc. relating to Austin Global Equity Fund is incorporated
herein by reference. The Investment Advisory Agreement, Exhibit (5)(d)
to post effective amendment 62, was filed via EDGAR on May 26, 1998
(accession number 0001004402-98-000307).
(b) Investment Advisory Agreement between Registrant and Brown Investment
Advisory & Trust Company relating to BIA Small-Cap Growth Fund and BIA
Growth Equity Fund dated as of June 29, 1999 is incorporated herein by
reference. The Investment Advisory Agreement, Exhibit (d)(7) to post
effective amendment 73, was filed via EDGAR on July 30, 1999 (accession
number 0001004402-99-000341).
(c) Investment Advisory Agreement between Registrant and Forum Investment
Advisors, LLC relating to Investors Bond Fund, Investors High Grade
Bond Fund, TaxSaver Bond Fund, Maine Municipal Bond Fund, New Hampshire
6
<PAGE>
Bond Fund and Investors Growth Fund is incorporated herein by
reference. The Investment Advisory Agreement, Exhibit (5)(p) to post
effective amendment 56, was filed via EDGAR on December 31, 1997
(accession number 0001004402-97-000281).
(d) Investment Advisory Agreement between Registrant and H.M. Payson & Co.
relating to Investors Equity Fund is incorporated herein by reference.
The Investment Advisory Agreement, Exhibit (5)(i) to post effective
amendment 65, was filed via EDGAR on September 30, 1998 (accession
number 0001004402-98-000530).
(e) Investment Advisory Agreement between Registrant and H.M. Payson & Co.
relating to the Payson Value Fund and Payson Balanced Fund is
incorporated herein by reference. The Investment Advisory Agreement,
Exhibit (5)(a) to post effective amendment 62, was filed via EDGAR on
May 26, 1998 (accession number 0001004402-98-000307).
(f) Investment Subadvisory Agreement between H.M. Payson & Co. and Peoples
Heritage Bank relating to Investors Equity Fund is incorporated herein
by reference. The Investment Subadvisory Agreement, Exhibit (5)(i) to
post effective amendment 64, was filed via EDGAR on July 31, 1998
(accession number 0001004402-98-000421).
(g) Investment Advisory Agreement between Registrant and Polaris Capital
Management, Inc. is incorporated herein by reference. The Investment
Advisory Agreement, Exhibit (5)(h) to post effective amendment 63, was
filed via EDGAR on June 8, 1998 (accession number
0001004402-98-000339).
(h) Form of Investment Advisory Agreement between Registrant and
Mastrapasqua & Associates relating to Virtual Growth/Virtual Value Fund
is incorporated herein by reference. The Form of Investment Advisory
Agreement, Exhibit (d)(8) to post-effective amendment 78, was filed via
EDGAR on April 17, 2000 (accession number 0001004402-00-000112).
(7) Distribution Agreements and Form of Selected Dealer Agreement
(a) Distribution Agreement between Registrant and Forum Fund Services, LLC
relating to Austin Global Value Fund, BIA Growth Equity Fund, BIA
Small-Cap Growth Fund, Equity Index Fund, Investors Bond Fund,
Investors Equity Fund, Investors Growth Fund, Investors High Grade
Bond Fund, Investor Shares, Institutional Shares and Institutional
Service Shares of Daily Assets Government Fund, Daily Assets Treasury
Obligations Fund, Daily Assets Government Obligations Fund, Daily
Assets Cash Fund and Daily Assets Municipal Fund, Maine Municipal Bond
Fund, New Hampshire Bond Fund, Payson Balanced Fund, Payson Value
Fund, Polaris Global Value Fund, TaxSaver Bond Fund and Virtual
Growth/Value Fund is incorporated herein by reference. The
Distribution Agreement, Exhibit (e)(5) to post effective amendment 73,
was filed via EDGAR on July 30, 1999 (accession number
0001004402-99-000341).
(b) Form of Selected Dealer Agreement between Forum Financial Services,
Inc. and securities brokers is incorporated herein by reference. The
Form of Selected Dealer Agreement, Exhibit (6)(a) to post effective
amendment 62, was filed via EDGAR on May 26, 1998 (accession number
0001004402-98-000307).
(c) Form of Bank Affiliated Selected Dealer Agreement between Forum
Financial Services, Inc. and bank affiliates is incorporated herein by
reference. The Form of Bank Affiliated Selected Dealer Agreement,
Exhibit (6)(b) to post effective amendment 62, was filed via EDGAR on
May 26, 1998 (accession number 0001004402-98-000307).
