PROSPECTUS
August 15, 2000
The Fund seeks long-term capital THE
appreciation through socially ADVOCACY
responsible investments. FUND
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR
DISAPPROVED THE FUND'S SHARES OR
DETERMINED WHETHER THIS PROSPECTUS
IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE INFORMATION 3
FEE TABLES 4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES, AND PRINCIPAL RISKS 5
MANAGEMENT 8
YOUR ACCOUNT 10
How to Contact the Fund 10
General Information 10
Buying Shares 11
Selling Shares 13
Exchange Privileges 15
Retirement Accounts 15
OTHER INFORMATION 16
FINANCIAL HIGHLIGHTS 16
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RISK/RETURN SUMMARY
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CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
COMMON STOCK means an The Advocacy Fund (the "Fund") seeks long-term capital appreciation through
equity or ownership socially responsible investments.
interest in a company.
LARGE-CAP COMPANIES mean PRINCIPAL INVESTMENT STRATEGIES
companies whose market
capitalization is in The Fund seeks to advocate progressive social change by normally investing at
excess of $10 billion. least 65% of its total assets in companies that Trillium Asset Management
MARKET CAPITALIZATION of Corporation (the "Adviser") believes are making a positive contribution to
a company means the value society and the economy. Such companies include, but are not limited to, those
of the company's common that:
stock in the stock market.
GROWTH AT A REASONABLE o Demonstrate a commitment to promoting fair labor practices and a diverse
PRICE INVESTING means to work force, support community development, and protect human rights
invest in stocks of o Demonstrate a commitment to preserving and enhancing the environment
companies that, in the through their products and processes
Adviser's opinion, offer o Respond to shareholder activism
faster than average
projected earnings growth For additional factors considered by the Adviser in selecting potential
relative to their industry companies in which to invest, see "The Adviser's Process - Social Objectives."
peer group, but whose stock
prices do not accurately Although not a primary strategy, a limited portion of the Fund's portfolio may
reflect the companies' be used to purchase securities of certain companies in order to advocate policy
value. changes within those companies.
To facilitate its social objective, the Fund uses a "growth at a reasonable
price investing" style by investing under normal circumstances at least 65% of
its total assets in the common stock of large-cap domestic companies that the
Adviser believes have superior earnings growth prospects relative to their
industry and whose stock prices, in the Adviser's opinion, do not accurately
reflect the companies' value. The Fund may also invest in companies that the
Adviser believes do not have particularly strong earnings histories, but do have
other attributes that may contribute to accelerated growth in the foreseeable
future.
PRINCIPAL RISKS OF INVESTING IN THE FUND
You could lose money on your investment in the Fund, or the Fund could
underperform other investments, if any of the following occur:
o The stock market does not recognize the earnings potential of the stocks in
the Fund's portfolio
o The Adviser's judgment as to the growth potential or value of a stock
proves to be wrong
o The stock market goes down
o The Fund's social criteria eliminates some stocks that might have higher
returns than the stocks from which the Adviser is able to choose
o Changes in company social policies cause the sale of stocks that
subsequently perform well
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WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Want your assets invested to advocate progressive social change
o Are looking for a well-diversified equity portfolio providing potential
growth of your investment
o Are willing to tolerate significant changes in the value of your investment
o Are pursuing a long-term goal
o Are willing to accept the higher risk of a stock fund
The Fund may not be appropriate for you if you:
o Want an investment that pursues market trends or focuses only on particular
sectors or industries
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
PERFORMANCE INFORMATION
Performance information is not provided because the Fund had not commenced
operations prior to the date of this Prospectus.
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FEE TABLES
The following tables describe the various fees and expenses that you will bear
if you invest in the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Sales Charge (Load) Imposed on Reinvested Distributions None
Maximum Deferred Sales Charge (Load) None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
Management Fees 0.65%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.75%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.65%
Waivers and Reimbursements(2) 0.15%
Net Annual Fund Operating Expenses 1.50%
(1) Based on estimated amounts for the current fiscal year ending June 30,
2001.
(2) Based on contractual waivers effective through October 31, 2001.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Fund then redeem all of your
shares at the end of the period. The example also assumes that your investment
has a 5% annual return, that the Fund's operating expenses remain as stated in
the above table, and that distributions are reinvested. Although your actual
costs may be higher or lower, under these assumptions your costs would be:
AFTER ONE YEAR AFTER THREE YEARS
$153 $519
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INVESTMENT OBJECTIVE, PRINCIPAL
INVESTMENT STRATEGIES, AND PRINCIPAL RISKS
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CONCEPTS TO UNDERSTAND INVESTMENT OBJECTIVE
FUNDAMENTAL ANALYSIS The Fund seeks long-term capital appreciation through socially responsible
means the analysis of a investments.
company's financial
condition that is used PRINCIPAL INVESTMENT STRATEGIES
to help forecast the
future value of its The Fund seeks to advocate progressive social change by normally investing at
stock price. This least 65% of its total assets in companies that the Adviser believes are making
analysis includes a a positive contribution to society and the economy. Such companies include, but
review of a company's are not limited to, those that:
balance sheet and income
statement, asset history, o Demonstrate a commitment to promoting fair labor practices and a diverse
earnings history, work force, support community development, and protect human rights
product or service o Demonstrate a commitment to preserving and enhancing the environment through
development, and their products and processes
management productivity. o Respond to shareholder activism
PRICE/EARNINGS RATIO
means the price of a For additional factors considered by the Adviser in selecting potential
share of stock divided companies in which to invest, see "The Adviser's Process - Social Objectives."
by the company's earnings
per share. Although not a primary strategy, a limited portion of the Fund's portfolio may
PRICE/CASH FLOW RATIO be used to purchase securities of certain companies in order to advocate policy
means the price of a stock changes within those companies.
divided by cash earnings
per share. To facilitate its social objective, the Fund uses a "growth at a reasonable
SECTOR means a commonly price investing" style by normally investing at least 65% of its total assets in
used grouping of industries the common stock of large-cap domestic companies that the Adviser believes have
expected to perform similarly superior earnings growth prospects and whose stock prices, in the Adviser's
under various economic opinion, do not accurately reflect the companies' value. The Fund may also
conditions. invest in companies that the Adviser believes do not have particularly strong
earnings histories, but do have other attributes that may contribute to
accelerated growth in the foreseeable future.
Common stock often gives the owner the right to vote on measures affecting the
company's organization and operations. The Fund intends to use its position as
an owner to initiate dialogue with company management concerning their social
and business practices and may initiate shareholder resolutions with companies.
The Fund does not intend to exercise control over the management of companies in
which it invests.
THE ADVISER'S PROCESS - PURCHASING PORTFOLIO SECURITIES The Adviser's investment
process begins with an economic and social analysis of a universe of
approximately 2000 publicly traded large-cap companies. The universe is
pre-screened to eliminate companies in the gaming industry and companies
producing tobacco products and alcohol.
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From this universe, the Adviser primarily selects stocks of companies that it
believes make a positive contribution to society and the economy based on
certain social criteria listed below; however, stocks are added to the Fund's
portfolio only after financial analysis indicates investment attractiveness.
The Adviser uses multi-factor proprietary models that consider a variety of
quantitative measures, including price/earnings and price/cash flow ratios, to
rank the stocks by sector based on value, growth potential, and expected price
volatility. The Adviser uses these quantitative measurements in combination with
in-house and third party fundamental research to identify companies that appear
to possess superior earnings growth prospects and whose stock prices, in the
Adviser's opinion, do not accurately reflect the companies' value.
The Adviser believes companies with superior earnings growth prospects are those
that have:
o Significant market opportunities (both in terms of magnitude and duration)
where the companies are leaders or potential leaders in their markets
o Proprietary products and services, new product development, and product
cycle leadership that sustains strong brand franchises
o A strong management team that is proactive, consistently executes
effectively, and anticipates and adapts to change
o Positive records on: the environment; global human rights; employee,
diversity, and labor issues; corporate investment in local communities;
weapons issues; and animal rights
The Adviser then focuses on those companies that, over a period of several
years, have the ability to grow at above average rates within their industries.
The Adviser believes that superior investment returns are better achieved by low
portfolio turnover. Factors considered include:
o Product cycles, pricing flexibility, and product or geographic mix
o Cash flow and financial strength to fund growth
o Catalysts for growth such as the development of new products, changes in
business mix, regulation or management, and industry consolidation
The Adviser selects stocks considering both diversification by sector and
attractiveness of valuation relative to prospective growth.
