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PROSPECTUS
October 1, 2000
BROWNIA SMALL-CAP GROWTH FUND
BROWNIA GROWTH EQUITY FUND
Each Fund seeks capital appreciation by investing
primarily in common stock. You may purchase Fund
shares without a sales charge and the Funds
do not incur Rule 12b-1 (distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED EITHER FUND'S SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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[LOGO] TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
FEE TABLES 5
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS 7
MANAGEMENT 12
YOUR ACCOUNT 15
HOW TO CONTACT THE FUNDS 15
GENERAL INFORMATION 15
BUYING SHARES 16
SELLING SHARES 20
EXCHANGE PRIVILEGES 22
RETIREMENT ACCOUNTS 23
OTHER INFORMATION 24
FINANCIAL HIGHLIGHTS 26
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RISK/RETURN SUMMARY [LOGO]
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CONCEPTS TO UNDERSTAND BROWNIA SMALL-CAP GROWTH FUND
COMMON STOCK INVESTMENT OBJECTIVE Capital Appreciation
means an equity or ownership
interest in a company PRINCIPAL INVESTMENT STRATEGY
MARKET CAPITALIZATION The Fund invests primarily in the common stock of small domestic growth
means the value of a companies. Growth companies are companies that have exhibited an above
company's common stock in average increase in earnings over the past few years and that have strong,
the stock market sustainable earnings prospects and attractive stock prices. The Fund
primarily invests in small companies whose market capitalization is less
than $1.5 billion at the time of investment.
BROWNIA GROWTH EQUITY FUND
INVESTMENT OBJECTIVE Capital Appreciation
PRINCIPAL INVESTMENT STRATEGY
The Fund invests primarily in the common stock of large domestic companies
that have exhibited an above average increase in earnings over the past few
years and that have strong, sustainable earnings prospects and attractive
stock prices. The Fund may also invest in companies that do not have
particularly strong earnings histories but do have other attributes that
may contribute to accelerated growth in the foreseeable future. The Fund
primarily invests in large companies whose market capitalization is $2.5
billion or greater at the time of investment.
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PRINCIPAL RISKS OF INVESTING IN THE FUNDS
GENERAL RISKS You could lose money on your investment in a Fund, or the Fund
could under perform other investments, if any of the following occur:
o The stock market does not recognize the growth potential of the stocks
in the Fund's portfolio
o Brown Investment Advisory & Trust Company's (the "Adviser") judgment
as to the growth potential of a stock proves to be wrong
o The stock market goes down
SPECIFIC RISKS OF SMALL COMPANIES Because investing in small companies can have
more risk than investing in larger, more established companies, an investment in
BrownIA Small-Cap Growth Fund may have the following additional risks:
o Analysts and other investors typically follow these companies less
actively and therefore information about these companies is not always
readily available
o Securities of many small companies are traded in the over-the-counter
markets or on a regional securities exchange potentially making them
thinly traded, less liquid and their prices more volatile than the
prices of the securities of larger companies
o Changes in the value of small company stocks may not mirror the
fluctuation of the general market
o More limited product lines, markets and financial resources make these
companies more susceptible to economic or market setbacks
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For these and other reasons, the prices of small capitalization securities can
fluctuate more significantly than the securities of larger companies. The
smaller the company, the greater effect these risks may have on that company's
operations and performance. As a result, an investment in BrownIA Small-Cap
Growth Fund may exhibit a higher degree of volatility than the general domestic
securities market.
WHO MAY WANT TO INVEST IN THE FUNDS
A Fund may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of your
investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk
A Fund may not be appropriate for you if you:
o Want an investment that pursues market trends or focuses only on
particular sectors or industries
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
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[LOGO] FEE TABLES
The following tables describe the various fees and expenses that you will bear
if you invest in a Fund.
Shareholder fees are charges you pay when buying, selling or exchanging shares
of a Fund. Operating expenses, which include fees of the Adviser, are paid out
of a Fund's assets and are factored into the Fund's share price rather than
charged directly to shareholder accounts.
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)
BROWNIA SMALL-CAP GROWTH FUND
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses (1) 0.35%
TOTAL ANNUAL FUND OPERATING EXPENSES (2) 1.35%
BROWNIA GROWTH EQUITY FUND
Management Fees 0.75%
Distribution (12b-1) Fees None
Other Expenses (1) 0.80%
TOTAL ANNUAL FUND OPERATING EXPENSES (2) 1.55%
(1) Based on amounts for the fiscal year ended May 31, 2000.
(2) The Adviser has voluntarily undertaken to waive a portion of its fees and
assume certain expenses to the extent that total annual fund expenses
exceed 1.25% of the net assets of BrownIA Small-Cap Growth Fund and 1.00%
of the net assets of BrownIA Growth Equity Fund. Fee waivers may be reduced
or eliminated at any time.
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EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in each Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in a Fund and 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 a Fund's operating expenses remain the same as
stated in the table above and that distributions are reinvested. Although your
actual costs may be higher or lower, under these assumptions your costs would
be:
BROWNIA SMALL-CAP BROWNIA GROWTH
GROWTH FUND EQUITY FUND
1 Year $138 $158
3 Years $428 $489
5 Years $739 $844
10 Years $1,624 $1,844
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INVESTMENT OBJECTIVES,
[LOGO] PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS
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INVESTMENT OBJECTIVES CONCEPTS TO UNDERSTAND
BROWNIA SMALL-CAP GROWTH FUND seeks to achieve capital appreciation by FUNDAMENTAL ANALYSIS
primarily investing in equity securities. means the analysis of a
company's financial
BROWNIA GROWTH EQUITY FUND seeks to achieve capital appreciation by condition to help forecast
primarily investing in equity securities. the future value of its
stock price. This analysis
INVESTMENT STRATEGIES includes a review of a
company's balance sheet
The Adviser relies on selecting individual stocks and does not try to and income statement,
predict when the stock market might rise or fall. The Adviser uses in-house asset history, earnings
research and other sources to conduct analyses of prospective Fund history, product or service
investments. As part of this analysis, the Adviser may visit prospective development and management
companies, their suppliers and customers. productivity.
THE ADVISER'S PROCESSES -- PURCHASING PORTFOLIO
SECURITIES
BROWNIA SMALL-CAP GROWTH FUND The Adviser starts by identifying a universe
of small companies. From these companies, the Adviser selects those with
the potential to grow earnings 20% or more annually and a market
capitalization of less than $1.5 billion. The Adviser then performs a
fundamental analysis of these companies. The Adviser uses the data to
identify companies that have:
o Significant business opportunities relative to their operating
history and size
o Proprietary products, services or distribution systems
o Management with a plan we can understand and monitor
o Attractively priced stocks compared to their growth potential
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The Adviser plans to invest in these companies early in their life cycle
CONCEPTS TO UNDERSTAND and to hold the investments for the long-term if they continue to satisfy
the Fund's investment criteria.
PRICE/EARNINGS RATIO
means the price of a BROWNIA GROWTH EQUITY FUND The Adviser starts by using in-house research
stock divided by the and other sources to identify a universe of superior companies across a
company's earnings per range of industries. Superior companies are businesses that have:
share. o Significant market opportunities (both in terms of magnitude and
duration) where the companies are leaders or potential leaders in
PRICE/SALES RATIO their respective markets
means the amountan o Proprietary products and services, new product development and
investor is willing to product cycle leadership that sustains a strong brand franchise
pay for a dollar of o A strong management team that is proactive, consistently executes
revenue. effectively and anticipates and adapts to change
PRICE/CASH FLOW RATIO The Adviser then focuses on those companies that have the ability to grow
means the price of a at above average rates over several years, given the Adviser's belief that
stock divided by free superior investment returns are better achieved by low portfolio turnover.
cash flow per share.] 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 changes in regulation, management,
business cycle, business mix and industry consolidation
The Adviser then uses a range of valuation techniques including analyses of
price/earnings ratios, price/sales ratios and price/cash flow ratios to
identify those companies whose stocks are attractively valued relative to
the market, their peer groups and their own price history. Valuation
techniques also permit the Adviser to mitigate the potential
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downside risk of an investment candidate by demonstrating the difference in the
estimated value of a company's stock compared to its market price.
THE ADVISER'S PROCESSES -- SELLING PORTFOLIO SECURITIES
The Adviser monitors the companies in a Fund's portfolio to determine if there
have been any fundamental changes in the companies. The Adviser may sell a stock
if:
o It subsequently fails to meet the Adviser's initial investment
criteria
o A more attractively priced company is found or if funds are needed for
other purposes
o It becomes overvalued relative to the long-term expectation for the
stock price
INVESTMENT POLICIES
Under normal conditions, BrownIA Small-Cap Growth Fund will invest at least 65%
of its total assets in common stock of small domestic companies and BrownIA
Growth Equity Fund will invest at least 65% of its total assets in common stock
of larger domestic companies. Although common stock often gives the owner the
right to vote on measures affecting the company's organization and operations,
neither Fund intends to exercise control over the management of companies in
which it invests. Common stocks have a history of long-term growth in value, but
their prices tend to fluctuate over the shorter term.
TEMPORARY DEFENSIVE POSITION In order to respond to adverse market, economic,
political or other conditions, a Fund may assume a temporary defensive position
and invest in prime commercial paper
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and other money market instruments. While investing for temporary defensive
purposes, a Fund may not achieve its investment objective.
INVESTMENT RISKS
GENERAL The value of a Fund's investments will fluctuate as the stock market
fluctuates. An investment in a Fund is not by itself a complete or balanced
investment program and there is no guarantee the Fund will achieve its
investment objective. Nevertheless, investing in equity securities with
different capitalizations may be important for investors seeking a diversified
portfolio, particularly for long-term investors able to tolerate short-term
fluctuations in the value of their investments.
Because each Fund invests in growth stocks, there is a risk that the stocks will
not continue to grow at expected rates, thus causing the price of the stock to
decline. There is also the risk that the market will not recognize the growth
potential of a stock. The Adviser's judgment as to the growth potential of a
stock may also prove to be wrong. A decline in investor demand for growth stocks
may also adversely affect the value of these securities.
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SPECIFIC RISKS OF SMALL COMPANIES Because investing in small companies can have
more risk than investing in larger, more established companies, an investment in
BrownIA Small-Cap Growth Fund may have the following additional risks:
o Analysts and other investors typically follow these companies less
actively and information about these companies is not always readily
available
o Securities of many small companies are traded in the over-the-counter
markets or on a regional securities exchange potentially making them
thinly traded, less liquid and their prices more volatile than the
prices of the securities of larger companies
o Changes in the value of small company stocks may not mirror the
fluctuations of the general market
o More limited product lines, markets and financial resources make these
companies more susceptible to economic or market setbacks
For these and other reasons, the prices of small capitalization securities can
fluctuate more significantly than the securities of larger companies. The
smaller the company, the greater effect these risks may have on that company's
operations and performance. As a result, an investment in BrownIA Small-Cap
Growth Fund may exhibit a higher degree of volatility than the general domestic
securities market.
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MANAGEMENT [LOGO]
Each Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and each Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of each Fund and meets periodically to review
the Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Fund. Additional information regarding the Board, as
well as the Trust's executive officers, may be found in the Statement of
Additional Information ("SAI").
THE ADVISER
Each Fund's Adviser is Brown Investment Advisory & Trust Company, Furness House,
19 South Street, Baltimore, Maryland 21202. The Adviser is currently a
privately-owned company. Prior to June 1998, the Adviser operated as a
subsidiary of Bankers Trust Company under the name of Alex Brown Capital
Advisory & Trust Company.
Subject to the general control of the Board, the Adviser makes investment
decisions for each Fund. The Adviser receives an advisory fee of 1.00% of the
average daily net assets of BrownIA Small-Cap Growth Fund and 0.75% of the
average daily net assets of BrownIA Growth Equity Fund.
As of August 31, 2000, the Adviser had approximately $4.8 billion of assets
under management.
A committee of investment professionals makes all investment decisions for each
Fund and no other person is primarily responsible for making recommendations to
that committee.
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OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to each Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of each Fund's shares. The distributor acts as the representative
of the Trust in connection with the offering of each Fund's shares. The
distributor may enter into arrangements with banks, broker-dealers or other
financial institutions through which investors may purchase or redeem shares and
may, at its own expense, compensate persons who provide services in connection
with the sale or expected sale of each Fund's shares.
Forum Administrative Services, LLC provides administrative services to each
Fund, Forum Accounting Services, LLC is each Fund's accountant, Forum
Shareholder Services, LLC ("Transfer Agent") is each Fund's transfer agent and
Forum Trust, LLC is each Fund's custodian.
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FUND EXPENSES
Each Fund pays for all of its expenses. Each Fund's expenses are comprised of
its own expenses as well as Trust expenses that are allocated among each Fund
and the other funds of the Trust. The Adviser or other service providers may
waive all or any portion of their fees and/or reimburse certain expenses of each
Fund. Any waiver or expense reimbursement increases a Fund's performance for the
period during which the waiver or reimbursement is in effect and may not be
recouped at a later date.
Certain service providers have undertaken to waive a portion of their fees
and/or reimburse certain expenses in order to limit each Fund's expenses
(excluding taxes, interest, portfolio transaction expenses and extraordinary
expenses) to 1.25% or less of the average daily net assets of BrownIA Small-Cap
Growth Fund and 1.00% or less of the average daily net assets of BrownIA Growth
Equity Fund. Waivers may be reduced or eliminated at any time.
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[LOGO] YOUR ACCOUNT
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GENERAL INFORMATION HOW TO CONTACT THE FUNDS
You may purchase or sell (redeem) shares at the net asset value of a share WRITE TO US AT:
(NAV) next calculated after the Transfer Agent receives your request in
proper form. For instance, if the Transfer Agent receives your purchase BrownIA Funds
request in proper form after 4:00 p.m. Eastern time, your transaction will P.O. Box 446
be priced at the next business day's NAV. A Fund cannot accept orders that Portland, ME 04112
request a particular day or price for the transaction or any other special
conditions. OVERNIGHT ADDRESS:
Neither Fund issues share certificates. BrownIA Funds
Two Portland Square
If you purchase shares directly from a Fund, you will receive monthly Portland, Maine 04101
statements and a confirmation of each transaction. You should verify the
accuracy of all transactions in your account as soon as you receive your TELEPHONE US AT:
confirmations. (800) 540-6807 (toll free) or
(207) 879-0001
Each Fund reserves the right to waive minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any WIRE INVESTMENTS (OR ACH
service or privilege. PAYMENTS) TO:
WHEN AND HOW NAV IS DETERMINED Each Fund calculates its NAV as of the close Bankers Trust Company
of the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each New York, New York
weekday except days when the New York Stock Exchange is closed. The time at ABA #021001033
which NAV is calculated may change in case of an emergency. A Fund's NAV is
determined by taking the market value of all securities owned by the Fund FOR CREDIT TO:
(plus all other assets such as cash), subtracting liabilities and then Forum Shareholder Services, LLC
dividing the result (net assets) by the number of shares outstanding. A Account # 01-465-547
Fund values securities for which market quotations are readily available at Re: (Name of Your Fund)
current market value. If market quotations are not readily available, a (Your Name)
Fund values securities at fair value pursuant to procedures adopted by the (Your Account Number)]
Board.
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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 Funds. Financial institutions may charge transaction
fees and may set different minimum investments or limitations on buying or
selling shares. These institutions may also provide you with certain shareholder
services such as periodic account statements and trade confirmations summarizing
your investment activity. Consult a representative of your financial institution
for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint, Uniform Gift to Minors
Act ("UGMA") or Uniform Transfers to Minors Act ("UTMA") accounts, the
check must be made payable to Forum Funds or to one or more owners of the
account and endorsed to Forum Funds. For all other accounts, the check must
be made payable on its face to Forum Funds. No other method of check
payment is acceptable (for instance, you may not pay by 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 payment by telephone, the Transfer Agent
will automatically debit your pre-designated bank account for the desired
amount. Your financial institution may charge you a fee for this service.
You may call (800) 94FORUM or (800) 943-6786 to request an ACH transaction.
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WIRES Instruct your financial institution to make a Federal Funds wire
payment to us. Your financial institution may charge you a fee for this
service.
MINIMUM INVESTMENTS Each Fund accepts investments in the following minimum
amounts:
MINIMUM INITIAL MINIMUM ADDITIONAL
INVESTMENT INVESTMENT
Standard Accounts $5,000 $100
Traditional and Roth IRA Accounts $2,000 $100
Accounts with Systematic Investment Plans $2,000 $100
ACCOUNT REQUIREMENTS
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TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons required
Individual accounts are owned by one person, as are sole to sign exactly as their names appear on the account
proprietorship accounts
Joint accounts can have two or more owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a custodial
These custodial accounts provide a way to give money to a account under the UGMA or the UTMA
child and obtain tax benefits o The custodian must sign instructions in a manner
indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution form
or similar document
TRUSTS o The trust must be established before an account can
be opened
o Provide a certified trust document, or the pages
from the trust document that identify the trustees
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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 (and Corporate o Fill out an investment slip from a confirmation
Organization/Resolution form if applicable) or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) and a check o Mail us the slip (or your letter) and the check
BY WIRE BY WIRE
o Call or write us for an account application (and Corporate o Call to notify us of your incoming wire
o Organization/Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and resolution
form) and we will assign you an account number
o Mail us your application (and resolution form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and Corporate o Complete the systematic investment section of the
Organization/Resolution form if applicable) application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and resolution o Mail us the completed application and voided check
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 a Fund once
or twice a month on specified dates. These payments are taken from your bank
account by ACH payment. Systematic investments must be for at least $100.
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LIMITATIONS ON PURCHASES Each Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
a Fund or its operations. This includes those from any individual or group who,
in a Fund's view, is likely to engage in excessive trading (including two or
more substantial redemptions or exchanges out of a Fund followed by substantial
repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS Each Fund accepts checks and ACH transfers at full
value subject to collection. If a Fund does not receive your payment for shares
or you pay with a check or ACH transfer that does not clear, your purchase will
be canceled. You will be responsible for any losses or expenses incurred by a
Fund or the Transfer Agent, and the Fund may redeem shares you own in the
account (or another identically registered account that you maintain with the
Transfer Agent) as reimbursement. Each Fund and its agents have the right to
reject or cancel any purchase or exchange due to nonpayment.
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SELLING SHARES
Each Fund processes redemption orders promptly. Generally, a Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If a
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or more
and you did not decline wire redemption privileges on your account application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption privileges
on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you or
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us your completed application
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WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and each Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
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 withdrawals, distribution, telephone
redemption or exchange option or any other election
in connection with your account
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SMALL ACCOUNTS If the value of your account falls below $1,000 ($500 for IRAs),
a Fund may ask you to increase your balance. If the account value is still below
$1,000 ($500 for IRAs) after 60 days, a Fund may close your account and send you
the proceeds. A Fund will not close your account if it falls below these amounts
solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND Each Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect a Fund's operations
(for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may exchange your Fund shares for shares of the other Fund by telephone or
in writing. You may also exchange Fund shares for Investor Shares of the Trust's
money market funds. Because exchanges are treated as 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).
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There is currently no limit on exchanges, but each Fund reserves the right to
limit exchanges. You may exchange your shares by mail or telephone, unless you
declined telephone redemption privileges on your account application. You may be
responsible for any fraudulent telephone order as long as the Transfer Agent
takes reasonable measures to verify the order.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The names of each fund you are exchanging
o The dollar amount or number of shares you want to sell (and exchange)
o Open a new account and complete an account application if you are requesting
different shareholder privileges
o Obtain a signature guarantee if required
o Mail us your request and documentation
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption privileges
on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which account is registered
o Additional form of identification
RETIREMENT ACCOUNTS
Each Fund offers IRA accounts, including traditional and Roth IRAs. Each 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 in which the contribution
is made.
23
<PAGE>
OTHER INFORMATION [LOGO]
DISTRIBUTIONS
Each Fund distributes its net investment income quarterly and net capital gain
at least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
Each Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
A Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. A Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares. Distributions may also be subject to certain state and
local taxes.
If you buy shares shortly before a Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you. The sale or exchange of Fund shares is
a taxable transaction for income tax purposes.
Your Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
24
<PAGE>
[LOGO]
For further information about the tax effects of investing in a Fund, including
state and local tax matters, please see the SAI and consult your tax adviser.
ORGANIZATION
The Trust is a Delaware business trust. No Fund expects to hold shareholders'
meetings unless required by Federal or Delaware law. Shareholders of each series
of the Trust are entitled to vote at shareholders' meetings unless a matter
relates only to specific series (such as approval of an advisory agreement for a
Fund). From time to time, large shareholders may control a Fund or the Trust.
25
<PAGE>
FINANCIAL HIGHLIGHTS [LOGO]
The following table is intended to help you understand the Funds' financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in each Fund (assuming the reinvestment
of all distributions). This information has been audited by Deloitte & Touche
LLP. Each Fund's financial statements and the auditor's report are included in
the Funds' Annual Report dated May 31, 2000, which is available upon request,
without charge.
<TABLE>
<S> <C> <C>
BROWNIA SMALL-CAP BROWN IA GROWTH EQUITY
FUND(1) FUND(1)
PERIOD ENDED MAY 31,
2000 2000
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value $10.00 $10.00
Income From Investment Operations
Net investment income (Loss) (0.10) 0.01
Net realized and unrealized gain on securities 3.92 0.85
Total From Investment Operations 3.82 0.86
Less Distributions
From net investment income -- (0.01)
Ending Net Asset Value $13.82 $10.85
OTHER INFORMATION
Ratios to Average Net Assets
Expenses(2) 1.25% 1.00%
Gross expenses(2)(3) 1.35% 1.55%
Net investment income(Loss)(2) (0.80)% 0.14%
Total Return 38.20% 8.59%
Portfolio Turnover Rate 30% 42%
Net Assets at End of Period (in thousands) $87,959 $31,537
</TABLE>
(1) The Fund commenced operations on June 28, 1999.
(2) Annualized.
(3) Reflects expense ratio in the absence of fee waivers and expense
reimbursements.
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[LOGO]
NOTES:
<PAGE>
[LOGO]
NOTES:
<PAGE>
[LOGO]
BROWNIA SMALL-CAP GROWTH FUND
BROWNIA GROWTH EQUITY FUND
FOR MORE INFORMATION
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about each Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In a Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed
information about each Fund and is incorporated
by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of both reports and the SAI, request other information
and discuss your questions about each Fund by contacting the Fund at:
BrownIA Funds
P.O. Box 446
Portland, Maine 04112
800-540-6807 (toll free)
207-879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review each Fund's reports and the SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC at
202-942-8090. You can get copies of this information, for a fee, by e-mail or
writing to:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
E-mail address: [email protected]
Free copies of the reports and the SAI are available from the SEC's Internet Web
Site at http://www.sec.gov.
Investment Company Act File No. 811-3023
<PAGE>
FORUM PROSPECTUS
FUNDS
OCTOBER 1, 2000
INVESTORS EQUITY FUND
Investors Equity Fund seeks
to provide capital appreciation
by investing primarily in the
common stock of companies
domiciled in the United States.
The Fund does not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR
DISAPPROVED THE FUND'S SHARES OR
DETERMINED WHETHER THIS PROSPECTUS
IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 3
FEE TABLES 3
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS 4
MANAGEMENT 5
YOUR ACCOUNT 7
HOW TO CONTACT THE FUND 7
GENERAL INFORMATION 8
BUYING SHARES 9
SELLING SHARES 9
SALES CHARGES 10
EXCHANGE PRIVILEGES 11
RETIREMENT ACCOUNTS 11
OTHER INFORMATION 12
FINANCIAL HIGHLIGHTS 13
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RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
Investors Equity Fund (the "Fund") seeks capital appreciation by investing
primarily in the common stock of companies domiciled in the United States.
PRINCIPAL INVESTMENT STRATEGY
The Fund invests in the common stock of established growth oriented domestic
companies with market capitalizations exceeding $2 billion. Some of these
companies may also be considered value companies.
CONCEPTS TO UNDERSTAND
COMMON STOCK means an equity or ownership interest in a company.
GROWTH COMPANY means a company whose stock has exhibited faster than average
gains in earnings over the past few years and is expected to continue to show
high levels of profit growth in the future.
VALUE COMPANY means a company whose stock is undervalued relative to its
historical price and/or the price of comparable companies.
STANDARD & POOR'S(R) 500 COMPOSITE INDEX ("S&P 500 INDEX") means an unmanaged
index composed of common stocks of 500 publicly traded large capitalization
companies.
MARKET CAPITALIZATION means the value of a company's common stock in the stock
market.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. You could lose money on your investment in the Fund or the
Fund could under perform other investments. The principal risk of an investment
in the Fund includes:
o The stock market goes down
o The stock market does not recognize the value or growth potential of the
stocks in a Fund's portfolio
o The Fund's investment adviser (the "Adviser") may make poor investment
decisions
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of your investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk
The Fund may not be appropriate for you if you:
o Want an investment that pursues market trends or focuses only on particular
sectors or industries
o Need regular income or stability of principal
o Are pursuing a short-term goal or investing emergency reserves
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PERFORMANCE
The following chart and table provide some indication of the risks of investing
in the Fund by showing the Fund's returns compared to a broad measure of market
performance. Performance information presented here represents only past
performance and does not necessarily indicate future results.
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the returns would be less than shown.
[EDGAR Representation of Bar Chart]
1998 36.15%
1999 19.45%
The calendar year-to-date total return as of June 30, 2000 was 2.33%.
During the period shown in the chart, the highest quarterly return was 26.07%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
-10.25% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1999 to the S&P 500 Index.
YEAR(S) INVESTORS EQUITY FUND S&P 500 INDEX
1 Year 14.67% 21.04%
Since Inception (12/17/97) 25.22% 24.62%
The S&P 500 Index is a market index of common stocks. The S&P 500 Index is
unmanaged and reflects reinvestment of all dividends paid by the stocks included
in the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses.
FEE TABLES
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on 4.00%
Purchases (as a percentage of the offering
price)
Maximum Sales Charge (Load) Imposed on None
Reinvested Dividends
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) 1.00%(1)
Redemption Fee None
Exchange Fee None
(1) Applicable only on purchases of $1 million or more.
ANNUAL FUND OPERATING EXPENSES(2)
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.65%
Distribution (12b-1) Fees None
Other Expenses 0.77%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.42%
(2) Based on amounts incurred during the Fund's fiscal year ended May 31, 2000,
stated as a percentage of assets.
(3) Certain service providers voluntarily waived a portion of their fees and/or
reimbursed certain expenses of the Fund so that Total Annual Fund Operating
Expenses do not exceed 1.10%. Fee waivers or expense reimbursements may be
reduced or eliminated at any time.
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. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated, you pay the maximum sales charge and then redeem all of your shares
at the end of those periods. 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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$539 $831 $1,145 $2,034
3
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INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
INVESTMENT OBJECTIVE
The Fund seeks to provide capital appreciation by investing primarily in the
common stock of companies domiciled in the United States.
PRINCIPAL INVESTMENT STRATEGIES
THE ADVISER'S PROCESS The Adviser identifies economic sectors and industries
with a potential for above average rates of growth for periods of five years or
more. The Adviser seeks companies that offer secular growth driven by factors
such as technological changes and demographics and avoid industries subject to
heavy governmental regulation or dependence on commodity pricing for growth.
Within these sectors and industries, the Adviser concentrates on companies with
market capitalizations exceeding $2 billion.
The Adviser uses fundamental research to identify quality companies with
histories of sustained profitability and leadership within their respective
industries. The primary focus is on the core earnings power of the company and
to provide above average growth in revenues, earnings and cash flow for a
multi-year period. Some of the companies selected by the Adviser may have the
characteristics of a Value Company.
The Fund does not normally invest in companies which would be termed "turnaround
situations" or in companies with a high exposure to cyclical changes in the
economy. In addition to a company's financial strength and growth potential, the
Adviser considers, among other things, the following factors when selecting a
potential investment for the Fund:
o The possession of a sustainable competitive advantage (such as a dominant
technological position or a strong business franchise)
o An ability to maintain a high gross operating margin relative to the
competition
o A strong, experienced management team
CONCEPTS TO UNDERSTAND
Fundamental Research means research of a company's financial condition to help
forecast the future value of its stock price. This analysis includes review of a
company's financial statement, asset history, earnings history, product or
service development and management productivity.
The Adviser monitors the companies in the Fund's portfolio to determine if there
have been any fundamental changes in the companies. The Adviser will sell a
stock:
o If there is a sustained deterioration in the fundamentals of a company
o If a more attractive investment is found
o To maintain appropriate diversification within the Fund's portfolio
INVESTMENT POLICIES The Fund invests in the common stock of established growth
oriented domestic companies with market capitalizations exceeding $2
billion. Some of these companies may be considered value companies.
TEMPORARY DEFENSIVE MEASURE The Fund may invest a portion of it assets in cash
and prime quality cash equivalents such as commercial paper and money market
instruments. In order to respond to adverse market, economic or other
conditions, the Fund may also assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and money market instruments. As a result, the Fund may be unable to
achieve its investment objective.
PRINCIPAL RISKS
GENERAL The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market value of securities
in which the Fund invests is based upon the market's perception of value and is
not necessarily an objective measure of the securities' value. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program.
Because the Fund primarily invests in common stock of companies with growth
and/or value characteristics, there is a risk that the earnings of those
companies will not continue to grow at expected rates, thus causing the price of
the stock to decline. There is also the risk that the market will not recognize
the intrinsic value of a stock for an unexpectedly long time. The Advisers'
judgment as to the growth potential of a stock may also prove to be wrong. A
decline in investor demand for growth stocks may also adversely affect the value
of these securities.
4
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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 of the Fund is
managed under the direction of the Board of Trustees (the "Board"). The Board
formulates the general policies of the Fund and meets periodically to review the
Fund's performance, monitor investment activities and practices and discuss
other matters affecting the Fund. Additional information about the Board, as
well as the Trust's executive officers, may be found in the Fund's Statement of
Additional Information ("SAI").
THE ADVISER
The Fund's Adviser is The Stratevest Group, N.A., 111 Main Street, Burlington,
Vermont. The Stratevest Group is a national banking association and is a wholly
owned subsidiary of Banknorth Group, a New England based holding company. As of
May 31, 2000, the Stratevest Group had approximately $8 billion in assets under
management. The Adviser and its affiliates have provided wealth management
services to individuals and institutional investors for over five years.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. The Adviser and/or its affiliate, Peoples Heritage Bank,
have served as the Fund's Adviser since July 6, 2000. The Adviser receives an
advisory fee of 0.65% of the average daily net assets of the Fund.
Prior to July 6, 2000, H.M. Payson & Co. ("Payson") was the Fund's investment
adviser and Peoples Heritage Bank was the Fund's investment subadviser. Payson
received an advisory fee of 0.65% of the average daily net assets of the Fund.
For the fiscal year ended May 31, 2000, Payson waived a portion of its fee and
only received an advisory fee of 0.33% of the Fund's average daily net assets.
Prior to July 6, 2000, and pursuant to an investment subadvisory agreement,
Payson paid Peoples an investment subadvisory fee at an annual rate based on
0.25% of the average daily net assets of the Fund. The subadvisory fee was paid
by Payson and not by the Fund.
PORTFOLIO MANAGERS
Robert A. Magan and Jonathan W. White are responsible for the day-to-day
management of the Fund. Each of them is a Chartered Financial Analyst. Each
portfolio manager's business experience is as follows:
JONATHAN W. WHITE Senior Vice President and Investment Consultant of the Adviser
and/or its predecessors since 1994. Mr. White has over 25 years of investment
management and trust services experience. He earned a B.A. from Dartmouth
University and an M.B.A. from the University of New Hampshire.
ROBERT A. MAGAN Assistant Vice President and Investment Consultant of the
Adviser and/or its predecessors since 1996. Prior to that, Mr. Magan was
associated with First NH Investment Services. He earned a B.S. from Plymouth
StateCollege and is a Chartered Financial Analyst.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to the Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor acts as the representative of
the Trust in connection with the offering of the Fund's shares. The distributor
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of the Fund's shares.
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's accountant, Forum Shareholder
Services, LLC (the "Transfer Agent") is the Fund's transfer agent, and Forum
Trust, LLC is the Fund's custodian.
5
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FORUM FUNDS
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FUND EXPENSES
The Fund pays all of its expenses. The Fund's expenses are comprised of its own
expenses as well as Trust expenses that are allocated among the Fund and the
other funds of the Trust. The Adviser or other service providers may waive all
or any portion of their fees and/or reimburse certain expenses of the Fund. Any
waiver or expense reimbursement increases the Fund's performance for the period
during which the waiver or reimbursement is in effect and may not be recouped at
a later date.
Certain service providers of the Fund have undertaken to waive a portion of
their fees and/or reimburse certain expenses (excluding taxes, interest,
portfolio transaction expenses and extraordinary expenses) to 1.10% or less of
the Fund's average daily net assets.
6
<PAGE>
FORUM FUNDS
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YOUR ACCOUNT
HOW TO CONTACT THE FUND
WRITE TO US AT:
Forum Funds
P.O. Box 446
Portland, Maine 04112
OVERNIGHT ADDRESS:
Forum Funds
Two Portland Square
Portland, Maine 04101
TELEPHONE US AT:
(800) 94FORUM or
(800) 943-6786 (Toll Free)
(207) 879-0001
WIRE INVESTMENTS (OR ACH PAYMENTS) TO:
Bankers Trust Company
New York, New York
ABA #021001033
FOR CREDIT TO:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: Investors Equity Fund
(Your Name)
(Your Account Number)
GENERAL INFORMATION
You may purchase or sell (redeem) shares at the net asset value of a share (NAV)
plus any applicable sales charge (or minus any applicable sales charge in the
case of redemptions) next calculated after the Transfer Agent receives your
request in proper form. For instance, if the Transfer Agent receives your
purchase request in proper form after 4:00 p.m., Eastern time, your transaction
will be priced at the next business day's NAV plus the applicable sales charge.
The Fund cannot accept orders that request a particular day or price for the
transaction or any other special conditions.
The Fund does not issue share certificates.
If you purchase shares directly from the Fund, you will receive monthly
statements and a confirmation of each transaction. You should verify the
accuracy of all transactions in your account as soon as you receive your
confirmations.
The Fund reserves the right to waive minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
except days when the New York Stock Exchange is closed. The time at which NAV is
calculated may change in case of an emergency. The Fund's NAV is determined by
taking the market value of all securities owned by the Fund (plus all other
assets such as cash), subtracting all liabilities and then dividing the result
(net assets) by the number of shares outstanding. The Fund values securities for
which market quotations are readily available at current market value. If market
quotations are not readily available, then the Fund values securities at fair
value pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of the Fund. Financial
institutions may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. These institutions may
also provide you with certain shareholder services such as periodic account
statements and trade confirmations summarizing your investment activity. Consult
a representative of your financial institution for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint and Uniform Gift to Minors Act
("UGMA") or Uniform Transfer to Minors Act ("UTMA") accounts, the check must be
made payable to "Forum Funds" or to one or more owners of the account and
endorsed to "Forum Funds." For all other accounts, the check must be made
payable on its face to "Forum Funds." No other method of check payment is
acceptable (for instance, you may not pay by 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 an additional payment by telephone, the Transfer
Agent will automatically debit your predesignated bank account for the desired
amount. Your financial institution may charge a fee for this service. You may
call (800) 943-6786 to request an ACH transaction.
7
<PAGE>
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:
MINIMUM MINIMUM
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
Standard Account $2,000 $250
Traditional and Roth IRA Accounts $1,000 $250
Accounts with Systematic Investment Plans $250 $250
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or
the UTMA child and obtain tax benefits o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution
form or similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified copy of the trust
document, or the pages from the trust document
that identify the trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a confirmation or write
Corporate/Organization Resolution form if applicable) us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) o Mail us the slip (or your letter) and the check
and a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and resolution
form)
o Make an ACH payment
</TABLE>
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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 $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or another identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase or exchange due to nonpayment.
SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your application) (See "By Telephone") OR
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone authorization
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you OR
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us 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.
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SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
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 withdrawals, 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),
the Fund may ask you to increase your balance. If the account value is still
below $1,000 ($500 for IRAs) after 60 days, the Fund may close your account and
send you the proceeds. The Fund will not close your account if it falls below
these amounts solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of the Fund's shares as
follows:
SALES CHARGE
(LOAD) AS % OF:
AMOUNT OF PUBLIC NET
PURCHASE OFFERING PRICE ASSET VALUE* REALLOWANCE %
$0 to $49,999 4.00 4.17 3.50
$50,000 to $99,999 3.50 3.63 3.00
$100,000 to $249,999 3.00 3.09 2.50
$250,000 to $499,999 2.50 2.56 2.10
$500,000 to $999,999 2.00 2.04 1.70
$1,000,000 and up 0.00 0.00 1.00
* Rounded to the nearest one-hundredth percent.
The offering price for the Fund's shares includes the relevant sales charge. The
commission paid to the distributor is the sales charge less the reallowance paid
to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include the provision of travel arrangements and lodging,
tickets for entertainment events and merchandise.
REDEMPTIONS A contingent deferred sales charge ("CDSC") is assessed on
redemptions of shares that were part of a purchase of $1 million or more. The
CDSC is assessed as follows:
REDEEMED WITHIN SALES CHARGE
First year of purchase 1.00%
Second year of purchase 0.50%
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The CDSC is paid on the lower of the NAV of shares redeemed or the cost of the
shares. To satisfy the redemption request, the Fund will first liquidate shares
that are not subject to a CDSC such as shares acquired with reinvested dividends
and capital gains. The Fund will then liquidate shares in the order that they
were purchased until your redemption request is satisfied.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. Certain persons
may also be eligible to purchase or redeem Fund shares without a sales charge.
Please see the SAI for further information.
EXCHANGE PRIVILEGES
You may exchange your Fund shares for shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that has a higher sales
charge than the Fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge. If you exchange into a fund that has
no sales charge or a lower sales charge than the Fund, you will not have to pay
a sales charge at the time of exchange. Because exchanges are a sale and
purchase of shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or 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.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account numbers
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
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
being made.
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OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income annually and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. The Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state and local tax matters, please see the SAI and consult your tax
adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal or Delaware law. Shareholders
of each series of the Trust are entitled to vote at shareholders' meetings
unless a matter relates only to specific series (such as approval of an advisory
agreement for the Fund). From time to time, large shareholders may control the
Fund or the Trust.
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FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touch LLP.
The Fund's financial statement and the auditor's report are included in the
Annual Report dated May 31, 2000, which is available upon request, without
charge.
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YEAR ENDED MAY 31,
2000 1999 1998(1)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $12.96 $11.43 $10.00
Income from Investment Operations:
Net Investment Income (Loss) (0.03) (0.01) --(2)
Net Realized and Unrealized Gain (Loss)
on Investments 2.03 2.60 1.43
Total from Investment Operations 2.00 2.59 1.43
Less Distributions:
From Net Investment Income -- --(2) --
From Net Realized Capital Gain (1.25) (1.06) --
Total Distributions (1.25) (1.06) --
Ending Net Asset Value Per Share $13.71 $12.96 $11.43
OTHER INFORMATION
Ratios to Average Net Assets:
Expenses 1.10% 1.10% 1.10%(4)
Gross Expenses (3) 1.42% 1.44% 2.09%(4)
Net Investment Income (Loss) (0.21)% (0.06)% 0.09%(4)
Total Return(5) 15.96% 24.21% 14.30%
Portfolio Turnover Rate 26% 16% 11%
Net Assets at End of Period (in thousands) $34,398 $32,134 $30,090
</TABLE>
(1) Investors Equity Fund commenced operations on December 17, 1997.
(2) Less than $0.01 per share.
(3) Reflects expense ratios in the absence of fee waivers and expense
reimbursements.
(4) Annualized.
(5) Does not include sales charge.
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FOR MORE INFORMATION FORUM FUNDS
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS INVESTORS EQUITY FUND
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
("SAI") The SAI provides more detailed information about the Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of the both reports and the SAI, request other
information and discuss your questions about the Fund by contacting the
Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 94FORUM
(800) 943-6786
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review the Fund's reports and SAI at the Public Reference Room of
the Securities and Exchange Commission ("SEC"). The scheduled hours of operation
of the Public Reference Room may be obtained by calling the SEC at (202)
942-8090. You can get copies of this information, for a fee, by e-mailing or by
writing to :
Public Reference Room
Securities and Exchange Commission [LOGO]
Washington, D.C. 20549-6009
E-mail address: [email protected] Forum Funds
P.O. Box 446
Free copies of the reports and SAI are available from the SEC's Internet Portland, Maine 04112
Web Site at http://www.sec.gov. (800) 94FORUM
(800) 943-6786
(207) 879-0001
Investment Company Act File No. 811-3023
</TABLE>
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FORUM
FUNDS
PROSPECTUS
OCTOBER 1, 2000
EQUITY INDEX FUND
Equity Index Fund seeks to duplicate
the return of the Standard & Poor's(R)
500 Composite Stock Index.
The Fund does not pay Rule 12b-1
(distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED WHETHER
THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[Picture]
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TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 3
FEE TABLES 4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS 5
MANAGEMENT 5
YOUR ACCOUNT 7
HOW TO CONTACT THE FUND 7
GENERAL INFORMATION 7
BUYING SHARES 7
SELLING SHARES 9
SALES CHARGES 10
EXCHANGE PRIVILEGES 11
RETIREMENT ACCOUNTS 11
OTHER INFORMATION 12
FINANCIAL HIGHLIGHTS 13
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RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
Equity Index Fund (the "Fund") seeks to duplicate the return of the S&P 500
Index.
PRINCIPAL INVESTMENT STRATEGY
The Fund invests substantially all of it assets in Index Portfolio (the
"Portfolio"), a series of another mutual fund. The Portfolio and Fund have
substantially similar investment objectives and investment policies. Through its
investment in the Portfolio, the Fund invests in substantially all of the common
stocks listed on the S&P 500 Index.
CONCEPTS TO UNDERSTAND
COMMON STOCK means an equity or ownership interest in a company.