(8) None.
(9) Custodian Contracts
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<PAGE>
(a) Custodian Agreement between Registrant and Forum Trust dated May 12,
1999 relating to Austin Global Equity Fund, BIA Small-Cap Growth Fund,
BIA Growth Equity Fund, Equity Index Fund, Investors Bond Fund,
Investors Equity Fund, Investors Growth Fund, Investors High Grade
Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund, Payson
Balanced Fund, Payson Value Fund, Polaris Global Value Fund, TaxSaver
Bond Fund, Virtual Growth/Value Fund and Investor Shares,
Institutional Shares and Institutional Service Shares of Daily Assets
Government Fund, Daily Assets Treasury Obligations Fund, Daily Assets
Government Obligations Fund, Daily Assets Cash Fund and Daily Assets
Municipal Fund is incorporated herein by reference. The Custodian
Agreement, Exhibit (g)(1) to post effective amendment 72, was filed
via EDGAR on June 16, 1999 (accession number 0001004402-99-000308).
(b) Master Custodian Agreement between Forum Trust and Bankers Trust
Company dated April 20, 1999 relating to Austin Global Equity Fund,
BIA Small-Cap Growth Fund, BIA Growth Equity Fund, Equity Index Fund,
Investors Bond Fund, Investors Equity Fund, Investors Growth Fund,
Investors High Grade Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Payson Balanced Fund, Payson Value Fund, Polaris
Global Value Fund, TaxSaver Bond Fund, Virtual Growth/Value Fund and
Investor Shares, Institutional Shares and Institutional Service Shares
of Daily Assets Government Fund, Daily Assets Treasury Obligations
Fund, Daily Assets Government Obligations Fund, Daily Assets Cash Fund
and Daily Assets Municipal Fund, undated is incorporated herein by
reference. The Form of Master Custodian Agreement, Exhibit (g)(2) to
post effective amendment 72, was filed via EDGAR on June 16, 1999
(accession number 0001004402-99-000308).
(10) Rule 12b-1 Plan effective January 1, 1999 adopted by the Investor
Shares of Daily Assets Treasury Obligations Fund, Daily Assets
Government Fund, Daily Assets Government Obligations Fund, Daily Asset
Cash Fund and Daily Assets Municipal Fund is incorporated herein by
reference. The 12b-1 Plan, Exhibit (m) to post effective amendment 69,
was filed via EDGAR on December 15, 1998 (accession number
0001004402-98-000648).
(11) Opinion and consent of Seward & Kissel LLP, Trust counsel, regarding
legality of securities, to be filed by subsequent pre-effective
amendment.
(12) Opinion and consent [ ] regarding tax consequences of the transaction,
to be filed by post-effective amendment within a reasonably prompt
amount of time after the closing of the reorganizaition.
(13) Material Service Contracts
(a) Administration Agreement between Registrant and Forum Administrative
Services, LLC relating to Austin Global Equity Fund, BIA Growth Equity
Fund, BIA Small-Cap Growth Fund, Equity Index Fund, Investors Bond
Fund, Investors Equity Fund, Investors Growth Fund, Investors High
Grade Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund,
Payson Balanced Fund, Payson Value Fund, Polaris Global Value Fund,
TaxSaver Bond Fund, Virtual Growth/Value Fund and Investor Shares,
Institutional Shares and Institutional Service Shares of Daily Assets
Government Fund, Daily Assets Treasury Obligations Fund, Daily Assets
Government Obligations Fund, Daily Assets Cash Fund and Daily Assets
Municipal Fund is incorporated herein by reference. The Administration
Agreement, Exhibit (h)(1) to post effective amendment 72, was filed
via EDGAR on June 16, 1999 (accession number 0001004402-99-000308).