THE ADVISER'S PROCESS - SOCIAL OBJECTIVES The Adviser uses stock ownership to
initiate dialogue with management of portfolio companies on critical social and
environmental issues. The Adviser also believes that the proxy voting process is
an important tool in advocating progressive social change. To help further its
social goals, the Fund intends to publish its proxy voting record at least once
each year.
The Adviser uses a number of resources including in-house and third-party
fundamental analysis, public information databases, and contacts with other
socially-oriented issue groups to identify companies in which to invest. As part
of its analysis, the Adviser will evaluate corporate, social, and environmental
performance in many areas including, but not limited to:
o Support of sound environmental practices and policies
o Support of global human rights
o Support of positive labor practices
o Support of positive labor-management relations
o Support of corporate philanthropy and investment in local communities
o Avoidance of military contracting with the U.S. or foreign governments
o Responsiveness to product safety issues
o Support of ethical management practices
o Support of alternatives to animal research and testing
o Ability to balance interests of company constituencies such as
shareholders, employees, communities, suppliers, and customers
o Responsiveness to shareholder activism
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THE ADVISER'S PROCESS - SELLING PORTFOLIO SECURITIES In making its decision to
sell a stock in the Fund's portfolio, the Adviser monitors the companies in the
Fund's portfolio to determine if there have been any fundamental changes in the
companies or changes in the companies' social policies. The Adviser also
analyzes price/earnings ratios, price/cash flow ratios, and other quantitative
measures to monitor stock price movements and help determine whether to sell a
stock in the Fund's portfolio. The Adviser may sell a stock if:
o It subsequently fails to meet the Adviser's investment criteria
o Changes in national economic conditions, such as interest rates,
unemployment, and productivity levels prompt a change in industry sector
allocation
o A more attractively priced company is found or funds are needed for other
purposes
o It becomes overvalued relative to the long-term expectation for the stock
price
o A company's positive social or environmental attributes turn negative and
dialogue and shareholder engagement fail to change the company's policies
TEMPORARY DEFENSIVE MEASURES 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 a nationally recognized statistical rating organization 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, banker's acceptances and
certificates of deposit, corporate notes and short-term bonds, and money market
mutual funds.
As a result of taking a temporary defensive position, the Fund may not achieve
its investment objective.
PRINCIPAL INVESTMENT RISKS
The Fund's net asset value and total return will fluctuate based upon changes in
the value of its portfolio securities. The market value of securities in which
the Fund invests is based on the market's perception of value and is not
necessarily an objective measure of the securities' value. There is no assurance
that the Fund will achieve its investment objective. An investment in the Fund
is not by itself a complete and balanced investment program. Finally, there is
also the risk that the Adviser may make poor investment decisions.
Because the Fund invests in common stocks and makes investments based on an
expectation of the companies' rate of profit growth, there is a risk that the
stocks will not continue to grow at expected rates. There is also the risk that
the market will not recognize the intrinsic value of the stocks for an
unexpectedly long time.
A decline in investor demand for stocks may also adversely affect the value of
these securities. In addition, the investment style for the Fund could fall out
of favor with the market; that is, if investors lose interest in large-cap
companies, then the net asset value of the Fund could also decrease.
There is also the risk that the Fund's social criteria may eliminate some stocks
that might have higher returns than the stocks from which the Adviser is able to
choose. Changes in company social policies might also cause the sale of stocks
that subsequently perform well.
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MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices, and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
THE ADVISER
The Fund's Adviser is Trillium Asset Management Corporation, 711 Atlantic
Avenue, Boston, Massachusetts 02111. The Adviser and its predecessors have
provided investment advisory and management services to clients for more than
eighteen years. The Adviser is a registered investment adviser and was founded
in 1982 and is devoted to making socially responsible investments. The Adviser
has been owned by its employees since inception. Ownership is broadly
distributed among current employees. Wainwright Bank & Trust Company of Boston,
Massachusetts owns a 30% preferred equity position in the Adviser.
Subject to the control of the Board, the Adviser makes investment decisions for
the Fund. For its services, the Adviser receives an advisory fee at an annual
rate of 0.65% of the average daily net assets of the Fund.
As of the date of this Prospectus, the Adviser had more than $675 million in
assets under management.
"The Advocacy Fund" is a service mark owned by the Adviser.
PORTFOLIO MANAGERS
Cheryl I. Smith, Ph.D., CFA, Samuel B. Jones Jr., CFA, and F. Farnum Brown Jr.,
Ph.D. are responsible for the day-to-day investment management of the Fund. Each
portfolio manager's business experience is as follows:
CHERYL I. SMITH, Ph.D., CFA, Vice President
Ms. Smith is a senior portfolio manager and research analyst covering the
communications sector. Ms. Smith was with the Adviser from 1987 to 1992. From
1992 to 1997, she was a portfolio manager with United States Trust Company in
Boston, Massachusetts. She rejoined the Adviser in 1997. She is a Chartered
Financial Analyst charterholder and holds a B.S.F.S. from Georgetown University
School of Foreign Service. She earned M.A., M.Phil., and Ph.D. degrees in
Economics from Yale University.
SAMUEL B. JONES, JR., CFA, Senior Vice President, Chief Investment Officer
Mr. Jones is a senior portfolio manager and research analyst covering the
technology, communications equipment, energy services, and utility sectors. Mr.
Jones has been with the Adviser since 1992. He is a Chartered Financial Analyst
charterholder and earned B.S. and M. B. A. degrees from the University of
Michigan.
F. FARNUM BROWN, JR., Ph.D., Senior Vice President
Mr. Brown is a senior portfolio manager, research analyst, and manager of the
Adviser's Durham, North Carolina office. Mr. Brown has been with the Adviser
since 1994 and earned bachelor's, master's, and doctoral degrees from the
University of North Carolina at Chapel Hill.
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OTHER SERVICE PROVIDERS
The Forum Financial Group of companies ("Forum") provide services to the Fund.
As of June 30, 2000, Forum provided administration and distribution services to
investment companies and collective investment funds with assets of
approximately $120 billion.
Forum Fund Services, LLC (the "Distributor"), a registered broker-dealer and
member of the National Association of Securities Dealers, Inc., is the
distributor (principal underwriter) of the Fund's shares. The Distributor acts
as the agent of the Trust in connection with the offering of the Fund's shares.
The Distributor may enter into arrangements with banks, broker-dealers, or other
financial institutions through which investors may purchase or redeem shares and
may, at its own expense, compensate persons who provide services in connection
with the sale or expected sale of the Fund's shares.
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's accountant, Forum Shareholder
Services, LLC ("Transfer Agent") is the Fund's transfer agent, and Forum Trust,
LLC is the Fund's custodian.
DISTRIBUTION EXPENSES
The Fund has adopted a distribution plan under SEC Rule 12b-1 under which the
Trust may reimburse the Distributor for distribution expenses incurred on behalf
of the Fund at an annual rate of up to 0.25% of the Fund's average net assets.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of its
own expenses as well as Trust expenses that are allocated among the Fund and the
other funds of the Trust. The Adviser or other service providers may waive all
or any portion of their fees and reimburse certain expenses of the Fund. Any
waiver or expense reimbursement would have the effect of increasing the Fund's
performance for the period during which the waiver was in effect and may not be
recouped at a later date.
The Adviser has undertaken to waive its fees and assume certain expenses of the
Fund in order to limit the Fund's expenses (excluding taxes, interest, portfolio
transaction expenses, and extraordinary expenses) to 1.50% or less of the
average daily net assets of the Fund through October 31, 2001.
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YOUR ACCOUNT
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HOW TO CONTACT GENERAL INFORMATION
THE FUND
You may purchase or sell (redeem) Fund shares at the net asset value of a share
WRITE TO US AT: (NAV) next calculated after the Transfer Agent receives your request in proper
The Advocacy Fund form. For instance, if the Transfer Agent receives your purchase request in
P.O. Box 446 proper form after 4:00 p.m., Eastern time, your transaction will be priced at
Portland, Maine 04112 the next day's NAV. The Fund cannot accept orders that request a particular day
or price for the transaction or any other special conditions.
OVERNIGHT ADDRESS:
The Advocacy Fund The Fund does not issue share certificates.