STANDARD & POOR'S(R) 500 COMPOSITE INDEX ("S&P 500 INDEX") means an unmanaged
index composed of common stocks of 500 publicly traded large capitalization
companies.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The principal risk of an investment in the Fund is that your investment in the
Fund will lose value if the S&P 500 Index loses value.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. You could lose money on your investment in the Fund or the
Fund could underperform other investments.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of your investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk
The Fund may not be appropriate for you if you:
o 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
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PERFORMANCE
The following chart and table provide some indication of the risks of investing
in the Fund by showing the Fund's return compared to a broad measure of market
performance. Performance information presented here represents only past
performance and does not necessarily indicate future results.
The following chart shows the annual total return for each full calendar year
that the Fund has operated. The chart does not reflect sales charges and, if
reflected, the returns would be less than shown.
[EDGAR Representation of Bar Chart]
1998 28.86%
1999 20.79%
The calendar year-to-date total return as of June 30, 2000 was -0.51%.
During the periods shown in the chart, the highest quarterly return was 21.13%
(for the quarter ended December 31, 1998) and the lowest quarterly return was
-9.54% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total returns as of
December 31, 1999 to the S&P 500 Index.
YEAR(S) EQUITY INDEX FUND S&P 500 INDEX
1 Year 15.96% 21.04%
Since Inception (12/24/97) 24.04% 27.05%
The S&P 500 Index is a market index of common stocks. The S&P 500 Index is
unmanaged and reflects reinvestment of all dividends paid by the stocks included
in the index. Unlike the performance figures of the Fund, the S&P 500 Index's
performance does not reflect the effect of expenses.
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FEE TABLES
The following tables describe the various fees and expenses that you will pay if
you invest in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) Imposed on
Purchase(as a percentage of the offering price) 4.00%
Maximum Sales Charge (Load) Imposed on None
Reinvested Distributions
Maximum Deferred Sales Charge (Load)
(as a percentage of amount redeemed) 1.00%(1)
Redemption Fee None
Exchange Fee None
(1) Applicable only on purchases of $1 million or more.
ANNUAL FUND OPERATING EXPENSES(2)
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.15%
Distribution (12b-1) Fees None
Other Expenses 0.93%
TOTAL ANNUAL FUND OPERATING EXPENSES(3) 1.08%
(2) Based on amounts incurred during the Fund's fiscal year ended May 31, 2000,
stated as a percentage of assets. The Fund's expenses include its pro rata
share of the Portfolio's expenses.
(3) Certain service providers voluntarily waived a portion of their fees and/or
reimbursed certain expenses of the Fund so that Total Annual Fund Operating
Expenses did not exceed 0.25%. Fee waivers and/or expense reimbursements
may be reduced or eliminated at any time.
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. The
example assumes that you invest $10,000 in the Fund for the time periods
indicated, you pay the maximum sales charge and then redeem all of your shares
at the end of those periods. The example also assumes that your investment has a
5% annual return, that the Fund's operating expenses remain as stated in the
above table and that distributions are reinvested. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$506 $730 $972 $1,664
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INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
INVESTMENT OBJECTIVE
The Fund seeks to duplicate the return of the S&P 500 Index.
INVESTMENT STRATEGIES
THE ADVISER'S PROCESS Wells Fargo Bank, N.A. ("WFB"), the Portfolio's investment
adviser, and Wells Capital Management ("WCM"), the Portfolio's investment
subadviser, generally executes portfolio transactions to:
o replicate the composition and total rate of return, before expenses, of the
S&P 500 Index
o invest cash received from portfolio security dividends or investments in
the Fund
o raise cash to fund redemptions
INVESTMENT POLICIES The Fund is a "gateway" fund in a "Core and Gateway(R)"
structure. The Fund invests substantially all of its assets in the Portfolio, a
series of Wells Fargo Core Trust ("Wells Core Trust"), another mutual fund. The
Fund and Portfolio have substantially similar investment objectives and
policies. The Fund invests in the Portfolio to enhance its investment
opportunities and reduce its operating expenses by sharing the costs of managing
a large pool of assets.
Through its investment in the Portfolio, the Fund invests in substantially all
of the common stocks listed on the S&P 500 Index. The Portfolio seeks to
replicate the total rate of return of the S&P 500 Index and attempts to achieve
a 95% correlation between its own investment results (before expenses) and that
of the S&P 500 Index. This correlation is sought regardless of market
conditions.
A precise duplication of the performance of the S&P 500 Index is not feasible
because the Portfolio's performance may be affected by, among other things, the
Portfolio's expenses, transaction costs and shareholder purchases and
redemptions.
TEMPORARY DEFENSIVE POSITION In response to adverse market, economic or other
conditions, the Fund and the Portfolio may assume a temporary defensive position
and invest without limit in cash and high quality cash equivalents such as
commercial paper and money market instruments. During such periods, the Fund and
the Portfolio may be unable to achieve their investment objective.
INVESTMENT RISKS
GENERAL The Fund's net asset value and total return will fluctuate based upon
changes in the value of the Portfolio and the securities in which the Portfolio
invests. The market value of securities in which the Portfolio and the Fund
invests is based upon the market's perception of value and is not necessarily an
objective measure of the securities' value. There is no assurance that the
Portfolio or the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program.
Since the Fund seeks to replicate the performance of the S&P 500 Index through
its investment in the Portfolio, your investment will lose value during the
periods when the S&P 500 Index loses value.
The Fund may withdraw its entire investment from the Portfolio at any time if
the Board of Trustees of Forum Funds (the "Board") decides it is in the Fund's
best interests to do so. The inability of the Fund to find a suitable
replacement investment could adversely affect your investment in the Fund.
MANAGEMENT
The Fund is a series of Forum Funds (the "Trust"), an open-end, management
investment company (mutual fund). The business of the Trust and of the Fund is
managed under the direction of the Board. 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
Wells Fargo Bank, N.A.("WFB"), 525 Market Street, San Francisco, California, is
the Portfolio's investment adviser. WFB provides portfolio management and
fundamental security analysis services for the Portfolio. WFB, founded in 1852,
is the oldest bank in the western United States and is one of the largest banks
in the United States. WFB is a wholly owned subsidiary of Wells Fargo & Company,
a national bank holding company.
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Subject to the general control of the Board of Trustees of Wells Core Trust, WFB
makes investment decisions for the Portfolio. WFB receives an advisory fee of
0.15% of the average daily net assets of the Portfolio. For the Fund's fiscal
year ending May 31, 2000, WFB waived a portion of its fee and only received an
advisory fee of 0.10%. The Fund pays WFB its pro rata share of the Portfolio's
advisory fee, which is based on the percentage of the Portfolio's assets held by
the Fund.
As of June 30, 2000, WFB and its affiliates provided advisory services for over
$160 billion in assets.
Wells Capital Management ("WCM"), 525 Market Street, San Francisco, California,
is the Portfolio's investment subadviser and is responsible for the day-to-day
investment management activities of the Portfolio. WCM is a wholly owned
subsidiary of WFB. WCM receives a fee from WFB and not the Portfolio for
advisory services provided to the Portfolio.
As of June 30, 2000, WCM provided advisory services of over $80 billion in
assets.
PORTFOLIO MANAGERS
David D. Sylvester and Laurie R. White have been responsible for the day-to-day
management of the Portfolio since 1996. Each portfolio manager's business
experience is as follows:
DAVID D. SYLVESTER Executive Vice President of Liquidity Investments of WCM
since 1998. Mr. Sylvester has been with Wells Fargo & Company and its
predecessors in an investment management capacity for over 20 years. Mr.
Sylvester has nearly 25 years of investment experience. He specializes in
portfolio and securities analysis, fixed-income trading and the ability to add
stability and safety through maximizing fund diversification. He also manages
structured and derivative securities and institutional and personal trust
assets. Mr. Sylvester attended the University of Detroit-Mercy.
LAURIE R. WHITE Principal for the Liquidity Investments of WCM. Ms. White has
been with Wells Fargo & Company and its predecessors since 1991. Ms. White has
14 years of investment experience. Ms. White specializes in managing short-term
securities, along with structured and derivative securities and institutional
and personal trust assets. Ms. White received a B.A. in Political Science from
Carleton College and an M.B.A. from the University of Minnesota.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to the Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor acts as the representative of
the Trust in connection with the offering of the Fund's shares. The distributor
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of the Fund's shares.
Forum Administrative Services, LLC provides administrative services to the Fund,
Forum Accounting Services, LLC is the Fund's accountant, Forum Shareholder
Services, LLC (the "Transfer Agent") is the Fund's transfer agent, and Forum
Trust, LLC is the Fund's custodian.
FUND EXPENSES
The Fund pays 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 Fund's or other service providers may waive all or
any portion of their fees and/or reimburse certain expenses of the Fund. Any
waiver or expense reimbursement increases the Fund's performance for the period
during which the waiver or reimbursement is in effect and may not be recouped at
a later date.
Certain service providers of the Fund have undertaken to waive a portion of
their fees and/or reimburse certain expenses in order to limit expenses
(excluding taxes, interest, portfolio transaction expenses and extraordinary
expenses) to 0.25% or less of the average daily net assets of the Fund.
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YOUR ACCOUNT
HOW TO CONTACT THE FUND
WRITE TO US AT:
Forum Funds
P.O. Box 446
Portland, Maine 04112
OVERNIGHT ADDRESS:
Forum Funds
Two Portland Square
Portland, Maine 04101
TELEPHONE US AT:
(800) 94FORUM or
(800) 943-6786 (Toll Free)
(207) 879-0001
WIRE INVESTMENTS (OR ACH PAYMENTS) TO:
Bankers Trust Company
New York, New York
ABA #021001033
FOR CREDIT TO:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: Equity Index Fund
(Your Name)
(Your Account Number)
GENERAL INFORMATION
You may purchase or sell (redeem) shares at the net asset value of a share (NAV)
plus any applicable sales charge (or minus any applicable sales charge in the
case of redemptions) next calculated after the Transfer Agent receives your
request in proper form. For instance, if the Transfer Agent receives your
purchase request in proper form after 4:00 p.m., Eastern time, your transaction
will be priced at the next business day's NAV plus the applicable sales charge.
The Fund cannot accept orders that request a particular day or price for the
transaction or any other special conditions.
The Fund does not issue share certificates.
If you purchase shares directly from the Fund, you will receive monthly
statements and a confirmation of each transaction. You should verify the
accuracy of all transactions in your account as soon as you receive your
confirmations.
The Fund reserves the right to waive minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern time) on each weekday
except days when the New York Stock Exchange is closed. The time at which NAV is
calculated may change in case of an emergency. The Fund's NAV is determined by
taking the market value of all securities owned by the Fund (plus all other
assets such as cash), subtracting all liabilities and then dividing the result
(net assets) by the number of shares outstanding. The Fund values securities for
which market quotations are readily available at current market value. If market
quotations are not readily available, then the Fund values securities at fair
value pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees (other than sales charges) charged
by that institution may be different than those of the Fund. Financial
institutions may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares. These institutions may
also provide you with certain shareholder services such as periodic account
statements and trade confirmations summarizing your investment activity. Consult
a representative of your financial institution for more information.
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint and Uniform Gift to Minors Act
("UGMA") or Uniform Transfer to Minors Act ("UTMA") accounts, the check must be
made payable to "Forum Funds" or to one or more owners of the account and
endorsed to "Forum Funds." For all other accounts, the check must be made
payable on its face to "Forum Funds." No other method of check payment is
acceptable (for instance, you may not pay by traveler's check).
PURCHASES BY AUTOMATED CLEARING HOUSE ("ACH") This services allows you to
purchase shares through an electronic transfer of money from a checking or
savings account. When you make an additional payment by telephone, the Transfer
Agent will automatically debit your pre-designated bank account for the desired
amount. Your financial institution may charge a fee for this service. You may
call (800) 943-6786 to request an ACH transaction.
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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:
MINIMUM MINIMUM
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
Standard Account $2,000 $250
Traditional and Roth IRA Accounts $1,000 $250
Accounts with Systematic Investment Plans $250 $250
ACCOUNT REQUIREMENTS
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TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
owners (tenants)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or the UTMA
child and obtain tax benefits o The custodian must sign instructions in a manner
indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution
form or similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document that identify the
trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a confirmation
Corporate/Organization Resolution form if applicable) or write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) o Mail us the slip (or your letter) and the check
and a check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate/Organization Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account
number
o Mail us your original application (and resolution
form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY SYSTEMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section of
Corporate/Organization Resolution form if applicable) the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and voided
resolution form) and we will assign you an account check
number
o Mail us your original application (and resolution
form)
o Make an ACH payment
</TABLE>
8
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FORUM FUNDS
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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 $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or another identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase or exchange due to nonpayment.
SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation
BY WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your application) (See "By Telephone") OR
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone authorization
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you OR
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us 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.
9
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FORUM FUNDS
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SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain one from
most banking institutions or securities brokers, but not from a notary public.
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 withdrawals, 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),
the Fund may ask you to increase your balance. If the account value is still
below $1,000 ($500 for IRAs) after 60 days, the Fund may close your account and
send you the proceeds. The Fund will not close your account if it falls below
these amounts solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
SALES CHARGES
PURCHASES A sales charge is assessed on purchases of the Fund's shares as
follows:
SALES CHARGE (LOAD) AS % OF:
AMOUNT OF PUBLIC NET
PURCHASE OFFERING PRICE ASSET VALUE* REALLOWANCE%
$0 to $49,999 4.00 4.17 3.50
$50,000 to $99,999 3.50 3.63 3.00
$100,000 to $249,999 3.00 3.09 2.50
$250,000 to $499,999 2.50 2.56 2.10
$500,000 to $999,999 2.00 2.04 1.70
$1,000,000 and up 0.00 0.00 1.00
* Rounded to the nearest one-hundredth percent.
The offering price for the Fund's shares includes the relevant sales charge. The
commission paid to the distributor is the sales charge less the reallowance paid
to certain financial institutions purchasing shares as principal or agent.
Normally, reallowances are paid as indicated in the above table. From time to
time, however, the distributor may elect to reallow the entire sales charge for
all sales during a particular period.
From time to time and at its own expense, the distributor may provide
compensation, including financial assistance, to certain dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns or other dealer-sponsored special events.
Compensation may include the provision of travel arrangements and lodging,
tickets for entertainment events and merchandise.
REDEMPTIONS A contingent deferred sales charge ("CDSC") is assessed on
redemptions of shares that were part of a purchase of $1 million or more. The
CDSC is assessed as follows:
REDEEMED WITHIN SALES CHARGE
First year of purchase 1.00%
Second year of purchase 0.50%
10
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FORUM FUNDS
--------------------------------------------------------------------------------
The CDSC is paid on the lower of the NAV of shares redeemed or the cost of the
shares. To satisfy the redemption request, the Fund will first liquidate shares
that are not subject to a CDSC such as shares acquired with reinvested dividends
and capital gains. The Fund will then liquidate shares in the order that they
were purchased until your redemption request is satisfied.
REDUCED SALES CHARGES You may qualify for a reduced sales charge on Fund
purchases under rights of accumulation or a letter of intent. Certain persons
may also be eligible to purchase or redeem Fund shares without a sales charge.
Please see the SAI for further information.
EXCHANGE PRIVILEGES
You may exchange your Fund shares for shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that has a higher sales
charge than the Fund, you will have to pay the difference between that fund's
sales charge and the Fund's sales charge. If you exchange into a fund that has
no sales charge or a lower sales charge than the Fund, you will not have to pay
a sales charge at the time of exchange. Because exchanges are a sale and
purchase of shares, they may have tax consequences.
REQUIREMENTS You may make exchanges only between identically registered accounts
(name(s), address and taxpayer ID number). There is currently no limit on
exchanges, but the Fund reserves the right to limit exchanges. You may exchange
your shares by mail or 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.
HOW TO EXCHANGE
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account numbers
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
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
being made.
11
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FORUM FUNDS
--------------------------------------------------------------------------------
OTHER INFORMATION
DISTRIBUTIONS
The Fund distributes its net investment income annually and net capital gain at
least annually.
All distributions are reinvested in additional shares, unless you elect to
receive distributions in cash. For Federal income tax purposes, distributions
are treated the same whether they are received in cash or reinvested. Shares
become entitled to receive distributions on the day after the shares are issued.
TAXES
The Fund generally intends to operate in a manner such that it will not be
liable for Federal income or excise tax.
The Fund's distribution of net income (including short-term capital gain) is
taxable to you as ordinary income. The Fund's distribution of long-term capital
gain is taxable to you as long-term capital gain regardless of how long you have
held your Fund shares.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
The Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state and local tax matters, please see the SAI and consult your tax
adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal or Delaware law. Shareholders
of each series of the Trust are entitled to vote at shareholders' meetings
unless a matter relates only to specific series (such as approval of an advisory
agreement for the Fund). From time to time, large shareholders may control the
Fund or the Trust.
12
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FORUM FUNDS
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FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
The Fund's financial statements and the auditor's report are included in the
Annual Report dated May 31, 2000, which is available upon request, without
charge.
<TABLE>
<S> <C> <C> <C>
YEAR ENDED MAY 31,
2000 1999 1998(1)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $14.01 $11.69 $10.00
Income from Investment Operations:
Net investment income(2) 0.45 0.16 0.07
Net realized and unrealized gain on
investments 1.03 2.27 1.62
Total from Investment Operations 1.48 2.43 1.69
Less Distributions:
From net investment income (0.15) (0.11) --
From net realized capital gain (0.05) --(3) --
Total Distributions (0.20) (0.11) --
Ending Net Asset Value Per Share $15.29 $14.01 $11.69
OTHER INFORMATION
Ratios to Average Net Assets:
Expenses 0.25% 0.25% 0.25%(5)
Gross expenses (4) 1.08% 1.26% 2.25%(5)
Net investment income 1.12% 1.27% 1.41%(5)
Total Return(5) 10.55% 20.98% 16.90%
Portfolio Turnover Rate(6) 16% 4% 7%
Net Assets at End of Period (in thousands) $13,482 $11,127 $5,038
</TABLE>
(1) The Fund commenced operations on December 24, 1997.
(2) Includes the Fund's proportionate share of income and expenses of the
Portfolio.
(3) Less than $0.01 per share.
(4) Reflects expense ratios in the absence of fee waivers and expense
reimbursements.
(5) Annualized.
(6) Does not include sales charge.
(7) Information presented is that of the Portfolio in which the Fund
invests.
13
<PAGE>
<TABLE>
<S> <C>
FOR MORE INFORMATION FORUM
FUNDS
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS EQUITY INDEX FUND
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about the Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of both reports and the SAI, request other
information and discuss your questions about the Fund by contacting the
Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Portland, Maine 04112
(800) 94FORUM
(800) 943-6786
(207) 879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review the Fund's reports and SAI at the Public Reference
Room of the Securities and Exchange Commission ("SEC"). The scheduled
hours of operation of the Public Reference Room may be obtained by calling
the SEC at (202) 942-8090. You can get copies of this information, for a
fee, by e-mailing or by writing to :
Public Reference Room [LOGO]
Securities and Exchange Commission
Washington, D.C. 20549-6009 Forum Funds
E-mail address: [email protected] P.O. Box 446
Portland, Maine 04112
Free copies of the reports and SAI are available from the SEC's Internet (800) 94FORUM
Web Site at http://www.sec.gov. (800) 943-6786
(207) 879-0001
Investment Company Act File No. 811-3023
</TABLE>
<PAGE>
[LOGO]
POLARIS GLOBAL VALUE FUND
PROSPECTUS
OCTOBER 1, 2000
The Fund seeks capital appreciation by investing primarily in
common stock of companies worldwide.
The Fund does not pay Rule 12b-1 (distribution) fees.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THE FUND'S SHARES OR DETERMINED WHETHER THIS
PROSPECTUS IS ACCURATE OR COMPLETE.ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
POLARIS
CAPITAL MANAGEMENT, INC.
http://www.polarisfunds.com
<PAGE>
[LOGO] TABLE OF CONTENTS
RISK/RETURN SUMMARY 2
PERFORMANCE 3
FEE TABLES 4
INVESTMENT OBJECTIVE, PRINCIPAL
INVESTMENT STRATEGIES AND PRINCIPAL RISKS 5
MANAGEMENT 7
YOUR ACCOUNT 8
HOW TO CONTACT THE FUND 8
GENERAL INFORMATION 8
BUYING SHARES 9
SELLING SHARES 11
EXCHANGE PRIVILEGES 12
RETIREMENT ACCOUNTS 13
OTHER INFORMATION 14
FINANCIAL HIGHLIGHTS 15
<PAGE>
RISK/RETURN SUMMARY [LOGO]
INVESTMENT OBJECTIVE
Polaris Global Value Fund (the "Fund") seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Using a value-oriented approach, the Fund invests primarily in the common stock
of companies (including ADRs) located worldwide, including emerging market
countries. The Fund also selects investments based on the fundamental research
of a company's financial condition.
PRINCIPAL RISKS OF INVESTING IN THE FUND
GENERAL RISKS An investment in the Fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. You could lose money on your investment in the Fund or the
Fund could underperform other investments. The principal risks of an investment
in the Fund include:
o The U.S. or foreign stock markets go down
o Value stocks fall out of favor in the stock market
o The stock market does not recognize the growth potential of the stocks in
the Fund's portfolio
o The Fund's investment adviser (the "Adviser") may make poor investment
decisions
CONCEPTS TO UNDERSTAND
COMMON STOCK means an equity or ownership interest in a company.
VALUE INVESTING means to invest in stock of a company whose valuation measures
are low relative to that of comparable companies.
AMERICAN DEPOSITARY RECEIPT ("ADR") means a receipt for the shares of a
foreign-based company traded on a U.S. stock exchange.
FUNDAMENTAL RESEARCH means the analysis of a company's financial condition to
forecast the probable future value of its stock price. This analysis includes
review of a company's financial statements, asset history, earnings history,
product or service development, and management productivity.
RISKS OF FOREIGN SECURITIES Because investing in the securities of foreign
companies can have more risk than investing in U.S. based companies, an
investment in the Fund may have the following additional risks:
o Foreign securities may be subject to greater fluctuations in price than
securities of U.S. companies denominated in U.S. dollars
o There may not be sufficient public information regarding foreign companies
o Political and economic instability abroad may adversely affect the
operations of foreign companies and the value of their securities
o Changes in foreign tax laws, exchange controls and policies on
nationalization and expropriation may affect the operations of foreign
companies and the value of their securities
o Fluctuations in currency exchange rates may adversely affect the value of
foreign securities
These risks may be greater for investments in securities of issuers located in
emerging or developing markets.
WHO MAY WANT TO INVEST IN THE FUND
The Fund may be appropriate for you if you:
o Are willing to tolerate significant changes in the value of your investment
o Are pursuing a long-term goal
o Are willing to accept higher short-term risk
The Fund may not be appropriate for you if you:
o Cannot tolerate the risks of global investments
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
2
<PAGE>
[LOGO] PERFORMANCE
The following chart illustrates the variability of the Fund's returns. The chart
and the table provide some indication of the risks of investing in the Fund by
showing changes in the Fund's performance from year to year and how the Fund's
returns compare to a broad measure of market performance.
On June 1, 1998 a limited partnership managed by the Adviser reorganized into
the Fund. The predecessor limited partnership maintained an investment objective
and investment policies that were, in all material respects, equivalent to those
of the Fund. The Fund's performance for periods before June 1, 1998 is that of
the limited partnership and includes the expenses of the limited partnership. If
the limited partnership's performance had been readjusted to reflect the first
year expenses of the Fund, the Fund's performance for all periods except "Since
Inception" would have been lower. The limited partnership was not registered
under the Investment Company Act of 1940 ("1940 Act") and was not subject to
certain investment limitations, diversification requirements, and other
restrictions imposed by the 1940 Act and the Internal Revenue Code, which, if
applicable, may have adversely affected its performance.
Performance information represents only past performance and does not
necessarily indicate future results.
[EDGAR Representation of Bar Chart]
1990 -11.74%
1991 17.18%
1992 9.78%
1993 25.70%
1994 -2.78%
1995 31.82%
1996 23.34%
1997 34.55%
1998 -8.85%
1999 16.50%
The calendar year-to-date total return as of June 30, 2000 was -3.59%.
During the periods shown in the chart, the highest quarterly return was 20.46%
(for the quarter ended June 30, 1997) and the lowest quarterly return was
-20.04% (for the quarter ended September 30, 1998).
The following table compares the Fund's average annual total return as of
December 31, 1999 to the Morgan Stanley Capital International World Index
("MSCI").Unlike the performance figures of the Fund, MSCI's performance does not
reflect the effect of expenses.
MSCI is a market index of a diverse range of global stock markets in the United
States, Canada, Europe, Australia, New Zealand and the Far East. MSCI is
unmanaged and reflects the reinvestment of dividends.
YEAR(S) POLARIS GLOBAL VALUE FUND MSCI
1 Year 16.50% 24.94%
5 Years 18.36% 19.76%
10 Years 12.42% 11.42%
Since Inception (July 31, 1989) 11.76% 11.36%
3
<PAGE>
FEE TABLES [LOGO]
The following tables describe the various fees and expenses that you will pay if
you invest in the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of the offering price) 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 (1)
(expenses that are deducted from Fund assets)
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses(1) 1.12%
TOTAL ANNUAL FUND OPERATING EXPENSES (2) 2.12%
(1) Based on amounts incurred during the Fund's fiscal year ended May 31,
2000 stated as a percentage of assets.
(2) The Adviser has voluntarily waived a portion of its fee so that Total
Annual Fund Operating Expenses do not exceed 1.75%.Fee waivers may be
reduced or eliminated at any time.
EXAMPLE
The following is a hypothetical example intended to help you compare the cost of
investing in the Fund to the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of each period. The
example also assumes that your investment has a 5% annual return, that the
Fund's operating expenses remain as stated in the table above and that
distributions are reinvested. Although your actual costs may be higher or lower,
under these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$215 $664 $1,139 $2,452
4
<PAGE>
INVESTMENT OBJECTIVE,
[LOGO] PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
THE ADVISER'S PROCESS The Adviser uses a three-step process to identify
potential investments for the Fund. First, the Adviser uses a global valuation
model to identify the most undervalued countries and industries based on
corporate earnings, yield, inflation, interest rates, and other variables.
Second, the Adviser uses traditional valuation measures such as price/book
ratios, price/cash flow ratios and price/sales ratios to analyze its database of
more than 20,000 global companies. The Adviser uses these measures to identify
approximately 500 companies with the greatest potential for undervalued streams
of sustainable cash flow. Finally, the Adviser uses fundamental research to
select 50 to 100 companies in which the Fund invests.
The Fund will generally hold investments for three to five years. The Adviser
monitors the companies in the Fund's portfolio as well as those companies on a
"watch list." The "watch list" is comprised of approximately 250 companies in
which the Fund may potentially invest in the future. If a company held by the
Fund no longer meets the Adviser's valuation and fundamental criteria or it
becomes less attractively valued than a company on the "watch list," it may be
sold in favor of an investment in a company on the "watch list."
CONCEPTS TO UNDERSTAND
CASH FLOW means a company's cash revenue minus its cash expenses.
PRICE/BOOK RATIO means the price of a stock divided by company's book value.
PRICE/CASH FLOW RATIO means the price of a stock divided by cash flow per share.
PRICE/SALES RATIO means the price of a stock divided by the company's annual
sales per share.
INVESTMENT POLICIES Under normal conditions, the Fund invests primarily in
common stock (including ADRs) of companies worldwide. Although there is no limit
on the amount of Fund assets that may be invested in companies located in any
one country, to achieve broad diversification, the Fund typically invests in 10
to 12 countries.
The Fund may invest in companies located in emerging or developing markets.
Emerging or developing markets are generally markets that are not included in
the MSCI. Currently, the markets included in that index are Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom and the United States.
As a globally diversified fund, the Adviser attempts to provide you with sound
diversification and above average return. In addition, by using a pure value
philosophy, the Adviser attempts to provide you with a portfolio that performs
well even during negative movements in stock markets.
TEMPORARY DEFENSIVE MEASURES In order to respond to adverse market, economic, or
other conditions, the Fund may assume a temporary defensive position and invest
without limit in cash and prime quality cash equivalents such as commercial
paper and other money market instruments. As a result, the Fund may be unable to
achieve its investment objective.
5
<PAGE>
[LOGO]
PRINCIPAL INVESTMENT RISKS
GENERAL The Fund's net asset value and total return will fluctuate based upon
changes in the value of its portfolio securities. The market value of securities
in which the Fund invests is based upon the market's perception of value and is
not necessarily an objective measure of a security's value. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund is not by itself a complete or balanced investment program. Finally,
there is also the risk that the Adviser may make poor investment decisions.
RISKS OF FOREIGN SECURITIES Because the Fund invests in foreign securities, an
investment in the Fund may have the following additional risks:
o Foreign securities may be subject to greater fluctuations in price than
securities of U.S. companies because foreign markets may be smaller and
less liquid than U.S. markets
o Changes in foreign tax laws, exchange controls, and policies on
nationalization and expropriation may affect the operations of foreign
companies and the value of their securities
o Fluctuations in currency exchange rates and currency transfer restitution
may adversely affect the value of the Fund's investments in foreign
securities
o Foreign securities and their issuers are not subject to the same degree of
regulation as U.S. issuers regarding information disclosure, insider
trading and market manipulation. There may be less publicly available
information on foreign companies and foreign companies may not be subject
to uniform accounting, auditing, and financial standards as are U.S.
companies
o Foreign securities registration, custody and settlements may be subject to
delays or other operational and administrative problems
o Certain foreign brokerage commissions and custody fees may be higher than
those in the U.S.
RISKS OF INVESTMENT IN EMERGING MARKETS Because investing in emerging markets
can have more risk than investing in developed foreign markets, an investment in
the Fund may have the following additional risks:
o Information about the companies in these countries is not always readily
available
o Stocks of companies traded in these countries may be less liquid and the
prices of these stocks may be more volatile than the prices of the stocks
in more established markets
o Greater political and economic uncertainties exist in emerging markets than
in developed foreign markets
o The securities markets and legal systems in emerging markets may not be
well developed and may not provide the protections and advantages of the
markets and systems available in more developed countries
o Very high inflation rates may exist in emerging markets and could
negatively impact a country's economy and securities markets
For these and other reasons, the prices of securities in emerging markets can
fluctuate more significantly than the prices of securities of companies in
developed countries. The less developed the country, the greater effect these
risks may have on your investment in the Fund. As a result, an investment in the
Fund may exhibit a higher degree of volatility than either the general domestic
securities market or the securities markets of developed foreign countries.
6
<PAGE>
[LOGO] 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 Polaris Capital Management, Inc., 125 Summer Street,
Boston, Massachusetts 02110. The Adviser is a privately owned company controlled
by Bernard R. Horn, Jr.
Subject to the general control of the Board, the Adviser makes investment
decisions for the Fund. The Adviser receives an advisory fee of 1.00% of the
average daily net assets of the Fund. For the fiscal year ended May 31, 2000,
the Adviser waived a portion of its fee and only received an advisory fee of
0.63% of the Fund's daily net assets. As of June 30, 2000 the Adviser had
approximately $85 million of assets under management.
PORTFOLIO MANAGER
BERNARD R. HORN, JR. President and Chief Portfolio Manager of the Adviser since
1995. Mr. Horn has been responsible for the day-to-day management of the Fund
since its inception in 1998 and of the predecessor limited partnership. Mr. Horn
has over 20 years of experience in the investment industry, and prior to his
establishment of the Adviser, Mr. Horn was a portfolio manager and investment
officer at MDT Advisers, Inc. Prior to that, Mr. Horn was vice president and a
portfolio manager at Freedom Capital Management Corp.
OTHER SERVICE PROVIDERS
Forum Financial Group, LLC and its affiliates (collectively "Forum") provide
services to the Fund. As of June 30, 2000, Forum provided administration and
distribution services to investment companies and collective investment funds
with assets of approximately $120 billion.
Forum Fund Services, LLC, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., is the distributor (principal
underwriter) of the Fund's shares. The distributor acts as the representative of
the Trust in connection with the offering of the Fund's shares. The distributor
may enter into arrangements with banks, broker-dealers or other financial
institutions through which investors may purchase or redeem shares and may, at
its own expense, compensate persons who provide services in connection with the
sale or expected sale of the Funds' 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.
FUND EXPENSES
The Fund pays for all of its expenses. The Fund's expenses are comprised of its
own expenses as well as Trust expenses that are allocated among the Fund and the
other funds of the Trust. The Adviser or other service providers may waive all
or any portion of their fees and/or reimburse certain expenses of the Fund. Any
waiver or expense reimbursement increases the Fund's performance for the period
during which the waiver or reimbursement is in effect.
The Adviser has undertaken to waive a portion of its fees and/or reimburse
certain expenses in order to limit the Fund's expenses (excluding taxes,
interest, portfolio transaction expenses and extraordinary expenses) to 1.75% or
less of the average daily net assets of the Fund. Waivers may be reduced or
eliminated at any time.
7
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YOUR ACCOUNT [LOGO]
HOW TO CONTACT THE FUND
WRITE TO US AT:
Polaris Global Value Fund
P.O. Box 446
Portland, Maine 04112
OVERNIGHT ADDRESS:
Polaris Global Value Fund
Two Portland Square
Portland, Maine 04101
TELEPHONE US AT:
(888) 263-5594 (toll free)
(207) 879-0001
WIRE INVESTMENTS (OR ACH PAYMENTS) TO:
Bankers Trust Company
New York, New York
ABA #021001033
FOR CREDIT TO:
Forum Shareholder Services, LLC
Account # 01-465-547
Re: Polaris Global Value Fund
(Your Name)
(Your Account Number)
GENERAL INFORMATION
You may purchase or sell (redeem) shares at the net asset value of a share
("NAV") next calculated after the Transfer Agent receives your request in proper
form. For instance, if the Transfer Agent receives your purchase request in
proper form after 4:00 p.m. Eastern time, your transaction will be priced at the
next business day's NAV. The Fund cannot accept orders that request a particular
day or price for the transaction or any other special conditions.
The Fund does not issue share certificates.
If you purchase shares directly from the Fund, you will receive quarterly
statements and a confirmation of each transaction. You should verify the
accuracy of all transactions in your account as soon as you receive your
confirmations.
The Fund reserves the right to waive minimum investment amounts and may
temporarily suspend (during unusual market conditions) or discontinue any
service or privilege.
WHEN AND HOW NAV IS DETERMINED The Fund calculates its NAV as of the close of
the New York Stock Exchange (normally 4:00 p.m., Eastern Time) on each weekday
except days when the New York Stock Exchange is closed. The time at which NAV is
calculated may be changed in case of an emergency. The Fund's NAV is determined
by taking the market value of all securities owned by the Fund (plus all other
assets such as cash), subtracting liabilities and then dividing the result (net
assets) by the number of shares outstanding. The Fund values securities for
which market quotations are readily available at current market value. If market
quotations are not readily available, the Fund values securities at fair value
pursuant to procedures adopted by the Board.
TRANSACTIONS THROUGH THIRD PARTIES If you invest through a broker or other
financial institution, the policies and fees charged by that institution may be
different than those of the Fund. Financial institutions may charge transaction
fees and may set different minimum investment amounts 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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<PAGE>
BUYING SHARES
HOW TO MAKE PAYMENTS All investments must be in U.S. dollars and checks must be
drawn on U.S. banks.
CHECKS For individual, sole proprietorship, joint, Uniform Gift to Minors Act
("UGMA") or Uniform Transfer to Minors Act ("UTMA") accounts, the check must be
made payable to "Polaris Global Value Fund" or to one or more owners of the
account and endorsed to "Polaris Global Value Fund." For all other accounts, the
check must be made payable on its face to "Polaris Global Value 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 payment by telephone, the Transfer Agent will
automatically debit your pre-designated bank account for the desired amount.
Your financial institution may charge you a fee for this service. You may call
(888) 263-5594 or (207) 879-0001 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:
MINIMUM MINIMUM
INITIAL ADDITIONAl
INVESTMENT INVESTMENT
Standard Account $2,500 $250
Traditional and Roth IRA Accounts $2,000 $250
Accounts With Systematic Investment Plans $2000 $250
9
<PAGE>
ACCOUNT REQUIREMENTS
<TABLE>
<S> <C>
TYPE OF ACCOUNT REQUIREMENT
INDIVIDUAL, SOLE PROPRIETORSHIP AND JOINT ACCOUNTS o Instructions must be signed by all persons
Individual accounts are owned by one person, as are sole required to sign exactly as their names appear on
proprietorship accounts. Joint accounts have two or more the account
owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA) o Depending on state laws, you can set up a
These custodial accounts provide a way to give money to a custodial account under the UGMA or the UTMA
child and obtain tax benefits. o The custodian must sign instructions in a
manner indicating custodial capacity
BUSINESS ENTITIES o Submit a Corporate/Organization Resolution form or
similar document
TRUSTS o The trust must be established before an
account can be opened
o Provide a certified trust document, or the
pages from the trust document that identify the
trustees
INVESTMENT PROCEDURES
HOW TO OPEN AN ACCOUNT HOW TO ADD TO YOUR ACCOUNT
BY CHECK BY CHECK
o Call or write us for an account application (and o Fill out an investment slip from a confirmation or
Corporate Organization/Resolution form if applicable) write us a letter
o Complete the application (and resolution form) o Write your account number on your check
o Mail us your application (and resolution form) and a o Mail us the slip (or your letter) and the check
check
BY WIRE BY WIRE
o Call or write us for an account application (and o Call to notify us of your incoming wire
Corporate Organization/Resolution form if applicable) o Instruct your bank to wire your money to us
o Complete the application (and resolution form)
o Call us to fax the completed application (and
resolution form) and we will assign you an account number
o Mail us your application (and resolution form)
o Instruct your bank to wire your money to us
BY ACH PAYMENT BY AUTOMATIC INVESTMENT
o Call or write us for an account application (and o Complete the systematic investment section
Corporate Organization/Resolution form if applicable) of the application
o Complete the application (and resolution form) o Attach a voided check to your application
o Call us to fax the completed application (and o Mail us the completed application and
resolution form) and we will assign you an account number voided check
o Mail us your original application (and resolution
form)
o Make an ACH payment
</TABLE>
10
<PAGE>
[LOGO]
SYSTEMATIC INVESTMENTS You may invest a specified amount of money in the Fund
once or twice a month on specified dates. These payments are taken from your
bank account by ACH payment. Systematic investments must be for at least $250.
LIMITATIONS ON PURCHASES The Fund reserves the right to refuse any purchase
(including exchange) request, particularly requests that could adversely affect
the Fund or its operations. This includes those from any individual or group
who, in the Fund's view, is likely to engage in excessive trading (including two
or more substantial redemptions or exchanges out of the Fund followed by
substantial repurchases into the Fund within a calendar year).
CANCELED OR FAILED PAYMENTS The Fund accepts checks and ACH transfers at full
value subject to collection. If the Fund does not receive your payment for
shares, or you pay with a check or ACH transfer that does not clear, your
purchase will be canceled. You will be responsible for any losses or expenses
incurred by the Fund or the Transfer Agent, and the Fund may redeem shares you
own in the account (or another identically registered account that you maintain
with the Transfer Agent) as reimbursement. The Fund and its agents have the
right to reject or cancel any purchase or exchange due to nonpayment.
SELLING SHARES
The Fund processes redemption orders promptly. Generally, the Fund will send
redemption proceeds to you within a week. Delays may occur in cases of very
large redemptions, excessive trading or during unusual market conditions. If the
Fund has not yet collected payment for the shares you are selling, it may delay
sending redemption proceeds for up to 15 calendar days.
HOW TO SELL SHARES FROM YOUR ACCOUNT
BY MAIL
o Prepare a written request including:
o Your name(s) and signature(s)
o Your account number
o The Fund name
o The dollar amount or number of shares you want to sell
o How and where to send the redemption proceeds
o Obtain a signature guarantee (if required)
o Obtain other documentation (if required)
o Mail us your request and documentation BY
WIRE
o Wire redemptions are only available if your redemption is for $5,000 or
more and you did not decline wire redemption privileges on your account
application
o Call us with your request (unless you declined telephone redemption
privileges on your account application) (See "By Telephone") or
o Mail us your request (See "By Mail")
BY TELEPHONE
o Call us with your request (unless you declined telephone redemption
privileges on your account application)
o Provide the following information:
o Your account number
o Exact name(s) in which the account is registered
o Additional form of identification
o Redemption proceeds will be:
o Mailed to you OR
o Wired to you (unless you declined wire redemption privileges on your
account application) (See "By Wire")
SYSTEMATICALLY
o Complete the systematic withdrawal section of the application
o Attach a voided check to your application
o Mail us your completed application
WIRE REDEMPTION PRIVILEGES You may redeem your shares by wire unless you
declined wire redemption privileges on your account application. The minimum
amount that may be redeemed by wire is $5,000.
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<PAGE>
[LOGO]
TELEPHONE REDEMPTION PRIVILEGES You may redeem your shares by telephone unless
you declined telephone redemption privileges on your account application. You
may be responsible for any fraudulent telephone order as long as the Transfer
Agent takes reasonable measures to verify the order.
SYSTEMATIC WITHDRAWALS You may redeem a specified amount of money from your
account once a month on a specified date. These payments are sent from your
account to a designated bank account by ACH payment. Systematic withdrawals must
be for at least $250.
SIGNATURE GUARANTEE REQUIREMENTS To protect you and the Fund against fraud,
signatures on certain requests must have a "signature guarantee." A signature
guarantee verifies the authenticity of your signature. You can obtain a
signature guarantee 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 withdrawals, 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),
the Fund may ask you to increase your balance. If the account value is still
below $1,000 ($500 for IRA's) after 60 days, the Fund may close your account and
send you the proceeds. The Fund will not close your account if it falls below
these amounts solely as a result of a reduction in your account's market value.
REDEMPTIONS IN KIND The Fund reserves the right to pay redemption proceeds in
portfolio securities rather than in cash. These redemptions "in kind" usually
occur if the amount to be redeemed is large enough to affect the Fund's
operations (for example, if it represents more than 1% of the Fund's assets).