(b) Fund Accounting Agreement between Registrant and Forum Accounting
Services, LLC relating to Austin Global Equity Fund, BIA Growth Equity
Fund, BIA Small-Cap Growth Fund, Equity Index Fund, Investors Bond
Fund, Investors Equity Fund, Investors Growth Fund, Investors High
Grade Bond Fund, Maine Municipal Bond Fund, New Hampshire Bond Fund,
Payson Balanced Fund, Payson Value Fund, Polaris Global Value Fund,
TaxSaver Bond Fund, Virtual Growth/Value Fund and Investor Shares,
Institutional Shares and Institutional Service Shares of Daily Assets
Government Fund, Daily Assets Treasury Obligations Fund, Daily Assets
8
<PAGE>
Government Obligations Fund, Daily Assets Cash Fund and Daily Assets
Municipal Fund is incorporated herein by reference. The Fund
Accounting Agreement, Exhibit (h)(2) to post effective amendment 72,
was filed via EDGAR on June 16, 1999 (accession number
0001004402-99-000308).
(c) Transfer Agency and Services Agreement between Registrant and Forum
Shareholder Services, LLC relating to Austin Global Equity Fund, BIA
Growth Equity Fund, BIA Small-Cap Growth Fund, Equity Index Fund,
Investors Bond Fund, Investors Equity Fund, Investors Growth Fund,
Investors High Grade Bond Fund, Maine Municipal Bond Fund, New
Hampshire Bond Fund, Payson Balanced Fund, Payson Value Fund, Polaris
Global Value Fund, TaxSaver Bond Fund, Virtual Growth/Value Fund and
Investor Shares, Institutional Shares and Institutional Service Shares
of Daily Assets Government Fund, Daily Assets Treasury Obligations
Fund, Daily Assets Government Obligations Fund, Daily Assets Cash Fund
and Daily Assets Municipal Fund is incorporated herein by reference.
The Transfer Agency and Services Agreement, Exhibit (h)(3) to post
effective amendment 75, was filed via EDGAR on September 30, 1999
(accession number 0001004402-99-000395).
(d) Shareholder Service Plan of Registrant and Form of Shareholder Service
Agreement relating to the Institutional Service and Investor Classes of
Daily Assets Treasury Obligations Fund, Daily Assets Government
Obligations Fund, Daily Assets Government Fund, Daily Assets Cash Fund,
and Daily Assets Municipal Fund is incorporated herein by reference.
The Shareholder Service Plan and Form of Shareholder Service Agreement,
Exhibit (9)(c) to post effective amendment 50, was filed via EDGAR on
November 12, 1997 (accession number 0001004402-97-000189).
(e) Shareholder Service Plan and Form of Shareholder Service Agreement
relating to Polaris Global Value Fund is incorporated herein by
reference. The Shareholder Service Plan and Form of Shareholder Service
Agreement, Exhibit (9)(d) to post effective amendment 65, was filed via
EDGAR on September 30, 1998 (accession number 0001004402-98-000530).
(14) Other Opinions
(a) Consents of [ ] dated [ ], to be filed by subsequent pre-effective
amendment.
(b) Consent [ ] dated [ ], to be filed by subsequent pre-effective
amendment.
(15) None.
(16) Powers of Attorney of Costas Azariadas, James C. Cheng, John Y. Keffer
and J. Michael Parish are filed herewith.
ITEM 17 - UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a
part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act [17 CFR 230.145c], the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act, each post- effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
9
<PAGE>
(3) The undersigned Registrant agrees to file a copy of the opinion Forum
Administrative Services, LLC regarding the legality of securities to be
issued and as required to be filed as an exhibit to the registration
statement by Item 16(11) of Form N-14 under the Securities Act of 1933,
as amended by means of a pre-effective amendment to the registration
statement.
(4) The undersigned Registrant agrees to file a copy of the tax opinion
required to be filed as an exhibit to the registration statement by
Item 16(12) of Form N-14 under the Securities Act of 1933, as amended,
by means of a post-effective amendment to the registration statement.
10
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant in the city of Portland and State of Maine,
May 24th , 2000.
FORUM FUNDS
By:/s/ John Y. Keffer
John Y. Keffer
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
- ----------------------------------------------------------------- ---------------------------- -----------------------
Principal Executive Officer
/s/ John Y. Keffer Chairman and President May 24, 2000
- ------------------------------------
John Y. Keffer
Principal Financial
and Accounting Officer
/s/ Ronald H. Hirsch Treasurer May 24, 2000
- ------------------------------------
Ronald H. Hirsch
A majority of the Trustees
/s/ John Y. Keffer May 24, 2000
- ------------------------------------
John Y. Keffer
Costas Azariadis
James C. Cheng
J. Michael Parish
/s/ John Y. Keffer May 24, 2000
- ------------------------------------
By: John Y. Keffer
(Attorney-in-fact)
</TABLE>
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