Two Portland Square
Portland, Maine 04101 If you purchase shares directly from the Fund, you will receive quarterly
statements and a confirmation of each transaction. You should verify the
TELEPHONE US accuracy of all transactions in your account as soon as you receive your
TOLL-FREE AT: confirmation.
(800) 448-0974
The Fund reserves the right to waive minimum investment amounts and may
WIRE INVESTMENTS temporarily suspend (during unusual market conditions) or discontinue any
(OR ACH PAYMENTS) TO: service or privilege.
Bankers Trust Company
New York, New York WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
ABA #021001033 the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
FOR CREDIT TO: except days when the New York Stock Exchange is closed. The time at which NAV is
Forum Shareholder calculated may be changed in case of an emergency. The Fund's NAV is determined
Services, LLC by taking the market value of all securities owned by the Fund (plus all other
Account # 01-465-547 assets such as cash), subtracting liabilities, and then dividing the result (net
Re: The Advocacy Fund assets) by the number of shares outstanding. The Fund values securities for
(Your Name) which market quotations are readily available at current market value. If market
(Your Account Number) quotations are not readily available, the Fund values securities at fair value
pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees charged by that institution may be
different than those of the Fund. Financial institutions may charge transaction
fees and may set different minimum investments or limitations on buying or
selling shares. These institutions also may provide you with certain shareholder
services such as periodic account statements and trade confirmations summarizing
your investment activity. Consult a representative of your financial institution
for more information.
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BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint, and Uniform Gift to Minors
Act ("UGMA") or Uniform Transfer to Minors Act ("UTMA") accounts, the check must
be made payable to "The Advocacy Fund" or to one or more owners of the account
and endorsed to "The Advocacy Fund." For all other accounts, the check must be
made payable on its face to "The Advocacy Fund." No other method of check
payment is acceptable (for instance, you may not pay by traveler's check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This service allows you to
purchase shares through an electronic transfer of money from a checking or
savings account. When you make a purchase by telephone, the Transfer Agent will
automatically debit your pre-designated bank account for the desired amount.
Your financial institution may charge you a fee for this service. You may call
(800) 448-0974 to request an ACH transaction.
WIRES Instruct your financial institution to make a Federal Funds wire payment
to us. Your financial institution may charge you a fee for this service.
MINIMUM INVESTMENTS The Fund accepts investments in the following minimum
amounts:
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MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
Standard Accounts $2,000 $250
Traditional and Roth IRA Accounts $2,000 $250
Accounts with Systematic Investment Plans $1,000 $100
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ACCOUNT REQUIREMENTS
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TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP, AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are required to sign exactly as their names appear
sole proprietorship accounts. Joint accounts have on the account
two or more owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money custodial account under the UGMA or the UTMA
to a child and obtain tax benefits o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution
form or similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document that identify
the trustees
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INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application o Fill out an investment slip from a
(and Corporate/Organization Resolution form, if confirmation or write us a letter
applicable) o Write your account number on your check
o Complete the application (and resolution o Mail us the slip (or your letter) and the
form) check
o Mail us your application (and resolution
form) and a check
BY WIRE BY WIRE
o Call or write us for an account application o Call to notify us of your incoming wire
(and Corporate/Organization Resolution form, if o Instruct your bank to wire your money to us
applicable)
o Complete the application (and resolution form)
o Call us to fax the completed application
(and resolution form) and we will assign you an
account number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application o Complete the systematic investment section of the
(and Corporate/Organization Resolution form, if application
applicable) o Attach a voided check to your application
o Complete the application (and resolution o Mail us the completed application and
form) voided check
o Call us to fax the completed application
(and resolution form) and we will assign you an
account number
o Mail us your original application (and
resolution form)
o Make an ACH payment
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SYSTEMATIC INVESTMENTS You may invest a specified amount of money in the Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Systematic investments must be for at least $100.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund within a calendar
year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or another identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase or exchange due to nonpayment.
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SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading, or during unusual market conditions. If
the Fund has not yet collected payment for the shares you are selling, it may
delay sending redemption proceeds for up to 15 calendar days.
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire requests are only available if your redemption is for $5,000 or more
and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us the completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
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SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
For requests made in writing, a signature guarantee is required for any of the
following:
o Sales of over $50,000 worth of shares
o Changes to a shareholder's record name
o Redemptions from an account for which the address or account registration
has changed within the last 30 days
o Sending redemption proceeds to any person, address, brokerage firm, or bank
account not on record
o Sending redemption proceeds to an account with a different registration
(name or ownership) from yours
o Changes to systematic investment or withdrawal, distribution, telephone
redemption or exchange option or any other election in connection with your
account
SMALL ACCOUNTS If the value of your account falls below $1,000 ($500 for IRAs or
accounts with an established automatic investment plan), the Fund may ask you to
increase your balance. If the account value is still below $1,000 ($500 for IRAs
or accounts with an established automatic investment plan) after 60 days, the
Fund may close your account and send you the proceeds. The Fund will not close
your account if it falls below these amounts solely as a result of a reduction
in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than cash. These redemptions "in kind" usually occur
if the amount to be redeemed is large enough to affect the Fund's operations
(for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
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EXCHANGE PRIVILEGES
You may exchange your Fund shares and buy shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that imposes a sales
charge, you will have to pay that fund's sales charge at the time exchange.
Because exchanges are a sale and purchase of shares, they may have tax
consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address, and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or telephone, unless you declined telephone redemption
privileges on your account application. You may be responsible for any
fraudulent telephone order as long as the Transfer Agent takes reasonable
measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are
requesting different shareholder privileges
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
RETIREMENT ACCOUNTS
The Fund offers IRA accounts, including traditional, and Roth IRAs. The Fund may
also be appropriate for other retirement plans. Before investing in any IRA or
other retirement plan, you should consult your tax adviser. Whenever making an
investment in an IRA, be sure to indicate the year for which the contribution is
made.
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<PAGE>
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income quarterly and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. The Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Fund will send you information about the income tax status of the Fund's
distributions paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state, local, and foreign tax matters, please see the SAI and consult
your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal and Delaware law. Shareholders
of each series of the Trust are entitled to vote at shareholders' meeting unless
a matter relates only to specific series (such as approval of an advisory
agreement for the Fund). From time to time, large shareholders may control the
Fund or the Trust.
FINANCIAL HIGHLIGHTS
Financial highlights are not provided because the Fund had not commenced
operations prior to the date of this Prospectus.
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<TABLE>
<S> <C>
FOR MORE INFORMATION [LOGO] TRILLIUM
ASSET MANAGEMENT
The following documents are available free upon request:
ANNUAL/SEMI ANNUAL REPORTS THE
Additional information about the Fund's investments will be contained in the ADVOCACY
Fund's annual and semi-annual reports to shareholders. In the Fund's annual FUND
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about the Fund and is incorporated
by reference into this Prospectus.
CONTACTING THE FUND
You can get free copies of both reports (when available) and the SAI, request
other information, and discuss your questions about the Fund by contacting the
Fund at:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 448-0974 (toll free)
The Advocacy Fund
SECURITIES AND EXCHANGE COMMISSION INFORMATION Two Portland Square
You can also review the Fund's reports and SAI at the Public Reference Room of Portland, Maine 04101
the Securities and Exchange Commission ("SEC"). The scheduled hours of operation (800) 448-0974
of the Public Reference Room may be obtained by calling the SEC at (202)
942-8090. You can get copies of this information, for a fee, by e-mail or by
writing to:
Public Reference Room
Securities and Exchange Commission Investment Adviser:
Washington, D.C. 20549-0102 Trillium Asset Management Corporation
E-mail address: public [email protected] 711 Atlantic Avenue
Boston, Massachusetts 02111
Free copies of the Fund's reports (when available) and SAI are also available (800) 548-5684
from the SEC's Internet Web Site at http://www.sec.gov.
</TABLE>
Investment Company Act File No. 811-3023
<PAGE>
[LOGO] TRILLIUM
ASSET MANAGEMENT
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 15, 2000
THE
ADVOCACY
FUND
FUND INFORMATION:
The Advocacy Fund
Two Portland Square
Portland, Maine 04101
(800) 448-0974
INVESTMENT ADVISER:
Trillium Asset Management Corporation
711 Atlantic Avenue
Boston, MA 02445
ACCOUNT INFORMATION AND
SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 448-0974
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated August 15, 2000, as may be amended from time to time, offering shares of
The Advocacy 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 shareholder services at the
address or telephone number listed above.