LOST ACCOUNTS The Transfer Agent will consider your account lost if
correspondence to your address of record is returned as undeliverable, unless
the Transfer Agent determines your new address. When an account is lost, all
distributions on the account will be reinvested in additional Fund shares. In
addition, the amount of any outstanding (unpaid for six months or more) checks
for distributions that have been returned to the Transfer Agent will be
reinvested and the checks will be canceled.
EXCHANGE PRIVILEGES
You may exchange your Fund shares for shares of another fund of the Trust by
telephone or in writing. For a list of funds available for exchange, you may
call the Transfer Agent. If you exchange into a fund that imposes a sales
charge, you will have to pay that fund's sales charge at the time of exchange.
Because exchanges are treated as a sale and purchase of shares, they may have
tax consequences.
12
<PAGE>
[LOGO]
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 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.
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 Obtain a signature guarantee if required
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 the account is registered
o Additional form of identification
RETIREMENT ACCOUNTS
The Fund offers IRA accounts, including both 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 in which the contribution
is being made.
13
<PAGE>
OTHER INFORMATION [LOGO]
DISTRIBUTIONS
The Fund distributes its net investment income 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. Distributions may also be subject to certain state and
local taxes.
The Fund's distribution of net income generated by investments in foreign
securities may be subject to foreign income or other taxes.
If you buy shares shortly before the Fund makes a distribution, you may pay the
full price for the shares and then receive a portion of the price back as a
distribution that may be taxable to you. The sale or exchange of Fund shares is
a taxable transaction for income tax purposes.
The Fund will send you information about the income tax status of distributions
paid during the year shortly after December 31 of each year.
For further information about the tax effects of investing in the Fund,
including state and local tax matters, please see the SAI and consult your tax
adviser.
ORGANIZATION
The Trust is a Delaware business trust. The Fund does not expect to hold
shareholders' meetings unless required by Federal or Delaware law. Shareholders
of each series are entitled to vote at shareholders' meetings unless a matter
relates only to specific series (such as approval of an advisory agreement for
the Fund). From time to time, large shareholders may control the Fund or the
Trust.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The following table is intended to help you understand the Fund's financial
performance. Total return in the table represents the rate an investor would
have earned (or lost) on an investment in the Fund (assuming the reinvestment of
all distributions). This information has been audited by Deloitte & Touche LLP.
The Fund's financial statements and the auditor's report are included in the
Fund's Annual Report dated May 31, 2000, which is available upon request,
without charge.
YEAR ENDED MAY 31,
2000 1999(1)
SELECTED DATA FOR A SINGLE SHARE
Beginning Net Asset Value Per Share $8.61 $10.00
Income from Investment Operations:
Net Investment Income 0.07 0.06
Net Realized and Unrealized Gain
(loss) on Investments 0.32 (1.27)
Total from Investment Operations 0.39 (1.21)
Less Distributions:
From Net Investment Income (0.31) (0.04)
From Net Realized Capital Gain (0.34) (0.14)
Total Distributions (0.65) (0.18)
Ending Net Asset Value Per Share $8.35 $8.61
OTHER INFORMATION
Ratios to Average Net Assets:
Expenses 1.75% 1.75%
Gross Expenses(2) 2.12% 2.06%
Net Investment Income 0.70% 0.63%
Total Return 4.37% (11.95)%
Portfolio Turnover Rate 38% 51%
Net Assets at End of Period (in thousands) $19,267 $19,388
(1) The Fund commenced operations on June 1, 1998.
(2) Reflects expense ratio in the absence of fee waivers and
expense reimbursements.
15
<PAGE>
FOR MORE INFORMATION
The following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report,
you will find a discussion of the market conditions and investments strategies
that significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The SAI provides more detailed information about the Fund and is
incorporated by reference into this Prospectus.
CONTACTING THE FUND
You can get a free copy of both the report and SAI, request other information
and discuss your questions about the Fund by contacting the Fund at:
FORUM SHAREHOLDER SERVICES, LLC
P.O. Box 446
Two Portland Square
Portland, ME 04112
888-263-5594
207-879-0001
SECURITIES AND EXCHANGE COMMISSION INFORMATION
You can also review the Fund's report and SAI at the Public Reference Room
of the Securities and Exchange Commission ("SEC"). The scheduled hours of
operation of the Public Reference Room may be obtained by calling the SEC
at 202-942-8090. You can get copies of this information, for a fee, by e-mail or
writing to:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-6009
E-mail address: [email protected]
Free copies of the reports and SAI are available from the SEC's Internet
website at http://www.sec.gov
Investment Company Act File No. 811-3023
<PAGE>
[FORUM STATEMENT OF ADDITIONAL INFORMATION
LOGO]
OCTOBER 1, 2000
INVESTMENT ADVISER:
Brown Investment Advisory & Trust BROWNIA SMALL-CAP GROWTH FUND
Company
Furness House BROWNIA GROWTH EQUITY FUND
19 South Street
Baltimore, Maryland 21202
ACCOUNT INFORMATION AND SHAREHOLDER
SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(207) 879-0001
(800) 540-6807
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated October 1, 2000, as may be amended from to time, offering shares of
BrownIA Small-Cap Growth Fund and BrownIA Growth Equity Fund, two separate
series of Forum Funds, a registered, open-end management investment company.
This SAI is not a prospectus and should only be read in conjunction with the
Prospectus. You may obtain the Prospectus without charge by contacting Forum
Shareholder Services, LLC at the address or telephone number listed above.
Financial Statements for each Fund for the year ended May 31, 2000, are included
in the Annual Report to shareholders, and are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
GLOSSARY 1
INVESTMENT POLICIES AND RISKS 2
INVESTMENT LIMITATIONS 7
PERFORMANCE DATA AND ADVERTISING 9
MANAGEMENT 13
PORTFOLIO TRANSACTIONS 18
PURCHASE AND REDEMPTION INFORMATION 21
TAXATION 22
OTHER MATTERS 27
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS A-1
APPENDIX B - MISCELLANEOUS TABLES B-1
APPENDIX C - PERFORMANCE DATA C-1
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Brown Investment Advisory & Trust Company.
"Board" means the Board of Trustees of the Trust.
"CFTC" means Commodities Future Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means the custodian of each Fund's assets.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of
each Fund.
"FAdS" means Forum Administrative Services, LLC, the administrator of
each Fund.
"FFS" means Forum Fund Services, LLC, the distributor of each Fund's
shares.
"Fitch" means Fitch IBCA, Inc.
"FSS" means Forum Shareholder Services, LLC, the transfer agent of each
Fund.
"Fund" means BrownIA Small-Cap Growth Fund or BrownIA Growth Equity
Fund.
"IRS" means Internal Revenue Service.
"Moody's" means Moody's Investors Service.
"NAV" means net asset value per share.
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's Corporation, A Division of the McGraw
Hill Companies.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
1
<PAGE>
INVESTMENT POLICIES AND RISKS
Each Fund is a diversified series of the Trust. This section discusses in
greater detail than the Funds' Prospectus certain investments that the Funds can
make.
SECURITY RATINGS INFORMATION
Each Fund's investments in convertible and other debt securities are subject to
the credit risk relating to the financial condition of the issuers of the
securities that each Fund holds. To limit credit risk, each Fund may only invest
in: (1) convertible and other debt securities that are rated "Baa" or higher by
Moody's or "BBB" or higher by S&P at the time of purchase; and (2) preferred
stock rated "baa" or higher by Moody's or "BBB" or higher by S&P at the time of
purchase. Each Fund may purchase unrated convertible securities if, at the time
of purchase, the Adviser believes that they are of comparable quality to rated
securities that the Fund may purchase.
Unrated securities may not be as actively traded as rated securities. A Fund may
retain securities whose rating has been lowered below the lowest permissible
rating category (or that are unrated and determined by the Adviser to be of
comparable quality to securities whose rating has been lowered below the lowest
permissible rating category) if the Adviser determines that retaining such
security is in the best interests of the Fund. Because a downgrade often results
in a reduction in the market price of the security, the sale of a downgraded
security may result in a loss.
Moody's, S&P and other NRSROs are private services that provide ratings of the
credit quality of debt obligations, including convertible securities. A
description of the range of ratings assigned to various types of bonds and other
securities by several NRSROs is included in Appendix A to this SAI. Each Fund
may use these ratings to determine whether to purchase, sell or hold a security.
Ratings are general and are not absolute standards of quality. Securities with
the same maturity, interest rate and rating may have different market prices. If
an issue of securities ceases to be rated or if its rating is reduced after it
is purchased by a Fund, the Adviser will determine whether the Fund should
continue to hold the obligation. To the extent that the ratings given by an
NRSRO may change as a result of changes in such organizations or their rating
systems, the Adviser will attempt to substitute comparable ratings. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
EQUITY SECURITIES
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 a Fund,
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you should be willing to accept the risks of the stock market and should
consider an investment in the Fund only as a part of your overall investment
portfolio.
CONVERTIBLE SECURITIES
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: (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities; (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics;
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, a Fund will be required to permit
the issuer to redeem the security, convert it into the underlying common stock
or sell it to a third party.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
WARRANTS
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 of the warrant 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.
DEPOSITARY RECEIPTS
GENERAL. Each 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. Each 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 depository of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
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FOREIGN SECURITIES
Each 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 a
Fund's assets.
In addition, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
you. Some foreign brokerage commissions and custody fees are higher than those
in the United States. Foreign accounting, auditing and financial reporting
standards differ from those in the United States and therefore, less information
may be available about foreign companies than is available about issuers of
comparable U.S. companies. Foreign securities also may trade less frequently and
with lower volume and may exhibit greater price volatility than United States
securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by a Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies and a Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar after a Fund's income has been earned and computed in
U.S. dollars may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time a Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
OPTIONS AND FUTURES
GENERAL
A Fund may purchase or write put and call options, futures and options on
futures to: (1) enhance the Fund's performance; or (2) 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. A 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 a Fund must be
traded on an exchange or over-the-counter.
A Fund may invest in futures contracts on market indices based in whole or in
part on securities in which the Fund may invest. A Fund may also purchase or
write put and call options on these futures contracts.
Options and futures contracts 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 income strategy will achieve its intended
result.
Currently, each Fund has no intention of investing in options or futures for
purposes other than hedging. If a Fund will be financially exposed to another
party due to its investments in options or futures, the Fund will maintain
either: (1) an offsetting ("covered") position in the underlying security or an
offsetting option or futures contract; or (2) cash, receivables and liquid debt
securities with a value sufficient at all times to cover its potential
obligations. A Fund will comply with SEC guidelines with respect to coverage of
these strategies and, if the guidelines require, will set aside cash, liquid
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
a Fund's assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
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OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
(or index) underlying the option at a specified price at any time during the
term of the option. The writer of the call option, who receives the premium, has
the obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price. A put option gives its purchaser, in
return for a premium, the right to sell the underlying security at a specified
price during the term of the option. The writer of the put, who receives the
premium, has the obligation to buy, upon exercise of the option, the underlying
security (or a cash amount equal to the value of the index) at the exercise
price. The amount of a premium received or paid for an option is based upon
certain factors including the market price of the underlying security, the
relationship of the exercise price to the market price, the historical price
volatility of the underlying security, the option period and interest rates.
OPTIONS ON 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 a security, at a specified exercise
price at any time during the period of the option. Upon exercise of the option,
the delivery of the futures position to the holder of the option will be
accompanied by transfer to the holder of an accumulated balance representing the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future.
FUTURES CONTRACTS AND INDEX FUTURES CONTRACTS. A futures contract is a bilateral
agreement where one party agrees to accept, and the other party agrees to make,
delivery of cash or an underlying debt security, as called for in the contract,
at a specified date and at an agreed upon price. An index futures contract
involves the delivery of an amount of cash equal to a specified dollar amount
multiplied by the difference between the index value at the close of trading of
the contract and 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.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which a
Fund invests; and (4) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder a Fund's ability to limit exposures by closing its positions.
The potential loss to a Fund from investing in certain types of futures
transactions is unlimited.
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price, and the possible loss of the entire premium paid for options
purchased by the Fund. In addition, the futures exchanges may limit the amount
of fluctuation permitted in certain futures contract prices or related options
during a single trading day. A Fund may be forced, therefore, to liquidate or
close out a futures contract position at a disadvantageous price. There is no
assurance that a counterparty in an over-the-counter option transaction will be
able to perform its obligations. A Fund may use various futures contracts that
are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active
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secondary market in those contracts will develop or continue to exist. A Fund's
activities in the futures and options markets may result in higher portfolio
turnover rates and additional brokerage costs, which could reduce a Fund's
yield.
BORROWING
GENERAL
Each Fund may borrow money from a bank in amounts up to 33 1/3% of the Fund's
total assets. 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.
RISKS
Borrowing creates the risk of magnified capital losses. If a 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. A 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 a Fund's investment portfolio, the
benefit of borrowing will be reduced, and, if the interest expense is incurred
as a result of borrowing were to exceed the net return to investors, a 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 a Fund due to borrowing will depend on
the amount borrowed. The greater the percentage borrowed, the greater potential
of gain or loss to a Fund.
ILLIQUID AND RESTRICTED SECURITIES
GENERAL
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which a Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act
("restricted securities").
RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and a Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. A Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying 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.
DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer.
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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.
TEMPORARY DEFENSIVE POSITION
Each Fund may invest in prime quality money market instruments, pending
investment of cash balances. Each Fund may also assume a temporary defensive
position and may invest without limit in prime quality money market instruments.
Prime quality instruments are those instruments that are rated in one of the two
highest short-term rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which each Fund may invest
include short-term U.S. Government Securities, commercial paper, bankers'
acceptances, certificates of deposit, interest-bearing savings deposits of
commercial banks, repurchase agreements concerning securities in which the Fund
may invest and money market mutual funds.
CORE AND GATEWAY(R)
Each Fund may seek to achieve its investment objective by converting to a Core
and Gateway structure. A Fund operating under a Core and Gateway structure
holds, as its only investment, shares of another investment company having
substantially the same investment objective and policies. The Board will not
authorize conversion to a Core and Gateway structure if it would materially
increase costs to a Fund's shareholders. The Board will not convert a Fund to a
Core and Gateway structure without notice to the shareholders.
INVESTMENT LIMITATIONS
For purposes of all investment policies of each Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of a Fund's assets or purchases and redemptions of shares will not be considered
a violation of the limitation.
A fundamental policy of a Fund and the Fund's investment objective cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. A nonfundamental
policy of a Fund may be changed by the Board without shareholder approval.
FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations, that cannot be
changed by the Board without shareholder approval. Each Fund may not:
BORROWING MONEY
Borrow money if, as a result, outstanding borrowings would exceed an amount
equal to 33 1/3% of the Fund's total assets.
CONCENTRATION
Purchase a security if, as a result, more than 25% of the Fund's total assets
would be invested in securities of issuers conducting their principal business
activities in the same industry. For purposes of this limitation, there is no
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limit on: (1) 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 (2) investments in issuers
domiciled in a single jurisdiction. Notwithstanding anything to the contrary, to
the extent permitted by the 1940 Act, a 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.
DIVERSIFICATION
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: (1)
more than 5% of the Fund's total assets would be invested in the securities of a
single issuer; or (2) the Fund would own more than 10% of the outstanding voting
securities of a single issuer.
UNDERWRITING ACTIVITIES
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.
MAKING LOANS
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.
PURCHASES AND SALES OF REAL ESTATE
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).
PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
purchasing or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities).
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except pursuant to Section 18 of the 1940 Act.
NON-FUNDAMENTAL LIMITATIONS
Each Fund has adopted the following investment limitations that may be changed
by the Board without shareholder approval. Each Fund may not:
SECURITIES OF INVESTMENT COMPANIES
Invest in the securities of any investment company except to the extent
permitted by the 1940 Act.
SHORT SALES
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.
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ILLIQUID SECURITIES
Invest more than 15% of its net assets in illiquid assets such as: (1)
securities that cannot be disposed of within seven days at their then-current
value; (2) repurchase agreements not entitling the holder to payment of
principal within seven days; and (3) 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. Each Fund may treat
certain restricted securities as liquid pursuant to guidelines adopted by the
Board.
PURCHASES ON MARGIN
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.
BORROWING
Purchase or otherwise acquire any security if, the total of borrowings would
exceed 5% of the value of its total assets.
OPTIONS AND FUTURES CONTRACTS
Invest in options contracts regulated by the CFTC except for: (1) bona fide
hedging purposes within the meaning of the rules of the CFTC; and (2) for other
purposes if, as a result, no more than 5% of the Fund's net assets would be
invested in initial margin and premiums (excluding amounts "in-the-money")
required to establish the contracts.
A Fund: (1) will not hedge more than 50% of its total assets by selling futures
contracts, buying put options and writing call options (so called "short
positions"); (2) will not buy futures contracts or write put options whose
underlying value exceeds 25% of the Fund's total assets; and (3) will not buy
call options with a value exceeding 5% of the Fund's total assets.
EXERCISING CONTROL OF ISSUERS
Make investments for the purpose of exercising control of an issuer. Investments
by a 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.
PERFORMANCE DATA AND ADVERTISING
PERFORMANCE DATA
A Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
A Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, Inc., iMoneyNet, Inc. (IBC Financial Data, Inc.),
CDA/Wiesenberger or other companies which track the investment
performance of investment companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley Capital
International - Europe, Australasia 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.
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Performance information may be presented numerically or in a table, graph or
similar illustration.
Indices are not used in the management of a Fund but rather are standards by
which the Fund's Adviser and shareholders may compare the performance of the
Fund to an unmanaged composite of securities with similar, but not identical,
characteristics as the Fund.
A Fund may refer to: (1) general market performances over past time periods such
as those published by Ibbotson Associates (for instance, its "Stocks, Bonds,
Bills and Inflation Yearbook"); (2) mutual fund performance rankings and other
data published by Fund Tracking Companies; and (3) material and comparative
mutual fund data and ratings reported in independent periodicals, such as
newspapers and financial magazines.
A Fund's performance will fluctuate in response to market conditions and other
factors.
PERFORMANCE CALCULATIONS
A Fund's performance may be quoted in terms of total return. Table 1 in Appendix
C includes performance information for each Fund.
TOTAL RETURN CALCULATIONS
A Fund's total return shows its overall change in value, including changes in
share price, and assumes all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in a Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges. Neither
Fund charges a sales charge.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total return
a Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in a Fund over a stated period; and (2) calculates the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual 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 a fund.
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical
$1,000 payment made at the beginning of the
applicable period
Because average annual total returns tend to smooth out variations in a Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
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OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods. For instance, a Fund may quote unaveraged or cumulative total returns,
which reflect the Fund's performance over a stated period of time. Moreover,
total returns may be stated in their components of income and capital (including
capital gains and changes in share price) in order to illustrate the
relationship of these factors and their contributions to total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a fund's front-end sales charge or contingent deferred
sales charges. Neither Fund charges a sales charge.
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
OTHER MATTERS
A Fund may also include a variety of 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 NAV,
net assets or number of shareholders of the Fund as of one or more dates; and
(10) a comparison of the Fund's operations to the operations of other funds or
similar investment products, such as a comparison of the nature and scope of
regulation of the products and the products' weighted average maturity,
liquidity, investment policies and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 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 a Fund's performance.
A Fund may advertise information regarding the effects of systematic investment
and systematic withdrawal plans, including the principal of dollar cost
averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in a Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
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investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month for a period
of six months in a fund the following will be the relationship between average
cost per share ($14.35 in the example given) and average price per share:
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
In connection with its advertisements, a Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service providers' policies
or business practices.
12
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The names of the Trustees and officers of the Trust, their position with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C>
-------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
-------------------------------------------- -----------------------------------------------------------------------
-------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*, Chairman and President Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 services holding company)
Two Portland Square Director, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Visiting Professor of Economics, Athens University of Economics and
Department of Economics Business 1998 - 1999
University of California Trustee of one other investment company for which Forum Financial
Los Angeles, CA 90024 Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
James C. Cheng, Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in New
27 Temple Street England)
Belmont, MA 02718 Trustee of one other investment company for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner, Winthrop, Stimson, Putnam & Roberts (law firm) 1989 - 1995
40 West 57th Street Trustee of one other investment company for which Forum Financial
New York, NY 10019 Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Thomas G. Sheehan, Vice President Managing Director and Counsel, Forum Financial Group, LLC since 1993
Born: July 15, 1954 Officer of five other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
-------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein, Vice President General Counsel, Forum Financial Group LLC
Born: August 3, 1961 Officer of five other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
-------------------------------------------- -----------------------------------------------------------------------
Ronald H. Hirsch, Treasurer Managing Director, Operations/Finance and Operations/Sales, Forum
Born: October 14, 1943 Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991 - 1998
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993 -
Two Portland Square 1998
Portland, ME 04101 Officer of one other investment company for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
</TABLE>
13
<PAGE>
COMPENSATION OF TRUSTEES AND OFFICERS
Each Trustee of the Trust is paid a quarterly retainer fee of $1,750 for his
service to the Trust. In addition, each Trustee will be paid a fee of $500 for
each Board meeting attended (whether in person or by electronic communication).
Trustees are also reimbursed for travel and related expenses incurred in
attending Board meetings. Mr. Keffer receives no compensation (other than
reimbursement for travel and related expenses) for his service as Trustee of the
Trust. No officer of the Trust is compensated by the Trust but officers are
reimbursed for travel and related expenses incurred in attending Board meetings
held outside of Portland, Maine.
The following table sets forth the fees paid to each Trustee by the Funds and
the Fund Complex which includes all series of the Trust and another investment
company for which Forum Financial Group, LLC provides services for the fiscal
year ended May 31, 2000.
<TABLE>
<S> <C> <C>
Compensation Total Compensation from the
Trustee from the Funds Funds And Fund Complex*
-------------------------- ------------------ -------------------------------
John Y. Keffer $0 $0
-------------------------- ------------------ -------------------------------
Costas Azariadis $1,241 $19,500
-------------------------- ------------------ -------------------------------
James C. Cheng $1,241 $19,500
-------------------------- ------------------ -------------------------------
J. Michael Parish $1,241 $19,500
-------------------------- ------------------ -------------------------------
</TABLE>
* There is one investment company in the fund complex.
INVESTMENT ADVISER
SERVICES OF ADVISER
The Adviser serves as investment adviser to each Fund pursuant to an investment
advisory agreement with the Trust. Under its agreement, the Adviser furnishes,
at its own expense, all services, facilities and personnel necessary in
connection with managing a Fund's investments and effecting portfolio
transactions for the Fund.
OWNERSHIP OF ADVISER
The Adviser is a fully owned subsidiary of Brown Capital Holdings Incorporated,
a holding company incorporated under the laws of Maryland in 1998. The Adviser
is a trust company operating under the laws of Maryland.
FEES
The Adviser's fee is calculated as a percentage of a Fund's average net assets.
The fee is accrued daily by each Fund and is paid monthly based on average net
assets for the previous month.
In addition to receiving its advisory fee from each Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in a Fund. If you have a separately managed account with
the Adviser with assets invested in a Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from you.
Table 1 in Appendix B shows the dollar amount of the fees payable by each Fund
to the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data are for the past three fiscal years (or
shorter period depending on the Fund's commencement of operations).
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 and then the agreement must be approved annually.
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 (other than as Trustees of the Trust).
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<PAGE>
The Adviser's agreement is terminable without penalty by the Trust with respect
to a Fund on 60 days' written notice when authorized either by vote of the
Fund's shareholders or by a majority vote of the Board, or by the Adviser on 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.
DISTRIBUTOR
DISTRIBUTOR; SERVICES AND COMPENSATION OF DISTRIBUTOR
FFS, the distributor (also known as principal underwriter) of the shares of each
Fund is located at Two Portland Square, Portland, Maine 04101. FFS is a
registered broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC, which is controlled by John Y. Keffer.
Under a distribution agreement (the "Distribution Agreement") with the Trust,
FFS acts as the agent of the Trust in connection with the offering of shares of
each Fund. FFS continually distributes shares of each Fund on a best efforts
basis. FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of each Fund.
FFS may enter into agreements with selected broker-dealers, banks or other
financial institutions for distribution of shares of each Fund. These financial
institutions may charge a fee for their services and may receive shareholder
service fees even though shares of a Fund are sold without a sales charge. These
financial institutions may otherwise act as processing agents, and will be
responsible for promptly transmitting purchase, redemption and other requests to
the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of a Fund in this manner should acquaint themselves with their
institution's procedures and should read this Prospectus in conjunction with any
materials and information provided by their institution. The financial
institution, and not its customers, will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
FFS does not receive a fee for services performed under the Distribution
Agreement.
OTHER PROVISIONS OF THE DISTRIBUTOR'S AGREEMENT
The Distribution Agreement with respect to a Fund must be approved at least
annually by the Board or by majority vote of the shareholders of that Fund, and
in either case by a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (other than as Trustees of the
Trust).
The Distribution Agreement is terminable without penalty by the Trust with
respect to a Fund on 60 days' written notice when authorized either by vote of
the Fund's shareholders, or by a majority vote of the Board, or by FFS on 60
days' written notice to the Trust.
Under the Distribution Agreement, FFS is not liable to the Trust or the Trust's
shareholders for any error of judgment or mistake of law, for any loss arising
out of any investment or for any act or omission in the performance of its
15
<PAGE>
duties to a Fund, except for willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of reckless disregard of its
obligations and duties under the agreement.
Under the Distribution Agreement, FFS and certain related parties (such as FFS's
officers and persons that control FFS) are indemnified by the Trust against all
claims and expenses in any way related to alleged untrue statements of material
fact contained in the Trust's Registration Statement or any alleged omission of
a material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FFS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FFS in connection with the
preparation of the Registration Statement.
OTHER FUND SERVICE PROVIDERS
ADMINISTRATOR
As administrator, pursuant to an administration 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 each Fund at an annual rate of 0.10%
of the first $100 million of the Fund's average daily net assets and 0.075% of
the Fund's average daily net assets in excess of $100 million, subject to a
minimum fee of $40,000. The fee is accrued daily by each Fund and is paid
monthly based on average net assets for the previous month.
The Administration Agreement with respect to a Fund must be approved at least
annually by the Board or by majority vote of the shareholders of that Fund, and
in either case by a majority of the Trustees who are not parties to the
agreement or interested persons of any such party (other than as Trustees of the
Trust). The Administration Agreement is terminable without penalty by the Trust
or by FAdS with respect to a Fund on 60 days' written notice to the Trust.
Under the Administration Agreement, FAdS is not liable to the Trust or the
Trust's shareholders for any act or omission, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement. Under the
agreement, FAdS and certain related parties (such as FAdS's officers and persons
who control FAdS) are indemnified by the Trust against any and all claims and
expenses related to FAdS's actions or omissions that are consistent with FAdS's
contractual standard of care.
Table 2 in Appendix B shows the dollar amount of the fees payable by each Fund
to FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data is for the past three fiscal years (or shorter period depending
on each Fund's commencement of operations).
FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust (the "Accounting
Agreement"), FAcS provides fund accounting services to each Fund. These services
include calculating the NAV of each Fund and preparing the Fund's financial
statements and tax returns.
For its services, FAcS receives a fee from each Fund at an annual rate of
$39,000 plus $3,000 for the preparation of tax returns and certain surcharges
based upon the number and type of the Fund's portfolio transactions and
positions. The fee is accrued daily by each Fund and is paid monthly based on
the transactions and positions for the previous month.
16
<PAGE>
The Accounting Agreement with respect to a Fund 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 (other than as Trustees of the Trust). The
Accounting Agreement is terminable without penalty by the Trust or by FAcS with
respect to a Fund on 60 days' written notice.
Under the Accounting Agreement, FAcS is not liable for any action or omission in
the performance of its duties to a Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the agreement, FAcS and certain related
parties (such as FAcS's officers and persons who control FAcS) are indemnified
by the Trust against any and all claims and expenses related to FAcS's actions
or omissions that are consistent with FAcS's contractual standard of care.
Under the Accounting Agreement, in calculating a Fund's NAV, FAcS is deemed not
to have committed an error if the NAV it calculates is within 1/10 of 1% of the
actual NAV (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 each Fund.
Table 3 in Appendix B shows the dollar amount of the fees payable by each Fund
to FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data is for the past three fiscal years (or shorter period depending
on each Fund's commencement of operations).
TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Trust ("Transfer Agency Agreement"), FSS maintains an account for each
shareholder of record of a Fund and is responsible for processing purchase and
redemption requests and paying distributions to shareholders of record. FSS is
located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, FSS receives a fee from each Fund at an annual rate of $18,000
plus $25 per shareholder account. The fee is accrued daily by each Fund and is
paid monthly based on the average net assets for the previous month.
The Transfer Agency Agreement with respect to a Fund 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 (other than as Trustees of the Trust). The
Transfer Agency Agreement is terminable without penalty by the Trust or by FFS
with respect to a Fund on 60 days' written notice.
Under the Transfer Agency Agreement, FSS is not liable for any act in the
performance of its duties to a Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties under the agreement. Under
the agreement, FSS and certain related parties (such as FSS's officers and
persons who control FSS) are indemnified by the Trust against any and all claims
and expenses related to FSS's actions or omissions that are consistent with
FSS's contractual standard of care.
Table 4 in Appendix B shows the dollar amount of the fees payable by each Fund
to FSS, the amount of the fee waived by FSS, and the actual fees received by
FSS. The data is for the past three fiscal years (or shorter period depending on
the Fund's commencement of operations).
SHAREHOLDER SERVICING AGENT
Pursuant to a Shareholder Service Plan (the "Plan") between the Trust and FAdS
effective March 1, 2000, FAdS is authorized to perform, or arrange for the
performance of, certain activities relating to the servicing and maintenance of
shareholder accounts not otherwise provided by FSS ("Shareholder Servicing
Activities"). Under the Plan, FAds may enter into shareholder service agreements
with financial institutions or other persons who provide Shareholder Servicing
Activities for their clients invested in a Fund.
17
<PAGE>
Shareholder Servicing Activities shall include one or more of the following: (1)
establishing and maintaining accounts and records for shareholders of a Fund;
(2) answering client inquiries regarding the manner in which purchases,
exchanges and redemptions of shares of the Trust may be effected and other
matters pertaining to the Trust's services; (3) providing necessary personnel
and facilities to establish and maintain client accounts and records; (4)
assisting clients in arranging for processing purchase, exchange and redemption
transactions; (5) arranging for the wiring of funds; (6) guaranteeing
shareholder signatures in connection with redemption orders and transfers and
changes in shareholder-designated accounts; (7) integrating periodic statements
with other shareholder transactions; and (8) providing such other related
services as the shareholder may request.
As compensation for the Shareholder Servicing Activities, the Trust pays the
shareholder servicing agent, through FAdS, with respect to each Fund, a fee of
up to 0.25% of that Fund's average daily net assets of the shares owned by
investors for which the shareholder servicing agent maintains a servicing
relationship.
Any material amendment to the Plan must be approved by the Board, including a
majority of the Disinterested Trustees. The Plan may be terminated without
penalty at any time: (1) by vote of a majority of the Board, including a
majority of the Trustees who are not parties to the Plan or interested persons
of any such party; or (2) by FAdS.
CUSTODIAN
As custodian, pursuant to an agreement with the Trust, Forum Trust LLC
safeguards and controls each Fund's cash and securities, determines income and
collects interest on Fund investments. The Custodian may employ subcustodians to
provide custody of a Fund's domestic and foreign assets. The Custodian is
located at Two Portland Square, Portland, Maine 04101.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of a Fund. Each Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by each
Fund and are paid monthly based on average net assets and transactions for the
previous month.
LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005 pass upon legal
matters in connection with the issuance of shares of the Trust.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, Boston, Massachusetts, 02116,
independent auditors, have been selected as independent auditors for each Fund.
The auditor audits the annual financial statements of each Fund and provides
each Fund with an audit opinion. The auditors also review certain regulatory
filings of each Fund and the Funds' tax returns.
PORTFOLIO TRANSACTIONS
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 a Fund
purchases or to whom a 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
18
<PAGE>
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.
The price of securities purchased from underwriters includes a disclosed fixed
commission or concession paid by the issuer to the underwriter, and prices of
securities purchased from dealers serving as market makers reflects 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.
COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions paid by each
Fund as well as aggregate commissions paid to an affiliate of the Fund or the
Adviser. The data presented are for the past three fiscal years (or shorter
period depending on the Fund's commencement of operations).
ADVISER RESPONSIBILITY FOR PURCHASES AND SALES
The Adviser places orders for the purchase and sale of securities with
broker-dealers selected by and in the discretion of the Adviser. Neither Fund
has any obligation to deal with a specific broker or dealer in the execution of
portfolio transactions. Allocations of transactions to brokers and dealers and
the frequency of transactions are determined by the Adviser in its best judgment
and in a manner deemed to be in the best interest of each Fund rather than by
any formula.
The Adviser seeks "best execution" for all portfolio transactions. This means
that the Adviser seeks the most favorable price and execution available. The
Adviser's primary consideration in executing transactions for a Fund is prompt
execution of orders in an effective manner and at the most favorable price
available.
CHOOSING BROKER-DEALERS
A Fund may not always pay the lowest commission or spread available. Rather, in
determining the amount of commissions (including certain dealer spreads) paid in
connection with securities transactions, the Adviser takes into account factors
such as size of the order, difficulty of execution, efficiency of the executing
broker's facilities (including the research services described below) and any
risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of a Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) payments
made by brokers effecting transactions for a Fund (these payments may be made to
the Fund or to other persons on behalf of the Fund for services provided to the
Fund for which those other persons would be obligated to pay).
OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause a Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than a Fund, and not all research services may be used
by the Adviser in connection with the Fund. The Adviser's fees are not reduced
by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts, although a particular client may not benefit from all the
research received on each occasion. The nature of the services obtained for
clients
19
<PAGE>
include industry research reports and periodicals, quotation systems, software
for portfolio management and formal data bases.
Occasionally, the Adviser utilizes a broker and pays a slightly higher
commission than another might charge. The higher commission is paid because of
the Adviser's need for specific research, for specific expertise a firm may have
in a particular type of transaction (due to factors such as size or difficulty),
or for speed/efficiency in execution. Since most of the Adviser's brokerage
commissions for research are for economic research on specific companies or
industries, and since the Adviser follows a limited number of securities, most
of the commission dollars spent for industry and stock research directly benefit
the Adviser's clients and each Fund's investors.
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.
COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to each Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
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.
OTHER ACCOUNTS OF THE ADVISER
Investment decisions for a Fund are made independently from those for any other
account or investment company that is or may in the future become advised by the
Adviser or its affiliates. Investment decisions are the product of many factors,
including basic suitability for the particular client involved. Likewise, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. In addition, two or more clients may
simultaneously purchase or sell the same security, in which event, each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the Adviser's opinion,
is equitable to each and in accordance with the amount being purchased or sold
by each. There may be circumstances when purchases or sales of a portfolio
security for one client could have an adverse effect on another client that has
a position in that security. In addition, when purchases or sales of the same
security for a Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of a Fund (the portfolio turnover rate)
will vary from year to year depending on many factors. From time to time, a Fund
may engage in active short-term trading to take advantage of price movements
affecting individual issues, groups of issues or markets. An annual portfolio
turnover rate of 100% would occur if all the securities in a fund were replaced
once in a period of one year. High portfolio turnover rates may result in
increased brokerage costs to a Fund and a possible increase in short-term
capital gains or losses.
20
<PAGE>
SECURITIES OF REGULAR BROKER-DEALERS
From time to time, a Fund may acquire and hold securities issued by its "regular
brokers and dealers" or the parents of those brokers and dealers. For this
purpose, regular brokers and dealers means the 10 brokers or dealers that: (1)
received the greatest amount of brokerage commissions during a Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of a Fund during the Fund's last fiscal year; or (3) sold
the largest amount of a Fund's shares during the Fund's last fiscal year. Table
6 in Appendix B lists the regular brokers and dealers of the Funds whose
securites (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
PURCHASE AND REDEMPTION INFORMATION
GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at FSS's offices located at Two Portland Square, Portland, Maine 04101.
Each Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
Not all classes or funds of the Trust may be available for sale in the sate in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
ADDITIONAL PURCHASE INFORMATION
Shares of each Fund are sold on a continuous basis by the distributor at net
asset value ("NAV") without any sales charge. Accordingly, the offering price
per share is the same as the NAV.
Each Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, a Fund may accept portfolio securities that meet the investment
objective and policies of a Fund as payment for Fund shares. A Fund will only
accept securities that: (1) are not restricted as to transfer by law and are not
illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
UGMAS/UTMAS
If the custodian's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the custodian must provide instructiuons in a
manner indicating custodial capacity.
PURCHASES THROUGH FINANCIAL INSTITUTIONS
You may purchase and redeem shares through certain broker-dealers, banks and
other financial institutions. Financial institutions may charge their customers
a fee for their services and are responsible for promptly transmitting purchase,
redemption and other requests to a Fund.
If you purchase shares through a financial institution, you will be subject to
the institution's procedures, which may include charges, limitations, investment
minimums, cutoff times and restrictions in addition to, or different from, those
applicable when you invest in a Fund directly. When you purchase a Fund's shares
through a financial institution, you may or may not be the shareholder of record
and, subject to your institution's procedures, you may have Fund shares
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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 financial institution for
further information. If you hold shares through a financial institution, each
Fund may confirm purchases and redemptions to the financial institution, which
will provide you with confirmations and periodic statements. A Fund is not
responsible for the failure of any financial institution to carry out its
obligations.
Investors purchasing shares of a Fund through a financial institution should
read any materials and information provided by the financial institution to
acquaint themselves with its procedures and any fees that the institution may
charge.
ADDITIONAL REDEMPTION INFORMATION
A Fund may redeem shares involuntarily to: (1) reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased; or (2) 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.
SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that trading thereon is
restricted; (2) an emergency (as determined by the SEC) exists as a result of
which disposal by a Fund of its securities is not reasonably practicable or as a
result of which it is not reasonably practicable for a Fund fairly to determine
the value of its net assets; or (3) the SEC may by order permit for the
protection of the shareholders of a Fund.
REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisable by the Adviser, a Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which a
Fund may only effect a redemption in portfolio securities if the particular
shareholder is redeeming more than $250,000 or 1% of the Fund's total net
assets, whichever is less, during any 90-day period.
NAV DETERMINATION
In determining a Fund's NAV, securities for which market quotations are readily
available are valued at current market value using the last reported sales price
provided by independent pricing services. 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).
DISTRIBUTIONS
Distributions of net investment income will be reinvested at a Fund's NAV
(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 a Fund's NAV (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.
TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that each Fund
qualifies as a regulated investment company (as discussed below). This
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information is only a summary of certain key federal income tax considerations
affecting each Fund and its shareholders and is in addition to the information
provided in the Prospectus. No attempt has been made to present a complete
explanation of the federal tax treatment of a Fund 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 a Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund intends, for each tax year, to qualify as a "regulated investment
company" under the Code. This qualification does not involve governmental
supervision of management or investment practices or policies of a Fund.
The tax year end of each Fund is May 31 (the same as the Fund's fiscal year
end).
MEANING OF QUALIFICATION
As a regulated investment company, a Fund will not be subject to federal income
tax on the portion of its investment company taxable income (that is, taxable
interest, dividends, net short-term capital gains and other taxable ordinary
income, net of expenses) and net capital gain (that is, the excess of net
long-term capital gains over net short-term capital losses) that it distributes
to shareholders. In order to qualify to be taxed as a regulated investment
company a Fund must satisfy the following requirements:
o The Fund must distribute at least 90% of its investment company
taxable income for the tax year. (Certain distributions made by the
Fund after the close of its tax year are considered distributions
attributable to the previous tax year for purposes of satisfying this
requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of an issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
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.
FAILURE TO QUALIFY
If for any tax year a Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of a Fund's current and accumulated earnings and profits.
Failure to qualify as a regulated investment company would thus have a negative
impact on a Fund's income and performance. It is possible that a Fund will not
qualify as a regulated investment company in any given tax year.
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FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. These distributions are taxable to you as
ordinary income. A portion of these distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
Each Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but a Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain regardless of how long you have held shares. These
distributions do not qualify for the dividends-received deduction.
Distributions by a Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by a Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive distributions
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 NAV at the time reflects undistributed net
investment income or recognized capital gain, or unrealized appreciation in the
value of the assets of a Fund. Distributions of these amounts are taxable to you
in the manner described above, although the distribution economically
constitutes a return of capital to you. Ordinarily, you are required to take
distributions by a Fund into account in the year in which they are made. A
distribution declared in October, November or December of any year and payable
to shareholders of record on a specified date in those months, however, is
deemed to be received by you (and made by the Fund) on December 31 of that
calendar year if the distribution is actually paid in January of the following
year.
You will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
CERTAIN TAX RULES APPLICABLE TO THE FUNDS' TRANSACTIONS
For federal income tax purposes, when put and call options purchased by a Fund
expire unexercised, the premiums paid by a Fund give rise to short- or long-term
capital losses at the time of expiration (depending on the length of the
respective exercise periods for the options). When put and call options written
by a Fund expire unexercised, the premiums received by the Fund give rise to
short-term capital gains at the time of expiration. When a Fund exercises a
call, the purchase price of the underlying security is increased by the amount
of the premium paid by a Fund. When a Fund exercises a put, the proceeds from
the sale of the underlying security are decreased by the premium paid. When a
put or call written by a Fund is exercised, the purchase price (selling price in
the case of a call) of the underlying security is decreased (increased in the
case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by a Fund at the end of each tax year are
"marked to market" and treated for federal income tax purposes as though sold
for fair market value on the last business day of the tax year. Gains or losses
realized by a Fund on Section 1256 contracts generally are considered 60%
long-term and 40% short-term capital gains or losses. Each Fund can elect to
exempt its Section 1256 contracts that are part of a "mixed straddle" (as
described below) from the application of Section 1256.