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TABLE OF CONTENTS
GLOSSARY 3
1. INVESTMENT POLICIES AND RISKS 4
A. Equity Securities 4
B. Security Ratings Information 5
C. Illiquid and Restricted Securities 6
D. Foreign Securities 6
E. Options and Futures 7
F. Borrowing 9
G. Core and Gateway(R) 9
H. Other Investments 9
2. INVESTMENT LIMITATIONS 10
A. Fundamental Limitations 10
B. Nonfundamental Limitations 11
3. PERFORMANCE DATA AND ADVERTISING 13
A. Performance Data 13
B. Performance Calculations 13
C. Other Matters 15
4. MANAGEMENT 17
A. Trustees and Officers 17
B. Compensation of Trustees and Officers 18
C. Investment Adviser 18
D. Distributor 19
E. Other Fund Service Providers 20
5. PORTFOLIO TRANSACTIONS 23
A. How Securities Are Purchased and Sold 23
B. Adviser Responsibility for Purchases and Sales 23
C. Securities of Regular Broker-Dealers 25
6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 26
A. General Information 26
B. Additional Purchase Information 26
C. Additional Redemption Information 27
D. NAV Determination 27
E. Distributions 27
7. TAXATION 28
A. Qualification as a Regulated Investment Company 28
B. Fund Distributions 29
C. Certain Tax Rules Applicable to the Fund's Transactions 29
D. Federal Excise Tax 30
E. Sale or Redemption of Shares 30
F. Withholding Tax 31
G. Foreign Shareholders 31
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8. OTHER MATTERS 32
A. The Trust and Its Shareholders 32
B. Fund Ownership 33
C. Limitations On Shareholders' and Trustees' Liability 33
D. Registration Statement 34
APPENDIX A DESCRIPTION OF SECURITIES RATINGS A-1
A. Corporate Bonds (Including Convertible Bonds) A-1
B. Preferred Stock A-3
C. Short Term Ratings A-5
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GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Trillium Asset Management Corporation.
"Board" means the Board of Trustees of the Trust.
"CFTC" means the U.S. Commodity Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of the Fund's assets.
"FAdS" means Forum Administrative Services, LLC, the administrator of
the Fund.
"Fitch" means Fitch IBCA, Inc.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of the
Fund.
"FFS" means Forum Fund Services, LLC, the distributor of the Fund's
shares.
"Fund" means The Advocacy 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.
"Transfer Agent" means Forum Shareholder Services, LLC, the transfer
agent of the Fund.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
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1. INVESTMENT POLICIES AND RISKS
The Fund is a diversified series of the Trust. The following discussion
supplements the disclosure in the Prospectus for the Fund's investment
techniques, strategies and risks.
A. EQUITY SECURITIES
1. COMMON AND PREFERRED STOCK
GENERAL. Common stock represents an equity (ownership) interest in a company,
and usually possesses voting rights and earns dividends. Dividends on common
stock are not fixed but are declared at the discretion of the issuer. Common
stock generally represents the riskiest investment in a company. In addition,
common stock generally has the greatest appreciation and depreciation potential
because increases and decreases in earnings are usually reflected in a company's
stock price.
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
RISKS. The fundamental risk of investing in common and preferred stock is the
risk that the value of the stock might decrease. Stock values fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
preferred stocks, fixed-income and money market investments. The market value of
all securities, including common and preferred stocks, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measures of a company's worth. If you invest in the Fund, you
should be willing to accept the risks of the stock market and should consider an
investment in the Fund only as a part of your overall investment portfolio.
2. CONVERTIBLE SECURITIES
GENERAL. Convertible securities include debt securities, preferred stock or
other securities that may be converted into or exchanged for a given amount of
common stock of the same or a different issuer during a specified period and at
a specified price in the future. A convertible security entitles the holder to
receive interest on debt or the dividend on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Convertible
securities rank senior to common stock in a company's capital structure but are
usually subordinated to comparable nonconvertible securities. Convertible
securities have unique investment characteristics in that they generally: (a)
have higher yields than common stocks, but lower yields than comparable
non-convertible securities; (b) are less subject to fluctuation in value than
the underlying stocks since they have fixed income characteristics; and (c)
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.
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3. WARRANTS
GENERAL. Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to purchase a given number of shares of
common stock at a specified price and time. The price usually represents a
premium over the applicable market value of the common stock at the time of the
warrant's issuance. Warrants have no voting rights with respect to the common
stock, receive no dividends and have no rights with respect to the assets of the
issuer.
RISKS. Investments in warrants involve certain risks, including the possible
lack of a liquid market for the resale of the warrants, potential price
fluctuations due to adverse market conditions or other factors and failure of
the price of the common stock to rise. If the warrant is not exercised within
the specified time period, it becomes worthless.
4. DEPOSITARY RECEIPTS
GENERAL. The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs typically are issued by a U.S. bank or trust company,
evidence ownership of underlying securities issued by a foreign company and are
designed for use in U.S. securities markets. The Fund may invest 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.
B. SECURITY RATINGS INFORMATION
The Fund's investments in preferred and fixed income securities are subject to
credit risk relating to the financial condition of the issuers of the securities
that the Fund holds. To limit credit risk, the Fund invests its assets in debt
securities that are considered investment grade. Investment grade means rated in
the top four long-term rating categories or top two short-term rating categories
by an NRSRO, or unrated and determined by the Adviser to be of comparable
quality.
The lowest long-term ratings that are investment grade for convertible bonds are
"Baa" in the case of Moody's and "BBB" in the case of S&P and Fitch; for
preferred stock are "Baa" in the case of Moody's and "BBB" in the case of S&P
and Fitch; and for short-term debt, including commercial paper, are "Prime-2"
(P-2) in the case of Moody's, "A-2" in the case of S&P and "F-2" in the case of
Fitch.
Unrated securities may not be as actively traded as rated securities. The Fund
may retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. The Fund may
use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by the Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by an
NRSRO may change as a result of changes in such organizations or their rating
systems, the Adviser will attempt to substitute comparable ratings. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluc-
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tuations in market value. Also, rating agencies may fail to make timely changes
in credit ratings. An issuer's current financial condition may be better or
worse than a rating indicates.
C. 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: (a)
repurchase agreements not entitling the holder to payment of principal within
seven days; (b) purchased over-the-counter options; (c) securities which are not
readily marketable; and (d) 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").
2. RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and the Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. The Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemption requests. There
can be no assurance that a liquid market will exist for any security at any
particular time. Any security, including securities determined by the Adviser to
be liquid, can become illiquid.
3. DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (a) the frequency of trades and quotations for the
security; (b) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (c) the willingness of dealers to
undertake to make a market in the security; and (d) 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.
D. FOREIGN SECURITIES
The Fund may invest in foreign securities. Investments in the securities of
foreign issuers may involve risks in addition to those normally associated with
investments in the securities of U.S. issuers. All foreign investments are
subject to risks of: (1) foreign political and economic instability; (2) adverse
movements in foreign exchange rates; (3) the imposition or tightening of
exchange controls or other limitations on repatriation of foreign capital; and
(4) changes in foreign governmental attitudes towards private investment,
including potential nationalization, increased taxation or confiscation of the
Fund's assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States and therefore, less information may be available
about foreign companies than is available about issuers of compa-
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rable U.S. companies. Foreign securities also may trade less frequently and with
lower volume and may exhibit greater price volatility than U.S. 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.
E. OPTIONS AND FUTURES
1. GENERAL
The Fund may purchase or sell (write) put and call options to: (a) enhance the
Fund's performance; or (b) to hedge against a decline in the value of securities
owned by the Fund or an increase in the price of securities that the Fund plans
to purchase. The Fund may purchase or write options on securities in which it
may invest or on market indices based in whole or in part on such securities.
Options purchased or written by the Fund must be traded on an exchange or
over-the-counter.
The Fund may invest in futures contracts on market indices based in whole or in
part on securities in which the Fund may invest. The Fund may also purchase or
write put and call options on these futures contracts. Options and futures are
considered to be derivatives. Use of these instruments is subject to regulation
by the SEC, the options and futures exchanges on which futures and options are
traded or by the CFTC. No assurance can be given that any hedging or option
income strategy will achieve its intended result.