Any option, futures contract or other position entered into or held by a Fund
in conjunction with any other position held by the Fund may constitute a
"straddle" for federal income tax purposes. A straddle of which at least one,
but not all, the positions are Section 1256 contracts, may constitute a "mixed
straddle." In general, straddles are subject to certain rules that may affect
the character and timing of a Fund's gains and losses with respect to straddle
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positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to a Fund which may mitigate the effects of the straddle
rules, particularly with respect to mixed straddles. In general, the straddle
rules described above do not apply to any straddles held by a Fund if all of the
offsetting positions consist of Section 1256 contracts.
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 a Fund's income must be distributed during the next calendar year. A
Fund will be treated as having distributed any amount on which it is subject to
income tax for any tax year.
For purposes of calculating the excise tax, each Fund: (1) reduces its capital
gain net income (but not below its net capital gain) by the amount of any net
ordinary loss for the calendar year; and (2) excludes foreign currency gains and
losses incurred after October 31 of any year in determining the amount of
ordinary taxable income for the current calendar year. A Fund will include
foreign currency gains and losses incurred after October 31 in determining
ordinary taxable income for the succeeding calendar year.
Each Fund intends to make sufficient distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. Investors should note, however, that a Fund
may in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
SALE OR REDEMPTION OF SHARES
In general, you will recognize gain or loss on the sale or redemption of shares
of a Fund in an amount equal to the difference between the proceeds of the sale
or redemption and 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 a
Fund will be considered capital gain or loss and will be long-term capital gain
or loss if the shares were held for longer than one year. Any capital loss
arising from the sale or redemption of shares held for six months or less,
however, is treated as a long-term capital loss to the extent of the amount of
distributions of net capital gain received on such shares. In determining the
holding period of such shares for this purpose, any period during which 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 non-corporate taxpayer, $3,000 of ordinary
income.
BACKUP WITHHOLDING
A Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide 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 a Fund that it is not subject to backup withholding
or that it is a corporation or other "exempt recipient." Backup withholding is
not an additional tax; any amounts so withheld may be credited against a
shareholder's federal income tax liability or refunded.
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FOREIGN SHAREHOLDERS
Taxation of a shareholder who, under the Code, is a nonresident alien
individual, foreign trust or estate, foreign corporation or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by the foreign
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, distributions of ordinary income
(and short-term capital gains) paid to a foreign shareholder will be subject to
U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) upon
the gross amount of the distribution. The foreign shareholder generally would be
exempt from U.S. federal income tax on gain realized on the sale of shares of a
Fund and distributions of net capital gain from a Fund.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income distributions, capital
gain distributions, and any gain realized upon the sale of shares of a Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
or U.S. corporations.
In the case of a non-corporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from a Fund can
differ from the U.S. federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisers as to the consequences of foreign tax rules with
respect to an investment in a Fund.
STATE AND LOCAL TAXES
The tax rules of the various states of the U.S. and their local jurisdictions
with respect to distributions from a Fund can differ from the U.S. federal
income taxation rules described above. These state and local rules are not
discussed herein. Shareholders are urged to consult their tax advisers as to the
consequences of state and local tax rules with respect to an investment in a
Fund.
FOREIGN INCOME TAX
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle each Fund to
a reduced rate of such taxes or exemption from taxes on such income. It is
impossible to know the effective rate of foreign tax in advance since the amount
of a Fund's assets to be invested within various countries cannot be determined.
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OTHER MATTERS
THE TRUST AND ITS SHAREHOLDERS
GENERAL INFORMATION
Forum Funds was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to the
assets and liabilities of Forum Funds, Inc.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
Austin Global Equity Fund Investors Growth Fund
BrownIA Growth Equity Fund Investors High Grade Bond Fund
BrownIA Small-Cap Growth Fund Maine TaxSaver Bond Fund
Daily Assets Cash Fund(1) Mastrapasqua Growth Value Fund
Daily Assets Government Fund(1) New Hampshire TaxSaver Bond Fund
Daily Assets Government Obligations Fund(1) Payson Balanced Fund
Daily Asset Municipal Fund(1) Payson Value Fund
Daily Assets Treasury Obligations Fund(1) Polaris Global Value Fund
Equity Index Fund TaxSaver Bond Fund
Investors Bond Fund The Advocacy Fund
Investors Equity Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust, the Funds' investment adviser and the principal underwriter have
adopted codes of ethics under Rule 17j-1, as amended, of the 1940 Act. These
codes permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund.
The Trust and each Fund will continue indefinitely until terminated.
SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and its
expenses will effect each class' performance. For more information on any other
class of shares of a Fund, investors may contact FSS.
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 series or class (and certain other expenses
such as transfer agency, shareholder service and administration expenses) are
borne solely by those shares and each series or class votes separately with
respect to the provisions of any Rule 12b-1 plan which pertains to the series or
class and other matters for which separate series or class voting is appropriate
under applicable law. Generally, shares will be voted separately by individual
series except if: (1) the 1940 Act requires shares to be voted in the aggregate
and not by individual series; and (2) when the Trustees determine that the
matter affects more than one series and all affected series must vote. The
Trustees may also determine that a matter only affects certain series or classes
of the Trust and thus only those such series or classes are entitled to vote on
the matter. Delaware law does not require the Trust to hold annual meetings of
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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') 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.
CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally, such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees, may, without prior shareholder
approval change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust or certain series to merge or consolidate into
one or more trusts, partnerships or corporations, or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end,
management investment company that will succeed to or assume the Trust's
registration statement.
FUND OWNERSHIP
As of September 1, 2000, the percentage of shares owned by all officers and
trustees of the Trust as a group was as follows. To the extent officers and
trustees own less than 1% of the shares of each class of shares of a Fund (or of
the Trust), the table reflects "N/A" for not applicable.
PERCENTAGE OF SHARES
FUND (OR TRUST) OWNED
----------------------------------------------------- ----------------------
The Trust N/A
----------------------------------------------------- ----------------------
BrownIA Small-Cap Growth Fund N/A
----------------------------------------------------- ----------------------
BrownIA Growth Equity Fund N/A
----------------------------------------------------- ----------------------
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of a Fund. Shareholders known by a Fund to own beneficially 5% or
more of a class of shares of the Fund are listed in Table 7 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of a Fund. Accordingly, those shareholders may be able to greatly affect (if not
determine) the outcome of a shareholder vote. As of September 1, 2000, Brown
Investment Advisory & Trust Company, f/b/o their clients, may be deemed to
control each Fund. "Control" for this purpose is the ownership of 25% or more of
a Fund's voting securities.
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CONTROLLING PERSON INFORMATION
<TABLE>
<S> <C> <C> <C>
PERCENTAGE OF
SHAREHOLDER SHARES OWNED
BrownIA Small-Cap BrownIA Growth
Growth Fund Equity Fund
Brown Investment Advisory & Trust Company
FBO Clients
19 South Street
Baltimore, Maryland 21202 93.01% 98.28%
</TABLE>
LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some states, however, have indicated that they and the courts in
their states may decline to apply Delaware law on this point. The 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.
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.
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.
FINANCIAL STATEMENTS
The financial statements of each of BrownIA Small-Cap Growth Fund and BrownIA
Growth Equity Fund for the year ended May 31, 2000, which are included in the
Funds' Annual Report to shareholders, are incorporated herein by reference.
These financial statements include the schedules of investments, statements of
assets and liabilities, statements of operations, statement of changes in net
assets, financial highlights, notes and independent auditors' reports.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
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STANDARD & 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;
A-2
<PAGE>
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.
DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors are
more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A-3
<PAGE>
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD, D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstanding amounts, and `D' the lowest recovery potential,
i.e. below 50%.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
BAA An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
A-4
<PAGE>
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.
STANDARD & POOR'S CORPORATION
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
A-5
<PAGE>
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
SHORT TERM RATINGS
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.
STANDARD & 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-6
<PAGE>
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
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.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following tables show the dollar amount of fees payable to the Adviser with
respect to each Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fees received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
BROWNIA SMALL-CAP GROWTH FUND
June 28, 1999 to May 31, 2000 $667,550 $67,913 $599,637
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
BROWNIA GROWTH EQUITY FUND
June 28, 1999 to May 31, 2000 $157,189 $114,368 $42,821
TABLE 2 - ADMINISTRATION FEES
The following tables show the dollar amount of fees payable to FAdS with respect
to each Fund, the amount of fee that was waived by FAdS, if any, and the actual
fees received by FAdS.
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
BROWNIA SMALL-CAP GROWTH FUND PAYABLE WAIVED RETAINED
June 28, 1999 to May 31, 2000 $66,483 $0 $66,483
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
BROWNIA GROWTH EQUITY FUND PAYABLE WAIVED RETAINED
June 28, 1999 to May 31, 2000 $36,889 $0 $36,889
TABLE 3 - ACCOUNTING FEES
The following tables show the dollar amount of fees paid to FAcS with respect to
each Fund, the amount of fee that was waived by FAcS, if any, and the actual
fees received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
BROWNIA SMALL-CAP GROWTH FUND
June 28, 1999 to May 31, 2000 $37,400 $0 $37,400
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
BROWNIA GROWTH EQUITY FUND
June 28, 1999 to May 31, 2000 $37,400 $0 $37,400
TABLE 4 - TRANSFER AGENCY FEES
The following tables show the dollar amount of fees payable to FSS with respect
to each Fund, the amount of fee that was waived by FSS, if any, and the actual
fees received by FSS.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
BROWNIA SMALL-CAP GROWTH FUND PAYABLE WAIVED RETAINED
June 28, 1999 to May 31, 2000 $17,667 $0 $17,667
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
BROWNIA GROWTH EQUITY FUND PAYABLE WAIVED RETAINED
June 28, 1999 to May 31, 2000 $17,127 $0 $17,127
</TABLE>
B-1
<PAGE>
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions of BrownIA
Small-Cap Growth Fund and BrownIA Growth Equity Fund. The data is for the past
three fiscal years (or shorter period if a Fund has been in operation for a
shorter period).
<TABLE>
<S> <C> <C> <C> <C>
TOTAL BROKERAGE % OF BROKERAGE
COMMISSIONS ($) COMMISSIONS % OF
PAID TO AN PAID TO AN TRANSACTIONS
TOTAL BROKERAGE AFFILIATE OF AFFILIATE OF EXECUTED BY AN
COMMISSIONS ($) THE FUND OR THE FUND OR AFFILIATE OF THE
ADVISER ADVISER FUND OR ADVISER
BROWNIA SMALL-CAP GROWTH FUND
June 28, 1999 to May 31, 2000 $6,212 0% 0% 0%
BROWNIA GROWTH EQUITY FUND
June 28, 1999 to May 31, 2000 $46,206 0% 0% 0%
</TABLE>
TABLE 6 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of the Funds whose
securites (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Funds' holdings of those
securities as of the Funds' most recent fiscal year.
BROWN IA SMALL-CAP GROWTH FUND
REGULAR BROKER DEALER VALUE HELD
N/A
BROWN IA GROWTH EQUITY FUND
REGULAR BROKER DEALER VALUE HELD
N/A
B-2
<PAGE>
TABLE 7 - 5% SHAREHOLDERS
The following tables list: (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund; and (2) any person known by a
Fund to own beneficially 5% or more of a class of shares of the Fund, as of
September 1, 2000.
BROWNIA SMALL-CAP GROWTH FUND
NAME AND ADDRESS % OF FUND
Brown Investment Advisory & Trust 93.01%
FBO Clients
19 South Street
Baltimore, MD 21202
BROWNIA GROWTH EQUITY FUND
NAME AND ADDRESS % OF FUND
Brown Investment Advisory & Trust 98.28%
FBO Clients
19 South Street
Baltimore, MD 21202
B-3
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of each Fund for the period ended May 31, 2000,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE MONTHS YEAR TO DATE ONE YEAR THREE FIVE YEARS SINCE INCEPTION
YEARS (ANNUALIZED)
BIA SMALL-CAP
GROWTH FUND (6.62)% (30.38)% (9.79)% N/A N/A N/A 41.82%
BIA GROWTH
EQUITY FUND (0.91)% 4.23% (0.18)% N/A N/A N/A 9.30%
</TABLE>
C-1
<PAGE>
[FORUM STATEMENT OF ADDITIONAL INFORMATION
LOGO]
OCTOBER 1, 2000
EQUITY INDEX FUND
ACCOUNT INFORMATION AND SHAREHOLDER
SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 805-8258
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated October 1, 2000, as may be amended from time to time, offering shares of
Equity Index Fund (the "Fund"), a series of Forum Funds, a registered, open-end
management investment company (the "Trust"). This SAI is not a prospectus and
should only be read in conjunction with the Prospectus. You may obtain the
Prospectus without charge by contacting Forum Shareholder Services, LLC at the
address or telephone number listed above.
Financial statements for the Fund for the year ended May 31, 2000 are included
in the Annual Report to shareholders and are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
GLOSSARY 3
INVESTMENT POLICIES AND RISKS 4
INVESTMENT LIMITATIONS 11
PERFORMANCE DATA AND ADVERTISING 13
MANAGEMENT 16
PORTFOLIO TRANSACTIONS 23
PURCHASE AND REDEMPTION INFORMATION 26
TAXATION 29
OTHER MATTERS 33
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS A-1
APPENDIX B - MISCELLANEOUS TABLES B-1
APPENDIX C - PERFORMANCE DATA C-1
APPENDIX D - ADDITIONAL ADVERTISING MATTERS D-1
2
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means WFB and WCM.
"Board" means the Board of Trustees of Forum Funds.
"CFTC" means the Commodity Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as amended.
"Wells Core Trust" means Wells Fargo Core Trust, a Delaware business trust.
"Wells Core Trust Board" means the Board of Trustees of Wells Core Trust.
"FAcS" means Forum Accounting Services, LLC, the Fund's fund accountant.
"FAdS" means Forum Administrative Services, LLC, the Fund's administrator.
"FFS" means Forum Fund Services, LLC, the Fund's distributor.
"FSS" means Forum Shareholder Services, LLC, the Fund's transfer agent.
"FFSI" means Forum Financial Services, Inc., the Fund's distributor prior to
March 1, 1999.
"Fund" means Equity Index Fund.
"IRS" means Internal Revenue Service.
"Moody's" means Moody's Investor Service.
"NRSRO" means a nationally recognized statistical rating organization.
"Portfolio" means Index Portfolio of Wells Core Trust.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, a Division of the McGraw Hill Companies.
"Trust" means Forum Funds, a Delaware business trust.
"U.S. Government Securities" means a debt security issued or guaranteed by the
United States, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
3
<PAGE>
INVESTMENT POLICIES AND RISKS
The Fund is a diversified series of the Trust. The Portfolio is a diversified
series of Wells Core Trust. The Fund invests substantially all of its assets in
the Portfolio. This section discusses in greater detail than the Fund's
Prospectus certain investments that the Portfolio may make.
EQUITY SECURITIES
COMMON AND PREFERRED STOCK
GENERAL The Portfolio may invest in common and preferred stock. Common stock
represents an equity (ownership) interest in a company, and usually possesses
voting rights and earns dividends. Dividends on common stock are not fixed but
are declared at the discretion of the issuer. Common stock generally represents
the riskiest investment in a company. In addition, common stock generally has
the greatest appreciation and depreciation potential because increases and
decreases in earnings are usually reflected in a company's stock price.
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
RISKS The fundamental risk of investing in common and preferred stock is the
risk that the value of the stock might decrease. Stock values fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
preferred stocks, fixed-income and money market investments. The market value of
all securities, including common and preferred stocks, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective measures of a company's worth. If you invest in 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.
DEPOSITARY RECEIPTS
GENERAL The Portfolio may invest in sponsored and unsponsored American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") and other
similar securities of foreign issuers in order to obtain exposure to foreign
securities markets. Depositary receipts are receipts for shares of a
foreign-based company and they evidence ownership of the underlying securities
issued by that foreign company. ADRs typically are issued by a U.S. bank or
trust company and are designed for use in U.S. securities markets. EDRs are
receipts issued by a European financial institution and are designed for use in
European securities markets.
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.
4
<PAGE>
FIXED INCOME INVESTMENTS
FLOATING AND VARIABLE RATE SECURITIES
The Portfolio may invest in floating and variable rate securities. Fixed income
securities with variable or floating rates of interest, under certain limited
circumstances, have varying principal amounts. These securities pay interest at
rates that are adjusted periodically according to a specified formula, usually
with reference to one or more interest rate indices or market interest rates
(the "underlying index"). The interest paid on these securities is a function
primarily of the underlying index upon which the interest rate adjustments are
based. These adjustments minimize changes in the market value of the obligation.
Similar to fixed rate fixed income instruments, variable and floating rate
instruments are subject to changes in value based on changes in market interest
rates or changes in the issuer's creditworthiness. The rate of interest on
securities may be tied to U.S. Government Securities or indices on those
securities as well as any other rate of interest or index. Certain variable rate
securities pay interest at a rate that varies inversely to prevailing short-term
interest rates (sometimes referred to as "inverse floaters"). Certain inverse
floaters may have an interest rate reset mechanism that multiplies the effects
of changes in the underlying index. This mechanism may increase the volatility
of the security's market value while increasing the security's yield.
Floating and variable rate demand notes and bonds of corporations are redeemable
upon a specified period of notice. These obligations include master demand notes
that permit investment of fluctuating amounts at varying interest rates under
direct arrangements with the issuer of the instrument. The issuer of these
obligations often has the right, after a given period, to prepay the outstanding
principal amount of the obligations upon a specified number of days' notice.
Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, the Portfolio might be
entitled to less than the initial principal amount of the security upon the
security's maturity. The Portfolio intends to purchase these securities only
when its Adviser believes the interest income from the instrument justifies any
principal risks associated with the instrument. The Adviser may attempt to limit
any potential loss of principal by purchasing similar instruments that are
intended to provide an offsetting increase in principal. There can be no
assurance that the Adviser will be able to limit the effects of principal
fluctuations and, accordingly, the Portfolio may incur losses on those
securities even if held to maturity without issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for the Portfolio to
dispose of the instrument during periods that the Fund is not entitled to
exercise any demand rights it may have. The Portfolio could, for this or other
reasons, suffer a loss with respect to those instruments. The Adviser monitors
the liquidity of the Portfolio's investment in variable and floating rate
instruments, but there can be no guarantee that an active secondary market will
exist.
BANK OBLIGATIONS
The Portfolio may invest in bank obligations of, including certificates of
deposit, bankers' acceptances, time deposits, and other short-term debt
obligations of domestic banks, foreign subsidiaries of domestic banks, foreign
branches of domestic banks and domestic and foreign branches of foreign banks,
domestic savings and loan associations and other banking institutions.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft that
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Time deposits which may be
held by the Portfolio will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation. Certificates of deposit and fixed time deposits,
which are payable at the stated maturity date and bear a fixed rate of interest,
generally may be withdrawn on demand by the Portfolio but may be subject to
early withdrawal penalties which could reduce the Portfolio's performance.
Although fixed time deposits do not in all cases have a secondary market, there
are no contractual
5
<PAGE>
restrictions on the Portfolio's right to transfer a beneficial interest in the
deposits to third parties. Other short-term obligations may include uninsured
direct bank obligations bearing fixed, floating or variable interest rates.
COMMERCIAL PAPER
The Portfolio may invest in commercial paper. Companies issue commercial paper
to finance their current obligations. Commercial paper is short-term unsecured
promissory notes and usually has a maturity of less than 9 months.
RISKS
GENERAL The market value of the interest-bearing debt securities held by the
Portfolio will be affected by changes in interest rates. There is normally an
inverse relationship between the market value of securities sensitive to
prevailing interest rates and actual changes in interest rates. The longer the
remaining maturity (and duration) of a security, the more sensitive the security
is to changes in interest rates. All fixed income securities, including U.S.
Government Securities, can change in value when there is a change in interest
rates. Changes in the ability of an issuer to make payments of interest and
principal and in the markets' perception of an issuer's creditworthiness will
also affect the market value of that issuer's fixed income securities. As a
result, an investment in the Portfolio is subject to risk even if all fixed
income securities in the Portfolio's investment portfolio are paid in full at
maturity. In addition, certain debt securities may be subject to extension risk,
which refers to the change in total return on a security resulting from an
extension or abbreviation of the security's maturity.
Yields on debt securities, including municipal securities, are dependent on a
variety of factors, including the general conditions of the debt securities
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Fixed income securities with longer maturities tend to
produce higher yields and are generally subject to greater price movements than
obligations with shorter maturities. A portion of the municipal securities held
by the Portfolio may be supported by credit and liquidity enhancements, such as
letters of credit (which are not covered by federal deposit insurance) or puts
or demand features of third party financial institutions, generally domestic and
foreign banks.
The issuers of fixed income securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors that may restrict the ability of the issuer to pay, when due, the
principal of and interest on its debt securities. The possibility exists
therefore, that, as a result of bankruptcy, litigation or other conditions, the
ability of an issuer to pay, when due, the principal of and interest on its debt
securities may become impaired.
CREDIT RISK The Portfolio's investments in fixed income securities are subject
to credit risk relating to the financial condition of the issuers of the
securities that the Portfolio holds. To limit credit risk, the Portfolio may
only invest in (1) convertible fixed income securities that are rated "Baa" or
higher by Moody's or "BBB" or higher by S&P at the time of purchase; and (2)
preferred stock rated "baa" or higher by Moody's or "BBB" or higher by S&P at
the time of purchase or in the top two short-term rating categories by an NRSRO.
Moody's, Standard & Poor's and other NRSROs are private services that provide
ratings of the credit quality of debt obligations, including convertible
securities. A description of the range of ratings assigned to various types of
securities by several NRSROs is included in Appendix A. The Adviser may use
these ratings to determine whether to purchase, sell or hold a security. Ratings
are not, however, absolute standards of quality. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Consequently, similar securities with the
same rating may have different market prices. In addition, rating agencies may
fail to make timely changes in credit ratings and the issuer's current financial
condition may be better or worse than a rating indicates.
The Portfolio may retain a security that ceases to be rated or whose rating has
been lowered below the Portfolio's 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 the security is in the best
interests of the Portfolio. 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.
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The Portfolio may purchase unrated securities if the Adviser determines that the
security is of comparable quality to a rated security that the Portfolio may
purchase. Unrated securities may not be as actively traded as rated securities.
FOREIGN RISK With respect to foreign fixed income securities issued, and
domestic and foreign branches of foreign banks, a Portfolio may be subject to
additional investment risks that are different in some respects from those
incurred by a Portfolio which invests only in debt obligations of U.S. domestic
issuers. Such risks include possible future political and economic developments,
the possible imposition of foreign withholding taxes on interest income payable
on the securities, the possible establishment of exchange controls or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of the principal and interest of these securities and the possible
seizure or nationalization of foreign deposits. In addition, foreign branches of
U.S. banks and foreign banks may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
standards than those applicable to domestic branches of U.S. banks.
MONEY MARKET INSTRUMENTS AND TEMPORARY DEFENSIVE POSITION
The Portfolio may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (1) U.S.
Government obligations; (2) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (3) commercial paper rated at the date of purchase Prime-1 by Moody's or
A-1 or A-1 by S&P, or, if unrated, of comparable quality as determined by the
Adviser and (4) repurchase agreements. The Portfolio also may invest in
short-term U.S. dollar-denominated obligations of foreign banks (including U.S.
branches) that at the time of investment: (1) have more than $10 billion, or the
equivalent in other currencies, in total assets; (2) are among the 75 largest
foreign banks in the world as determined on the basis of assets; (3) have
branches or agencies in the United States; and (4) in the opinion of the
Adviser, are of comparable quality to obligations of U.S. banks which may be
purchased by the Portfolio.
OPTIONS AND FUTURES
GENERAL
The Portfolio may purchase or write (sell) put and call options on securities,
stock indices and stock index futures. The Portfolio may employ these investment
strategies to enhance the Portfolio's performance or to hedge against a decline
in the value of securities owned by the Portfolio. The Portfolio may purchase
put and call options written by others and may write covered options, which are
exchange-traded or over-the-counter options. An option is covered if the
Portfolio owns the instrument underlying the option or has an absolute and
immediate right to acquire that instrument without additional cash (or, if
additional cash is required, cash, U.S. Government securities or other liquid
high grade debt securities, in such an amount as held in a segregated account by
the Portfolio's custodian). An option on a stock index is "covered" if the
Portfolio maintains with its custodian liquid assets equal to the contract
value. A call option is also covered if the Portfolio holds an offsetting call
on the same instrument or index as the call written. The Portfolio invests
(purchase and sell) in futures and options for hedging purposes.
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 INDICES A stock index option is an option contract whose value is
based on the value of a stock index at some future point in time. Stock indexes
fluctuate with changes in the market values of the stocks included in the index.
The effectiveness of purchasing or writing stock index options will depend upon
the extent to which price movements in the Portfolio's investment portfolio
correlate with price movements of the stock index selected. Accordingly,
successful use by the Portfolio of options on stock indexes will be subject to
the Adviser's ability to correctly analyze movements in the direction of the
stock market generally or of particular industry or market segments. When the
Portfolio writes an option on a stock index, the Portfolio will place in a
segregated account with the Portfolio's custodian cash or liquid securities in
an amount at least equal to the market value of the underlying stock index and
will maintain the account while the option is open or otherwise will cover the
transaction.
INDEX FUTURES CONTRACTS The Portfolio may invest in stock index futures
contracts. A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of the securities comprising the index
is made. Generally these futures contracts are closed out prior to the
expiration date of the contracts.
OPTIONS AND FUTURES CONTRACTS The purchase of options on stock index futures
contracts are similar to other options contracts as described above, where the
Portfolio pays a premium for the option to purchase or sell a stock index
futures contract for a specified price at a specified date. With options on
stock index futures contracts, the Portfolio risks the loss of the premium paid
for the option. An option on a futures contract gives the purchaser a right to
assume a position in a futures contract rather than to purchase or sell stock.
Upon exercise of the option, the delivery of the futures position to the holder
of the option will be accompanied by transfer to the holder of an accumulated
balance representing the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option in the future.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which
the Portfolio invests; and (4) lack of assurance that a liquid secondary market
will exist for any particular instrument at any particular time, which, among
other things, may hinder the Portfolio's ability to limit exposures by closing
its positions.
Other risks include the inability of the Portfolio, 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 Portfolio. In addition, the futures exchanges may limit
the amount of fluctuation permitted in certain futures contract prices or
related options during a single trading day. The Portfolio may be forced,
therefore, to liquidate or close out a futures contract position at a
disadvantageous price. There is no assurance that a counterparty in an
over-the-counter option transaction will be able to perform its obligations. The
Portfolio 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 Portfolio's activities in the futures and options markets may result
in higher portfolio turnover rates and additional brokerage costs, which could
reduce the Portfolio's yield.
OPTIONS AND FUTURES LIMITATIONS
The Portfolio may invest in futures and options contracts regulated by the CFTC
for (1) bona fide hedging purposes with the meaning of the rules of the CFTC and
(2) for other purposes if, as a result, no more than 5% of the Portfolio'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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ILLIQUID AND RESTRICTED SECURITIES
GENERAL
The Portfolio may not acquire securities or invest in repurchase agreements if,
as a result, more than 15% of the Portfolio'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 Portfolio has valued the securities. Illiquid securities include:
(1) repurchase agreements not entitling the holder to payment of principal
within seven days; (2) purchased over-the-counter options; (3) securities which
are not readily marketable; and (4) except as otherwise determined by the
Adviser, securities subject to contractual or legal restrictions on resale
because they have not been registered under the 1933 Act, except as otherwise
determined by the Adviser ("restricted securities").
RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and the Portfolio might also have to register a restricted security in
order to dispose of it, resulting in expense and delay. The Portfolio might not
be able to dispose of restricted or illiquid securities promptly or at
reasonable prices and might thereby experience difficulty-satisfying
redemptions. There can be no assurance that a liquid market will exist for any
security at any particular time. Any security, including securities determined
by the Adviser to be liquid, can become illiquid.
DETERMINATION OF LIQUIDITY
The Wells Core Trust 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 Wells Core Trust Board. The Adviser determines and
monitors the liquidity of the portfolio securities and reports periodically on
its decisions to the Wells Core Trust Board. The Adviser takes into account a
number of factors in reaching liquidity decisions, including but not limited to:
(1) the frequency of trades and quotations for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to undertake to make a market
in the security; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
REPURCHASE AGREEMENTS
GENERAL
The Portfolio may enter into repurchase agreements. Repurchase agreements are
transactions in which the Portfolio purchases securities from a bank or
securities dealer and simultaneously commits to resell the securities to the
bank or dealer at an agreed-upon date and at a price reflecting a market rate of
interest unrelated to the purchased security. During the term of a repurchase
agreement, the Portfolio's custodian maintains possession of the purchased
securities and any underlying collateral, which is maintained at not less than
100% of the repurchase price. Repurchase agreements allow the Portfolio to earn
income on its uninvested cash for periods as short as overnight, while retaining
the flexibility to pursue longer-term investments.
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RISKS
Repurchase agreements involve credit risk. Credit risk is the risk that a
counterparty to a transaction will be unable to honor its financial obligation.
In the event that bankruptcy, insolvency or similar proceedings are commenced
against a counterparty, the Portfolio may have difficulties in exercising its
rights to the underlying securities or currencies, as applicable. The Portfolio
may incur costs and expensive time delays in disposing of the underlying
securities and it may suffer a loss. Failure by the other party to deliver a
security or currency purchased by the Portfolio may result in a missed
opportunity to make an alternative investment. Favorable insolvency laws that
allow the Portfolio, among other things, to liquidate the collateral held in the
event of the bankruptcy of the counterparty reduce counterparty insolvency risk
with respect to repurchase agreements.
LEVERAGE TRANSACTIONS
The Portfolio may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to the Portfolio through an investment technique is
used to make additional Portfolio investments. Borrowing for other than
temporary or emergency purposes, lending portfolio securities, entering into
reverse repurchase agreements and purchasing securities on a when-issued,
delayed delivery or forward commitment basis are transactions that result in
leverage. The Portfolio uses these investment techniques only when the Adviser
believes that the leveraging and the returns available to the Portfolio from
investing the cash will provide investors a potentially higher return.
BORROWING The Portfolio may borrow money from banks for temporary or emergency
purposes. The Portfolio may also enter into reverse repurchase agreements. A
reverse repurchase agreement is a transaction in which the Portfolio sells
securities to a bank or securities dealer and simultaneously commits to
repurchase the security from the bank or dealer at an agreed upon date and at a
price reflecting a market rate of interest unrelated to the sold security. An
investment of the Portfolio's assets in reverse repurchase agreements will
increase the volatility of the Fund's net asset value per share. A Portfolio
will use the proceeds of reverse repurchase agreements to fund redemptions or to
make investments.
SECURITIES LENDING The Portfolio may lend its portfolio securities pursuant to
guidelines approved by the Wells Core Trust Board to brokers, dealers and
financial institutions, provided: (1) the loan is secured continuously by
collateral consisting of cash, securities of the U.S. Government, its agencies
or instrumentalities, or an irrevocable letter of credit issued by a bank
organized under the laws of the United States, organized under the laws of a
State, or a foreign bank that has filed an agreement with the Federal Reserve
Board to comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral is maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the
Portfolio may at any time call the loan and obtain the return of the securities
loaned upon sufficient prior notification; (3) the Portfolio will receive any
interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed the limits
established by the 1940 Act. The Portfolio will earn income for lending its
securities because cash collateral pursuant to these loans will be invested
subject to the investment objectives, principal investment strategies and
policies of the Portfolio. In connection with lending securities, the Portfolio
may pay reasonable finders, administrative and custodial fees.
WHEN-ISSUED SECURITIES, DELAYED-DELIVERY SECURITIES
AND FORWARD COMMITMENTS
The Portfolio may purchase securities on a "when-issued" or "delayed-delivery"
basis and may purchase or sell securities on a "forward commitment" (including
"dollar roll" transactions) basis. When these transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. Normally, the settlement date occurs within two months after the
transaction, but delayed settlements beyond two months may be negotiated. During
the period between a commitment and settlement, no payment is made for the
securities purchased by the purchaser and thus, no interest accrues to the
purchaser from the transaction. At the time the Portfolio makes the commitment
to purchase securities on a when-issued or delayed delivery basis, the Portfolio
will record the transaction as a purchase and thereafter reflect the value each
day of such securities in determining its net asset value.
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DOLLAR ROLL TRANSACTIONS
The Portfolio may enter into dollar roll transactions. Dollar roll transactions
are transactions in which the Portfolio sells securities to a bank or securities
dealer, and makes a commitment to purchase similar, but not identical,
securities at a later date from the same party. During the period between the
commitment and settlement, no payment is made for the securities purchased and
no interest or principal payments on the securities accrue to the purchaser, but
the Portfolio assumes the risk of ownership. The Portfolio is compensated for
entering into dollar roll transactions by a dealer for the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. The
Portfolio will engage in dollar roll transactions for the purpose of acquiring
securities for their investment portfolios.
RISKS
Leverage creates the risk of magnified capital losses. Borrowings and other
liabilities that exceed the equity base of the Portfolio may magnify losses
incurred by the Portfolio. Leverage may involve the creation of a liability that
requires the Portfolio to pay interest (for instance, reverse repurchase
agreements) or the creation of a liability that does not entail any interest
costs (for instance, forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Portfolio's securities. So long as the Portfolio is able to realize a net return
on its investment portfolio that is higher than the interest expense incurred,
if any, leverage will result in higher current net investment income for the
Portfolio than if the Portfolio were not leveraged. Changes in interest rates
and related economic factors could cause the relationship between the cost of
leveraging and the yield to change so that rates involved in the leveraging
arrangement may substantially increase relative to the yield on the obligations
in which the proceeds of the leveraging have been invested. To the extent that
the interest expense involved in leveraging approaches the net return on the
Portfolio's investment portfolio, the benefit of leveraging will be reduced,
and, if the interest expense on borrowings were to exceed the net return to
investors, the Portfolio's use of leverage would result in a lower rate of
return than if the Portfolio were not leveraged. In an extreme case, if the
Portfolio's current investment income were not sufficient to meet the interest
expense of leveraging, it could be necessary for the Portfolio to liquidate
certain of its investments at an inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, the Portfolio's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the
Portfolio's commitments under these transactions.
INVESTMENT LIMITATIONS
For purposes of all investment policies of the Fund: (1) the term 1940 Act
includes the rules thereunder, SEC interpretations and any exemptive order upon
which the Fund may rely; and (2) the term Code includes the rules thereunder,
IRS interpretations and any private letter ruling or similar authority upon
which the Fund may rely.
Except as required by the 1940 Act or the Code, if any percentage restriction on
investment or utilization of assets is adhered to at the time an investment is
made, a later change in percentage resulting from a change in the market values
of the Fund's assets or purchases and redemptions of shares will not be
considered a violation of the limitation.
A fundamental policy of the Fund and the Fund's investment objective cannot be
changed without the affirmative vote of the lesser of: (1) 50% of the
outstanding shares of the Fund; or (2) 67% of the shares of the Fund present or
represented at a shareholders meeting at which the holders of more than 50% of
the outstanding shares of the Fund are present or represented. A nonfundamental
policy of the Fund may be changed by the Board without shareholder approval.
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FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. The Fund may not:
DIVERSIFICATION
With respect to 75% of its assets, purchase a security (other than a U.S.
Government Security or a security of an investment company) if as a result: (1)
more than 5% of its assets would be invested in the securities of any single
issuer; or (2) the Fund would own more than 10% of the outstanding voting
securities of any single issuer.
CONCENTRATION
Purchase a security if, as a result, more than 25% of the Fund's total assets
would be invested in securities of issuers conducting their principal business
activities in the same industry; provided, however, that there is no limit on
investments in U.S. Government Securities, repurchase agreements covering U.S.
Government Securities, foreign government securities, mortgage-related or
housing-related securities and issuers domiciled in a single country; that
financial service companies are classified according to the end users of their
services (for example, automobile finance, bank finance and diversified
finance); and that utility companies are classified according to their services
(for example, gas, gas transmission, electric and gas, electric and telephone).
BORROWING MONEY
Borrow money from a bank for temporary or emergency purposes, including the
meeting of redemption requests, but not in excess of 33 1/3% of the value of the
Fund's total assets (as computed immediately after the borrowing).
PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate, any interest therein or real estate limited
partnership interests, except that the Fund may invest in debt obligations
secured by real estate or interests therein or securities issued by companies
that invest in real estate or interests therein.
MAKING LOANS
Make loans, except the Fund may enter into repurchase agreements, purchase debt
securities that are otherwise permitted investments and lend portfolio
securities.
PURCHASE AND SALE OF COMMODITIES
Purchase or sell physical commodities or contracts, options or options on
contracts to purchase or sell physical commodities provided that currency and
currency-related contracts and contracts on indices are not be deemed to be
physical commodities.
UNDERWRITING ACTIVITIES
Underwrite securities of other issuers, except to the extent that the Fund may
be considered to be acting as an underwriter in connection with the disposition
of portfolio securities.
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except to the extent permitted by the 1940 Act.
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NON-FUNDAMENTAL LIMITATIONS
The Fund has adopted the following nonfundamental investment limitations that
may be changed by the Board without shareholder approval. The Fund may:
ILLIQUID SECURITIES
Not invest or hold more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.
SECURITIES OF INVESTMENT COMPANIES
Invest in shares of other investment companies to the extent permitted under the
1940 Act, including the rules, regulations and exemptions thereunder.
SHORT SALES
Not sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short (short sales "against
the box"), and provided that transactions in futures contracts and options are
not deemed to constitute selling securities short.
PURCHASING ON MARGIN
Not purchase securities on margin (except for short-term credits necessary for
the clearance of transactions).
LENDING OF PORTFOLIO SECURITIES
Lend securities from its portfolio to approved brokers, dealers and financial
institutions, to the extent permitted under the 1940 Act, including the rules,
regulations and exemptions thereunder, which currently limit such activities to
one-third of the value of a Portfolio's total assets (including the value of the
collateral received). Any such loans of portfolio securities will be fully
collateralized based on values that are marked-to-market daily.
OPTIONS AND FUTURES CONTRACTS
Invest in futures or options contracts regulated by the CFTC for (i) bona fide
hedging purposes within the meaning of the rules of the CFTC and (ii) for other
purposes if, as a result, no more than 5% of the Fund's net assets would be
invested in initial margin and premiums (excluding amounts "in-the-money")
required to establish the contracts.
INVESTING FOR CONTROL
Not make investments for the purpose of exercising control or management,
provided that this restriction does not limit the Fund's investment in
securities of other investment companies or investments in entities created
under the laws of foreign countries to facilitate investment in securities of
that country.
PERFORMANCE DATA AND ADVERTISING
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:
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<PAGE>
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, Inc., iMoneyNet, Inc. (IBC Financial Data, Inc.),
CDA/Wiesenberger or other companies which track the investment
performance of investment companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index; the Russell
2000(R) Index; the Russell Midcap(TM) Index; the Russell 1000(R) Value
Index; the Russell 2500TM Index; the Morgan Stanley(R) Capital
International - Europe, Australasia and Far East Index; the Dow Jones
Industrial Average; the Salomon Brothers Bond Index; the Lehman Bond
Index, U.S. Treasury bonds, bills or notes and changes in the Consumer
Price Index as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are standards by which 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.
PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Fund.
TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price and assuming that all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in the Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period; and (2)
calculates the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that performance is not constant over time but changes from year to year, and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
Average annual total return is calculated according to the following formula:
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<PAGE>
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns that reflect
the Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration the Fund's front-end sales charge or contingent
deferred sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
OTHER MATTERS
The Fund may also include a variety of 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 or the Portfolio's
portfolio managers and the portfolio management staff of the Portfolio's
Adviser, summaries of the views of the portfolio managers with respect to the
financial markets, or descriptions of the nature of the Adviser's and its
staff's management techniques; (7) the results of a hypothetical investment in
the Fund over a given number of years, including the amount that the investment
would be at the end of the period; (8) the effects of investing in a
tax-deferred account, such as an individual retirement account or Section 401(k)
pension plan; (9) the net asset value, net assets or number of shareholders of
the Fund as of one or more dates; and (10) a comparison of the Fund's operations
to the operations of other funds or similar investment products, such as a
comparison of the nature and scope of regulation
15
<PAGE>
of the products and the products' weighted average maturity, liquidity,
investment policies, and the manner of calculating and reporting performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,188 at the end
of the second year (an increase of $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
The Fund may advertise information regarding the effects of systematic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in the Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month in the Fund
for a period of six months the following will be the relationship between
average cost per share ($14.35 in the example given) and average price per
share:
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
In connection with its advertisements, the Fund may provide "shareholder's
letters" that serve to provide shareholders or investors with an introduction to
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices.
MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
16
<PAGE>
<TABLE>
<S> <C>
-------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
-------------------------------------------- -----------------------------------------------------------------------
-------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*, Chairman and President Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 services holding company)
Two Portland Square Director, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Visiting Professor of Economics, Athens University of Economics and
Department of Economics Business 1998 - 1999
University of California Trustee of one other investment company for which Forum Financial
Los Angeles, CA 90024 Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
James C. Cheng, Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in New
27 Temple Street England)
Belmont, MA 02718 Trustee of one other investment company for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Trustee of one other investment company for which Forum Financial
40 West 57th Street Group, LLC provides services
New York, NY 10019
-------------------------------------------- -----------------------------------------------------------------------
Thomas G. Sheehan, Vice President Managing Director, Forum Financial Group, LLC since 1993.
Born: November 17, 1954 Special Counsel, Division of Investment Management, Securities and
Two Portland Square Exchange Commission
Portland, ME 04101 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 Officer of five other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
-------------------------------------------- -----------------------------------------------------------------------
Ronald H. Hirsch, Treasurer Managing Director, Operations/Finance and Operations/Sales, Forum
Born: October 14, 1943 Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991 - 1998
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993 -
Two Portland Square 1998
Portland, ME 04101 Officer of one other investment company for which Forum Financial
Group, LLC provides services
</TABLE>
17
<PAGE>
WELLS CORE TRUST
The names of the Trustees and officers of Wells Core Trust, their positions with
Wells Core Trust, address, age and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of Wells Core Trust is indicated by an asterisk (*).
The Board supervises Index Portfolio's activities, monitors its contractual
arrangements with various service providers and decides upon matters of general
policy.
<TABLE>
<S> <C> <C>
Principal Occupations
Name, Age and Address Position During Past 5 Years
--------------------- -------- -------------------
*Robert C. Brown, 65 Trustee Director, Federal Farm Credit Banks Funding
5038 Kestral Parkway South Corporation and Farm Credit System Financial
Sarasota, FL 34231 Assistance Corporation since February 1993.
Donald H. Burkhardt, 70 Trustee Principal of the Burkhardt Law Firm.
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, 77 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, 56 Trustee Business Associate Professor, Wake Forest
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994.
Peter G. Gordon, 56 Trustee Chairman and Co-Founder of Crystal Geyser Water
Crystal Geyser Water Co. Company and President of Crystal Geyser Roxane
55 Francisco Street, Suite 410 Water Company since 1977.
San Francisco, CA 94133
*W. Rodney Hughes, 72 Trustee Private Investor.
31 Dellwood Court
San Rafael, CA 94901
*Richard M. Leach, 63 Trustee President of Richard M. Leach Associates (a
P.O. Box 1888 financial consulting firm) since 1992.
New London, NH 03257
*J. Tucker Morse, 54 Trustee Private Investor/Real Estate Developer; Chairman
10 Legare Street of Vault Holdings, LLC.
Charleston, SC 29401
Timothy J. Penny, 45 Trustee Senior Counselor to the public relations firm of
500 North State Street Himle-Horner since January 1995 and Senior Fellow
Waseca, MN 56093 at the Humphrey Institute, Minneapolis, Minnesota
(a public policy organization) since January 1995.
Donald C. Willeke, 59 Trustee Principal of the law firm of Willeke & Daniels.
201 Ridgewood Avenue
Minneapolis, MN 55403
Michael J. Hogan, 41 President Executive Vice President of Wells Fargo Bank, N.A.
since July 1999. Senior Vice President of Wells
Fargo Bank, N.A. from April 1997 to May 1999.
Vice President of American Express Financial
Advisors from May 1996 to April 1997, and Director
of American Express Financial Advisors from March
1993 to May 1996.
18
<PAGE>
Name, Age and Address Position During Past 5 Years
--------------------- -------- -------------------
Karla M. Rabusch, 41 Treasurer Senior Vice President of Wells Fargo Bank, N.A.,
since May 2000. Vice President of Wells Fargo
Bank, N.A. from December 1997 to May 2000. Prior
thereto, Director of Managed Assets Investment
Accounting of American Express Financial Advisors
from May 1994 to November 1997.
C. David Messman, 40 Secretary Vice President and Senior Counsel of Wells Fargo
Bank, N.A. since January 1996. Prior thereto,
Branch Chief, Division of Investment Management,
U.S. Securities and Exchange Commission.
</TABLE>
COMPENSATION OF TRUSTEES AND OFFICERS
Effective February 7, 2000, each Trustee of the Trust will be paid a quarterly
retainer fee of $1,750 for his service to the Trust. In addition, each Trustee
will be paid a fee of $500 for each Board meeting attended (whether in person or
by electronic communication). Trustees are also reimbursed for travel and
related expenses incurred in attending Board meetings. Mr. Keffer receives no
compensation (other than reimbursement for travel and related expenses) for his
service as Trustee of the Trust. No officer of the Trust is compensated by the
Trust but officers are reimbursed for travel and related expenses incurred in
attending Board meetings held outside of Portland, Maine.
The following table sets forth the fees paid to each Trustee by the Fund and the
Fund complex which includes all series of the Trust and one other investment
company for which the companies of Forum Financial Group, LLC provides services,
for the fiscal year ended May 31, 2000.
COMPENSATION TOTAL COMPENSATION FROM
TRUSTEE FROM FUND TRUST AND FUND COMPLEX
John Y. Keffer $0 $0
Costas Azariadis $190 $19,500
James C. Cheng $190 $19,500
J. Michael Parish $190 $19,500
INVESTMENT ADVISER
SERVICES OF ADVISER
WFB is the investment adviser to Index Portfolio, the Portfolio in which the
Fund invests. Subject to the general supervision of the Wells Core Trust Board,
WFB provides investment advisory services to the Portfolio. As Adviser, WFB
furnishes investment guidance and direction in connection with the daily
portfolio management of the Portfolio. WFB furnishes to the Wells Core Trust
Board periodic reports on the investment strategies and performance of the
Portfolio. WFB provides the Portfolio with, among other things, money market and
fixed income research, analysis and statistical and economic data and
information concerning interest rate and securities markets trends, portfolio
composition and credit conditions.
WCM is the Portfolio's investment sub-adviser. WCM is responsible for the
day-to-day investment management activities of the Portfolio.
19
<PAGE>
OWNERSHIP OF ADVISERS
WFB is a wholly owned subsidiary of Wells Fargo & Company, a national bank
holding company. WCM is a wholly owned subsidiary of WFB.
OTHER PROVISIONS OF ADVISER'S AGREEMENT
The investment advisory agreement for the Portfolio (the "Advisory Agreement")
remains in effect for a period of two years from the date of its effectiveness.
Subsequently, the Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the Advisory Agreement or interested persons of
any such party (other than as trustees of Wells Core Trust).
The Agreement with respect to the Portfolio is terminable without penalty by the
Wells Core Trust Board or by majority vote of the Portfolio's outstanding voting
securities (as defined by the 1940 Act) on 60 days' written notice by either
party and will terminate automatically upon assignment.
FEES
WFB's fees are calculated as a percentage of the Portfolio's average daily net
assets. The fee is accrued daily by the Portfolio and is paid monthly based on
average net assets for the previous month. WFB may waive all or any portion of
the Portfolio's advisory fees. The Advisory agreement provides that WFB may
render services to others.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
its Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser for the past three fiscal years.
DISTRIBUTOR
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. Prior to March 1, 1999, FFSI was the distributor of the
Fund pursuant to similar terms and compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under a distribution agreement (the "Distribution Agreement") with the Trust,
FFS acts as the agent of the Trust in connection with the offering of shares of
the Fund. FFS continually distributes shares of the Fund on a best effort basis.
FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund.
FFS may enter into agreements with selected broker-dealers, banks or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold with sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through which they purchase shares, which may include
charges, investment minimums, cutoff times and other restrictions in addition
to, or different from, those listed herein. Information concerning any charges
or services will be provided to customers by the financial institution.
Investors purchasing shares of the Fund in this manner should acquaint
20
<PAGE>
themselves with their institution's procedures and should read the Prospectus in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of the Fund's
shares. Table 2 in Appendix B shows the aggregate sales charges paid to FFS or
FFSI, the amount of sales charge reallowed by FFS or FFSI, and the amount of
sales charge retained by FFS or FFSI for the past three years (or shorter
depending on the Fund's commencement of operations).
OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
The Distribution Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust).
The Distribution Agreement is terminable without penalty by the Trust with
respect to the Fund on 60 days' written notice when authorized either by vote of
the Fund's shareholders, by a majority vote of the Board, or by FFS.
Under the Distribution Agreement, FFS is not liable to the Trust or the Trust's
shareholders for any error of judgment or mistake of law, for any loss arising
out of any investment or for any act or omission in the performance of its
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement.
Under the Distribution Agreement, FFS and certain related parties (such as FFS's
officers and persons that control FFS) are indemnified by the Trust against all
claims and expenses in any way related to alleged untrue statements of material
fact contained in the Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
OTHER FUND SERVICE PROVIDERS
ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust (the "Administration
Agreement"), FAdS is responsible for the supervision of the overall management
of the Trust, providing the Trust with general office facilities and providing
persons satisfactory to the Board to serve as officers of the Trust.
For its services, FAdS receives a fee from the Fund at an annual rate of 0.20%
of the average daily net assets of each Fund. The fee is accrued daily by the
Fund and is paid monthly based on average net assets for the previous month.
The 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 (other than as Trustees of the Trust). The Administration Agreement is
terminable without penalty by the Trust or by FAdS with respect to the Fund on
60 days' written notice.
Under the Administration Agreement, FAdS is not liable to the Trust or the
Trust's shareholders for any act or omission, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement. Under the
Administration Agreement, FAdS and certain related parties (such as FAdS's
officers and persons who control FAdS) are indemnified by the Trust against any
and all claims and expenses related to FAdS's actions or omissions that are
consistent with FAdS's contractual standard of care.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The fees include the Fund's pro rata share of the Portfolio's
21
<PAGE>
administration fees for the past fiscal year (or shorter period depending on the
Fund's commencement of operations).
FUND ACCOUNTANT
As fund accountant, pursuant to an accounting agreement with the Trust (the
"Accounting Agreement"), FAcS provides fund accounting services to the Fund.
These services include calculating the NAV per share of the Fund and preparing
the Fund's financial statements and tax returns.
For its services, FAcS receives a fee from the Fund at an annual rate of $36,000
plus $2,200 for the preparation of tax returns and certain surcharges based upon
the number and type of the Fund's portfolio transactions and positions. The fee
is accrued daily by the Fund and is paid monthly based on the transactions and
positions for the previous month.
The Accounting Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust). The Accounting Agreement is
terminable without penalty by the Trust or by FAcS with respect to the Fund on
60 days' written notice.
Under the Accounting Agreement, FAcS is not liable for any action or omission in
the performance of its duties to the Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the Accounting Agreement, FAcS and certain
related parties (such as FAcS's officers and persons who control FAcS) are
indemnified by the Trust against any and all claims and expenses related to
FAcS's actions or omissions that are consistent with FAcS's contractual standard
of care.
Under the Accounting Agreement, in calculating a Fund's NAV per share, FAcS is
deemed not to have committed an error if the NAV per share it calculates is
within 1/10 of 1% of the actual NAV per share (after recalculation). The
Accounting Agreement also provides that FAcS will not be liable to a shareholder
for any loss incurred due to an NAV difference if such difference is less than
or equal 1/2 of 1% or less than or equal to $10.00. In addition, FAcS is not
liable for the errors of others, including the companies that supply securities
prices to FAcS and the Fund.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The fees include the Fund's pro rata share of the Portfolio's fund
accounting fees. The data are for the past three fiscal years (or shorter period
depending on the Fund's commencement of operations).
TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agency
agreement with the Trust (the "Transfer Agency Agreement"), FSS maintains an
account for each shareholder of record of the Fund and is responsible for
processing purchase and redemption requests and paying distributions to
shareholders of record. FSS is located at Two Portland Square, Portland, Maine
04101 and is registered as a transfer agent with the SEC.
For its services, FSS receives with respect to the Fund 0.25% of the average
daily net assets of the Fund, an annual fee of $12,000 and $18 per shareholder
account. The fee is accrued daily by the Fund and is paid monthly based on the
average net assets for the previous month.
The Transfer Agency Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust). The Transfer Agency Agreement is
terminable without penalty by the Trust or by FSS with respect to the Fund on 60
days' written notice.
Under the Transfer Agency Agreement, FSS is not liable for any act in the
performance of its duties to the Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties under the agreement. Under
the Transfer Agency Agreement, FSS and certain related parties (such as FSS's
officers and persons who
22
<PAGE>
control FSS) are indemnified by the Trust against any and all claims and
expenses related to FSS's actions or omissions that are consistent with FSS's
contractual standard of care.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Fund to
FSS, the amount of the fee waived by FSS, and the actual fees received by FSS.
The data are for the past three fiscal years (or shorter period depending on the
Fund's commencement of operations).
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.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of the Fund. The Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Fund and are paid monthly based on average net assets and transactions for the
previous month.
LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005 passes upon
legal matters in connection with the issuance of shares of the Trust.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, Fourteenth Floor, Boston,
Massachusetts 02116, independent auditors, have been selected as auditors for
the Fund. The auditors audit the annual financial statements of the Fund and
provide the Fund with an audit opinion. The auditors also review certain
regulatory filings of the Fund and the Fund's tax returns.
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, serves as independent
auditors for the Portfolio.
PORTFOLIO TRANSACTIONS
HOW SECURITIES ARE PURCHASED AND SOLD
The Fund invests substantially all of its assets in the Portfolio and does not
purchase securities directly. The Portfolio's purchases and sales of 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 Portfolio purchases or to whom the Portfolio 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 at a net price. 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.
23
<PAGE>
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.
COMMISSIONS PAID
The Fund does not pay brokerage commissions directly as it invests substantially
all of its assets in the Portfolio.
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 Adviser 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 Portfolio is
prompt execution of orders in an effective manner and at the most favorable
price available.
CHOOSING BROKER-DEALERS
The Portfolio may not always pay the lowest commission or spread available.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker in
light of generally prevailing rates. The allocation of orders among brokers and
the commission rates paid are reviewed periodically by the Wells Core Trust
Board. 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.
OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause the Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Fund, and the Adviser in connection with the
Fund may use not all research services. The Adviser's fees are not reduced by
reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services obtained for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser utilizes a broker and pays a slightly higher
commission than another broker may charge. The higher commission is paid because
of the Adviser's need for specific research, for specific expertise a firm may
have in a particular type of transaction (due to factors such as size or
difficulty), or for speed/efficiency in execution. Since most of the Adviser's
brokerage commissions for research are for economic research on specific
companies or industries, and since the Adviser is involved with a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
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There are occasions in which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to its Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect transactions through affiliates of the Adviser (or
affiliates of those persons) including Stephens Inc. and Wells Fargo Securities
Inc. pursuant to procedures adopted by the Trust. Under the 1940 Act, persons
affiliated with Wells Core Trust are prohibited from dealing with Wells Core
Trust as a principal in the purchase or sale of securities unless an exemptive
order allowing such transactions is obtained from the SEC or an exemption is
otherwise available. The Portfolio may purchase securities from underwriting
syndicates of which Stephens Inc. or Wells Fargo Securities Inc. is a member
under certain conditions in accordance with the 1940 Act and in compliance with
procedures adopted by the Wells Core Trust Board.
OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Portfolio are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. In addition, two or more
clients may simultaneously purchase or sell the same security, in which event
each day's transactions in such security are, insofar as is possible, averaged
as to price and allocated between such clients in a manner which, in the
Adviser's opinion, is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
a portfolio security for one client could have an adverse effect on another
client that has a position in that security. When purchases or sales of the same
security for the Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Portfolio (the portfolio turnover
rate) will vary from year to year depending on many factors. The Portfolio
turnover rate is not a limiting factor when the Adviser deems portfolio changes
appropriate. Changes may be made in the Portfolio consistent with the investment
objectives and policies of the Portfolio whenever such changes are believed to
be in the best interest of the Portfolio and its interestholders. Higher
portfolio turnover rates may result in increased brokerage costs to the Fund and
a possible increase in short-term capital gains or losses.
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PURCHASE AND REDEMPTION INFORMATION
GENERAL INFORMATION
You may purchase or redeem shares or request any shareholder privilege in person
at the offices of Forum Shareholder Services, LLC located at Two Portland
Square, Portland, Maine 04101.
The Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
Not all classes or funds of the Trust may be available for sale in the state in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor.
Each Fund reserves the right to refuse any purchase request.
Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that: (1) are not restricted as to transfer by law and
are not illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
IRAS
All contributions into an IRA through systematic investments are treated as IRA
contributions made during the year the investment is received.
UGMAS/UTMAS
If the custodian's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the custodian must provide instructions in a
manner indicating custodial capacity.
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.
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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.
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.
SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that trading thereon is
restricted; (2) an emergency (as determined by the SEC) exists as a result of
which disposal by the Fund of its securities is not reasonably practicable or as
a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) the SEC may by order permit for
the protection of the shareholders of the Fund.
REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisabel by the Adviser, a Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which 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.
NAV DETERMINATION
Net asset value per share for the Fund is determined as of the close of regular
trading (currently 4:00 p.m. (Eastern time)) on each day the New York Stock
Exchange ("NYSE") is open for business. Expenses and fees, including advisory
fees, are accrued daily and are taken into account for the purpose of
determining the net asset value of the Fund's shares.
Securities of the Portfolio in which the Fund invests for which market
quotations are available are valued at latest prices. Any security for which the
primary market is an exchange is valued at the last sale price on such exchange
on the day of valuation or, if there was no sale on such day, the latest bid
price quoted on such day. In the case of other Portfolio securities, including
U.S. Government securities but excluding money market instruments and debt
securities maturing in 60 days or less, the valuations are based on latest
quoted bid prices. Money market instruments and debt securities maturing in 60
days or less are valued at amortized cost. Futures contracts will be marked to
market daily at their respective settlement prices determined by the relevant
exchange. Prices may be furnished by a reputable independent pricing service
approved by the Wells Core Trust Board. All other securities and other assets of
the Portfolio for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Wells Core Trust Board
and in accordance with procedures adopted by the Wells Core Trust Board.
Shares of the Fund may be purchased or redeemed on any day the Fund is open for
business. The Fund is open for business each day the NYSE is open for trading (a
"Business Day"). Currently, the NYSE is closed on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
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DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of
the Fund on the payment date for the distribution. Cash payments may be made
more than seven days following the date on which distributions would otherwise
be reinvested.
SALES CHARGES
REDUCED SALES CHARGES
You may qualify for a reduced sales charge on purchases of the Fund under rights
of accumulation ("ROA") or a letter of intent ("LOI"). If you qualify under the
ROA, the sales charge you pay is based on the total of your current purchase and
the net asset value (at the end of the previous fund business day) of shares
that you already hold. To qualify for ROA on a purchase, you must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount. You may also enter into a LOI, which expresses your
intent to invest $100,000 or more in the Fund within a period of 13 months. Each
purchase under a LOI will be made at the public offering price applicable at the
time of the purchase to a single transaction of the dollar amount indicated in
the LOI. If you do not purchase the minimum investment referenced in the LOI,
you must pay the Fund an amount equal to the difference between the dollar value
of the sales charges paid under the LOI and the dollar value of the sales
charges due on the aggregate purchases of the Fund as if such purchases were
executed in a single transaction.
ELIMINATION OF SALES CHARGES
No sales charge is assessed on the reinvestment of the Fund's distributions. No
sales charge is assessed on purchases made for investment purposes or on
redemptions by:
o Any bank, trust company, savings association or similar institution
with whom the distributor has entered into a share purchase agreement
acting on behalf of the institution's fiduciary customer accounts or
any account maintained by its trust department (including a pension,
profit sharing or other employee benefit trust created pursuant to a
qualified retirement plan)
o Any registered investment adviser with whom the distributor has
entered into a share purchase agreement and which is acting on behalf
of its fiduciary customer accounts
o Any broker-dealer with whom the distributor has entered into a
Fee-Based Wrap Account Agreement or similar agreement and which is
acting on behalf if its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Adviser, the distributor, any of their affiliates or
any organization with which the distributor has entered into a
Selected Dealer or similar agreement; the spouse, sibling, direct
ancestor or direct descendent (collectively, "relatives") of any such
person; any trust or individual retirement account or self-employed
retirement plan for the benefit of any such person or relative; or the
estate of any such person or relative
o Any person who has, within the preceding 90 days, redeemed Fund shares
(but only on purchases in amounts not exceeding the redeemed amounts)
and completes a reinstatement form upon investment
o Persons who exchange into the Fund from a mutual fund other than a
fund of the Trust that participates in the Trust's exchange program
o Employee benefit plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
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TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect. All investors should consult their own tax adviser as to the federal,
state, local and foreign tax provisions applicable to them.
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 May 31 (the same as the Fund's fiscal year end).
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 table 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 long-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 each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of an issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
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.
FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
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Failure to qualify as a regulated investment company would thus have a negative
impact on the Fund's income and performance. It is possible that the Fund will
not qualify as a regulated investment company in any given tax year.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment company
taxable income for each tax year. A portion of these distributions are taxable
to you as ordinary income. These distributions may qualify for the 70%
dividends-received deduction for corporate shareholders.
The Fund anticipates distributing substantially all of its net capital gain for
each tax year. These distributions generally are made only once a year, usually
in November or December, but the Fund may make additional distributions of net
capital gain at any time during the year. These distributions are taxable to you
as long-term capital gain, regardless of how long you have held shares. These
distributions do not qualify for the dividend-received deduction.
The Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Fund's financial statements. Any
such losses may not be carried back.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by the Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares 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.
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 even 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.
CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by the Fund is exercised, the purchase price
(selling price in the case of a call) of the underlying security is decreased
(increased in the case of a call) for tax purposes by the premium received.
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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 or losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to the Fund that may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held by the Fund if
all of the offsetting positions consist of Section 1256 contracts.
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
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases (for example, by reinvesting dividends) other shares of
the Fund within 30 days before or after the sale or redemption (a so called
"wash sale"). If disallowed, the loss will be reflected in an upward adjustment
to the basis of the shares purchased. In general, any gain or loss arising from
the sale or redemption of shares of the Fund will be considered capital gain or
loss and will be long-term capital gain or loss if the shares were held for
longer than one year. Any capital loss arising from the sale or redemption of
shares held for six months or less, however, is treated as a long-term capital
loss to the extent of the amount of distributions net capital gain received on
such shares. In determining the holding period of such shares for this purpose,
any period during which a shareholder's risk of loss is offset by
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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.
BACKUP WITHHOLDING
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide a correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient." Backup
withholding is not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
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 distribution of net capital gain from the Fund. If the income from
a Fund is effectively connected with a U.S. trade or business carried on by a
foreign shareholder, then ordinary income distributions, and any gain realized
upon the sale of shares of a Fund will be subject to U.S. federal income tax at
the rates applicable to U.S. citizens or U.S. corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the rules 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.
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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OTHER MATTERS
THE TRUST AND ITS SHAREHOLDERS
GENERAL INFORMATION
Forum Funds was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to the
assets and liabilities of Forum Funds, Inc.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
Austin Global Equity Fund Investors Growth Fund
BrownIA Growth Equity Fund Investors High Grade Bond Fund
BrownIA Small-Cap Growth Fund Mastrapasqua Growth Value Fund
Daily Assets Cash Fund(1) Maine TaxSaver Bond Fund
Daily Assets Government Fund(1) New Hampshire TaxSaver Bond Fund
Daily Assets Government Obligations Fund(1) Payson Balanced Fund
Daily Asset Municipal Fund(1) Payson Value Fund
Daily Assets Treasury Obligations Fund(1) Polaris Global Value Fund
Equity Index Fund TaxSaver Bond Fund
Investors Bond Fund The Advocacy Fund
Investors Equity Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
Each of the Trust, the investment adviser and subadviser for Index Portfolio,
and the principal underwriter have adopted codes of ethics under Rule 17j-1, as
amended, of the 1940 Act. These codes permit personnel subject to the codes to
invest in securities, including securities that may be purchased or held by the
Fund.
The Trust and the Fund will continue indefinitely until terminated.
SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and its
expenses will affect each class' performance.
SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency, shareholder service and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted separately by individual series except if: (1) the 1940 Act
requires shares to be voted in the aggregate and not by individual series; and
(2) when the Trustees determine that the matter affects more than one series and
all affected series must vote. The Trustees may also determine that a matter
only affects certain classes of the Trust and thus only those classes are
entitled to vote on the matter. Delaware law does not require the Trust to hold
annual meetings of shareholders, and it is anticipated that
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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) 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.
CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally, such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust or certain series to merge or consolidate into
one or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end,
management investment company that will succeed to or assume the Trust's
registration statement.
FUND OWNERSHIP
As of September 1, 2000, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding Shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of the
Fund. These shareholders and any shareholder known by the Fund to own
beneficially 5% or more of the Fund are listed in Table 6 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of September 1, 2000, the
following persons beneficially or of record owned 25% or more of the shares of
the Fund (or of the Trust) and may be deemed to control the Fund (or the Trust).
For each person listed that is a company, the jurisdiction under the laws of
which the company is organized (if applicable) and the company's parents are
listed.
CONTROLLING PERSON INFORMATION
SHAREHOLDER PERCENTAGE OF
SHARES OWNED
Stratevest & Co. 52.16%
P.O. Box 2499
Brattleboro, VT 05303-2499
Stratevest & Co. 43.70%
P.O. Box 2499
Brattleboro, VT 05303-2499
Stratevest & Co. is the nominee for The Stratevest Group, N.A. The Stratevest
Group, N.A. is a national banking association and is a wholly owned subsidiary
of Banknorth Group, a New England based holding company.
LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some
34
<PAGE>
states, however, have indicated that they and the courts in their states may
decline to apply Delaware law on this point. The Forum Fund's Trust Instrument
(the document that governs the operation of the Trust) contains an express
disclaimer of shareholder liability for the debts, liabilities, obligations and
expenses of the Trust. The Trust Instrument provides for indemnification out of
each series' property of any shareholder or former shareholder held personally
liable for the obligations of the series. The Trust Instrument also provides
that each series shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the series and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which Delaware
law does not apply, no contractual limitation of liability was in effect, and
the Fund is unable to meet its obligations. FAdS believes that, in view of the
above, there is no risk of personal liability to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
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.
FINANCIAL STATEMENTS
The financial statements of Equity Index Fund and Index Portfolio of Wells Fargo
Core Trust for the year ended May 31, 2000 and November 30, 2000, respectively
which are included in the Fund's Annual Report to Shareholders dated May 31,
2000, are incorporated herein by reference. These financial statements include
the schedules of investments, statement of assets and liabilities, statements of
operations, statements of changes in net assets, financial highlights, notes and
independent auditors' reports.
REORGANIZATION OF INDEX PORTFOLIO
On April 21, 1999 the Core Trust Board approved an Agreement and Plan of
Reorganization whereby the Portfolio, among other series of Core Trust was
reorganized on November 5, 1999 into a separate series of Wells Fargo Core
Trust, another open-end management company, that has substantially similar
investment objectives and policies. The reorganization was part of a plan to
consolidate the mutual fund families of Wells Fargo & Company and Norwest
Corporation following their November 1998 merger. Pursuant to the Trust's Trust
Instrument, the reoganization did not require approval of the Portfolio's
interestholders.
35
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
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 that are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
<PAGE>
STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns, which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
A-2
<PAGE>
DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
<PAGE>
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
SPECULATIVE GRADE
BB Speculative. `BB' ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic
change over time; however, business or financial alternatives may be
available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk
is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
CCC
CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating indicates
that default of some kind appears probable. `C' ratings signal imminent
default.
DDD
DD, D Default. Securities are not meeting current obligations and are
extremely speculative. `DDD' designates the highest potential for
recovery of amounts outstanding on any securities involved. For U.S.
corporates, for example, `DD' indicates expected recovery of 50% - 90%
of such outstandings, and `D' the lowest recovery potential, i.e.
below 50%.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
BAA An issue, which is rated "baa", is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
BA An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
B An issue, which is rated "b" generally, lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
A-4
<PAGE>
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.
STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
SHORT TERM RATINGS
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:
A-5
<PAGE>
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.
STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties, which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
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.
A-6
<PAGE>
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.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
Year Ended May 31, 2000 $18,878 $0 $18,878
Year Ended May 31, 1999 $11,645 $0 $11,645
December 17, 1997 to May 31, 1998 $2,990 $0 $2,990
TABLE 2 - SALES CHARGES
The following table shows the dollar amount of aggregate sales charge paid to
FFS or FFSI, the amount retained, and the amount reallowed to financial
institutions.
AGGREGATE SALES CHARGE AMOUNT AMOUNT
RETAINED REALLOWED
Year Ended May 31, 2000 $409 $49 $360
Year Ended May 31, 1999 $0 $0 $0
December 17, 1997 to May 31, 1998 $0 $0 $0
TABLE 3 - ADMINISTRATION FEES
The following table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Year Ended May 31, 2000 $28,036 $28,036 $0
Year Ended May 31, 1999 $19,476 $19,454 $22
December 17, 1997 to May 31, 1998 $5,154 $5,147 $7
TABLE 4 - ACCOUNTING FEES
The following table shows the dollar amount of fees paid to FAcS with respect to
the Fund, the amount of fee that was waived by FAcS, if any, and the actual fee
received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
Year Ended May 31, 2000 $15,224 $7,000 $8,224
Year Ended May 31, 1999 $12,760 $12,000 $760
December 17, 1997 to May 31, 1998 $7,506 $0 $7,506
B-1
<PAGE>
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of fees payable to FSS with respect
to the Fund, the amount of fee that was waived by FSS, if any, and the actual
fee received by FSS.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Year Ended May 31, 2000 $44,241 $33,266 $10,975
Year Ended May 31, 1999 $31,635 $31,434 $201
December 17, 1997 to May 31, 1998 $10,295 $4,998 $5,297
</TABLE>
TABLE 6 - 5% SHAREHOLDERS
The following table lists: (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of a Fund; and (2) any person known by a
Fund to own beneficially 5% or more of a class of shares of the Fund, as of
September 1, 2000.
NAME AND ADDRESS % OF FUND
Stratevest & Co. 52.16%
P.O. Box 2499
Brattleboro, VT 05303-2499
Stratevest & Co. 43.70%
P.O. Box 2499
Brattleboro, VT 05303-2499
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGE)
The average annual total return of the Fund for the period ended May 31, 2000,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE YEAR TO DATE ONE YEAR THREE FIVE TEN SINCE
MONTHS YEARS YEARS YEARS INCEPTION
(2.05)% 4.23% (2.86)% 10.55% N/A N/A N/A 20.16%
</TABLE>
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGE)
The average annual total return of the Fund for the period ended May 31, 2000,
was as follows.
ONE YEAR FIVE TEN YEARS SINCE
YEARS INCEPTION
6.13% N/A N/A 18.16%
C-1
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, the Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. The form of text, which is currently in use, is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 181
mutual funds for 17 different fund managers, with more than $70 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 390 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start-up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to takE advantage of this full-service master/feeder
structure.
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of-the-art accounting
support (Forum has 7 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary
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accounting system is continually upgraded and can provide custom-built modules
to satisfy a fund's specific requirements. This service is joined with transfer
agency and shareholder service groups that draw their strength both from the
high caliber of the people staffing each unit and from Forum's advanced
technology support system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals wit decades of experience with some of the country's major financial
institutions.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1.25 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.95 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
-- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
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TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ: PHBK) announced today that it
has formed an alliance with a major mutual fund provider and an investment
advisory firm to expand its mutual fund offerings. The alliance with Forum
Financial Group and H.M. Payson & Company will result in 18 funds, including the
unique Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered
through the branches of Peoples' affiliate banks in Maine, New Hampshire and
northern Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, debt and equity funds.
Forum Financial, based in Portland, Maine since 1987, administers 124 funds with
more than $29 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.95 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1.25 billion in assets under management and $412 million in
non-managed custodial accounts. The Payson Value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson President and Managing Director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance, expense
accounting, budgeting for all funds
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*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: $73 billion
*Client Assets Processed by Fund Accounting: $53 billion
*Client Funds under Administration and Distribution: 181 mutual funds with 89
share classes
*International Ventures: Joint venture with Bank Handlowy in Warsaw, Poland,
using Forum's proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of operations
*Forum Employees: United States -215, Poland - 180, Bermuda - 4
FORUM CONTACTS:
John Burns, Director, Forum Investment Advisors, LLC, (207) 879-1900 X 6132 Tony
Santaniello, Director of Marketing, (207) 879-1900 X 6175
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.25 Billion
*Non-managed Custody Assets: $412 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 11 shareholders; 10 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
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[FORUM STATEMENT OF ADDITIONAL INFORMATION
LOGO]
OCTOBER 1, 2000
INVESTMENT ADVISER INVESTORS EQUITY FUND
The Stratevest Group, N.A.
111 Main Street
Burlington, VT 05401
ACCOUNT INFORMATION AND SHAREHOLDER
SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 805-8258
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated October 1, 2000, as may be amended from time to time, offering shares of
Investors Equity Fund (the "Fund"), a series of Forum Funds, a registered,
open-end management investment company (the "Trust"). This SAI is not a
prospectus and should only be read in conjunction with the Prospectus. You may
obtain the Prospectus without charge by contacting Forum Shareholder Services,
LLC at the address or telephone number listed above.
Financial statements for the Fund for the year ended May 31, 2000 are included
in the Annual Report to shareholders and are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
GLOSSARY 3
INVESTMENT POLICIES AND RISKS 4
INVESTMENT LIMITATIONS 10
PERFORMANCE DATA AND ADVERTISING 14
MANAGEMENT 17
PORTFOLIO TRANSACTIONS 22
PURCHASE AND REDEMPTION INFORMATION 24
TAXATION 27
OTHER MATTERS 31
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS A-1
APPENDIX B - MISCELLANEOUS TABLES B-1
APPENDIX C - PERFORMANCE DATA C-1
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS D-1
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GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means The Stratevest Group, N.A.
"Board" means the Board of Trustees of Forum Funds.
"CFTC" means the Commodity Futures Trading Commission.
"FAcS" means Forum Accounting Services, LLC, the Fund's fund accountant.
"FAdS" means Forum Administrative Services, LLC, the Fund's administrator.
"FFS" means Forum Fund Services, LLC, the Fund's distributor.
"FSS" means Forum Shareholder Services, LLC, the Fund's transfer agent.
"FFSI" means Forum Financial Services, Inc., the Fund's distributor prior to
March 1, 1999.
"Fund" means Investors Equity Fund.
"IRS" means Internal Revenue Service.
"Moody's" means Moody's Investor Service.
"NRSRO" means a nationally recognized statistical rating organization.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, a Division of the McGraw Hill Companies.
"Trust" means Forum Funds, a Delaware business trust
"U.S. Government Securities" means a debt security issued or guaranteed by the
United States, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
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INVESTMENT POLICIES AND RISKS
The Fund is a diversified series of the Trust. This section discusses in greater
detail than the Fund's Prospectus certain investments that the Fund may make.
EQUITY SECURITIES
COMMON AND PREFERRED STOCK
GENERAL The Fund may invest in common and preferred stock. Common stock
represents an equity (ownership) interest in a company, and usually possesses
voting rights and earns dividends. Dividends on common stock are not fixed but
are declared at the discretion of the issuer. Common stock generally represents
the riskiest investment in a company. In addition, common stock generally has
the greatest appreciation and depreciation potential because increases and
decreases in earnings are usually reflected in a company's stock price.
Preferred stock is a class of stock having a preference over common stock as to
the payment of dividends and the recovery of investment should a company be
liquidated, although preferred stock is usually junior to the debt securities of
the issuer. Preferred stock typically does not possess voting rights and its
market value may change based on changes in interest rates.
RISKS The fundamental risk of investing in common and preferred stock is the
risk that the value of the stock might decrease. Stock values fluctuate in
response to the activities of an individual company or in response to general
market and/or economic conditions. Historically, common stocks have provided
greater long-term returns and have entailed greater short-term risks than
preferred stocks, fixed-income and money market investments. The market value of
all securities, including common and preferred stocks, is based upon the
market's perception of value and not necessarily the book value of an issuer or
other objective 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.
CONVERTIBLE SECURITIES
GENERAL The Fund may invest in convertible securities. Convertible securities
include debt securities, preferred stock or other securities that may be
converted into or exchanged for a given amount of common stock of the same or a
different issuer during a specified period and at a specified price in the
future. A convertible security entitles the holder to receive interest on debt
or the dividend on preferred stock until the convertible security matures or is
redeemed, converted or exchanged.
Convertible securities rank senior to common stock in a company's capital
structure but are usually subordinated to comparable non-convertible securities.
Convertible securities have unique investment characteristics in that they
generally: (1) have higher yields than common stocks, but lower yields than
comparable nonconvertible securities; (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics;
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, 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. Smaller capitalized companies whose
stock price may be volatile, however, typically issue convertible securities. In
addition, the price of a convertible security may reflect variations in the
price of the underlying in a way that non-convertible debt does not. The extent
to which such risk is reduced, however, depends in large upon the degree to
which convertible security sells above its value as a fixed income security.
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WARRANTS
GENERAL The Fund may invest in warrants. Warrants are securities, typically
issued with preferred stock or bonds that give the holder the right to purchase
a given number of shares of common stock at a specified price and time. The
price usually represents a premium over the applicable market value of the
common stock at the time of the warrant's issuance. Warrants have no voting
rights with respect to the common stock, receive no dividends and have no rights
with respect to the assets of the issuer. The Fund will limit its purchases of
warrants (at the time of investment) to not more than 5% of the value of its net
assets (other than those that have been acquired in units or attached to other
securities). No more than 2% of the Fund's net assets (at the time of
investment) may be invested in warrants that are not listed on the New York or
American Stock Exchange.
RISKS Investments in warrants involve certain risks, including the possible lack
of a liquid market for the resale of the warrants, potential price fluctuations
due to adverse market conditions or other factors and failure of the price of
the common stock to rise. If a warrant is not exercised within the specified
time period, it becomes worthless.
DEPOSITARY RECEIPTS
GENERAL The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs") and other similar
securities of foreign issuers in order to obtain exposure to foreign securities
markets. Depositary receipts are receipts for shares of a foreign-based company
and they evidence ownership of the underlying securities issued by that foreign
company. ADRs typically are issued by a U.S. bank or trust company and are
designed for use in U.S. securities markets. EDRs are receipts issued by a
European financial institution and are designed for use in European securities
markets. The Fund expects to limit foreign investments to less than 10% of its
total assets.
RISKS Unsponsored depositary receipts may be created without the participation
of the foreign issuer. Holders of these receipts generally bear all the costs of
the depositary receipt facility, whereas foreign issuers typically bear certain
costs in a sponsored depositary receipt. The bank or trust company depositary of
an unsponsored depositary receipt may be under no obligation to distribute
shareholder communications received from the foreign issuer or to pass through
voting rights. Accordingly, available information concerning the issuer may not
be current and the prices of unsponsored depositary receipts may be more
volatile than the prices of sponsored depositary receipts.
FIXED INCOME INVESTMENTS
VARIABLE AND FLOATING RATE SECURITIES
The Fund may invest in variable and floating rate securities. Fixed income with
securities variable or floating rates of interest and, under certain limited
circumstances, may have varying principal amounts. These securities pay interest
at rates that are adjusted periodically according to a specified formula,
usually with reference to one or more interest rate indices or market interest
rates (the "underlying index"). The interest paid on these securities is a
function primarily of the underlying index upon which the interest rate
adjustments are based. These adjustments minimize changes in the market value of
the obligation. Similar to fixed rate fixed income instruments, variable and
floating rate instruments are subject to changes in value based on changes in
market interest rates or changes in the issuer's creditworthiness. The rate of
interest on securities may be tied to U.S. Government Securities or indices on
those securities as well as any other rate of interest or index. Certain
variable rate securities pay interest at a rate that varies inversely to
prevailing short-term interest rates (sometimes referred to as "inverse
floaters"). Certain inverse floaters may have an interest rate reset mechanism
that multiplies the effects of changes in the underlying index. This mechanism
may increase the volatility of the security's market value while increasing the
security's yield.
Variable and floating rate demand notes of corporations are redeemable upon a
specified period of notice. These obligations include master demand notes that
permit investment of fluctuating amounts at varying interest rates under direct
arrangements with the issuer of the instrument. The issuer of these obligations
often has the right, after a given period, to prepay the outstanding principal
amount of the obligations upon a specified number of days' notice.
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Certain securities may have an initial principal amount that varies over time
based on an interest rate index, and, accordingly, the Fund might be entitled to
less than the initial principal amount of the security upon the security's
maturity. The Fund intends to purchase these securities only when its Adviser
believes the interest income from the instrument justifies any principal risks
associated with the instrument. The Adviser may attempt to limit any potential
loss of principal by purchasing similar instruments that are intended to provide
an offsetting increase in principal. There can be no assurance that the Adviser
will be able to limit the effects of principal fluctuations and, accordingly,
the Fund may incur losses on those securities even if held to maturity without
issuer default.
There may not be an active secondary market for any particular floating or
variable rate instruments, which could make it difficult for the Fund to dispose
of the instrument during periods that the Fund is not entitled to exercise any
demand rights it may have. The Fund could, for this or other reasons, suffer a
loss with respect to those instruments. The Adviser monitors the liquidity of
the Fund's investment in variable and floating rate instruments, but there can
be no guarantee that an active secondary market will exist.
FINANCIAL INSTITUTION OBLIGATIONS
The Fund may invest in obligations of financial institutions, including
certificates of deposit, bankers' acceptances, time deposits, and other
short-term debt obligations.
Certificates of deposit represent an institution's obligation to repay funds
deposited with it that earn a specified interest rate over a given period.
Bankers' acceptances are negotiable obligations of a bank to pay a draft that
has been drawn by a customer and are usually backed by goods in international
trade. Time deposits are non-negotiable deposits with a banking institution that
earn a specified interest rate over a given period. Certificates of deposit and
fixed time deposits, which are payable at the stated maturity date and bear a
fixed rate of interest, generally may be withdrawn on demand by the Fund but may
be subject to early withdrawal penalties which could reduce the Fund's
performance. Although fixed time deposits do not in all cases have a secondary
market, there are no contractual restrictions on the Fund's right to transfer a
beneficial interest in the deposits to third parties.
COMMERCIAL PAPER
The Fund may invest in commercial paper. Companies issue commercial paper to
finance their current obligations. Commercial paper is short-term unsecured
promissory notes and usually has a maturity of less than 9 months.
RISKS
GENERAL The market value of the interest-bearing debt securities held by the
Fund will be affected by changes in interest rates. There is normally an inverse
relationship between the market value of securities sensitive to prevailing
interest rates and actual changes in interest rates. The longer the remaining
maturity (and duration) of a security, the more sensitive the security is to
changes in interest rates. All debt securities, including U.S. Government
Securities, can change in value when there is a change in interest rates.
Changes in the ability of an issuer to make payments of interest and principal
and in the markets' perception of an issuer's creditworthiness will also affect
the market value of that issuer's debt securities. As a result, an investment in
the Fund is subject to risk even if all debt securities in the Fund's investment
portfolio are paid in full at maturity. In addition, certain debt securities may
be subject to extension risk, which refers to the change in total return on a
security resulting from an extension or abbreviation of the security's maturity.