Currently, the Fund has no intention of investing in options or futures for
purposes other than hedging. If the Fund will be financially exposed to another
party due to its investments in options or futures, the Fund will maintain
either: (a) an offsetting ("covered") position in the underlying security or an
offsetting option or futures contract; or (b) cash, receivables and liquid debt
securities with a value sufficient at all times to cover its potential
obligations. The Fund will comply with SEC guidelines with respect to coverage
of these strategies and, if the guidelines require, will set aside cash, liquid
debt securities and other permissible assets ("Segregated Assets") in a
segregated account with the Custodian in the prescribed amount. Segregated
Assets cannot be sold or closed out while the hedging strategy is outstanding,
unless the Segregated Assets are replaced with similar assets. As a result,
there is a possibility that the use of cover or segregation involving a large
percentage of the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
2. OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
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.
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OPTIONS ON STOCK INDICES. A stock index assigns relative values to the stock
included in the index, and the index fluctuates with changes in the market
values of the stocks included in the index. Stock index options operate in the
same way as the more traditional options on securities except that stock index
options are settled exclusively in cash and do not involve delivery of
securities. Thus, upon exercise of stock index options, the purchaser will
realize and the writer will pay an amount based on the differences between the
exercise price and the closing price of the stock index.
OPTIONS ON FUTURES. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
delivery of the futures position to the holder of the option will be accompanied
by transfer to the holder of an accumulated balance representing the amount by
which the market price of the futures contract exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash, an underlying security or a currency, as called for in the
contract, at a specified date and at an agreed upon price. A bond or stock index
futures contract involves the delivery of an amount of cash equal to a specified
dollar amount times the difference between the bond or stock index value at the
close of trading of the contract and at the price designated by the futures
contract. No physical delivery of the securities comprising the index is made.
Generally, these futures contracts are closed out prior to the expiration date
of the contracts.
3. LIMITATIONS ON OPTIONS AND FUTURES TRANSACTIONS
The Fund may not buy 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
option if the exercise value of all call options written by the Fund would
exceed the value of the Fund's assets. The Fund may not purchase any call or put
option on a futures contract 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 may enter into futures contracts only if the aggregate of initial
margin deposits for open futures contract positions does not exceed 5% of the
Fund's total assets. In addition, the current market value of open futures
positions held by the Fund may not exceed 50% of its total assets.
4. RISKS
There are certain investment risks associated with options and futures
transactions. These risks include: (a) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (b) 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; (c) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which
the Fund invests; and (d) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder the Fund's ability to limit exposures by closing its
positions. The potential loss to the Fund from investing in certain types of
futures transactions is unlimited.
Other risks include the inability of the Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices on related options
during a single trading day. The Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counter-party in an over-the-counter option transaction will be
able to perform its obligations. The Fund may use various futures contracts that
are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market in those
contracts will develop or continue to exist. The Fund's
8
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THE ADVOCACY FUND
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activities in the futures and options markets may result in higher portfolio
turnover rates and additional brokerage costs, which could reduce the Fund's
yield.
F. BORROWING
1. GENERAL
The Fund may borrow money from a bank in amounts up to 33 1/3 percent of the
Fund's total assets for, among other things, the purchase of securities. The
Fund will generally borrow money to increase its returns. Typically, if a
security purchased with borrowed funds increases in value, the Fund may sell the
security, repay the loan and secure a profit.
2. RISKS
The use of borrowing involves special risks, including magnified capital losses.
If the Fund buys securities with borrowed funds and the value of the securities
declines, the Fund may be required to provide the lender with additional funds
or liquidate its position in these securities to continue to secure or repay the
loan. The Fund may also be obligated to liquidate other portfolio positions at
an inappropriate time in order to pay off the loan or any interest payments
associated with the loan.
To the extent that the interest expense involved in a borrowing transaction
approaches the net return on the Fund's investment portfolio, the benefit of
borrowing will be reduced. If the interest expense due to a borrowing
transaction exceeds the net return on the Fund's investment portfolio, the
Fund's use of borrowing would result in a lower rate of return than if the Fund
did not borrow. The size of any loss incurred by the Fund due to borrowing will
depend on the amount borrowed. The greater the percentage borrowed, the greater
potential of gain or loss to the Fund.
G. 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 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.
H. OTHER INVESTMENTS
Although the Fund does not currently plan to invest in securities other than
those referenced in the Prospectus and this SAI, it may invest in a variety of
other investments.
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THE ADVOCACY FUND
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2. INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund and the Fund's investment objective cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. A nonfundamental
policy of the Fund may be changed by the Board without shareholder approval.
A. FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund.
1. ISSUANCE OF SENIOR SECURITIES
The Fund may not issue senior securities except pursuant to Section 18 of the
1940 Act.
2. BORROWING MONEY
The Fund may not borrow money if, as a result, outstanding borrowings would
exceed an amount equal to 33 1/3% of the Fund's total assets.
3. UNDERWRITING ACTIVITIES
The Fund may not underwrite securities issued by other persons except, to the
extent that in connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter.
4. CONCENTRATION
The Fund may not purchase a security if, as a result, more than 25% of the
Fund's total assets would be invested in securities of issuers conducting their
principal business activities in the same industry. For purposes of this
limitation, there is no limit on: (a) investments in U.S. Government Securities,
in repurchase agreements covering U.S. Government Securities, in tax-exempt
securities issued by the states, territories or possessions of the United States
("municipal securities") or in foreign government securities; or (b) investments
in issuers domiciled in a single jurisdiction. 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) or (F) 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.
5. PURCHASES AND SALES OF REAL ESTATE
The Fund may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities backed by real estate or securities of
companies engaged in the real estate business).
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THE ADVOCACY FUND
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6. PURCHASES AND SALES OF COMMODITIES
The Fund may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling options and futures contracts or
from investing in securities or other instruments backed by physical
commodities).
7. MAKING LOANS
The Fund may not make loans to other parties. For purposes of this limitation,
entering into repurchase agreements, lending securities and acquiring any debt
security are not deemed to be the making of loans.
8. DIVERSIFICATION
The Fund is "diversified" as that term is defined in the 1940 Act. The Fund may
not, with respect to 75% of its assets, purchase a security (other than a U.S.
Government Security or security of an investment company) if, as a result: (a)
more than 5% of the Fund's total assets would be invested in the securities of a
single issuer; or (b) the Fund would own more than 10% of the outstanding voting
securities of a single issuer.
B. NONFUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are not
fundamental policies of the Fund.
1. SHORT SALES
The Fund may not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
2. PURCHASES ON MARGIN
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.
3. ILLIQUID SECURITIES
The Fund may not invest more than 15% of its net assets in illiquid assets such
as: (a) securities that cannot be disposed of within seven days at their
then-current value; (b) repurchase agreements not entitling the holder to
payment of principal within seven days; and (c) securities subject to
restrictions on the sale of the securities to the public without registration
under the 1933 Act ("restricted securities") that are not readily marketable.
The Fund may treat certain restricted securities as liquid pursuant to
guidelines adopted by the Board.
4. BORROWING
The Fund may not purchase or otherwise acquire any security if, the total of
borrowings would exceed 5% of the value of its total assets.
5. OPTION CONTRACTS
The Fund may not invest in options contracts regulated by the CFTC except for:
(a) bona fide hedging purposes within the meaning of the rules of the CFTC; and
(b) 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.
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THE ADVOCACY FUND
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The Fund: (a) will not hedge more than 50% of its total assets by buying put
options, and writing call options (so called "short positions"); (b) will not
buy futures contracts or write put options whose underlying value exceeds 25% of
the Fund's total assets; and (c) will not buy call options with a value
exceeding 5% of the Fund's total assets.
6. EXERCISING CONTROL OF ISSUERS
The Fund may not make investments for the purpose of exercising control of an
issuer. Investments by the Fund in entities created under the laws of foreign
countries solely to facilitate investment in securities in that country will not
be deemed the making of investments for the purpose of exercising control.
7. SECURITIES OF INVESTMENT COMPANIES
The Fund may not invest in the securities of any investment company except to
the extent permitted by the 1940 Act.