Yields on debt securities, including municipal securities, are dependent on a
variety of factors, including the general conditions of the debt securities
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Debt securities with longer maturities tend to produce
higher yields and are generally subject to greater price movements than
obligations with shorter maturities. A portion of the municipal securities held
by the Fund may be supported by credit and liquidity enhancements, such as
letters of credit (which are not covered by federal deposit insurance) or puts
or demand features of third party financial institutions, generally domestic and
foreign banks.
The issuers of debt securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors that
may restrict the ability of the issuer to pay, when due, the principal of and
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<PAGE>
interest on its debt securities. The possibility exists therefore, that, as a
result of bankruptcy, litigation or other conditions, the ability of an issuer
to pay, when due, the principal of and interest on its debt securities may
become impaired.
CREDIT RISK The Fund's investments in debt securities are subject to credit risk
relating to the financial condition of the issuers of the securities that the
Fund holds. To limit credit risk, the Fund may only generally invest in (1)
convertible debt securities that are rated "Baa" or higher by Moody's or "BBB"
or higher by S&P at the time of purchase; and (2) preferred stock rated "baa" or
higher by Moody's or "BBB" or higher by S&P at the time of purchase or in the
top two short-term rating categories by an NRSRO. Moody's, Standard & Poor's and
other NRSROs are private services that provide ratings of the credit quality of
debt obligations, including convertible securities. A description of the range
of ratings assigned to various types of securities by several NRSROs is included
in Appendix A. The Adviser may use these ratings to determine whether to
purchase, sell or hold a security. Ratings are not, however, absolute standards
of quality. Credit ratings attempt to evaluate the safety of principal and
interest payments and do not evaluate the risks of fluctuations in market value.
Consequently, similar securities with the same rating may have different market
prices. In addition, rating agencies may fail to make timely changes in credit
ratings and the issuer's current financial condition may be better or worse than
a rating indicates.
The Fund may retain a security that ceases to be rated or whose rating has been
lowered below the Fund's lowest permissible rating category if the Adviser
determines that retaining the security is in the best interests of the Fund.
Because a downgrade often results in a reduction in the market price of the
security, sale of a downgraded security may result in a loss.
The Fund may purchase unrated securities if, at the time of purchase, the
Adviser determines that the security is of comparable quality to a rated
security that the Fund may purchase. Unrated securities may not be as actively
traded as rated securities.
TEMPORARY DEFENSIVE POSITION
The Fund may assume a temporary defensive position and may invest without limit
in money market instruments that are of prime quality. Prime quality instruments
are those instruments that are rated in one of the two highest short-term rating
categories by an NRSRO or, if not rated, determined by the Adviser to be of
comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include U.S. Government Securities, commercial paper, time deposits, banker's
acceptances and certificates of deposit, repurchase agreements and money market
mutual funds. The money market instruments in which the Fund may invest have
variable and floating rates of interest. To the extent that Investors Equity
Fund may invest in foreign issuers, the Fund may also hold cash and bank
instruments denominated in any major foreign currency.
ILLIQUID AND RESTRICTED SECURITIES
GENERAL
The Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) except as otherwise determined by the Adviser,
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act, except as otherwise determined by
the Adviser ("restricted securities").
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RISKS
Limitations on resale may have an adverse effect on the marketability of a
security and the Fund might also have to register a restricted security in order
to dispose of it, resulting in expense and delay. The Fund might not be able to
dispose of restricted or illiquid securities promptly or at reasonable prices
and might thereby experience difficulty satisfying redemptions. There can be no
assurance that a liquid market will exist for any security at any particular
time. Any security, including securities determined by the Adviser to be liquid,
can become illiquid.
DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
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 toward private investment,
including potential nationalization, increased taxation or confiscation of your
assets.
Dividends payable on foreign securities may be subject to foreign withholding
taxes, thereby reducing the income available for distribution to you. Commission
rates payable on foreign transactions are generally higher than in the United
States. Foreign accounting, auditing and financial reporting standards differ
from those in the United States, and therefore, less information may be
available about foreign companies than is available about issuers of comparable
U.S. companies. Foreign securities also may trade less frequently and with lower
volume and may exhibit greater price volatility than United States securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by 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 Investors Equity Fund is required to compute and distribute
income in U.S. dollars. Accordingly, a decline in the value of a particular
foreign currency against the U.S. dollar after the Fund's income has been earned
and computed in U.S. dollars may require the Fund to liquidate portfolio
securities to acquire sufficient U.S. dollars to make a distribution. Similarly,
if the exchange rate declines between the time the Fund incurs expenses in U.S.
dollars and the time such expenses are paid, the Fund may be required to
liquidate additional foreign securities to purchase the U.S. dollars required to
meet such expenses.
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REPURCHASE AGREEMENTS
GENERAL
The Fund may enter into repurchase agreements. Repurchase agreements are
transactions in which the Fund purchases securities from a bank or securities
dealer and simultaneously commits to resell the securities to the bank or dealer
at an agreed-upon date and at a price reflecting a market rate of interest
unrelated to the purchased security. During the term of a repurchase agreement,
the Fund's custodian maintains possession of the purchased securities and any
underlying collateral, which is maintained at not less than 100% of the
repurchase price. Repurchase agreements allow the Fund to earn income on its
uninvested cash for periods as short as overnight, while retaining the
flexibility to pursue longer-term investments.
RISKS
Repurchase agreements involve credit risk. Credit risk is the risk that a
counterparty to a transaction will be unable to honor its financial obligation.
In the event that bankruptcy, insolvency or similar proceedings are commenced
against a counterparty, the Fund may have difficulties in exercising its rights
to the underlying securities or currencies, as applicable. The Fund may incur
costs and expensive time delays in disposing of the underlying securities and it
may suffer a loss. Failure by the other party to deliver a security or currency
purchased by the Fund may result in a missed opportunity to make an alternative
investment. Favorable insolvency laws that allow the Fund, among other things,
to liquidate the collateral held in the event of the bankruptcy of the
counterparty reduce counterparty insolvency risk with respect to repurchase
agreements.
LEVERAGE TRANSACTIONS
The Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to the Fund through an investment technique is used to
make additional Fund investments. Borrowing for other than temporary or
emergency purposes, lending portfolio securities, entering into reverse
repurchase agreements, purchasing securities on a when-issued, delayed delivery
or forward commitment basis are transactions that result in leverage. The Fund
uses these investment techniques only when the Adviser believes that the
leveraging and the returns available to the Fund from investing the cash will
provide investors a potentially higher return.
BORROWING
The Fund may borrow money from banks for temporary or emergency
purposes in an amount up to 33 1/3% of a Fund's total assets. The Fund may
borrow money for other purposes so long as such borrowings do not exceed 5% of
the Fund's total assets. The purchase of securities is prohibited if the Fund's
borrowing exceeds 5% or more of the Fund's total assets.
A reverse repurchase agreement is a transaction in which the Fund sells
securities to a bank or securities dealer and simultaneously commits to
repurchase the security from the bank or dealer at an agreed upon date and at a
price reflecting a market rate of interest unrelated to the sold security. An
investment of the Fund's assets in reverse repurchase agreements will increase
the volatility of the Fund's net asset value per share. A Fund will use the
proceeds of reverse repurchase agreements to fund redemptions or to make
investments.
SECURITIES LENDING
Securities loans must be continuously collateralized and the
collateral must have market value at least equal to the value of the Fund's
loaned securities, plus accrued interest. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any fees (such
as finders or administrative fees) the Fund pays in arranging the loan. The Fund
may share the interest it receives on the collateral securities with the
borrower. The terms of a Fund's loans permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter. Loans are subject to termination at the option
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of the Fund or the borrower at any time, and the borrowed securities must be
returned when the loan is terminated. The Fund will limit securities lending to
not more than 33 1/3% of the value of its total asset.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Fund may purchase securities offered on a "when-issued" or
"delayed-delivery" basis and may purchase or sell securities on a "forward
commitment" (including "dollar roll" transactions) basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and thus, no
interest accrues to the purchaser from the transaction. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, the Fund will record the transaction as a purchase and thereafter reflect
the value each day of such securities in determining its net asset value.
RISKS
Leverage creates the risk of magnified capital losses. Borrowings and other
liabilities that exceed the equity base of the Fund may magnify losses incurred
by the Fund. Leverage may involve the creation of a liability that requires the
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment costs).
The risks of leverage include a higher volatility of the net asset value of the
Fund's securities. So long as the Fund is able to realize a net return on its
investment portfolio that is higher than the interest expense incurred, if any,
leverage will result in higher current net investment income for the Fund than
if the Fund were not leveraged. Changes in interest rates and related economic
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase relative to the yield on the obligations in which the
proceeds of the leveraging have been invested. To the extent that the interest
expense involved in leveraging approaches the net return on the Fund's
investment portfolio, the benefit of leveraging will be reduced, and, if the
interest expense on borrowings were to exceed the net return to investors, the
Fund's use of leverage would result in a lower rate of return than if the Fund
were not leveraged. In an extreme case, if the Fund's current investment income
were not sufficient to meet the interest expense of leveraging, it could be
necessary for the Fund to liquidate certain of its investments at an
inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, the Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions.
CORE AND GATEWAY(R)
The Fund may at some point in the future seek to achieve its investment
objective by converting to a Core and Gateway structure. A Fund operating under
a Core and Gateway structure holds, as its only investment, shares of another
investment company having substantially the same investment objective and
policies. The Board will not authorize conversion to a Core and Gateway
structure if it would materially increase costs to the Fund's shareholders.
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
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<PAGE>
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.
FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, which are fundamental
policies of the Fund. The Fund may not:
DIVERSIFICATION
With respect to 75% of its assets, purchase a security if as a result: (1) more
than 5% of its assets would be invested in the securities of any single issuer;
or (2) the Fund would own more than 10% of the outstanding voting securities of
any single issuer. This restriction does not apply to securities issued by the
U.S. Government, its agencies or instrumentalities.
CONCENTRATION
Purchase a security if, as a result, more than 25% of the Fund's total assets
would be invested in securities of issuers conducting their principal business
activities in the same industry; provided, however, there is no limit on
investments in U.S. Government Securities, repurchase agreements covering U.S.
Government Securities, municipal securities and issuers domiciled in a single
country; that financial service companies are classified according to the end
users of their services (for example, automobile finance, bank finance and
diversified finance); and that utility companies are classified according to
their services (for example, gas, gas transmission, electric and gas, electric
and telephone. Notwithstanding anything to the contrary, to the extent permitted
by the 1940 Act, the Fund may invest in one or more investment companies;
provided that, except to the extent the Fund invests in other investment
companies pursuant to Section 12(d)(1)(A) of the 1940 Act, the Fund treats the
assets of the investment companies in which it invests as its own for purposes
of this policy.
ILLIQUID SECURITIES
Invest more than 15% of its assets in "illiquid securities," which are
securities that cannot be disposed of within seven days at their current value.
For purposes of this limitation, "illiquid securities" includes, except in those
circumstances described below: (1) "restricted securities," which are securities
that cannot be resold to the public without registration under the Federal
Securities laws and (2) securities of issuers having a record (together with all
predecessors) of less than three years of continuous operation.
BORROWING MONEY
Borrow money for temporary or emergency purposes, including the meeting of
redemption requests, but not in excess of 33 1/3% of the value of the Fund's
total assets (as computed immediately after the borrowing).
PURCHASES AND SALES OF REAL ESTATE
Purchase or sell real estate, provided that the Fund may invest in securities
issued by companies that invest in real estate or interests therein.
MAKING LOANS
Lend money except in connection with the acquisition of that portion of publicly
distributed debt securities which the Fund's investment policies and
restrictions permit it to purchase; the Fund may also make loans of portfolio
securities and enter into repurchase agreements.
PURCHASES AND SALES OF COMMODITIES
Invest in commodities or commodity contracts (other than hedging instruments,
which it may use as permitted by any of its other fundamental policies, whether
or not any such hedging instrument is considered to be a commodity or a
commodity contract).
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<PAGE>
UNDERWRITING ACTIVITIES
Underwrite securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be deemed
to be an underwriter under U.S. securities laws.
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except to the extent permitted by the 1940 Act.
INVESTING FOR CONTROL
Make investments for the purpose of exercising control over management.
NON-FUNDAMENTAL LIMITATIONS
BORROWING
Not borrow money or enter into leverage transactions if, as a result, the total
of borrowings and liabilities under leverage transactions (other than for
temporary or emergency purposes), would exceed an amount equal to 5% of the
Fund's total assets. The Fund may not purchase or otherwise acquire any security
if the total of borrowings and liabilities under leverage transactions would
exceed an amount equal to 5% of the Fund's total assets.
EXERCISING CONTROL OF ISSUERS
Not make investments for the purpose of exercising control of an issuer.
Investments by the Fund in entities created under the laws of foreign countries
solely to facilitate investment in securities in that country will not be deemed
the making of investments for the purpose of exercising control.
SHORT SALES AND PURCHASING ON MARGIN
Not sell securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short (short sales "against
the box"), and provided that transactions in futures contracts and options are
not deemed to constitute selling securities short. The Fund may not purchase
securities on margin, except that the Fund may use short-term credit for the
clearance of the Fund's transactions, and provided that initial and variation
margin payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
SECURITIES OF INVESTMENT COMPANIES
Not invest in the securities of any investment company except to the extent
permitted by the 1940 Act.
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<PAGE>
OPTIONS AND FUTURES CONTRACTS
Invest in futures or options contracts regulated by the CFTC for: (1) bona fide
hedging purposes within the meaning of the rules of the CFTC and (2) for other
purposes if, as a result, no more than 5% of the Fund's net assets would be
invested in initial margin and premiums (excluding amounts "in-the-money")
required to establish the contracts. The Fund: (1) will not hedge more than 50%
of its total assets by selling futures contracts, buying put options, and
writing call options (so called "short positions"); (2) will not buy futures
contracts or write put options whose underlying value exceeds 25% of the Fund's
total assets; and (3) will not buy call options with a value exceeding 5% of the
Fund's total assets.
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<PAGE>
PERFORMANCE DATA AND ADVERTISING
PERFORMANCE DATA
The Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
The Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, Inc., iMoneyNet, Inc. (IBC Financial Data, Inc.),
CDA/Wiesenberger or other companies which track the investment
performance of investment companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell Midcap (TM) Index, the Russell 1000(R)
Value Index, the Russell 2500TM Index, the Morgan Stanley(R) Capital
International - Europe, Australasia, Far East Index, the Dow Jones
Industrial Average, the Salomon Brothers Bond Index, the Lehman Bond
Index, U.S. Treasury bonds, bills or notes and changes in the Consumer
Price Index as published by the U.S. Department of Commerce.
Performance information may be presented numerically or in a table, graph, or
similar illustration.
Indices are not used in the management of 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.
PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Fund.
TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price, assuming that all of the Fund's distributions are reinvested.
Total return figures may be based on amounts invested in the Fund net of sales
charges that may be paid by an investor. A computation of total return that does
not take into account sales charges paid by an investor would be higher than a
similar computation that takes into account payment of sales charges.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is calculated using a
formula prescribed by the SEC. To calculate standard average annual total
returns the Fund: (1) determines the growth or decline in value of a
hypothetical historical investment in the Fund over a stated period; and (2)
calculates the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would produce an
average annual total return of 7.18%. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that performance is not constant over time but changes from year to year, and
that average annual returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
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<PAGE>
Average annual total return is calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 payment made at the
beginning of the applicable period
Because average annual returns tend to smooth out variations in the Fund's
returns, shareholders should recognize that they are not the same as actual
year-by-year results.
OTHER MEASURES OF TOTAL RETURN. Standardized total return quotes may be
accompanied by non-standardized total return figures calculated by alternative
methods.
The Fund may quote unaveraged or cumulative total returns that reflect
the Fund's performance over a stated period of time.
Total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to
total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration the Fund's front-end sales charge or contingent
deferred sales charge (if applicable).
Period total return is calculated according to the following formula:
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
OTHER MATTERS
The Fund may include a variety of 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 a Fund's Adviser, summaries of the views of
the portfolio managers with respect to the financial markets, or descriptions of
the nature of the Adviser's and its staff's management techniques; (7) the
results of a hypothetical investment in the Fund over a given number of years,
including the amount that the investment would be at the end of the period; (8)
the effects of investing in a tax-deferred account, such as an individual
retirement account or Section 401(k) pension plan; (9) the net asset value, net
assets or number of shareholders of the Fund as of one or more dates; and (10) a
comparison of the Fund's operations to the operations of other funds or
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<PAGE>
similar investment products, such as a comparison of the nature and scope of
regulation of the products and the products' weighted average maturity,
liquidity, investment policies, and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,188 at the end
of the second year (an increase of $98). The extra $8 that was earned on the $90
interest from the first year is the compound interest. One thousand dollars
compounded annually at 9.00% will grow to $2,367 at the end of ten years and
$5,604 at the end of 20 years. Other examples of compounding are as follows: at
7% and 12% annually, $1,000 will grow to $1,967 and $3,106, respectively, at the
end of ten years and $3,870 and $9,646, respectively, at the end of twenty
years. These examples are for illustrative purposes only and are not indicative
of the Fund's performance.
The Fund may advertise information regarding the effects of systematic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in the Fund at periodic intervals, thereby purchasing fewer shares
when prices are high and more shares when prices are low. While such a strategy
does not insure a profit or guard against a loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers of shares
had been purchased at those intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares through periods of
low price levels. For example, if an investor invests $100 a month in the Fund
for a period of six months the following will be the relationship between
average cost per share ($14.35 in the example given) and average price per
share:
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
In connection with its advertisements, the Fund may provide "shareholder's
letters" that serve to provide shareholders or investors with an introduction to
the Fund's, the Trust's or any of the Trust's service provider's policies or
business practices.
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MANAGEMENT
TRUSTEES AND OFFICERS
THE TRUST
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C>
-------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
-------------------------------------------- -----------------------------------------------------------------------
-------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*, Chairman and President Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 services holding company)
Two Portland Square Director, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Visiting Professor of Economics, Athens University of Economics and
Department of Economics Business 1998 - 1999
University of California Trustee of one other investment company for which Forum Financial
Los Angeles, CA 90024 Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
James C. Cheng, Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in New
27 Temple Street England)
Belmont, MA 02718 Trustee of one other investment company for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Partner, Winthrop, Stimson, Putnam & Roberts (law firm) 1989 - 1995
40 West 57th Street Trustee of one other investment company for which Forum Financial
New York, NY 10019 Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein, Vice President General Counsel, Forum Financial Group LLC
Born: August 3, 1961 Officer of five other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
-------------------------------------------- -----------------------------------------------------------------------
Thomas G. Sheehan, Vice President Managing Director, Forum Financial Group, LLC since 1993.
Born: November 17, 1954 Special Counsel, Division of Investment Management, Securities and
Two Portland Square Exchange Commission
Portland, ME 04101 Officer of two other Investment Companies for whom Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Ronald H. Hirsch, Treasurer Managing Director, Operations/Finance and Operations/Sales, Forum
Born: October 14, 1943 Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991 - 1998
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993 -
Two Portland Square 1998
Portland, ME 04101 Officer of one other investment company for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
</TABLE>
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COMPENSATION OF TRUSTEES AND OFFICERS
Effective February 7, 2000, each Trustee of the Trust will be paid a quarterly
retainer fee of $1,750 for his service to the Trust. In addition, each Trustee
will be paid a fee of $500 for each Board meeting attended (whether in person or
by electronic communication). Trustees are also reimbursed for travel and
related expenses incurred in attending Board meetings. Mr. Keffer receives no
compensation (other than reimbursement for travel and related expenses) for his
service as Trustee of the Trust. No officer of the Trust is compensated by the
Trust but officers are reimbursed for travel and related expenses incurred in
attending Board meetings held outside of Portland, Maine.
The following table sets forth the fees paid to each Trustee by the Fund and the
Fund Complex that includes all series of the Trust and one other investment
company for which the Forum Financial Group, LLC provides services for the
fiscal year ended May 31, 2000.
TOTAL COMPENSATION
COMPENSATION FROM TRUST AND
TRUSTEE FROM FUND FUND COMPLEX
John Y. Keffer $0 $0
Costas Azariadis $506 $19,500
James C. Cheng $506 $19,500
J. Michael Parish $506 $19,500
INVESTMENT ADVISER
SERVICES OF ADVISER
The Stratevest Group, N.A. serves as investment adviser to the Fund pursuant to
an investment advisory agreement (the "Agreement") with the Trust. Under the
Agreement, the Adviser furnishes at its own expense all services, facilities and
personnel necessary to manage the Fund's investments and effect portfolio
transactions for the Fund.
Prior to July 6, 2000, H.M. Payson & Co. ("Payson") was the Fund's investment
advisor and Peoples Heritage Bank was the Fund's investment subadvisor.
OWNERSHIP OF ADVISERS
The Adviser is a national banking association and is a wholly-owned subsidiary
of Banknorth Group, a New England based holding company.
FEES
The Adviser's fees are calculated as a percentage of the Fund's average net
assets. The fee is accrued daily by the Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Advisers may also
act and be compensated as investment manager for its clients with respect to
assets they invested in the Fund. If you have a separately managed account with
the Adviser with assets invested in the Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from the client.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
Payson, the amount of fees waived by Payson and the actual fees received by
Payson. The data are for the past three fiscal years.
OTHER PROVISIONS OF ADVISER'S AGREEMENT
The Adviser's Agreement remains in effect for a period of two years from the
date of its effectiveness. Subsequently, the Agreement must be approved at least
annually by the Board or by majority vote of the shareholders, and in either
case by a majority of the Trustees who are not parties to the agreement or
interested persons of any such party (other than as Trustees of the Trust).
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<PAGE>
The Agreement is terminable without penalty by the Trust or the Adviser
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. The Agreement
terminates immediately upon assignment.
Under the Agreement, Payson is not liable for any action or inaction in the
absence of bad faith, willful misconduct or gross negligence in the performance
of its duties.
DISTRIBUTOR
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. Prior to March 1, 1999, Forum Financial Services, Inc.
(FFSI) was the distributor of the Fund pursuant to similar terms and
compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC. John Y. Keffer controls Forum Financial Group, LLC.
Under a distribution agreement (the "Distribution Agreement") with the Trust,
FFS acts as the agent of the Trust in connection with the offering of shares of
the Fund. FFS continually distributes shares of the Fund on a best effort basis.
FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund.
FFS may enter into agreements with selected broker-dealers, banks or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholders
service fees even though shares of the Fund are sold with sales charges or
distribution fees. These financial institutions may otherwise act as processing
agents, and will be responsible for promptly transmitting purchase, redemption
and other requests to the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through which they purchase shares, which may include
charges, investment minimums, cutoff times and other restrictions in addition
to, or different from, those listed herein. Information concerning any charges
or services will be provided to customers by the financial institution.
Investors purchasing shares of the Fund in this manner should acquaint
themselves with their institution's procedures and should read the Prospectus in
conjunction with any materials and information provided by their institution.
The financial institution and not its customers will be the shareholder of
record, although customers may have the right to vote shares depending upon
their arrangement with the institution.
Pursuant to the Distribution Agreement, FFS receives, and may reallow to certain
financial institutions, the sales charge paid by the purchasers of the Fund's
shares. Table 2 in Appendix B shows the aggregate sales charges paid to FFS or
FFSI, the amount of sales charge reallowed by FFS or FFSI, and the amount of
sales charge retained by FFS or FFSI. The data are for the past three years (or
shorter depending on the Fund's commencement of operations).
OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
The Distribution Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees` of the Trust).
The Distribution Agreement is terminable without penalty by the Trust with
respect to the Fund on 60 days' written notice when authorized either by
majority vote of the Fund's outstanding voting securities by the Board, or by
FFS.
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Under the Distribution Agreement, FFS is not liable to the Trust or the Trust's
shareholders for any error of judgment or mistake of law, for any loss arising
out of any investment or for any act or omission in the performance of its
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement.
Under the Distribution Agreement, FFS and certain related parties (such as FFS's
officers and persons that control FFS) are indemnified by the Trust against all
claims and expenses in any way related to alleged untrue statements of material
fact contained in the Fund's Registration Statement or any alleged omission of a
material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FSS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FSS in connection with the
preparation of the Registration Statement.
OTHER FUND SERVICE PROVIDERS
ADMINISTRATOR
As administrator, pursuant to an agreement with the Trust (the "Administration
Agreement"), FAdS is responsible for the supervision of the overall management
of the Trust, providing the Trust with general office facilities and providing
persons satisfactory to the Board to serve as officers of the Trust.
For its services, FAdS receives a fee from the Fund at an annual rate of 0.20%
of the average daily net assets of each Fund. The fee is accrued daily by the
Fund and is paid monthly based on average net assets for the previous month.
The 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 (other than as Trustees of the Trust). The Administration Agreement is
terminable without penalty by the Trust or by FAdS with respect to the Fund on
60 days' written notice.
Under the Administration Agreement, FAdS is not liable to the Trust or the
Trust's shareholders for any act or omission, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement. Under the
Administration Agreement, FAdS and certain related parties (such as FAdS's
officers and persons who control FAdS) are indemnified by the Trust against any
and all claims and expenses related to FAdS's actions or omissions that are
consistent with FAdS's contractual standard of care.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAdS, the amount of the fee waived by FAdS, and the actual fees received by
FAdS. The data are for the past fiscal year (or shorter period depending on the
Fund's commencement of operations).
FUND ACCOUNTANT
As fund accountant, pursuant to an accounting agreement with the Trust (the
"Accounting Agreement"), FAcS provides fund accounting services to the Fund.
These services include calculating the NAV per share of the Fund and preparing
the Fund's financial statements and tax returns.
For its services, FAcS receives a fee from the Fund at an annual rate of $36,000
plus $2,200 for the preparation of tax returns and certain surcharges based upon
the number and type of the Fund's portfolio transactions and positions. The fee
is accrued daily by the Fund and is paid monthly based on the transactions and
positions for the previous month.
The Accounting Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust). The Accounting 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 Accounting Agreement, FAcS is not liable for any action or omission in
the performance of its duties to the Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the Accounting Agreement, FAcS and certain
related parties (such as FAcS's officers and persons who control FAcS) are
indemnified by the Trust against any and all claims and expenses related to
FAcS's actions or omissions that are consistent with FAcS's contractual standard
of care.
Under the Accounting Agreement, in calculating a Fund's NAV per share, FAcS is
deemed not to have committed an error if the NAV per share it calculates is
within 1/10 of 1% of the actual NAV per share (after recalculation). The
Accounting Agreement also provides that FAcS will not be liable to a shareholder
for any loss incurred due to an NAV difference if such difference is less than
or equal 1/2 of 1% or less than or equal to $10.00. In addition, FAcS is not
liable for the errors of others, including the companies that supply securities
prices to FAcS and the Fund.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAcS, the amount of the fee waived by FAcS, and the actual fees received by
FAcS. The data are for the past three fiscal years (or shorter period depending
on the Fund's commencement of operations).
TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to a transfer agency
agreement with the Trust (the "Transfer Agency Agreement"), FSS maintains an
account for each shareholder of record of the Fund and is responsible for
processing purchase and redemption requests and paying distributions to
shareholders of record. FSS is located at Two Portland Square, Portland, Maine
04101 and is registered as a transfer agent with the SEC.
For its services, FSS receives with respect to the Fund 0.25% of the average
daily net assets of the Fund, an annual fee of $12,000 and $18 per shareholder
account. The fee is accrued daily by the Fund and is paid monthly based on the
average net assets for the previous month.
The Transfer Agency Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust). The Transfer Agency Agreement is
terminable without penalty by the Trust or by FSS with respect to the Fund on 60
days' written notice.
Under the Transfer Agency Agreement, FSS is not liable for any act in the
performance of its duties to the Fund, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties under the agreement. Under
the Transfer Agency Agreement, FSS and certain related parties (such as FSS's
officers and persons who control FSS) are indemnified by the Trust against any
and all claims and expenses related to FSS's actions or omissions that are
consistent with FSS's contractual standard of care.
Table 5 in Appendix B shows the dollar amount of the fees payable by the Fund to
FSS, the amount of the fee waived by FSS, and the actual fees received by FSS.
The data are for the past three fiscal years (or shorter period depending on the
Fund's commencement of operations).
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.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of the Fund. The Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Fund and are paid monthly based on average net assets and transactions for the
previous month.
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LEGAL COUNSEL
Seward & Kissel LLP, 1200 G Street, N.W., Washington, D.C. 20005 passes upon
legal matters in connection with the issuance of shares of the Trust.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 200 Berkeley Street, Fourteenth Floor, Boston,
Massachusetts 02116, independent auditors, have been selected as auditors for
the Fund. The auditors audit the annual financial statements of the Fund and
provide the Fund with an audit opinion. The auditors also review certain
regulatory filings of the Fund and the Fund's tax returns.
PORTFOLIO TRANSACTIONS
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.
COMMISSIONS PAID
Table 6 in Appendix B shows the aggregate brokerage commissions paid by the Fund
as well as the aggregate brokerage commissions paid by the Fund to an affiliate
of the Fund or its Adviser. The data presented are for the past three fiscal
years (or shorter period depending on when a Fund commenced operations). The
table also indicates the reason, if any, for any material change in the amount
of brokerage commissions paid by the Investors Equity Fund in the last three
years (or shorter depending on when the Fund commenced operations).
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.
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CHOOSING BROKER-DEALERS
The Fund may not always pay the lowest commission or spread available. Rather,
in determining the amount of commissions (including certain dealer spreads) paid
in connection with securities transactions, the Adviser takes into account
factors such as size of the order, difficulty of execution, efficiency of the
executing broker's facilities (including the research services described below)
and any risk assumed by the executing broker.
Consistent with applicable rules and the Adviser's duties, the Adviser may: (1)
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) take into
account payments made by brokers effecting transactions for the Fund (these
payments may be made to the Fund or to other persons on behalf of the Fund for
services provided to the Fund for which those other persons would be obligated
to pay).
OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause the Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Fund, and the Adviser in connection with the
Fund may use not all research services. The Adviser's fees are not reduced by
reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common in
the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services obtained for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser utilizes a broker and pays a slightly higher
commission than another broker may charge. The higher commission is paid because
of the Adviser's need for specific research, for specific expertise a firm may
have in a particular type of transaction (due to factors such as size or
difficulty), or for speed/efficiency in execution. Since most of the Adviser's
brokerage commissions for research are for economic research on specific
companies or industries, and since the Adviser is involved with a limited number
of securities, most of the commission dollars spent for industry and stock
research directly benefit the clients.
There are occasions in which portfolio transactions may be executed as part of
concurrent authorizations to purchase or sell the same securities for more than
one account served by the Adviser, some of which accounts may have similar
investment objectives. Although such concurrent authorizations potentially could
be either advantageous or disadvantageous to any one or more particular
accounts, they will be effected only when the Adviser believes that to do so
will be in the best interest of the affected accounts. When such concurrent
authorizations occur, the objective will be to allocate the execution in a
manner equitable to the accounts involved. Clients are typically allocated
securities with prices averaged on a per-share or per-bond basis.
COUNTERPARTY RISK
The Adviser monitors the creditworthiness of counterparties to its Fund's
transactions and intends to enter into a transaction only when it believes that
the counterparty presents minimal and appropriate credit risks.
TRANSACTIONS THROUGH AFFILIATES
The Adviser may effect transactions through affiliates of the Adviser (or
affiliates of those persons) pursuant to procedures adopted by the Trust.
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OTHER ACCOUNTS OF THE ADVISER
Investment decisions for the Fund are made independently from those for any
other account or investment company that is or may in the future become managed
by the Adviser or its affiliates. Investment decisions are the product of many
factors, including basic suitability for the particular client involved. Thus, a
particular security may be bought or sold for certain clients even though it
could have been bought or sold for other clients at the same time. Likewise, a
particular security may be bought for one or more clients when one or more
clients are selling the security. In some instances, one client may sell a
particular security to another client. In addition, two or more clients may
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the Adviser's opinion,
is equitable to each and in accordance with the amount being purchased or sold
by each. There may be circumstances when purchases or sales of a portfolio
security for one client could have an adverse effect on another client that has
a position in that security. When purchases or sales of the same security for
the Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time
the Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. An annual
portfolio turnover rate of 100% would occur if all of the securities in the Fund
were replaced once in a period of one year. Higher portfolio turnover rates may
result in increased brokerage costs to the Fund and a possible increase in
short-term capital gains or losses.
SECURITIES OF REGULAR BROKER-DEALERS
From time to time, the Fund may acquire and hold securities issued by its
"regular brokers and dealers" or the parents of those brokers and dealers. For
this purpose, regular brokers and dealers are the 10 brokers or dealers that:
(1) received the greatest amount of brokerage commissions during the Fund's last
fiscal year; (2) engaged in the largest amount of principal transactions for
portfolio transactions of the Fund during the Fund's last fiscal year; or (3)
sold the largest amount of the Fund's shares during the Fund's last fiscal year.
Table 7 in Appendix B lists the regular brokers and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
PURCHASE AND REDEMPTION INFORMATION
GENERAL INFORMATION
You may purchase or redeem shares or request any shareholder privilege in person
at the offices of Forum Shareholder Services, LLC located at Two Portland
Square, Portland, Maine 04101.
The Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
Not all classes or funds of the Trust may be available for sale in the state in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor.
Each Fund reserves the right to refuse any purchase request.
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Fund shares are normally issued for cash only. In the Adviser's discretion,
however, the Fund may accept portfolio securities that meet the investment
objective and policies of the Fund as payment for Fund shares. The Fund will
only accept securities that: (1) are not restricted as to transfer by law and
are not illiquid; and (2) have a value that is readily ascertainable (and not
established only by valuation procedures).
IRAS
All contributions into an IRA through systematic investments are treated as IRA
contributions made during the year the investment is received.
UGMAS/UTMAS
If the custodian's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the custodian must provide instructions in a
manner indicating custodial capacity.
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.
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.
SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that trading thereon is
restricted; (2) an emergency (as determined by the SEC) exists as a result of
which disposal by the Fund of its securities is not reasonably practicable or as
a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) the SEC may by order permit for
the protection of the shareholders of the Fund.
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REDEMPTION-IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisable by the Adviser, a Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which 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.
NAV DETERMINATION
In determining the Fund's NAV per share, securities for which market quotations
are readily available are valued at current market value using the last reported
sales price. If no sales price is reported, the average of the last bid and ask
price is used. If no average price is available, the last bid price is used. If
market quotations are not readily available, then securities are valued at fair
value as determined by the Board (or its delegate).
DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV per
share as of the last day of the period with respect to which the distribution is
paid. Distributions of capital gain will be reinvested at the NAV per share of
the Fund on the payment date for the distribution. Cash payments may be made
more than seven days following the date on which distributions would otherwise
be reinvested.
SALES CHARGES
REDUCED SALES CHARGES
You may qualify for a reduced sales charge on purchases of the Fund under rights
of accumulation ("ROA") or a letter of intent ("LOI"). If you qualify under the
ROA, the sales charge you pay is based on the total of your current purchase and
the net asset value (at the end of the previous fund business day) of shares
that you already hold. To qualify for ROA on a purchase, you must inform FSS and
supply sufficient information to verify that each purchase qualifies for the
privilege or discount. You may also enter into a LOI, which expresses your
intent to invest $100,000 or more in the Fund within a period of 13 months. Each
purchase under a LOI will be made at the public offering price applicable at the
time of the purchase to a single transaction of the dollar amount indicated in
the LOI. If you do not purchase the minimum investment referenced in the LOI,
you must pay the Fund an amount equal to the difference between the dollar value
of the sales charges paid under the LOI and the dollar value of the sales
charges due on the aggregate purchases of the Fund as if such purchases were
executed in a single transaction.
ELIMINATION OF SALES CHARGES
No sales charge is assessed on the reinvestment of the Fund's distributions. No
sales charge is assessed on purchases made for investment purposes or on
redemptions by:
o Any bank, trust company, savings association or similar institution
with whom the distributor has entered into a share purchase agreement
acting on behalf of the institution's fiduciary customer accounts or
any account maintained by its trust department (including a pension,
profit sharing or other employee benefit trust created pursuant to a
qualified retirement plan)
o Any registered investment adviser with whom the distributor has
entered into a share purchase agreement and which is acting on behalf
of its fiduciary customer accounts
o Any broker-dealer with whom the distributor has entered into a
Fee-Based Wrap Account Agreement or similar agreement and which is
acting on behalf if its fee-based program clients
o Trustees and officers of the Trust; directors, officers and full-time
employees of the Adviser, the distributor, any of their affiliates or
any organization with which the distributor has entered into a
Selected Dealer or similar agreement; the spouse, sibling, direct
ancestor or direct descendent (collectively, "relatives") of any such
person; any trust or individual retirement account or self-employed
retirement plan for the benefit of any such person or relative; or the
estate of any such person or relative
o Any person who has, within the preceding 90 days, redeemed Fund shares
(but only on purchases in amounts not exceeding the redeemed amounts)
and completes a reinstatement form upon investment
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o Persons who exchange into the Fund from a mutual fund other than a
fund of the Trust that participates in the Trust's exchange program
o Employee benefit plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended.
The Fund requires appropriate documentation of an investor's eligibility to
purchase or redeem Fund shares without a sales charge. Any shares so purchased
may not be resold except to the Fund.
TAXATION
The tax information set forth in the Prospectus and the information in this
section relates solely to U.S. federal income tax law and assumes that the Fund
qualifies as a regulated investment company (as discussed below). Such
information is only a summary of certain key federal income tax considerations
affecting the Fund and its shareholders that are not described in the
prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders. The
discussions here and in the prospectus are not intended as substitutes for
careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and its
shareholders. Any of these changes or court decisions may have a retroactive
effect. All investors should consult their own tax adviser as to the federal,
state, local and foreign tax provisions applicable to them.
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 May 31 (the same as the Fund's fiscal year end).
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 income (that is, the
excess of net long-term capital gains over net long-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 for the tax year.(Certain distributions made by the Fund after
the close of its tax year are considered distributions attributable to
the previous tax year for purposes of satisfying this requirement.)
o The Fund must derive at least 90% of its gross income from certain
types of income derived with respect to its business of investing in
securities.
o The Fund must satisfy the following asset diversification test at the
close of each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of an issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
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FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
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.
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 dividend-received deduction.
The Fund may have capital loss carryovers (unutilized capital losses from prior
years). These capital loss carryovers (which can be used for up to eight years)
may be used to offset any current capital gain (whether short- or long-term).
All capital loss carryovers are listed in the Fund's financial statements. Any
such losses may not be carried back.
Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital. Return of capital
distributions reduce your tax basis in the shares and are treated as gain from
the sale of the shares to the extent your basis would be reduced below zero.
All distributions by the Fund will be treated in the manner described above
regardless of whether the distribution is paid in cash or reinvested in
additional shares of the Fund (or of another Fund). If you receive a
distribution in the form of additional shares, you will be treated as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
You may purchase shares 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.
Ordinarily, you are required to take distributions by the Fund into account in
the year in which they are made. A distribution declared in October, November or
December of any year and payable to shareholder of record on a specified date in
those months, however, is deemed to be received by you (and made by the Fund) on
December 31 of that calendar year even 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.
CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercise a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the
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Fund. When the Fund exercises a put, the proceeds from the sale of the
underlying security are decreased by the premium paid. When a put or call
written by the Fund is exercised, the purchase price (selling price in the case
of a call) of the underlying security is decreased (increased in the case of a
call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Fund at the end of each tax year
are "marked to market" and treated for federal income tax purposes as though
sold for fair market value on the last business day of the tax year. Gains or
losses realized by the Fund on Section 1256 contracts generally 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 or losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to the Fund that may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In general, the
straddle rules described above do not apply to any straddles held by the Fund if
all of the offsetting positions consist of Section 1256 contracts.
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 in determining the amount of ordinary
taxable income for the current calendar year. The Fund will include foreign
currency gains and losses incurred after October 31 in determining ordinary
taxable income for the succeeding calendar year.
The Fund intends to make sufficient distributions of its ordinary taxable income
and capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax. Investors should note, however, that the Fund
might in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
SALE OR REDEMPTION OF SHARES
In general, a shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases (for example, by reinvesting dividends) other shares of
the Fund within 30 days before or after the sale or redemption (a so called
"wash sale"). If disallowed, the loss will be reflected in an upward adjustment
to the basis of the shares purchased. In general, any gain or loss arising from
the sale or redemption of shares of the Fund will be considered capital gain or
loss and will be long-term capital gain or loss if the shares were held for
longer than one year. Any capital loss
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arising from the sale or redemption of shares held for six months or less,
however, is treated as a long-term capital loss to the extent of the amount of
distributions of net capital gain received on such shares. In determining the
holding period of such shares for this purpose, any period during which a
shareholder's risk of loss is offset by means of options, short sales or similar
transactions is not counted. Capital losses in any year are deductible only to
the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000
of ordinary income.
BACKUP WITHHOLDING
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions, and the proceeds of redemptions of shares, paid
to any shareholder: (1) who has failed to provide a correct taxpayer
identification number; (2) who is subject to backup withholding by the IRS for
failure to report the receipt of interest or dividend income properly; or (3)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient." Backup
withholding is not an additional tax; any amounts so withheld may be credited
against a shareholder's federal income tax liability or refunded.
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
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
distribution of net capital gain from the Fund. If the income from a Fund is
effectively connected with a U.S. trade or business carried on by a foreign
shareholder, then ordinary income distributions, capital gain distributions, and
any gain realized upon the sale of shares of a Fund will be subject to U.S.
federal income tax at the rates applicable to U.S. citizens or U.S.
corporations.
In the case of a noncorporate foreign shareholder, the Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its foreign
status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein.
The tax rules of other countries with respect to distributions from the Fund can
differ from the rules 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.
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.