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THE ADVOCACY FUND
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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., 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) Index,
the Russell 2500(R) Index, the Morgan Stanley - Europe, Australian and
Far East Index, the Dow Jones Industrial Average, the Salomon Brothers
Bond Index, the Shearson Lehman Bond Index, U.S. Treasury bonds, bills
or notes and changes in the Consumer Price Index as published by the
U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph or
similar illustration.
Indices are not used in the management of the Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
The Fund may refer to: (1) general market performances over past time periods
such as those published by Ibbotson Associates (for instance, its "Stocks,
Bonds, Bills and Inflation Yearbook"); (2) mutual fund performance rankings and
other data published by Fund Tracking Companies; and (3) material and
comparative mutual fund data and ratings reported in independent periodicals,
such as newspapers and financial magazines.
The Fund's performance will fluctuate in response to market conditions and other
factors.
B. PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return.
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.
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THE ADVOCACY FUND
--------------------------------------------------------------------------------
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. The Fund
does not charge a sales charge.
Yield is calculated according to the following formula:
a - b
Yield = 2[(------ + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the
period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the
last day of the period
2. TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price and assuming all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in the Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges. The Fund
does not charge a sales charge.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
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 total returns are a
convenient means of comparing investment alternatives, investors should realize
that performance is not constant over time but changes from year to year, and
that average annual total returns represent averaged figures as opposed to the
actual year-to-year performance of the Fund.
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THE ADVOCACY FUND
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Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual total returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns, which
reflect the Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period.
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
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
15
<PAGE>
THE ADVOCACY FUND
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the Fund as of one or more dates; and (10) a comparison of the Fund's operations
to the operations of other funds or similar investment products, such as a
comparison of the nature and scope of regulation of the products and the
products' weighted average maturity, liquidity, investment policies and the
manner of calculating and reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 at the end
of the second year (an increase in $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
The Fund may advertise information regarding the effects of automatic investment
and systematic withdrawal plans, including the principle of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in the Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in the Fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
<TABLE>
<S> <C> <C> <C>
PERIOD SYSTEMATIC INVESTMENT SHARE PRICE SHARES PURCHASED
............ ................................. .................................. ..................................
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
............ ................................. .................................. ..................................
Total Invested $600 Average Price $15.17 Total Shares 41.81
</TABLE>
In connection with its advertisements, the Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service provider's policies
or business practices.
The Adviser's social mission is symbolized by a trillium. The trillium, a member
of the lily family, is a three-petaled flower that grows best in rich, shady
undisturbed forest. All its parts, from sepals to leaves, grow in groups of
three. A trillium takes four to seven years to evolve from seed to flower. The
trillium symbolizes the weaving together of the three elements of
sustainability: Ecology (or a healthy environment); Equity (or social justice);
and Economy (or healthy commerce). The Adviser is a majority employee and
women-owned firm guided by the belief that investing can return a profit to the
investor, while also promoting social and economic justice.
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THE ADVOCACY FUND
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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. The Trustee who is an "interested person" (as defined
by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C> <C>
NAME, ADDRESS AND POSITION(S) WITH THE PRINCIPAL OCCUPATION(S)
DATE OF BIRTH TRUST DURING PAST 5 YEARS
............................... ...................... ...............................................................
John Y. Keffer* Chairman and President, Forum Financial Group, LLC (a mutual fund services
Born: July 15, 1942 President holding company)
Two Portland Square President, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Trustee and/or 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 Trustee, Core Trust (Delaware)
Department of Economics
University of California
Los Angeles, CA 90024
............................... ...................... ...............................................................
James C. Cheng Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in
27 Temple Street New England)
Belmont, MA 02718 Trustee, Core Trust (Delaware)
............................... ...................... ...............................................................
J. Michael Parish Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Trustee, Core Trust (Delaware)
40 West 57th Street
New York, NY 10019
............................... ...................... ...............................................................
Thomas G. Sheehan Vice President Managing Director and Counsel, Forum Financial Group, LLC
Two Portland Square since 1993
Portland, Maine 04101 Special Counsel, Division of Investment Management, SEC
Born: October 1943 Officer of two other investment companies for which Forum
Financial Group, LLC provides services
............................... ...................... ...............................................................
David I. Goldstein Vice President General Counsel, Forum Financial Group LLC
Born: August 3, 1961 Secretary, Forum Fund Services, LLC (Trust's underwriter)
Two Portland Square Officer of two other investment companies for which Forum
Portland, ME 04101 Financial Group, LLC provides services
............................... ...................... ...............................................................
Ronald H. Hirsch Treasurer Managing Director, Operations/Finance and Operations/Sales,
Born: October 14, 1943 Forum Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991-1998
Portland, Me 04101 Officer of six other investment companies for which Forum
Financial Group, LLC provides services
............................... ...................... ...............................................................
Dawn Taylor Asst. Treasurer Manager/Senior Tax Specialist, Tax Department, Forum
Born: May 14, 1964 Financial Group, LLC since 1997
Two Portland Square Senior Tax Accountant, Purdy, Bingham & Burrell during 1997
Portland, ME 04101 Senior Tax Specialist, Forum Financial Group, LLC frrom 1994
to 1997
Officer of two other investment companies for which Forum
Financial Group, LLC provides services
............................... ...................... ...............................................................
Leslie K. Klenk Secretary Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Vice President/Associate General Counsel, Smith Barney Inc.
Two Portland Square (brokerage firm) from 1993 through 1998
Portland, ME 04101
<PAGE>
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THE ADVOCACY FUND
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Portland, ME 04101 Officer of one other investment company for which Forum
Financial Group, LLC provides services
</TABLE>
B. COMPENSATION OF TRUSTEES AND OFFICERS
Each Trustee of the Trust (other than John Y. Keffer, who is an interested
person of the Trust) is paid $1,000 for each Board meeting attended (whether in
person or by electronic communication) and $1,000 for each audit committee
meeting attended on a date when a Board meeting is not held. In addition to the
$1,000 for each Board meeting attended, each Trustee is paid $100 per active
portfolio of the Trust. To the extent a meeting relates to only certain
portfolios of the Trust, Trustees are paid the $100 fee only with respect to
those portfolios. Trustees are also reimbursed for travel and related expenses
incurred in attending meetings of the Board.
Trustees that are affiliated with the Adviser receive no compensation for their
services or reimbursement for their associated expenses. No officer of the Trust
is compensated by the Trust.
The following table sets forth estimated fees to be paid to each Trustee by the
Fund and the Fund Complex that includes series of the Trust and an affiliated
investment company for which Forum Financial Group provides services for the
fiscal year ended June 30, 2000.
<TABLE>
<S> <C> <C> <C> <C>
TOTAL COMPENSATION
FROM TRUST AND FUND
COMPENSATION FROM COMPLEX
TRUSTEE FUND BENEFITS RETIREMENT
John Y. Keffer $0 $0 $0 $0
......................... ...................... ...................... ...................... ......................
Costas Azariadis $820 $0 $0 $54,000
......................... ...................... ...................... ...................... ......................
James C. Cheng $820 $0 $0 $54,000
......................... ...................... ...................... ...................... ......................
J. Michael Parish $820 $0 $0 $54,000
</TABLE>
C. INVESTMENT ADVISER
1. SERVICES OF ADVISER
The Adviser serves as investment adviser to the Fund pursuant to an investment
advisory agreement with the Trust. Under that agreement, the Adviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing the Fund's investments and effecting portfolio
transactions for the Fund.
2. OWNERSHIP OF ADVISER
The Adviser, Trillium Asset Management Corporation, is a registered investment
advisor, originally founded in 1982 under the name Franklin Research &
Development. The name changed to Trillium Asset Management Corporation in April,
1999. Trillium Asset Management Corporation is headquartered in Boston,
Massachusetts.
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.
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THE ADVOCACY FUND
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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 Adviser's agreement must be
approved at least annually by the Board or by majority vote of the shareholders,
and in either case by a majority of the Trustees who are not parties to the
agreement or interested persons of any such party.
The Adviser's agreement is terminable without penalty by the Trust regarding the
Fund on 60 days' written notice when authorized either by vote of the Fund's
shareholders or by a majority vote of the Board, or by the Adviser on 60 days'
written notice to the Trust. The Agreement terminates immediately upon
assignment.
Under its agreement, the Adviser is not liable for any error of judgment,
mistake of law, or in any event whatsoever except for willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement.
D. DISTRIBUTOR
1. DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of the
Fund, is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS and the Transfer Agent are each controlled indirectly by Forum
Financial Group, LLC, which is controlled by John Y. Keffer.