30
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OTHER MATTERS
THE TRUST AND ITS SHAREHOLDERS
GENERAL INFORMATION
Forum Funds was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to the
assets and liabilities of Forum Funds, Inc.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
Austin Global Equity Fund Investors Equity Fund
BIA Growth Equity Fund Investors Growth Fund
BIA Small-Cap Growth Fund Investors High Grade Bond Fund
Daily Assets Cash Fund(1) Maine TaxSaver Bond Fund
Daily Assets Government Fund(1) Mastrapasqua Growth Value Fund
Daily Assets Government Obligations Fund(1) New Hampshire TaxSaver Bond Fund
Daily Asset Municipal Fund(1) Payson Balanced Fund
Daily Assets Treasury Obligations Fund(1) Payson Value Fund
Equity Index Fund Polaris Global Value Fund
Investors Bond Fund TaxSaver Bond Fund
The Advocacy Fund
(1) The Trust offers shares of beneficial interest in an institutional,
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
Each of the Trust, the investment adviser and subadviser for Investors Equity
Fund, and the principal underwriter have adopted codes of ethics under Rule
17j-1, as amended, of the 1940 Act. These codes permit personnel subject to the
codes to invest in securities, including securities that may be purchased or
held by the Fund. [The Board will consider approving amendments to the code of
ethics for the Trust, the investment adviser and subadviser for Investors Equity
Fund , and the principal underwriter at its next regularly scheduled meeting.]
The Trust and the Fund will continue indefinitely until terminated.
SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and its
expenses will affect each class' performance. For more information on any other
class of shares of the Fund, investors may contact FSS.
SHAREHOLDER VOTING AND OTHER RIGHTS
Each share of each series of the Trust and each class of shares has equal
dividend, distribution, liquidation and voting rights, and fractional shares
have those rights proportionately, except that expenses related to the
distribution of the shares of each class (and certain other expenses such as
transfer agency, shareholder service and administration expenses) are borne
solely by those shares and each class votes separately with respect to the
provisions of any Rule 12b-1 plan which pertains to the class and other matters
for which separate class voting is appropriate under applicable law. Generally,
shares will be voted separately by individual series except if: (1) the 1940 Act
requires shares to be voted in the aggregate and not by individual series; and
(2) when the Trustees determine that the matter affects more than one series and
all affected series must vote. The Trustees may also determine that a matter
only affects certain classes of the Trust and thus only those classes are
entitled to vote on the matter. Delaware law does not require the Trust to hold
annual meetings of shareholders, and it is anticipated that
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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) 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.
CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally, such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or a Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust or certain series to merge or consolidate into
one or more trusts, partnerships or corporations or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end,
management investment company that will succeed to or assume the Trust's
registration statement.
FUND OWNERSHIP
As of September 1, 2000, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding Shares of the Fund.
Also as of that date, certain shareholders of record owned 5% or more of the
Fund. These shareholders and any shareholder known by the Fund to own
beneficially 5% or more of the Fund are listed in Table 8 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of September 1, 2000, the
following persons beneficially or of record owned 25% or more of the shares of
the Fund (or of the Trust) and may be deemed to control the Fund (or the Trust).
For each person listed that is a company, the jurisdiction under the laws of
which the company is organized (if applicable) and the company's parents are
listed.
CONTROLLING PERSON INFORMATION
PERCENTAGE OF
SHAREHOLDER SHARE AMOUNT SHARES OWNED
Stratevest & Co. 2,078,513.947 85.48%
P.O. Box 2499
Brattleboro, VT 05303-2499
Stratevest & Co. 171,529.748 7.05%
P.O. Box 2499
Brattleboro, VT 05303-2499
Stratevest & Co. is the nominee for The Stratevest Group, N.A. Stratevest & Co.
is a national banking association and is a wholly owned subisidiary of Banknorth
Group, a New England based holding company.
LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some
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states, however, have indicated that they and the courts in their states may
decline to apply Delaware law on this point. The Forum Fund's Trust Instrument
(the document that governs the operation of the Trust) contains an express
disclaimer of shareholder liability for the debts, liabilities, obligations and
expenses of the Trust. The Trust Instrument provides for indemnification out of
each series' property of any shareholder or former shareholder held personally
liable for the obligations of the series. The Trust Instrument also provides
that each series shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the series and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which Delaware
law does not apply, no contractual limitation of liability was in effect, and
the Fund is unable to meet its obligations. FAdS believes that, in view of the
above, there is no risk of personal liability to shareholders.
The Trust Instrument provides that the Trustees shall not be liable to any
person other than the Trust and its shareholders. In addition, the Trust
Instrument provides that the Trustees shall not be liable for any conduct
whatsoever, provided that a Trustee is not protected against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
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.
FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended May 31, 2000 which are
included in the Fund's Annual Report to Shareholders dated May 31, 2000 are
incorporated herein by reference. These financial statements include the
schedules of investments, statement of assets and liabilities, statements of
operations, statements of changes in net assets, financial highlights, notes and
independent auditors' reports.
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APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE
AAA Bonds, which are rated Aaa, are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds, which are rated Aa, are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present, which make the long-term risk,
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds, which are rated B generally, lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA Bonds, which are rated Caa, are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds, which are rated Ca, represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
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STANDARD AND POOR'S CORPORATION
AAA An obligation rated AAA has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
NOTE Obligations rated BB, B, CCC, CC, and C are regarded as having
significant speculative characteristics. BB indicates the least degree
of speculation and C the highest. While such obligations will likely
have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
D An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even
if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
NOTE Plus (+) or minus (-). The ratings from AA to CCC may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
The "r" symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or
volatility of expected returns which are not addressed in the credit
rating. Examples include: obligations linked or indexed to equities,
currencies, or commodities; obligations exposed to severe prepayment
risk-such as interest-only or principal-only mortgage securities; and
obligations with unusually risky interest terms, such as inverse
floaters.
A-2
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DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation of
credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
A-3
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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%.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
BAA An issue, which is rated "baa", is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
BA An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
B An issue, which is rated "b" generally, lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
CAA An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
A-4
<PAGE>
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.
STANDARD & POOR'S
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA A preferred stock issue rated AA also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated AAA.
A An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
A category.
BB
B, CCC Preferred stock rated BB, B, and CCC is regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest. While such issues will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating CC is reserved for a preferred stock issue that is in
arrears on dividends or sinking fund payments, but that is currently
paying.
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
SHORT TERM RATINGS
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:
A-5
<PAGE>
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.
STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
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.
A-6
<PAGE>
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.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
Year Ended May 31, 2000 $219,196 $107,366 $111,830
Year Ended May 31, 1999 $201,585 $106,979 $94,606
December 17, 1997 to May 31, 1998 $44,695 $30,943 $13,752
TABLE 2 - SALES CHARGES
The following table shows the dollar amount of aggregate sales charge paid to
FFS or FFSI, the amount retained, and the amount reallowed to financial
institutions.
AGGREGATE SALES CHARGE AMOUNT AMOUNT
RETAINED REALLOWED
Year Ended May 31, 2000 $14,383 $1,684 $12,699
Year Ended May 31, 1999 $0 $0 $0
December 17, 1997 to May 31, 1998 $0 $0 $0
TABLE 3 - ADMINISTRATION FEES
The following table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
ADMINISTRATION FEE ADMINISTRATION FEE ADMINISTRATION FEE
PAYABLE WAIVED RETAINED
Year Ended May 31, 2000 $67,445 $0 $67,445
Year Ended May 31, 1999 $62,026 $0 $62,026
December 17, 1997 to May 31, 1998 $13,752 $13,752 $0
TABLE 4 - ACCOUNTING FEES
The following table shows the dollar amount of fees paid to FAcS with respect to
the Fund, the amount of fee that was waived by FAcS, if any, and the actual fee
received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE RETAINED
Year Ended May 31, 2000 $39,200 $0 $39,200
Year Ended May 31, 1999 $36,000 $0 $36,000
December 17, 1997 to May 31, 1998 $18,452 $0 $18,452
TABLE 5 - TRANSFER AGENCY FEES
The following table shows the dollar amount of fees payable to FSS with respect
to the Fund, the amount of fee that was waived by FSS, if any, and the actual
fee received by FSS.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Year Ended May 31, 2000 $13,443 $0 $13,443
Year Ended May 31, 1999 $89,880 $0 $89,880
December 17, 1997 to May 31, 1998 $22,715 $17,123 $5,592
</TABLE>
B-1
<PAGE>
TABLE 6 - COMMISSIONS
The following table shows the aggregate brokerage commissions of the Fund. The
data is for the past three fiscal years (or shorter period if a Fund has been in
operation for a shorter period).
<TABLE>
<S> <C> <C> <C> <C>
TOTAL BROKERAGE % OF BROKERAGE
COMMISSIONS ($) COMMISSIONS % OF
PAID TO AN PAID TO AN TRANSACTIONS
TOTAL BROKERAGE AFFILIATE OF AFFILIATE OF EXECUTED BY AN
COMMISSIONS ($) THE FUND OR THE FUND OR AFFILIATE OF THE
ADVISER ADVISER FUND OR ADVISER
Year Ended May 31, 2000 $22,621 0% 0% 0%
Year Ended May 31, 1999 $13,077 0% 0% 0%
December 17, 1997 to May 31, 1998 $4,512 0% 0% 0%
</TABLE>
The increase in commissions for the fiscal year ended May 31, 1998 to the fiscal
year end May 31, 1999 can be attributed to the fact that the Fund was in
operation for an entire year. As of May 31, 1998 the fund had only been in
operation for several months.
TABLE 7 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of each fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
VALUE OF INVESTMENT
REGULAR BROKER OR DEALER None
TABLE 8 - 5% SHAREHOLDERS
The following table lists: (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund; and (2) any person known by
the Fund to own beneficially 5% or more of a class of shares of the Fund, as of
September 1, 2000.
PERCENTAGE OF
SHAREHOLDER SHARE AMOUNT SHARES OWNED
Stratevest & Co. 2,078,513.947 85.48%
P.O. Box 2499
Brattleboro, VT 05303-2499
Stratevest & Co. 171,529.748 7.05%
P.O. Box 2499
Brattleboro, VT 05303-2499
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS (WITHOUT SALES CHARGE)
The average annual total return of the Fund for the period ended May 31, 2000,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE YEAR TO ONE YEAR THREE FIVE TEN SINCE
MONTHS DATE YEARS YEARS YEARS INCEPTION
(1.72)% 7.36% (0.07)% 15.96% N/A N/A N/A 22.54%
</TABLE>
TABLE 2 - TOTAL RETURNS (WITH SALES CHARGE)
The average annual total return of the Fund for the period ended May 31, 2000,
was as follows.
ONE YEAR FIVE TEN YEARS SINCE
YEARS INCEPTION
11.32% N/A N/A 20.52%
<PAGE>
APPENDIX D - ADDITIONAL ADVERTISING MATERIALS
TEXT OF FORUM BROCHURE
In connection with its advertisements, the Fund may provide a description of the
Fund's investment adviser and its affiliates, which are service providers to the
Fund. The form of text, which is currently in use, is set forth below.
"FORUM FINANCIAL GROUP OF COMPANIES
Forum Financial Group of Companies represent more than a decade of diversified
experience with every aspect of mutual funds. The Forum Family of Funds has
benefited from the informed, sharply focused perspective on mutual funds that
experience makes possible.
The Forum Family of Funds has been created and managed by affiliated companies
of Portland-based Forum Financial Group, among the nation's largest mutual fund
administrators providing clients with a full line of services for every type of
mutual fund.
The Forum Family of Funds is designed to give investment representatives and
investors a broad choice of carefully structured and diversified portfolios,
portfolios that can satisfy a wide variety of immediate as well as long-term
investment goals.
Forum Financial Group has developed its "brand name" family of mutual funds and
has made them available to the investment public and to institutions on both the
national and regional levels.
For more than a decade Forum has had direct experience with mutual funds from a
different perspective, a perspective made possible by Forum's position as a
leading designer and full-service administrator and manager of mutual funds of
all types.
Today Forum Financial Group administers and provides services for over 181
mutual funds for 17 different fund managers, with more than $70 billion in
client assets. Forum has its headquarters in Portland, Maine, and has offices in
Seattle, Bermuda, and Warsaw, Poland. In a joint venture with Bank Handlowy, the
largest and oldest commercial bank in Poland, Forum operates the only
independent transfer agent and mutual fund accounting business in Poland. Forum
directs an off-shore and hedge fund administration business through its Bermuda
office. It employs more than 390 professionals worldwide.
From the beginning, Forum developed a plan of action that was effective with
both start-up funds, and funds that needed restructuring and improved services
in order to live up to their potential. The success of its innovative approach
is evident in Forum's growth rate over the years, a growth rate that has
consistently outstripped that of the mutual fund industry as a whole, as well as
that of the fund service outsource industry.
Forum has worked with both domestic and international mutual fund sponsors,
designing unique mutual fund structures, positioning new funds within the
sponsors' own corporate planning and targeted markets.
Forum's staff of experienced lawyers, many of whom have been associated with the
Securities and Exchange Commission, have been available to work with fund
sponsors to customize fund components and to evaluate the potential of various
fund structures.
Forum has introduced fund sponsors to its unique proprietary Core and Gateway(R)
partnership, helping them to takE advantage of this full-service master/feeder
structure.
Fund sponsors understand that even the most efficiently and creatively designed
fund can disappoint shareholders if it is inadequately serviced. That is the
reason why fund sponsors have relied on Forum to meet all of a fund's complex
compliance, regulatory, and filing needs.
Forum's full service commitment includes providing state-of-the-art accounting
support (Forum has 7 CPAs on staff, as well as senior accountants who have been
associated with Big 6 accounting firms). Forum's proprietary
D-1
<PAGE>
accounting system is continually upgraded and can provide custom-built modules
to satisfy a fund's specific requirements. This service is joined with transfer
agency and shareholder service groups that draw their strength both from the
high caliber of the people staffing each unit and from Forum's advanced
technology support system.
More than a decade of experience with mutual funds has given Forum practical
hands-on experience and knowledge of how mutual funds function "from the inside
out."
Forum has put that experience to work by creating the Forum Family of Funds, a
family where each member is designed and positioned for your best investment
advantage, and where each fund is serviced with the utmost attention to the
delivery of timely, accurate, and comprehensive shareholder information.
INVESTMENT ADVISERS
Forum Investment Advisors, LLC offers the services of portfolio managers with
the highest qualifications--because without such direction, a comprehensive and
goal-oriented investment program and ongoing investment strategy are not
possible. Serving as portfolio managers for the Forum Family of Funds are
individuals wit decades of experience with some of the country's major financial
institutions.
Forum Funds are also managed by the portfolio managers of H.M. Payson & Co.,
founded in Portland, Maine in 1854 and one of the oldest investment firms in the
country. Payson has approximately $1.25 billion in assets under management, with
clients that include pension plans, endowment funds, and institutional and
individual accounts.
FORUM INVESTMENT ADVISORS, LLC
Forum Investment Advisors, LLC is the largest Maine based investment adviser
with approximately $1.95 billion in assets under management. The portfolio
managers have decades of combined experience in a cross section of the country's
financial markets. The managers have specific, day-to-day experience in the
asset class portfolios they manage, bringing critical focus to meeting each
fund's explicit investment objectives. The portfolio managers have been involved
in investing the assets of large insurance companies, banks, pension plans,
individuals, and of course mutual funds. Forum Investment Advisors, LLC has a
staff of analysts and investment administrators to meet the demands of serving
shareholders in our funds.
FORUM FAMILY OF FUNDS
It has been said that mutual fund investment offerings--of which there are
nearly 10,000, with assets spread across stock, bond, and money market funds
worth more than $4 trillion--come in a rainbow of varieties. A better
description would be a "spectrum" of varieties, the spectrum graded from green
through amber and on to red. In simpler terms, from low risk investments,
through moderate to high risk. The lower the risk, the lower the possible reward
-- the higher the risk, the higher the potential reward.
The Forum Family of Funds provides conservative investment opportunities that
reduce the risk of loss of capital, using underlying money market investments
U.S. Government securities (although the shares of the Forum Funds are neither
insured nor guaranteed by the U.S. Government or its agencies), thus cushioning
the investment against market volatility. These funds offer regular income,
ready access to your money, and flexibility to buy or sell at any time.
In the less conservative but still not aggressive category are funds in the
Forum Family that seek to provide steady income and, in certain cases, tax-free
earnings. Such investments provide important diversification to an investment
portfolio.
Growth funds in the Forum Family more aggressively pursue a high return at the
risk of market volatility. These funds include domestic and international stock
mutual funds."
D-2
<PAGE>
TEXT OF PEOPLES HERITAGE NEWS RELEASE
Peoples Heritage Financial Group, Inc. (NASDAQ: PHBK) announced today that it
has formed an alliance with a major mutual fund provider and an investment
advisory firm to expand its mutual fund offerings. The alliance with Forum
Financial Group and H.M. Payson & Company will result in 18 funds, including the
unique Maine Municipal Bond Fund and New Hampshire Bond Fund, being offered
through the branches of Peoples' affiliate banks in Maine, New Hampshire and
northern Massachusetts and the Company's trust and investment subsidiaries
'There is no secret to where financial services are moving, under one roof,"
said William J. Ryan, Chairman, President and Chief Executive Officer of Peoples
Heritage. "One only has to watch the virtually daily announcements of
consolidations in the financial sector to understand that customers are
demanding and receiving 'one-stop' financial services.
"We think we are adding the additional competitive advantage of funds that are
managed and administered close to home."
Eighteen Forum funds will be offered including two Payson funds. The tax-free
Maine and New Hampshire state bond funds are the only two such funds available
and usually invest 80% of total assets in municipal securities. Other funds
being provided by the alliance include money market, debt and equity funds.
Forum Financial, based in Portland, Maine since 1987, administers 124 funds with
more than $29 billion in assets. Forum manages mutual funds for independent
investment advisers such as Payson and for banks. Forum Investment Advisors, LLC
an affiliate, is the largest Maine-based investment adviser with approximately
$1.95 billion in fund assets under management.
"We are providing a great product set to the customers served by Peoples' nearly
200 branches in northern New England," said John Y. Keffer, Forum Financial
president, "The key today is to link a wide variety of investment options with
convergent, easy access for customers. I believe this alliance does just that."
H.M. Payson & Co., founded in 1854, is one of the nation's oldest investment
firms with nearly $1.25 billion in assets under management and $412 million in
non-managed custodial accounts. The Payson Value Fund and Payson Balanced Fund
are among the 18 offerings.
"I believe we have all the ingredients of a tremendous alliance," said John
Walker, Payson President and Managing Director. "We have the region's premier
community banking company, a community-based investment adviser, and a local
mutual fund company that operates nationally and specializes in working with
banks. We are poised to provide solid investment performance and service."
Peoples Heritage Financial Group is a $10 billion multi-state bank and financial
services holding company headquartered in Portland, Maine. Its Maine banking
affiliate, Peoples Heritage Bank, has the state's leading deposit market share.
Its New Hampshire banking affiliate, Bank of New Hampshire, has the state's
leading deposit market share. Family Bank, the Company's Massachusetts banking
subsidiary, has the state's tenth largest deposit market share and the leading
market share in many of the northern Massachusetts communities it serves.
Peoples affiliate banks also operate subsidiaries in leasing, trust and
investment services and insurance.
FORUM FINANCIAL GROUP:
Headquarters: Two Portland Square, Portland, Maine 04101
President: John Y. Keffer
Offices: Portland, Seattle, Warsaw, Bermuda
*Established in 1986 to administer mutual funds for independent investment
advisers and banks *Among the nation's largest third-party fund administrators
*Uses proprietary in-house systems and custom programming capabilities
*Administration and Distribution Services: Regulatory, compliance, expense
accounting, budgeting for all funds
D-3
<PAGE>
*Fund Accounting Services: Portfolio valuation, accounting, dividend
declaration, and tax advice
*Shareholder Services: Preparation of statements, distribution support,
inquiries and processing of trades
*Client Assets under Administration and Distribution: $73 billion
*Client Assets Processed by Fund Accounting: $53 billion
*Client Funds under Administration and Distribution: 181 mutual funds with 89
share classes
*International Ventures: Joint venture with Bank Handlowy in Warsaw, Poland,
using Forum's proprietary transfer agency and distribution systems Off-shore
investment fund administration, using Bermuda as Forum's center of operations
*Forum Employees: United States -215, Poland - 180, Bermuda - 4
FORUM CONTACTS:
John Burns, Director, Forum Investment Advisors, LLC, (207) 879-1900 X 6132 Tony
Santaniello, Director of Marketing, (207) 879-1900 X 6175
H.M. PAYSON & CO.:
Headquarters: One Portland Square, Portland, Maine
President and Managing Director: John Walker
Quality investment services and conservative wealth management since 1854
*Assets under Management: $1.25 Billion
*Non-managed Custody Assets: $412 Million
*Client Base: 85% individuals; 15% institutional
*Owned by 11 shareholders; 10 managing directors
*Payson Balanced Fund and Payson Value Fund (administrative and shareholder
services provided by Forum Financial Group)
*Employees: 45
H.M. PAYSON & CO. CONTACT:
Joel Harris, Marketing Coordinator, (207) 772-3761
D-4
<PAGE>
FORUM
FUNDS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 2000
INVESTMENT ADVISER:
POLARIS GLOBAL VALUE FUND
Polaris Capital Management, Inc.
125 Summer Street
Boston, MA 02110
ACCOUNT INFORMATION AND SHAREHOLDER SERVICES:
Forum Shareholder Services, LLC
P.O. Box 446
Portland, Maine 04112
(800) 805-8258
(207) 879-0001
This Statement of Additional Information (the "SAI") supplements the Prospectus
dated October 1, 2000, as may be amended from time to time, offering shares of
Polaris Global Value Fund (the "Fund"), a separate series of Forum Funds, a
registered, open-end management investment company (the "Trust"). This SAI is
not a prospectus and should only be read in conjunction with the Prospectus. You
may obtain the Prospectus without charge by contacting Forum Shareholder
Services, LLC at the address or telephone number listed above.
Financial Statements for the Fund for the year ended May 31, 2000, are included
in the Annual Report to shareholders, and are incorporated into this SAI by
reference. Copies of the Annual Report may be obtained, without charge, upon
request by contacting Forum Shareholder Services, LLC at the address or
telephone number listed above.
<PAGE>
TABLE OF CONTENTS
GLOSSARY 1
INVESTMENT POLICIES AND RISKS 2
INVESTMENT LIMITATIONS 10
PERFORMANCE DATA AND ADVERTISING 12
MANAGEMENT 16
PORTFOLIO TRANSACTIONS 21
PURCHASE AND REDEMPTION INFORMATION 24
TAXATION 26
OTHER MATTERS 30
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS A-1
APPENDIX B - MISCELLANEOUS TABLES B-1
APPENDIX C - PERFORMANCE DATA C-1
<PAGE>
GLOSSARY
As used in this SAI, the following terms have the meanings listed.
"Adviser" means Polaris Capital Management, Inc.
"Board" means the Board of Trustees of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"CFTC" means Commodities Future Trading Commission.
"Custodian" means the custodian of the Fund's assets.
"FAcS" means Forum Accounting Services, LLC, the fund accountant of the Fund.
"FAdS" means Forum Administrative Services, LLC, the administrator of the Fund.
"Fitch" means Fitch IBCA, Inc.
"FFS" means Forum Fund Services, LLC, the distributor of the Fund's shares.
"FFSI means Forum Financial Services, Inc., the distributor of the Fund's shares
through September 30, 1999.
"FSS" means Forum Shareholder Services, LLC, the transfer agent of the Fund.
"Fund" means Polaris Global Value Fund.
"IRS" means Internal Revenue Service.
"Moody's" means Moody's Investors Service.
"NRSRO" means a nationally recognized statistical rating organization.
"NAV" means net asset value per share.
"SAI" means this Statement of Additional Information.
"SEC" means the U.S. Securities and Exchange Commission.
"S&P" means Standard & Poor's, A Division of the McGraw Hill Companies.
"Trust" means Forum Funds.
"U.S. Government Securities" means obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
"1933 Act" means the Securities Act of 1933, as amended.
"1940 Act" means the Investment Company Act of 1940, as amended.
1
<PAGE>
INVESTMENT POLICIES AND RISKS
The Fund is a diversified series of the Trust. This section discusses in greater
detail than the Fund's Prospectus certain investments that the Fund may make.
SECURITY RATINGS INFORMATION
The Fund's investments in convertible securities are subject to the credit risk
relating to the financial condition of the issuers of the convertible securities
that the Fund holds. To limit credit risk, the Fund may only invest in: (1)
convertible debt securities that are rated "Baa" or higher by Moody's or "BBB"
or higher by S&P at the time of purchase; and (2) preferred stock rated "baa" or
higher by Moody's or "BBB" or higher by S&P at the time of purchase. The Fund
may purchase unrated convertible securities if, at the time of purchase, the
Adviser believes that they are of comparable quality to rated securities that
the Fund may purchase.
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 organization or its rating
systems, the Adviser will attempt to substitute comparable ratings. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings. An issuer's current financial
condition may be better or worse than a rating indicates.
EQUITY SECURITIES
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
2
<PAGE>
necessarily the book value of an issuer or other objective measure of a
company's worth. If you invest in the Fund, you should be willing to accept the
risks of the stock market and should consider an investment in the Fund only as
a part of your overall investment portfolio.
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: (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities; (2) are less subject to fluctuation in
value than the underlying stocks since they have fixed income characteristics;
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer
at a price established in the convertible security's governing instrument. If a
convertible security is called for redemption, the Fund will be required to
permit the issuer to redeem the security, convert it into the underlying common
stock or sell it to a third party.
RISKS. Investment in convertible securities generally entails less risk than an
investment in the issuer's common stock. Convertible securities are typically
issued by smaller capitalized companies whose stock price may be volatile.
Therefore, the price of a convertible security may reflect variations in the
price of the underlying common stock in a way that nonconvertible debt does not.
The extent to which such risk is reduced, however, depends in large measure upon
the degree to which the convertible security sells above its value as a fixed
income security.
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 of the warrant usually
represents a premium over the applicable market value of the common stock at the
time of the warrant's issuance. Warrants have no voting rights with respect to
the common stock, receive no dividends and have no rights with respect to the
assets of the issuer. The Fund will limit its purchase of warrants to not more
than 5% of the value of its total assets.
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.
DEPOSITARY RECEIPTS
GENERAL. The Fund may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"). ADRs typically are issued by a U.S. bank or trust company,
evidence ownership of underlying securities issued by a foreign company and are
designed for use in U.S. securities markets. The Fund invests in depositary
receipts in order to obtain exposure to foreign securities markets.
RISKS. Unsponsored depositary receipts may be created without the participation
of the foreign issuer. Holders of these receipts generally bear all the costs of
the depositary receipt facility, whereas foreign issuers typically bear certain
costs of a sponsored depository 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
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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.
FOREIGN CURRENCIES TRANSACTIONS
GENERAL
Investments in foreign companies will usually involve currencies of foreign
countries. The Fund may temporarily hold funds in bank deposits in foreign
currencies during the completion of investment programs. The Fund may conduct
foreign currency exchange transactions either on a spot (cash) basis at the spot
rate prevailing in the foreign exchange market or by entering into a forward
foreign currency contract. A forward currency contract ("forward contract")
involves an obligation to purchase or sell a specific amount of a specific
currency at a future date, which may be any fixed number of days (usually less
than one year) from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. Forward contracts are considered
"derivatives" -- financial instruments whose performance is derived, at least in
part, from the performance of another asset (such as a security, currency or an
index of securities). The Fund enters into forward contracts in order to "lock
in" the exchange rate between the currency it will deliver and the currency it
will receive for the duration of the contract. In addition, the Fund may enter
into forward contracts to hedge against risks arising from securities the Fund
owns or anticipates purchasing, or the U.S. dollar value of interest and
dividends paid on those securities. The Fund does not intend to enter into
forward contracts on a regular or continuing basis and the Fund will not enter
these contracts for speculative purposes. The Fund will not have more than 25%
of its total assets committed to forward contracts, or maintain a net exposure
to forward contracts that would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's investment securities or
other assets denominated in that currency.
At or before settlement of a forward currency contract, the Fund may either
deliver the currency or terminate its contractual obligation to deliver the
currency by purchasing an offsetting contract. If the Fund makes delivery of the
foreign currency at or before the settlement of a forward contract, it may be
required to obtain the currency through the conversion of assets of the Fund
into the currency. The Fund may close out a forward contract obligating it to
purchase currency by selling an offsetting contract, in which case, it will
realize a gain or a loss.
RISKS
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies. There is also the risk that the other
party to the transaction may fail to deliver currency when due which may result
in a loss to the Fund.
OPTIONS AND FUTURES
GENERAL
The Fund may write covered call options to enhance the Fund's performance. 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 (sell) covered options on equity securities, currencies
and stock related indices and may also invest in stock index and foreign
currency futures contracts, and purchases options and write covered options
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on those contracts. The Fund may only write a put option as a closing
transaction. The Fund may buy or sell both exchange-traded and over-the-counter
options. The Fund will only purchase or write an option that is traded on a U.S.
options exchange or over-the-counter market or if the Adviser believes that a
liquid secondary market for the option exists.
OPTIONS AND FUTURES STRATEGIES
OPTIONS ON SECURITIES. A call option is a contract under which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
(or index) underlying the option at a specified exercise price at any time
during the term of the option. The writer of the call option, who receives the
premium, has the obligation upon exercise of the option to deliver the
underlying security against payment of the exercise price. A put option gives
its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy, upon exercise of the
option, the underlying security (or a cash amount equal to the value of the
index) at the exercise price. The amount of a premium received or paid for an
option is based upon certain factors including the market price of the
underlying security, the relationship of the exercise price to the market price,
the historical price volatility of the underlying security, the option period,
and interest rates.
OPTIONS ON 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 FOREIGN CURRENCY. Options on foreign currency operate in the same way
as more traditional options on securities except that currency options are
settled exclusively in the currency subject to the option. The value of a
currency option is dependent upon the value of the currency relative to the U.S.
dollar and has no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, the Fund may be disadvantaged by having to deal in an
odd lot market (generally consisting in transactions of less than $1 million)
for the underlying currencies at prices that are less favorable than round lots.
To the extent that the U.S. options markets are closed while the market for the
underlying currencies are open, significant price and rate movements may take
place in the underlying markets that can not be reflected in the options
markets.
OPTIONS ON FUTURES. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract rather than to purchase or sell a security or currency, at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position to the holder of the option will be
accompanied by transfer to the holder of an accumulated balance representing the
amount by which the market price of the futures contract exceeds, in the case of
a call, or is less than, in the case of a put, the exercise price of the option
on the future.
CURRENCY FUTURES 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 or a currency, an underlying debt security or a currency, as
called for in the contract, at a specified date and at an agreed upon price. An
index futures contract involves the delivery of an amount of cash equal to a
specified dollar amount multiplied by the difference between the index value at
the close of trading of the contract and the price designated by the futures
contract. No physical delivery of the securities comprising the index is made.
Generally, currency and index futures contracts are closed out prior to the
expiration date of the contracts.
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RISKS OF OPTIONS AND FUTURES TRANSACTIONS
There are certain investment risks associated with options and futures
transactions. These risks include: (1) dependence on the Adviser's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlation between movements in the
prices of options and movements in the price of the securities (or indices)
hedged or used for cover which may cause a given hedge not to achieve its
objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the securities in which
the Fund invests; and (4) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder 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 counterparty in an over-the-counter option transaction will be
able to perform its obligations. The Fund may invest in 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 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.
LIMITS ON OPTIONS AND FUTURES
The Fund will not use leverage in its hedging strategy. The Fund will not hedge
more than 25% of its total assets by selling futures contracts, buying put
options and writing call options. In addition, the Fund will not buy futures
contracts or write put options whose underlying value exceeds 25% of the Fund's
total assets and will not purchase call options if the value of purchased call
options would exceed 5% of the Fund's total assets.
The Fund will only invest in futures contracts, options on futures contracts and
other options contracts that are subject to the jurisdiction of the CFTC after
filing a notice of eligibility and otherwise complying with the requirements of
Section 4.5 of the rules of the CFTC. Under that section the Fund would be
permitted to purchase such futures or options contracts only for bona fide
hedging purposes within the meaning of the rules of the CFTC; provided, however,
that in addition, with respect to positions in commodity futures and option
contracts not established for bona fide hedging purposes, the Fund represents
that the aggregate initial margin and premiums required to establish these
positions (subject to certain exclusions) will not exceed 5% of the liquidation
value of the Fund's assets after taking into account unrealized profits and
losses on any such contract the Fund has entered into.
LEVERAGE TRANSACTIONS
GENERAL
The Fund may use leverage to increase potential returns. Leverage involves
special risks and may involve speculative investment techniques. Leverage exists
when cash made available to the Fund through an investment technique is used to
make additional Fund investments. Leverage transactions include borrowing for
other than temporary or emergency purposes, lending portfolio securities,
entering into reverse repurchase agreements, and purchasing securities on a
when-issued, delayed delivery or forward commitment basis. The Fund uses these
investment techniques only when the Adviser believes that the leveraging and the
returns available to the Fund from investing the cash will provide investors a
potentially higher return.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Fund may borrow money from a
bank in amounts up to 33 1/3% of the Fund's total assets. The Fund will
generally borrow money to increase its returns. Typically, if a
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security purchased with borrowed funds increases in value, the Fund may sell the
security, repay the loan, and secure a profit. The Fund may also enter into
reverse repurchase agreements. A reverse repurchase agreement is a transaction
in which the Fund sells securities to a bank or securities dealer and
simultaneously commits to repurchase the securities from the bank or dealer at
an agreed upon date and at a price reflecting a market rate of interest
unrelated to the sold securities. An investment of the Fund's assets in reverse
repurchase agreements will increase the volatility of the Fund's NAV. A
counterparty to a reverse repurchase agreement must be a primary dealer that
reports to the Federal Reserve Bank of New York or one of the largest 100
commercial banks in the United States.
SECURITIES LENDING AND REPURCHASE AGREEMENTS. The Adviser is generally opposed
to securities lending and has not loaned securities in the past but may do so in
the future. The Fund may lend portfolio securities or participate in repurchase
agreements in an amount up to 33 1/3% of its total assets to brokers, dealers
and other financial institutions. The Fund may pay fees to arrange for
securities loans. Repurchase agreements are transactions in which the Fund
purchases a security and simultaneously agrees to resell that security to the
seller at an agreed upon price on an agreed upon future date, normally, one to
seven days later. If the Fund enters into a repurchase agreement, it will
maintain possession of the purchased securities and any underlying collateral.
Securities loans and repurchase agreements must be continuously collateralized
and the collateral must have market value at least equal to the value of the
Fund's loaned securities, plus accrued interest or, in the case of repurchase
agreements, equal to the repurchase price of the securities, plus accrued
interest. In a portfolio securities lending transaction, the Fund receives from
the borrower an amount equal to the interest paid or the dividends declared on
the loaned securities during the term of the loan as well as the interest on the
collateral securities, less any fees (such as finders or administrative fees)
the Fund pays in arranging the loan. The Fund may share the interest it receives
on the collateral securities with the borrower. The terms of the Fund's loans
permit the Fund to reacquire loaned securities on five business days' notice or
in time to vote on any important matter. Loans are subject to termination at the
option of the Fund or the borrower at any time, and the borrowed securities must
be returned when the loan is terminated.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The Fund may purchase securities
offered on a "when-issued" (including delayed delivery basis) basis and may
purchase or sell securities on a "forward commitment" basis. When these
transactions are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements beyond two
months may be negotiated. During the period between a commitment and settlement,
no payment is made for the securities purchased by the purchaser and, thus, no
interest accrues to the purchaser from the transaction. At the time the Fund
makes the commitment to purchase securities on a when-issued basis, the Fund
will record the transaction as a purchase and thereafter reflect the value each
day of such securities in determining its NAV. No when-issued or forward
commitments will be made by the fund if, as a result, more than 10% of the
Fund's total assets would be committed to such transactions.
SHORT SALES. The Fund may sell a security which it does not own in anticipation
of a decline in the market value of that security. To sell short, the Fund will
borrow the security from a broker, sell it and maintain the proceeds of the
transaction in its brokerage account. The broker will charge the Fund interest
during the period it borrows the security. The Fund may close the short sale by
purchasing the security in the open market at the market price. If the proceeds
received from the short sale (less the interest charges) exceeds the amount paid
for the security, the Fund will incur a gain on the transaction. If the proceeds
received from the short sale (less the interest charges) are less than the
amount paid for the security, the Fund will incur a loss on the transaction.
RISKS
Leverage creates the risk of magnified capital losses. Leverage may involve the
creation of a liability that requires the Fund to pay interest (for instance,
reverse repurchase agreements) or the creation of a liability that does not
entail any interest costs (for instance, forward commitment costs).
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The risks of leverage include a higher volatility of the NAV of the Fund's
securities which may be magnified by favorable or adverse market movements or
changes in the cost of cash obtained by leveraging and the yield from invested
cash. So long as the Fund is able to realize a net return on its investment
portfolio that is higher than interest expense incurred, if any, leverage will
result in higher current net investment income for the Fund than if the Fund
were not leveraged. Changes in interest rates and related economic factors could
cause the relationship between the cost of leveraging and the yield to change so
that rates involved in the leveraging arrangement may substantially increase
relative to the yield on the obligations in which the proceeds of the leveraging
have been invested. To the extent that the interest expense involved in
leveraging approaches the net return on the Fund's investment portfolio, the
benefit of leveraging will be reduced, and, if the interest expense incurred as
a result of leveraging on borrowings were to exceed the net return to investors,
the Fund's use of leverage would result in a lower rate of return than if the
Fund were not leveraged. In an extreme case, if the Fund's current investment
income were not sufficient to meet the interest expense of leveraging, it could
be necessary for the Fund to liquidate certain of its investments at an
inappropriate time.
SEGREGATED ACCOUNTS. In order to attempt to reduce the risks involved in various
transactions involving leverage, the Fund's custodian will set aside and
maintain, in a segregated account, cash and liquid securities. The account's
value, which is marked to market daily, will be at least equal to the Fund's
commitments under these transactions.
ILLIQUID AND RESTRICTED SECURITIES
GENERAL
The Fund may not acquire securities or invest in repurchase agreements if, as a
result, more than 15% of the Fund's net assets (taken at current value) would be
invested in illiquid securities.
The term "illiquid securities" means securities that cannot be disposed of
within seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities. Illiquid securities include: (1)
repurchase agreements not entitling the holder to payment of principal within
seven days; (2) purchased over-the-counter options; (3) securities which are not
readily marketable; and (4) securities subject to contractual or legal
restrictions on resale because they have not been registered under the 1933 Act
("restricted securities").
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.
DETERMINATION OF LIQUIDITY
The Board has the ultimate responsibility for determining whether specific
securities are liquid or illiquid and has delegated the function of making
determinations of liquidity to the Adviser, pursuant to guidelines approved by
the Board. The Adviser determines and monitors the liquidity of the portfolio
securities and reports periodically on its decisions to the Board. The Adviser
takes into account a number of factors in reaching liquidity decisions,
including but not limited to: (1) the frequency of trades and quotations for the
security; (2) the number of dealers willing to purchase or sell the security and
the number of other potential buyers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
An institutional market has developed for certain restricted securities.
Accordingly, contractual or legal restrictions on the resale of a security may
not be indicative of the liquidity of the security. If such securities are
eligible for purchase by institutional buyers in accordance with Rule 144A under
the 1933 Act or other exemptions, the Adviser may determine that the securities
are not illiquid.
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FOREIGN SECURITIES
The Fund may invest in foreign securities. Although the Adviser currently
intends to invest the Fund's assets in issuers located in at least 5 countries,
there is no limit on the amount of the Fund's assets that may be invested in
issuers located in any one country or region. To the extent that the Fund has
concentrated its investments in issuers located in any one country or region,
the Fund is more susceptible to factors adversely affecting the economy of that
country or region than if the Fund was invested in a more geographically diverse
portfolio. 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) and changes in foreign governmental
attitudes towards private investment, including potential nationalization,
increased taxation or confiscation of the Fund's assets.
In addition, dividends payable on foreign securities may be subject to foreign
withholding taxes, thereby reducing the income available for distribution to
you. Some foreign brokerage commissions and custody fees are higher than those
in the United States. Foreign accounting, auditing and financial reporting
standards differ from those in the United States, and therefore, less
information may be available about foreign companies than is available about
issuers of comparable U.S. companies. Foreign securities also may trade less
frequently and with lower volume and may exhibit greater price volatility than
United States securities.
Changes in foreign exchange rates will affect the U.S. dollar value of all
foreign currency-denominated securities held by the Fund. Exchange rates are
influenced generally by the forces of supply and demand in the foreign currency
markets and by numerous other political and economic events occurring outside
the United States, many of which may be difficult, if not impossible, to
predict.
Income from foreign securities will be received and realized in foreign
currencies, and the Fund is required to compute and distribute income in U.S.
dollars. Accordingly, a decline in the value of a particular foreign currency
against the U.S. dollar after the Fund's income has been earned and computed in
U.S. dollars may require the Fund to liquidate portfolio securities to acquire
sufficient U.S. dollars to make a distribution. Similarly, if the exchange rate
declines between the time the Fund incurs expenses in U.S. dollars and the time
such expenses are paid, the Fund may be required to liquidate additional foreign
securities to purchase the U.S. dollars required to meet such expenses.
TEMPORARY DEFENSIVE POSITION
The Fund may invest in prime quality money market instruments, pending
investment of cash balances. The Fund may also assume a temporary defensive
position and may invest without limit in prime quality money market instruments.
Prime quality instruments are those instruments that are rated in one of the two
highest short-term rating categories by an NRSRO or, if not rated, determined by
the Adviser to be of comparable quality.
Money market instruments usually have maturities of one year or less and fixed
rates of return. The money market instruments in which the Fund may invest
include short-term U.S. Government Securities, commercial paper, bankers'
acceptances, certificates of deposit, interest-bearing savings deposits of
commercial banks, repurchase agreements concerning securities in which the Fund
may invest and money market mutual funds.
CORE AND GATEWAY(R)
The Fund may seek to achieve its investment objective by converting to a Core
and Gateway structure. A fund operating under a Core and Gateway structure
holds, as its only investment, shares of another investment company having
substantially the same investment objective and policies. The Board will not
authorize conversion to a Core and Gateway structure if it would materially
increase costs to the Fund's shareholders. The Board will not convert the Fund
to a Core and Gateway structure without notice to the shareholders.
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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.
FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations, that cannot be
changed by the Board without shareholder approval. The Fund may not:
BORROWING MONEY
Borrow money if, as a result, outstanding borrowings would exceed an amount
equal to 33 1/3% of the Fund's total assets. The following are not subject to
this limitation to the extent they are fully collateralized: (1) the delayed
delivery of purchased securities (such as the purchase of when-issued
securities); (2) reverse repurchase agreements and (3) dollar-roll transactions.
CONCENTRATION
Purchase securities, other than U.S. Government Securities repurchase
agreements covering U.S. Government Securities, or securities of other regulated
investment companies, if, immediately after each purchase, more than 25% of the
Fund's total assets taken at market value would be invested in securities of
issuers conducting their principal business activity in the same industry.
For purposes of determining industry concentration: (1) there is no limit on
investments in tax-exempt securities issued by the states, territories or
possessions of the United States or foreign government securities; and (2) the
Fund treats the assets of investment companies in which it invests as its own
except to the extent that the Fund invests in other investment companies
pursuant to Section 12(d)(1)(A) of the 1940 Act.
DIVERSIFICATION
With respect to 75% of its assets, purchase a security (other than a U.S.
Government Security or a security of an investment company) if, as a result: (1)
more than 5% of the Fund's total assets would be invested in the securities of a
single issuer; or (2) the Fund would own more than l0% of the outstanding voting
securities of any single issuer.
UNDERWRITING ACTIVITIES
Underwrite (as that term is defined in the 1933 Act) securities issued by other
persons except, to the extent that in connection with the disposition of the
Fund's assets, the Fund may be deemed to be an underwriter.
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MAKING LOANS
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.
PURCHASES AND SALES OF REAL ESTATE
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 or other instruments backed by real estate or securities
of companies engaged in the real estate business).
PURCHASES AND SALES OF COMMODITIES
Purchase or sell physical commodities unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
purchasing or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities).
ISSUANCE OF SENIOR SECURITIES
Issue senior securities except to the extent permitted by the 1940 Act.
NON FUNDAMENTAL LIMITATIONS
The Fund has adopted the following investment limitations that may be changed by
the Board without shareholder approval. The Fund may not:
PLEDGES
Pledge, mortgage or hypothecate its assets, except to secure permitted
indebtedness. The deposit in escrow of securities in connection with the writing
of put and call options, collateralized loans of securities and collateral
arrangements with respect to margin for futures contracts are not deemed to be
pledges or hypothecations for this purpose.
SECURITIES OF INVESTMENT COMPANIES
Invest in securities of another registered investment company, except to the
extent permitted by the 1940 Act.
SHORT SALES
Enter into short sales if, as a result, more than 25% of the Fund's total assets
would be so invested or the Fund's short positions (other than those positions
"against the box") would represent more than 2% of the outstanding voting
securities of any single issuer or of any class of securities of any single
issuer.
ILLIQUID SECURITIES
Invest more than 15% of its net assets in illiquid assets such as: (1)
securities that cannot be disposed of within seven days at their then-current
value; (2) repurchase agreements not entitling the holder to payment of
principal within seven days; and (3) 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.
Except as required by the 1940 Act, whenever an amended or restated investment
policy or limitation states a maximum percentage of the Fund's assets that may
be invested, such percentage limitation will be determined immediately after and
as a result of the acquisition of such security or other asset. Any subsequent
change in
11
<PAGE>
values, assets or other circumstances will not be considered when determining
whether the investment complies with the Fund's investment policies or
limitations.
PERFORMANCE DATA AND ADVERTISING
PERFORMANCE DATA
On June 1, 1998, a limited partnership managed by the Adviser reorganized into
the Fund. The predecessor limited partnership maintained an investment objective
and investment policies that were, in all material respects, equivalent to those
of the Fund. The Fund's performance for periods before June 1, 1998 is that of
the limited partnership's performance. Had the limited partnership's performance
been readjusted to reflect the first year expenses of the Fund, the Fund's
performance for all periods except "Since Inception" would have been lower. The
limited partnership was not registered under the Investment Company Act of 1940
("1940 Act") and was not subject to certain investment limitations,
diversification requirements; and other restrictions imposed by the 1940 Act and
the Internal Revenue Code, which, if applicable, may have adversely affected its
performance.
Including the limited partnership performance, the Fund's average annual total
return for the 1-year, 3-year, 5-year and since inception (July 31, 1989)
periods as of May 31, 1999 was -11.95%, 12.74%, 15.71% and 11.27%, respectively.
Total return includes reinvestment of dividends and capital gains.
The Fund may quote performance in various ways. All performance information
supplied in advertising, sales literature, shareholder reports or other
materials is historical and is not intended to indicate future returns.
The Fund may compare any of its performance information with:
o Data published by independent evaluators such as Morningstar, Inc.,
Lipper, Inc., iMoneyNet, Inc. (IBC Financial Data, Inc.),
CDA/Wiesenberger or other companies which track the investment
performance of investment companies ("Fund Tracking Companies").
o The performance of other mutual funds.
o The performance of recognized stock, bond and other indices, including
but not limited to the Standard & Poor's 500(R) Index, the Russell
2000(R) Index, the Russell MidcapTM Index, the Russell 1000(R) Value
Index, the Russell 2500(R) Index, the Morgan Stanley Capital
International - Europe, Australasia 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.
12
<PAGE>
PERFORMANCE CALCULATIONS
The Fund's performance may be quoted in terms of yield or total return. Table 1
in Appendix C includes performance information for the Fund.
TOTAL RETURN CALCULATIONS
The Fund's total return shows its overall change in value, including changes in
share price 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 return
the Fund: (1) determines the growth or decline in value of a hypothetical
historical investment in the Fund over a stated period; and (2) calculates the
annually compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the period. For
example, a cumulative return of 100% over ten years would produce an average
annual total return of 7.18%. While average annual 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.
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. For instance, the Fund may quote unaveraged or cumulative total
returns, which reflect the Fund's performance over a stated period of time.
Moreover, total returns may be stated in their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship of these factors and their contributions to total return.
Any total return may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments and/or a series of
redemptions over any time period. Total returns may be quoted with or without
taking into consideration a fund's front-end sales charge or contingent deferred
sales charges. The Fund does not charge a sales charge.
Period total return is calculated according to the following formula:
13
<PAGE>
PT = (ERV/P-1)
Where:
PT = period total return
The other definitions are the same as in average annual total
return above
OTHER MATTERS
The Fund may also include a variety of 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 NAV,
net assets or number of shareholders of the Fund as of one or more dates; and
(10) a comparison of the Fund's operations to the operations of other funds or
similar investment products, such as a comparison of the nature and scope of
regulation of the products and the products' weighted average maturity,
liquidity, investment policies and the manner of calculating and reporting
performance.
As an example of compounding, $1,000 compounded annually at 9.00% will grow to
$1,090 at the end of the first year (an increase in $90) and $1,118 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 systematic
investment and systematic withdrawal plans, including the principal of dollar
cost averaging. In a dollar-cost averaging program, an investor invests a fixed
dollar amount in 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:
14
<PAGE>
SYSTEMATIC SHARE SHARES
PERIOD INVESTMENT PRICE PURCHASED
------ ---------- ----- ---------
1 $100 $10 10.00
2 $100 $12 8.33
3 $100 $15 6.67
4 $100 $20 5.00
5 $100 $18 5.56
6 $100 $16 6.25
---- --- ----
TOTAL AVERAGE TOTAL
INVESTED $600 PRICE $15.17 SHARES 41.81
In connection with its advertisements, the Fund may provide "shareholder's
letters" which serve to provide shareholders or investors with an introduction
into the Fund's, the Trust's or any of the Trust's service providers' policies
or business practices.
15
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The names of the Trustees and officers of the Trust, their positions with the
Trust, address, date of birth and principal occupations during the past five
years are set forth below. Each Trustee who is an "interested person" (as
defined by the 1940 Act) of the Trust is indicated by an asterisk (*).
<TABLE>
<S> <C>
-------------------------------------------- -----------------------------------------------------------------------
NAME, POSITION WITH THE TRUST, PRINCIPAL OCCUPATION(S) DURING
DATE OF BIRTH AND ADDRESS PAST 5 YEARS
-------------------------------------------- -----------------------------------------------------------------------
John Y. Keffer*, Chairman and President Member and Director, Forum Financial Group, LLC (a mutual fund
Born: July 15, 1942 services holding company)
Two Portland Square Director, Forum Fund Services, LLC (Trust's underwriter)
Portland, ME 04101 Officer of six other investment companies for which Forum
Financial Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Costas Azariadas, Trustee Professor of Economics, University of California-Los Angeles
Born: February 15, 1943 Visiting Professor of Economics, Athens University of Economics and
Department of Economics Business 1998 - 1999
University of California Trustee of one other investment company for which Forum Financial
Los Angeles, CA 90024 Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
James C. Cheng, Trustee President, Technology Marketing Associates
Born: July 26, 1942 (marketing company for small and medium size businesses in New
27 Temple Street England)
Belmont, MA 02718 Trustee of one other investment company for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
J. Michael Parish, Trustee Partner, Thelen Reid & Priest LLP (law firm) since 1995
Born: November 9, 1943 Trustee of one other investment company for which Forum Financial
40 West 57th Street Group, LLC provides services
New York, NY 10019
-------------------------------------------- -----------------------------------------------------------------------
Thomas G. Sheehan Managing Director, Forum Financial Group, LLC since 1993
Born: November 17, 1954 Special Counsel, Division of Investment Management, SEC
Two Portland Square Officer of two other investment companies for which Forum Financial
Portland, Maine 04101 Group, LLC provides services
Born: October 1943
-------------------------------------------- -----------------------------------------------------------------------
David I. Goldstein, Vice President General Counsel, Forum Financial Group LLC
Born: August 3, 1961 Officer of two other investment companies for which Forum Financial
Two Portland Square Group, LLC provides services
Portland, ME 04101
-------------------------------------------- -----------------------------------------------------------------------
Ronald H. Hirsch, Treasurer Managing Director, Operations/Finance and Operations/Sales, Forum
Born: October 14, 1943 Financial Group, LLC since 1999
Two Portland Square Member of the Board - Citibank Germany 1991 - 1998
Portland, ME 04101 Officer of six other investment companies for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
Leslie K. Klenk, Secretary Counsel, Forum Financial Group, LLC since 1998
Born: August 24, 1964 Associate General Counsel, Smith Barney Inc. (brokerage firm) 1993 -
Two Portland Square 1998
Portland, ME 04101 Officer of one other investment company for which Forum Financial
Group, LLC provides services
-------------------------------------------- -----------------------------------------------------------------------
</TABLE>
16
<PAGE>
COMPENSATION OF TRUSTEES AND OFFICERS
Effective February 7, 2000, each Trustee of the Trust will be paid a quarterly
retainer fee of $1,750 for his service to the Trust. In addition, each Trustee
will be paid a fee of $500 for each Board meeting attended (whether in person or
by electronic communication). Trustees are also reimbursed for travel and
related expenses incurred in attending Board meetings. Mr. Keffer receives no
compensation (other than reimbursement for travel and related expenses) for his
service as Trustee of the Trust. No officer of the Trust is compensated by the
Trust but officers are reimbursed for travel and related expenses incurred in
attending Board meetings held outside of Portland, Maine.
The following table sets forth the compensation paid to each Trustee by the
Fund and the Fund Complex that includes all series of the Trust and another
investment company for which Forum Financial Group, LLC provides services for
the fiscal year ended May 31, 2000.
<TABLE>
<S> <C> <C>
Total Compensation
Compensation from Fund and Fund
Trustee from Fund Complex
John Y. Keffer $0 $0
Costas Azariadis $305 $19,500
James C. Cheng $305 $19,500
J. Michael Parish $305 $19,500
</TABLE>
INVESTMENT ADVISER
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.
OWNERSHIP OF ADVISER
The Adviser is a privately owned company controlled by Bernard R. Horn, Jr.
FEES
The Adviser's fee is calculated as a percentage of the Fund's average net
assets. The fee is accrued daily by the Fund and is paid monthly based on
average net assets for the previous month.
In addition to receiving its advisory fee from the Fund, the Adviser may also
act and be compensated as investment manager for its clients with respect to
assets they invested in the Fund. If you have a separately managed account with
the Adviser with assets invested in the Fund, the Adviser will credit an amount
equal to all or a portion of the fees received by the Adviser against any
investment management fee received from you.
Table 1 in Appendix B shows the dollar amount of the fees payable by the Fund to
the Adviser, the amount of fees waived by the Adviser, and the actual fees
received by the Adviser. The data are for the past three fiscal years (or
shorter period depending on the Fund's commencement of operations).
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 and then the agreement must be approved annually.
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 (other than as Trustees of the Trust).
17
<PAGE>
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.
DISTRIBUTOR
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. Prior to September 30, 1999, FFSI was the distributor
of the Fund pursuant to similar terms and compensation.
FFS, FAdS, FAcS and FSS are each controlled indirectly by Forum Financial Group,
LLC, which is controlled by John Y. Keffer.
Under a distribution agreement (the "Distribution Agreement") with the Trust,
FFS acts as the agent of the Trust in connection with the offering of shares of
the Fund. FFS continually distributes shares of the Fund on a best efforts
basis. FFS has no obligation to sell any specific quantity of Fund shares.
FFS may enter into arrangements with various financial institutions through
which you may purchase or redeem shares. FFS may, at its own expense and from
its own resources, compensate certain persons who provide services in connection
with the sale or expected sale of shares of the Fund.
FFS may enter into agreements with selected broker-dealers, banks or other
financial institutions for distribution of shares of the Fund. These financial
institutions may charge a fee for their services and may receive shareholder
service fees even though shares of the Fund are sold without a sales charge.
These financial institutions may otherwise act as processing agents, and will be
responsible for promptly transmitting purchase, redemption and other requests to
the Fund.
Investors who purchase shares in this manner will be subject to the procedures
of the institution through whom they purchase shares, which may include charges,
investment minimums, cutoff times and other restrictions in addition to, or
different from, those listed herein. Information concerning any charges or
services will be provided to customers by the financial institution. Investors
purchasing shares of the Fund in this manner should acquaint themselves with
their institution's procedures and should read the Prospectus in conjunction
with any materials and information provided by their institution. The financial
institution, and not its customers, will be the shareholder of record, although
customers may have the right to vote shares depending upon their arrangement
with the institution.
FFS does not receive a fee for services performed under the Distribution
Agreement.
OTHER PROVISIONS OF DISTRIBUTOR'S AGREEMENT
The Distribution Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust).
The Distribution Agreement is terminable without penalty by the Trust with
respect to the Fund on 60 days' written notice when authorized either by vote of
the Fund's shareholders, by a majority vote of the Board or by FFS on 60 days'
written notice to the Trust.
18
<PAGE>
Under the Distribution Agreement, FFS is not liable to the Trust or the Trust's
shareholders for any error of judgment or mistake of law, for any loss arising
out of any investment or for any act or omission in the performance of its
duties to the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under the agreement.
Under the Distribution Agreement, FFS and certain related parties (such as FFS's
officers and persons that control FFS) are indemnified by the Trust against all
claims and expenses in any way related to alleged untrue statements of material
fact contained in the Trust's Registration Statement or any alleged omission of
a material fact required to be stated in the Registration Statement to make
statements contained therein not misleading. The Trust, however, will not
indemnify FFS for any such misstatements or omissions if they were made in
reliance upon information provided in writing by FFS in connection with the
preparation of the Registration Statement.
OTHER FUND SERVICE PROVIDERS
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 of 0.10%
of the first $150 million of the Fund's average daily net assets and 0.05% of
the Fund's average daily net assets in excess of $150 million. The fee is
accrued daily by the Fund and is paid monthly based on average net assets for
the previous month.
The Administration Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust). The Administration agreement is
terminable without penalty by the Trust or by FAdS with respect to the Fund on
60 days' written notice to the Trust.
Under the Administration Agreement, FAdS is not liable to the Trust or the
Trust's shareholders for any act or omission, except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the agreement. Under the
agreement, FAdS and certain related parties (such as FAdS's officers and persons
who control FAdS) are indemnified by the Trust against any and all claims and
expenses related to FAdS's actions or omissions that are consistent with FAdS's
contractual standard of care.
Table 2 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAdS the amount of the fee waived by FAdS, and the actual fees received by FAdS.
The data are for the past three fiscal years (or shorter period depending on the
Fund's commencement of operations).
FUND ACCOUNTANT
As fund accountant, pursuant to an agreement with the Trust (the "Accounting
Agreement") 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 of
$36,000, plus $2,200 for the preparation of tax returns and certain surcharges
based upon the number and type of the Fund's portfolio transactions and
positions. The fee is accrued daily by the Fund and is paid monthly based on the
transactions and positions for the previous month.
19
<PAGE>
The Accounting Agreement must be approved at least annually by the Board or by
majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust). The Accounting Agreement is
terminable without penalty by the Trust or by FAcS with respect to the Fund on
60 days' written notice.
Under the Accounting Agreement, FAcS is not liable for any action or omission in
the performance of its duties to the Fund, except for willful misfeasance, bad
faith, gross negligence or by reason of reckless disregard of its obligations
and duties under the agreement. Under the agreement, FAcS and certain related
parties (such as FAcS's officers and persons who control FAcS) are indemnified
by the Trust against any and all claims and expenses related to FAcS's actions
or omissions that are consistent with FAcS's contractual standard of care.
Under the Accounting Agreement, in calculating the Fund's NAV, FAcS is deemed
not to have committed an error if the NAV it calculates is within 1/10 of 1% of
the actual NAV (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.
Table 3 in Appendix B shows the dollar amount of the fees payable by the Fund to
FAcS the amount of the fee waived by FAcS, and the actual fees received by FAcS.
The data are for the past three fiscal years (or shorter period depending on the
Fund's commencement of operations).
TRANSFER AGENT
As transfer agent and distribution paying agent, pursuant to an agreement with
the Trust ("Transfer Agency Agreement"), FSS maintains an account for each
shareholder of record of the Fund and is responsible for processing purchase and
redemption requests and paying distributions to shareholders of record. FSS is
located at Two Portland Square, Portland, Maine 04101 and is registered as a
transfer agent with the SEC.
For its services, FSS receives a fee from the Fund at an annual rate of $24,000
plus $25 per shareholder account. The fee is accrued daily by the Fund and is
paid monthly based on the average net assets for the previous month.
The Transfer Agency Agreement must be approved at least annually by the Board or
by majority vote of the shareholders, and in either case by a majority of the
Trustees who are not parties to the agreement or interested persons of any such
party (other than as Trustees of the Trust). The Transfer Agency Agreement is
terminable without penalty by the Trust or by FSS with respect to the Fund on 60
days' written notice.
Under the Transfer Agency Agreement, FSS is not liable for any act in the
performance of its duties to 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.
Table 4 in Appendix B shows the dollar amount of the fees payable by the Fund to
FSS, the amount of the fee waived by FSS and the actual fees received by FSS.
The data are for the past three fiscal years (or shorter period depending on the
Fund's commencement of operations).
SHAREHOLDER SERVICING AGENT
Pursuant to a Shareholder Service Plan (the "Plan") between the Trust and FAdS
effective March 18, 1998, FAdS is authorized to perform, or arrange for the
performance of, certain activities relating to the servicing and maintenance of
shareholder accounts not otherwise provided by FSS ("Shareholder Servicing
Activities"). Under the Plan, FAdS may enter into shareholder service agreements
with financial institutions or other persons who provide Shareholder Servicing
Activities for their clients invested in the Fund.
20
<PAGE>
Shareholder Servicing Activities shall include one or more of the following: (1)
establishing and maintaining accounts and records for shareholders of the Fund;
(2) answering client inquiries regarding the manner in which purchases,
exchanges and redemptions of shares of the Trust may be effected and other
matters pertaining to the Trust's services; (3) providing necessary personnel
and facilities to establish and maintain client accounts and records; (4)
assisting clients in arranging for processing purchase, exchange and redemption
transactions; (5) arranging for the wiring of funds; (6) guaranteeing
shareholder signatures in connection with redemption orders and transfers and
changes in shareholder-designated accounts; (7) integrating periodic statements
with other shareholder transactions; and (8) providing such other related
services as the shareholder may request.
As compensation for the Shareholder Servicing Activities, the Trust pays the
shareholder servicing agent, through FAdS, a fee of up to 0.25% of the average
daily net assets of the shares owned by investors for which the shareholder
servicing agent maintains a servicing relationship.
Any material amendment to the Plan must be approved by the Board, including a
majority of the Disinterested Trustees. The Plan may be terminated without
penalty at any time: (1) by vote of a majority of the Board, including a
majority of the Trustees who are not parties to the Plan or interested persons
of any such party; or (2) by FAdS.
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.
For its services, the Custodian receives an annualized percentage of the average
daily net assets of the Fund. The Fund also pays an annual domestic custody fee
as well as certain other transaction fees. These fees are accrued daily by the
Fund and are paid monthly based on average net assets and transactions for the
previous month.
LEGAL COUNSEL
Seward & Kissel, LLP, 1200 G Street, N.W., Washington, D.C. 20005, passes upon
legal matters in connection with the issuance of shares of the Trust.
INDEPENDENT AUDITORS
Deloitte & Touche, LLP, 200 Berkeley Street, Boston, Massachusetts 02116,
independent auditors have been selected as auditors for the Fund. The auditors
audit the annual financial statements of the Fund and provide the Fund with an
audit opinion. The auditors also review certain regulatory filings of the Fund
and the Fund' tax returns.
PORTFOLIO TRANSACTIONS
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 if: (1) the
security is traded on an exchange, through brokers who charge commissions; and
(2) the security is traded in the "over-the-counter" markets, in a principal
transaction directly from a market maker. In
21
<PAGE>
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.
The price of securities from underwriters of the securities includes a disclosed
fixed commission or concession paid by the issuer to the underwriter, and prices
of securities purchased from dealers serving as market makers reflects 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.
COMMISSIONS PAID
Table 5 in Appendix B shows the aggregate brokerage commissions paid by the Fund
as well as aggregate commissions paid to an affiliate of the Fund or the
Adviser. The data presented are for the past three fiscal years (or shorter
period depending on the Fund's commencement of operations).
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.
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
consider: (1) sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund; and (2) 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).
OBTAINING RESEARCH FROM BROKERS
The Adviser may give consideration to research services furnished by brokers to
the Adviser for its use and may cause the Fund to pay these brokers a higher
amount of commission than may be charged by other brokers. This research is
designed to augment the Adviser's own internal research and investment strategy
capabilities. This research may be used by the Adviser in connection with
services to clients other than the Fund, and not all research services may be
used by the Adviser in connection with the Fund. The Adviser's fees are not
reduced by reason of the Adviser's receipt of research services.
The Adviser has full brokerage discretion. It evaluates the range and quality of
a broker's services in placing trades including securing best price,
confidentiality, clearance and settlement capabilities, promptness of execution
and the financial stability of the broker-dealer. Under certain circumstances,
the value of research provided by a broker-dealer may be a factor in the
selection of a broker. This research would include reports that are common
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in the industry. Typically, the research will be used to service all of the
Adviser's accounts although a particular client may not benefit from all the
research received on each occasion. The nature of the services obtained for
clients include industry research reports and periodicals, quotation systems,
software for portfolio management and formal databases.
Occasionally, the Adviser utilizes a broker and pays a slightly higher
commission than another might charge. The higher commission is paid because of
the Adviser's need for specific research, for specific expertise a firm may have
in a particular type of transaction (due to factors such as size or difficulty),
or for speed/efficiency in execution. Since most of the Adviser's brokerage
commissions for research are for economic research on specific companies or
industries, and since the Adviser follows a limited number of securities, most
of the commission dollars spent for industry and stock research directly benefit
the Advisor's clients and the Fund's investors.
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.
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.
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.
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.
Likewise, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more clients are selling the security. In some instances, one client may sell
a particular security to another client. In addition, two or more clients may
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as is possible, averaged as to price
and allocated between such clients in a manner which, in the Adviser's opinion,
is equitable to each and in accordance with the amount being purchased or sold
by each. There may be circumstances when purchases or sales of a portfolio
security for one client could have an adverse effect on another client that has
a position in that security. In addition, when purchases or sales of the same
security for the Fund and other client accounts managed by the Adviser occurs
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantages available to large denomination purchases or sales.
PORTFOLIO TURNOVER
The frequency of portfolio transactions of the Fund (the portfolio turnover
rate) will vary from year to year depending on many factors. From time to time,
the Fund may engage in active short-term trading to take advantage of price
movements affecting individual issues, groups of issues or markets. An annual
portfolio turnover rate of 100% would occur if all the securities in the Fund
were replaced once in a period of one year. The Adviser anticipates that the
annual turnover in the Fund will not be in excess of 50%. High portfolio
turnover rates may result in increased brokerage costs to the Fund and a
possible increase in short-term capital gains or losses.
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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.
Table 6 in Appendix B lists the regular broker and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securiteis as of the Fund's most recent fiscal year.
PURCHASE AND REDEMPTION INFORMATION
GENERAL INFORMATION
You may effect purchases or redemptions or request any shareholder privilege in
person at FSS's offices located at Two Portland Square, Portland, Maine 04101.
The Fund accepts orders for the purchase or redemption of shares on any weekday
except days when the New York Stock Exchange is closed.
Not all classes or funds of the Trust may be available for sale in the state in
which you reside. Please check with your investment professional to determine a
class or fund's availability.
ADDITIONAL PURCHASE INFORMATION
Shares of the Fund are sold on a continuous basis by the distributor at 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 that is readily ascertainable (and not
established only by valuation procedures).
IRAS
All contributions into an IRA through the automatic investing service are
treated as IRA contributions made during the year the investment is received.
UGMAS/UTMAS
If the custodian's name is not in the account registration of a gift or transfer
to minor ("UGMA/UTMA") account, the custodian must provide instructions in a
manner indicating custodial capacity.
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.
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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.
ADDITIONAL REDEMPTION INFORMATION
The Fund may redeem shares involuntarily to: (1) reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased; or (2) 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.
SUSPENSION OF RIGHT OF REDEMPTION
The right of redemption may not be suspended, except for any period during
which: (1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that trading thereon is
restricted; (2) an emergency (as determined by the SEC) exists as a result of
which disposal by the Fund of its securities is not reasonably practicable or as
a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) the SEC may by order permit for
the protection of the shareholders of the Fund.
REDEMPTION IN-KIND
Redemption proceeds normally are paid in cash. If deemed appropriate and
advisabel by the Adviser, a Fund may satisfy a redemption request from a
shareholder by distributing portfolio securities pursuant to procedures adopted
by the Board. The Trust has filed an election with the SEC pursuant to which 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.
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 provided by independent pricing services. If no sales price is
reported, the mean 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).
DISTRIBUTIONS
Distributions of net investment income will be reinvested at the Fund's NAV
(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 (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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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). The
information presented here is only a summary of certain key federal income tax
considerations affecting the Fund and its shareholders and is in addition to the
information provided in the Prospectus. No attempt has been made to present a
complete explanation of the federal tax treatment of the Fund or the
implications to shareholders. The discussions here and in the Prospectus are not
intended as substitutes for careful tax planning.
This "Taxation" section is based on the Code and applicable regulations in
effect on the date hereof. Future legislative or administrative changes or court
decisions may significantly change the tax rules applicable to the Fund and
their shareholders. Any of these changes or court decisions may have a
retroactive effect.
All investors should consult their own tax advisor as to the federal, state,
local and foreign tax provisions applicable to them.
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 May 31 (the same as the Fund's fiscal year end).
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 each quarter of the Fund's tax year: (1) at least 50% of the
value of the Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in
securities of an issuer and as to which the Fund does not hold more
than 10% of the outstanding voting securities of the issuer); and (2)
no more than 25% of the value of the Fund's total assets may be
invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
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FAILURE TO QUALIFY
If for any tax year the Fund does not qualify as a regulated investment company,
all of its taxable income (including its net capital gain) will be subject to
tax at regular corporate rates without any deduction for dividends paid to
shareholders, and the dividends will be taxable to the shareholders as ordinary
income to the extent of the Fund's current and accumulated earnings and profits.
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.
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 distributions
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 NAV 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.
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 even 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.
CERTAIN TAX RULES APPLICABLE TO THE FUND'S TRANSACTIONS
For federal income tax purposes, when put and call options purchased by the Fund
expire unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on the length of
the respective exercise periods for the options). When put and call options
written by the Fund expire unexercised, the premiums received by the Fund give
rise to short-term capital gains at the time of expiration. When the Fund
exercises a call, the purchase price of the underlying security is increased by
the amount of the premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the underlying security are decreased by the premium
paid. When a put or call written by the Fund is exercised, the purchase price
(selling)
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price in the case of a call) of the underlying security is decreased (increased
in the case of a call) for tax purposes by the premium received.
Certain listed options, regulated futures contracts and forward currency
contracts are considered "Section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Fund at the end of each tax year
are "marked to market" and treated for federal income tax purposes as though
sold for fair market value on the last business day of the tax year. Gains or
losses realized by the Fund on Section 1256 contracts generally 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 or losses with respect to straddle
positions by requiring, among other things, that: (1) the loss realized on
disposition of one position of a straddle may not be recognized to the extent
that the Fund has unrealized gains with respect to the other position in such
straddle; (2) the Fund's holding period in straddle positions be suspended while
the straddle exists (possibly resulting in gain being treated as short-term
capital gain rather than long-term capital gain); (3) the losses recognized with
respect to certain straddle positions which are part of a mixed straddle and
which are non-Section 1256 positions be treated as 60% long-term and 40%
short-term capital loss; (4) losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital losses be treated
as long-term capital losses; and (5) the deduction of interest and carrying
charges attributable to certain straddle positions may be deferred. Various
elections are available to 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.
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.
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
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or loss if the shares were held for longer than one year. Any capital loss
arising from the sale or redemption of shares held for six months or less,
however, is treated as a long-term capital loss to the extent of the amount of
distributions of net capital gain received on such shares. In determining the
holding period of such shares for this purpose, any period during which your
risk of loss is offset by means of options, short sales or similar transactions
are 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.
BACKUP WITHHOLDING
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.
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
(including 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.
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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FOREIGN INCOME TAX
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to a
reduced rate of such taxes or exemption from taxes on such income. It is
impossible to know the effective rate of foreign tax in advance since the amount
of the Fund's assets to be invested within various countries cannot be
determined. If more than 50% of the value of the Fund's total assets at the
close of its taxable year consists of stocks or securities of foreign
corporations, the Fund will be eligible and intends to file an election with the
Internal Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no assurance that the Fund
will be able to do so. Pursuant to this election, a shareholder will be required
to (i) include in gross income (in addition to taxable dividends actually
received) his pro rata share of foreign taxes paid by the Fund, (ii) treat his
pro rata share of such foreign taxes as having been paid by him, and (iii)
either deduct such pro rata share of foreing taxes in computing his taxable
income or treat such foreign taxes as a credit against U.S. federal income
taxes. Shareholders may be subject to rules which limit or reduce their ability
to fully deduct, or claim a credit for, their pro rata share of the foreign
taxes paid by the Fund.
OTHER MATTERS
THE TRUST AND ITS SHAREHOLDERS
GENERAL INFORMATION
Forum Funds was organized as a business trust under the laws of the State of
Delaware on August 29, 1995. On January 5, 1996 the Trust succeeded to the
assets and liabilities of Forum Funds, Inc.
The Trust is registered as an open-end, management investment company under the
1940 Act. The Trust offers shares of beneficial interest in its series. As of
the date hereof, the Trust consisted of the following shares of beneficial
interest:
Austin Global Equity Fund Investors Equity Fund
BrownIA Growth Equity Fund Investors Growth Fund
BrownIA Small-Cap Growth Fund Investors High Grade Bond Fund
Daily Assets Cash Fund(1) Maine TaxSaver Bond Fund
Daily Assets Government Fund(1) Mastrapasqua Growth
Daily Assets Government Obligations Fund(1) New Hampshire TaxSaver Bond Fund
Daily Asset Municipal Fund(1) Payson Balanced Fund
Daily Assets Treasury Obligations Fund(1) Payson Value Fund
Equity Index Fund Polaris Global Value Fund
Investors Bond Fund TaxSaver Bond Fund
The Advocacy Fund
(1) The Trust offers shares of beneficial interest in an institutional
institutional service, and investor share class of these series.
The Trust has an unlimited number of authorized shares of beneficial interest.
The Board may, without shareholder approval, divide the authorized shares into
an unlimited number of separate series and may divide series into classes of
shares; the costs of doing so will be borne by the Trust.
The Trust, the Fund's investment adviser and the principal underwriter have
adopted codes of ethics under Rule 17j-1, as amended, of the 1940 Act. These
codes permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund.
The Trust and the Fund will continue indefinitely until terminated.
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SERIES AND CLASSES OF THE TRUST
Each series or class of the Trust may have a different expense ratio and its
expenses will affect each class' performance. For more information on any other
class of shares of the Fund, you may contact FSS.
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 series or class (and certain other expenses
such as transfer agency, shareholder service and administration expenses) are
borne solely by those shares and each series or class votes separately with
respect to the provisions of any Rule 12b-1 plan which pertains to the series or
class and other matters for which separate series or class voting is appropriate
under applicable law. Generally, shares will be voted separately by individual
series except if: (1) the 1940 Act requires shares to be voted in the aggregate
and not by individual series; and (2) when the Trustees determine that the
matter affects more than one series and all affected series must vote. The
Trustees may also determine that a matter only affects certain series or classes
of the Trust and thus only those such series or 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) 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.
CERTAIN REORGANIZATION TRANSACTIONS
The Trust or any series may be terminated upon the sale of its assets to, or
merger with, another open-end, management investment company or series thereof,
or upon liquidation and distribution of its assets. Generally, such terminations
must be approved by the vote of the holders of a majority of the outstanding
shares of the Trust or the Fund. The Trustees may, without prior shareholder
approval, change the form of organization of the Trust by merger, consolidation
or incorporation. Under the Trust Instrument, the Trustees may, without
shareholder vote, cause the Trust or certain series to merge or consolidate into
one or more trusts, partnerships or corporations, or cause the Trust to be
incorporated under Delaware law, so long as the surviving entity is an open-end,
management investment company that will succeed to or assume the Trust's
registration statement.
FUND OWNERSHIP
As of September 1, 2000, the percentage of shares owned by all officers and
trustees of the Trust as a group was as follows. To the extent officers and
trustees own less than 1% of the shares of each class of shares of the Fund (or
of the Trust), the table reflects "N/A" for not applicable.
----------------------------------------------------- ----------------------
PERCENTAGE OF SHARES
FUND (OR TRUST) OWNED
----------------------------------------------------- ----------------------
The Trust N/A
----------------------------------------------------- ----------------------
Polaris Global Value Fund N/A
----------------------------------------------------- ----------------------
31
<PAGE>
Also as of that date, certain shareholders of record owned 5% or more of a class
of shares of the Fund. Shareholders known by the Fund to own beneficially 5% or
more of a class of shares of the Fund are listed in Table 7 in Appendix B.
From time to time, certain shareholders may own a large percentage of the shares
of the Fund. Accordingly, those shareholders may be able to greatly affect (if
not determine) the outcome of a shareholder vote. As of September 1, 2000, no
persons owned 25% or more of the shares of the Fund (or of the Trust) and may be
deemed to control the Fund (or the Trust). For each person listed that is a
company, the jurisdiction under the laws of which the company is organized (if
applicable) and the company's parents are listed.
LIMITATIONS ON SHAREHOLDERS' AND TRUSTEES' LIABILITY
Delaware law provides that Fund shareholders are entitled to the same
limitations of personal liability extended to stockholders of private
corporations for profit. In the past, the Trust believes that the securities
regulators of some states, however, have indicated that they and the courts in
their states may decline to apply Delaware law on this point. The 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 Fund is unable to meet its obligations. FAdS
believes that, in view of the above, there is no risk of personal liability to
shareholders.
The Trust's 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.
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.
FINANCIAL STATEMENTS
The financial statements of Polaris Global Value Fund for the year ended May 31,
1999, which are included in the Fund's Annual Report to shareholders, are
incorporated herein by reference. These financial statements include the
schedules of investments, statements of assets and liabilities, statements of
operations, statement of changes in net assets, financial highlights, notes and
independent auditors' reports.
32
<PAGE>
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS
DESCRIPTION OF SECURITIES RATINGS
CORPORATE BONDS (INCLUDING CONVERTIBLE BONDS)
MOODY'S INVESTORS SERVICE
AAA Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
BA Bonds, which are rated Ba, are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Ca Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
A-1
<PAGE>
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.
A-2
<PAGE>
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.
DUFF & PHELPS CREDIT RATING CO.
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+
AA High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A+
A,A- Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+
BBB
BBB- Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB+
BB
BB- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according
to industry conditions. Overall quality may move up or down frequently
within this category.
B+
B, B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
FITCH IBCA, INC.
INVESTMENT GRADE
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
A-3
<PAGE>
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%.
PREFERRED STOCK
MOODY'S INVESTORS SERVICE
AAA An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
AA An issue which is rated "aa" is considered a high- grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
A An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
A-4
<PAGE>
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.
STANDARD & POOR'S CORPORATION
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.
A-5
<PAGE>
C A preferred stock rated C is a nonpaying issue.
D A preferred stock rated D is a nonpaying issue with the issuer in
default on debt instruments.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
NOTE Plus (+) or minus (-). To provide more detailed indications of
preferred stock quality, ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
SHORT TERM RATINGS
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.
A-6
<PAGE>
STANDARD AND POOR'S
A-1 A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitment on these
obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than obligations in higher rating categories. However, the obligor's
capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D A short-term obligation rated D is in payment default. The D rating
category is used when payments on an obligation are not made on the
date due even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
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.
A-7
<PAGE>
APPENDIX B - MISCELLANEOUS TABLES
TABLE 1 - INVESTMENT ADVISORY FEES
The following table shows the dollar amount of fees payable to the Adviser with
respect to the Fund, the amount of fee that was waived by the Adviser, if any,
and the actual fee received by the Adviser.
<TABLE>
<S> <C> <C> <C>
ADVISORY FEE PAYABLE ADVISORY FEE WAIVED ADVISORY FEE RETAINED
Year Ended May 31, 2000 $203,601 $75,023 $128,578
Year Ended May 31, 1999 199,686 62,378 137,308
TABLE 2 - ADMINISTRATION FEES
The following table shows the dollar amount of fees payable to FAdS with respect
to the Fund, the amount of fee that was waived by FAdS, if any, and the actual
fee received by FAdS.
ADMINISTRATION FEE ADMINISTRATION FEE WAIVED ADMINISTRATION FEE
PAYABLE RETAINED
Year Ended May 31, 2000 $40,000 $0 $40,000
Year Ended May 31, 1999 40,000 0 40,000
TABLE 3 - ACCOUNTING FEES
The following table shows the dollar amount of fees payable to FAcS with respect
to the Fund, the amount of fee that was waived by FAcS, if any, and the actual
fee received by FAcS.
ACCOUNTING FEE PAYABLE ACCOUNTING FEE WAIVED ACCOUNTING FEE
RETAINED
Year Ended May 31, 2000 $45,200 $0 $45,200
Year Ended May 31, 1999 39,000 0 39,000
TABLE 4 - TRANSFER AGENCY FEES
The following table shows the dollar amount of fees payable to FSS with respect
to the Fund, the amount of fee that was waived by FSS, if any, and the actual
fee received by FSS.
TRANSFER AGENCY FEE TRANSFER AGENCY FEE TRANSFER AGENCY FEE
PAYABLE WAIVED RETAINED
Year Ended May 31, 2000 $28,658 $0 $28,658
Year Ended May 31, 1999 28,356 0 28,356
B-1
<PAGE>
TABLE 5 - COMMISSIONS
The following table shows the aggregate brokerage commissions of the Fund.
The data are for the past three fiscal years (or shown period if a Fund has been
in corporation for a shorter period).
TOTAL BROKERAGE % OF BROKERAGE % OF TRANSACTIONS
COMMISSIONS ($) PAID TO COMMISSIONS PAID TO EXECUTED BY AN
TOTAL BROKERAGE AN AFFILIATE OF THE AN AFFILIATE OF THE AFFILIATE OF THE
COMMISSIONS ($) FUND OR ADVISER FUND OR ADVISER FUND OR ADVISER
Year Ended May 31, 2000 $36,920 $0 0% 0%
Year Ended May 31, 1999 53,949 $0 0% 0%
</TABLE>
TABLE 6 - SECURITIES OF REGULAR BROKERS OR DEALERS
The following table lists the regular brokers and dealers of the Fund whose
securities (or the securities of the parent company) were acquired during the
past fiscal year and the aggregate value of the Fund's holdings of those
securities as of the Fund's most recent fiscal year.
REGULAR BROKER DEALER VALUE HELD
N/A
TABLE 7 - 5% SHAREHOLDERS
The following table lists: (1) the persons who owned of record 5% or more of the
outstanding shares of a class of shares of the Fund; and (2) any person known by
the Fund to own beneficially 5% or more of a class of shares of the Fund, as of
July 1, 2000.
<TABLE>
<S> <C> <C> <C>
NAME AND ADDRESS SHARES % OF FUND
Christopher K. McLeod 339,961.363 15.39
119 Chatman Road
Stamford, CT 06903
DCGT TR 140,958.654 6.38
FBO Audrey Lewis - Reg IRA
10 Rogers Street
Cambridge, MA 02142
</TABLE>
B-2
<PAGE>
APPENDIX C - PERFORMANCE DATA
TABLE 1 - TOTAL RETURNS
The average annual total return of the Fund for the period ended May 31, 2000,
was as follows.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CALENDAR
ONE MONTH THREE MONTHS YEAR TO DATE ONE YEAR THREE FIVE YEARS SINCE INCEPTION
YEARS (ANNUALIZED)
(0.60)% 2.96% (6.39)% 4.37% 4.75% 14.18% 10.61%
</TABLE>
C-1