Under its agreement with the Trust, FFS acts as the agent of the Trust in
connection with the offering of shares of the Fund. FFS continually distributes
shares of the Fund on a best efforts basis. FFS has no obligation to sell any
specific quantity of Fund shares.
FFS receives no compensation for its distribution services. Shares are sold with
no sales commission; accordingly, FFS receives no sales commissions. FFS may
enter into arrangements with various financial institutions through which you
may purchase or redeem shares of the Fund. 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.
2. OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
FFS's distribution agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party.
FFS's agreement is terminable without penalty by the Trust with respect to the
Fund on 60 days' written notice when authorized either by vote of the Fund's
shareholders or by a majority vote of the Board, or by FFS on 60 days' written
notice to the Trust.
Under its agreement, FFS is not liable to the Trust or the Trust's shareholders
for any error of judgment or mistake of law, for any loss arising out of any
investment or for any act or omission in the performance of its duties to the
Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under the agreement.
Under its agreement, FFS and certain related parties (such as FFS's officers and
persons that control FFS) are indemnified by the Trust against all claims and
expenses in any way related to alleged untrue statements of material fact
contained in the Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
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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.
The Fund has a distribution plan adopted under SEC Rule 12b-1 that allows the
Fund to pay distribution fees for the distribution and sale of its shares. These
fees are charged at an annual rate of 0.25 % of the average daily net assets of
the Fund's shares. Because these fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges. Each applicable
service provider is reimbursed for the expenses it incurs. The service provider
may incur expenses for any distribution-related purpose it deems necessary or
appropriate, including the following principal activities: (a) compensation to
employees and expenses, including overhead, travel and telephone and other
communication expenses, of the service provider; (b) the incremental costs of
printing and distributing prospectuses, statements of additional information,
annual reports and other periodic reports for use in connection with the
offering for sale of Fund shares to any prospective investors; and (c)
preparing, printing and distributing sales literature and advertising materials
used in connection with the offering of Fund shares for sale to the public.
E. OTHER FUND SERVICE PROVIDERS
1. ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust, FAdS is responsible
for the supervision of the overall management of the Trust, providing the Trust
with general office facilities and providing persons satisfactory to the Board
to serve as officers of the Trust.
For its services, FAdS receives a fee from the Fund at an annual rate as
follows: (a) $24,000 per year; and (b) 0.05% of the average daily net assets of
the Fund for the first $1 billion of Fund assets. The fee is accrued daily by
the Fund and is paid monthly based on average net assets for the previous month.
FAdS's administration agreement must be approved at least annually by the Board
or by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. FAdS's agreement is terminable without penalty by the Trust or by FAdS
with respect to the Fund on 60 days' written notice.
Under the agreement, FAdS is not liable to the Trust or the Trust's shareholders
for any act or omission, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement. Under the agreement, FAdS and
certain related parties (such as FAdS's officers and persons who control FAdS)
are indemnified by the Trust against any and all claims and expenses related to
FAdS's actions or omissions that are consistent with FAdS's contractual standard
of care.
2. FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust, FAcS provides fund
accounting services to the Fund. These services include calculating the NAV of
the Fund (and class) and preparing the Fund's financial statements and tax
returns.
For its services, FAcS receives a fee from the Fund at an annual rate as follows
: (a) $36,000 per year; (b) 0.02% of the average daily net assets of the Fund
for the first $100 million of Fund assets; (c) 0.005% of the average daily net
assets of the Fund in excess of $100 million; and (d) certain surcharges based
upon the number of portfolio positions. The fee is accrued daily by the Fund and
is paid monthly based on the positions for the previous month.
FAcS's accounting agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. FAcS's agreement is terminable without penalty by the Trust or by FAcS
with respect to the Fund on 60 days' written notice.
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Under the agreement, FAcS is not liable for any action or omission in the
performance of its duties to the Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the agreement, FAcS and certain related
parties (such as FAcS's officers and persons who control FAcS) are indemnified
by the Trust against any and all claims and expenses related to FAcS's actions
or omissions that are consistent with FAcS's contractual standard of care.
Under the agreement, in calculating the Fund's NAV per share, FAcS is deemed not
to have committed an error if the NAV per share it calculates is within 1/10 of
1% of the actual NAV per share (after recalculation). The agreement also
provides that FAcS will not be liable to a shareholder for any loss incurred due
to an NAV difference if such difference is less than or equal to 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.
3. TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Trust, 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 a fee from the Fund at an annual rate of $24,000
and $24 per shareholder account. The fee is accrued daily by the Fund and is
paid monthly.
The Transfer Agent agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party. The Transfer Agent's agreement is terminable without penalty by the Trust
or by the Transfer Agent with respect to the Fund on 60 days' written notice.
Under the agreement, 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
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.
4. CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust, LLC
safeguards and controls the Fund's cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of the Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101. The Custodian has hired
Deutsche Bank, 130 Liberty Street, New York, New York, 10006, to serve as
sub-custodian for the Fund.
For its services, the Custodian receives a fee from the Fund at an annual rate
as follows: (a) $3,600 per year; and (b) 0.01% for the first $1 billion in Fund
assets; 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
Legal matters in connection with the issuance of shares of the Trust are passed
upon by Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005.
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6. INDEPENDENT AUDITORS
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts, 02110,
independent auditors, have been selected as independent 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 Funds and the Fund's tax returns.
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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. ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with brokers
and dealers selected by and in the discretion of the Adviser. The Fund has no
obligation to deal with a specific broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers and
the frequency of transactions are determined by the Adviser in its best judgment
and in a manner deemed to be in the best interest of the Fund rather than by any
formula.
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for the Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
1. CHOOSING BROKER-DEALERS
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser takes into account
factors such as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the research services described below)
and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (a)
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (b) 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
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research is designed to augment the Adviser's own internal research and
investment strategy capabilities. This research may be used by the Adviser in
connection with services to clients other than the Fund, and not all research
services may be used by the Adviser in connection with the Fund. The Adviser's
fees are not reduced by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts, although a particular client may not benefit from all the
research received on each occasion. The nature of the services obtained for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser may effect a transaction through a broker and pay a
slightly higher commission than another might charge. If this is done it will be
because of the Adviser's need for specific research, for specific expertise a
firm may have in a particular type of transaction (due to factors such as size
or difficulty), or for speed/efficiency in execution. Since most of the
Adviser's brokerage commissions for research are for economic research on
specific companies or industries, and since the Adviser follows a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
There are occasions on which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to any one or more
particular accounts, they will be effected only when the Adviser believes that
to do so will be in the best interest of the affected accounts. When such
concurrent authorizations occur, the objective will be to allocate the execution
in a manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
3. COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to the Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
4. TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect transactions through affiliates of the Adviser (or
affiliates of those persons) pursuant to procedures adopted by the Trust.
5. OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. It also sometimes happens that two or
more clients simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as is possible, averaged
as to price and allocated between such clients in a manner which, in the
Adviser's opinion, is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
a portfolio security for one client could have an adverse effect on another
client that has a position in that security. In addition, when purchases or
sales of the same security for the Fund and other client accounts managed by the
Adviser occur contemporaneously, the purchase or sale orders may be aggregated
in order to obtain any price advantages available to large denomination
purchases or sales.
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6. PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time
the Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. Higher
portfolio turnover rates may result in increased brokerage costs to the Fund and
a possible increase in short-term capital gains or losses.
C. SECURITIES OF REGULAR BROKER-DEALERS
From time to time the Fund may acquire and hold securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers. For
this purpose, regular brokers and dealers means the 10 brokers or dealers that:
(1) received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the Fund's last fiscal year.
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6. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A. GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at the Transfer Agent's offices located at Two Portland Square, Portland,
Maine 04101.
The Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
B. ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at net
asset value per share ("NAV") without any sales charge. Accordingly, the
offering price per share is the same as the NAV.
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.
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.
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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: (a) 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; (b) 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 (c) 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,
you may incur brokerage costs in converting the securities to cash. The Trust
has filed an election with the SEC pursuant to which the Fund may only effect a
redemption in portfolio securities if the particular shareholder is redeeming
more than $250,000 or 1% of the Fund's total net assets, whichever is less,
during any 90-day period.
D. NAV DETERMINATION
In determining the Fund's NAV, 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 (unless you elect to receive distributions in cash) as of the last day of
the period with respect to which the distribution is paid. Distributions of
capital gain will be reinvested at the Fund's NAV per share (unless you elect to
receive distributions in cash) on the payment date for the distribution. Cash
payments may be made more than seven days following the date on which
distributions would otherwise be reinvested.
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7. TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Funds or the tax implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Funds and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
A. QUALIFICATION AS A REGULATED INVESTMENT COMPANY
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 June 30 (the same as the Fund's fiscal year
end).
1. MEANING OF QUALIFICATION
As a regulated investment company, the Fund will not be subject to federal
income tax on the portion of its investment company taxable income (that is,
taxable interest, dividends, net short-term capital gains and other taxable
ordinary income, net of expenses) and net capital gain (that is, the excess of
net long-term capital gains over net short-term capital losses) that it
distributes to shareholders. In order to qualify to be taxed as a regulated
investment company the Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income for the tax year. (Certain distributions made by the
Fund after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of the quarter of the Fund's tax year: (a) 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 (b)
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
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and accumulated earnings and profits. A portion of these distributions generally
may be eligible for the dividends-received deduction in the case of corporate
shareholders.
Failure to qualify as a regulated investment company would thus have a negative
impact on the Fund's income and performance. It is possible that the Fund will
not qualify as a regulated investment company in any given tax year.
B. FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you as
ordinary income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
The Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions do not qualify for the dividends-received deduction.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by the Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares 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.
Ordinarily, you are required to take distributions by the Fund into account in
the year in which they are made. A distribution declared in October, November or
December of any year and payable to shareholders of record on a specified date
in those months, however, is deemed to be received by you (and made by the Fund)
on December 31 of that calendar year if the distribution is actually paid in
January of the following year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
C. CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gain 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
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in the case of a call) of the underlying security is decreased (increased in the
case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Fund at the end of each tax year
are "marked to market" and treated for federal income tax purposes as though
sold for fair market value on the last business day of the tax year. Gains or
losses realized by the Fund on Section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses. The Fund can elect to
exempt its Section 1256 contracts that are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract or other position entered into or held by the Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle." In general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains 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 if
all of the offsetting positions consist of Section 1256 contracts.
D. FEDERAL EXCISE TAX
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to: (1) 98% of its
ordinary taxable income for the calendar year; and (2) 98% of its capital gain
net income for the one-year period ended on October 31 of the calendar year. The
balance of the Fund's income must be distributed during the next calendar year.
The Fund will be treated as having distributed any amount on which it is subject
to income tax for any tax year.
For purposes of calculating the excise tax, the Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year in determining the amount of
ordinary taxable income for the current calendar year. The Fund will include
foreign currency gains and losses incurred after October 31 in determining
ordinary taxable income for the succeeding calendar year.
The Fund intends to make sufficient distributions of its ordinary taxable income
and capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Fund may
in certain circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
E. SALE OR REDEMPTION OF SHARES
In general, you will recognize gain or loss on the sale or redemption of shares
of the Fund in an amount equal to the difference between the proceeds of the
sale or redemption and your adjusted tax basis in the shares. All or a portion
of any loss so recognized may be disallowed if you purchase (for example, by
reinvesting dividends) other shares of the Fund within 30 days before or after
the sale or redemption (a so called "wash sale"). If disallowed, the loss will
be reflected in an upward adjustment to the basis of the shares purchased. In
general, any gain or loss arising from the sale or redemption of shares of the
Fund will be considered capital gain or loss and will be long-term capital gain
or loss if the shares were held for longer than one year. Any capital loss
arising from the sale or redemption of
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shares held for six months or less, however, is treated as a long-term capital
loss to the extent of the amount of capital gain distributions received on such
shares. In determining the holding period of such shares for this purpose, any
period during which your risk of loss is offset by means of options, short sales
or similar transactions is not counted. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
F. WITHHOLDING TAX
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide its correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient." Backup
withholding is not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
G. FOREIGN SHAREHOLDERS
Taxation of a shareholder who under the Code is a nonresident alien individual,
foreign trust or estate, foreign corporation or foreign partnership ("foreign
shareholder"), depends on whether the income from the Fund is "effectively
connected" with a U.S. trade or business carried on by the foreign shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(and short-term capital gains) paid to a foreign shareholder will be subject to
U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) upon
the gross amount of the distribution. The foreign shareholder generally would be
exempt from U.S. federal income tax on gain realized on the sale of shares of
the Fund and distributions of net capital gain from the Fund.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income
distributions, capital gain distributions, and any gain realized upon the sale
of shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the U.S. federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in the Fund.
H. STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from the Fund can differ from the U.S. federal
income taxation rules described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in the
Fund.
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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:
Investors Bond Fund Payson Value Fund
TaxSaver Bond Fund Payson Balanced Fund
Investors High Grade Bond Fund Mastrapasqua Growth Value Fund
Maine TaxSaver Bond Fund Austin Global Equity Fund
New Hampshire TaxSaver Bond Fund Polaris Global Value Fund
Daily Assets Government Fund(1) Investors Equity Fund
Daily Assets Treasury Obligations Fund(1) Equity Index Fund
Daily Assets Cash Fund(1) Investors Growth Fund
Daily Assets Government Obligations Fund(1) The Advocacy Fund
Daily Assets Municipal Fund(1) BIA Growth Equity Fund
BIA Small-Cap Growth Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust and the Fund will continue indefinitely until terminated.
The Trust, the Adviser and FFS have adopted codes of ethics under Rule 17j-1 of
the 1940 Act which are designed to eliminate conflicts of interest between the
Fund and personnel of the Fund, the Adviser and FFS. The codes permit such
personnel to invest in securities, including securities that may be purchased or
held by the Fund.
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 the Transfer Agent.
3. SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency, shareholder service and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted separately by individual series except if: (1) the 1940 Act
requires shares to be voted in the aggregate and not by individual series; and
(2) when the Trustees determine that the matter affects
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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 termination of these series occurred after
May 1, 1999 may be terminated by the trustees without shareholder vote. 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, including the Fund, 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 August 15, 2000, the officers and trustees of the Trust as a group owned
less than 1% of the shares of the Fund.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of September 1, 2000, and
prior to the public offering of the Fund, Forum Financial Group, LLC or its
affiliates, beneficially owned 100% of and may be deemed to control the Fund.
"Control" for this purpose is the ownership of 25% or more of the Fund's voting
securities. It is not expected that Forum Financial Group, LLC will continue to
control the Fund after its public offering.
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. The Trust believes that the securities regulators of
some states, however, have indicated that they and the courts in their states
may decline to apply Delaware law on this point. The Trust's Trust Instrument
(the document that governs the operation of the Trust) contains an express
disclaimer of shareholder liability for the debts, liabilities, obligations and
expenses of the Trust. The Trust's Trust Instrument provides for indemnification
out of each series' property of any shareholder or former shareholder held
personally liable for the obligations of the series. The Trust Instrument also
provides that each series shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the series and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability was in
effect, and the portfolio is unable to meet its obligations. FAdS believes that,
in view of the above, there is no risk of personal liability to shareholders.
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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.
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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.
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2. STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
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3. FITCH IBCA, DUFF & PHELPS
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
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.
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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.
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.
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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.
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.
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A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
3. FITCH IBCA, INC.
F1 Obligations assigned this rating have the highest capacity for timely
repayment under Fitch IBCA's national rating scale for that country,
relative to other obligations in the same country. This rating is
automatically assigned to all obligations issued or guaranteed by the
sovereign state. Where issues possess a particularly strong credit
feature, a "+" is added to the assigned rating.
F2 Obligations supported by a strong capacity for timely repayment
relative to other obligors in the same country. However, the relative
degree of risk is slightly higher than for issues classified as `A1'
and capacity for timely repayment may be susceptible to adverse change
sin business, economic, or financial conditions.
F3 Obligations supported by an adequate capacity for timely repayment
relative to other obligors in the same country. Such capacity is more
susceptible to adverse changes in business, economic, or financial
conditions than for obligations in higher categories.
B Obligations for which the capacity for timely repayment is uncertain
relative to other obligors in the same country. The capacity for timely
repayment is susceptible to adverse changes in business, economic, or
financial conditions.
C Obligations for which there is a high risk of default to other obligors
in the same country or which are in default.
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